The high price of EPA regulations

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The much-touted $2 trillion claim is based on survey data that asks individuals what they would be “willing to pay” (called “stated” WTP) for a small increase in life expectancy and the wage differential between occupations of different riskiness, such as a commercial fishermen compared to an office worker (“revealed” WTP). The academic surveys of WTP used by EPA have no link to overall economic activity and do not address how (or if) WTP affects the components of GDP (consumption, investment, government spending and net exports). “Willingness to Pay” responses by survey participants or the wage differential between occupations with different levels of risk do not create any new jobs, cause any investment or increase levels of spending in the U.S. economy.

Ironically, EPA’s own simulations with its macroeconomic model stand in stark contrast to its WTP claims.  Its modeling shows that the CAAA has significant negative impacts on U.S. GDP growth over the 2010-2020 period. GDP declines by $79 billion in 2010 and by $110 billion in 2020 relative to the baseline forecast.

By 2020, there is a tiny increase in GDP ($5 billion) under the labor force adjusted case. Note that EPA’s calculation of a $5 billion increase in GDP in 2020 when health benefits are included is only a tiny fraction (0.25 %) of the $2 trillion in claimed “economic benefits” from the CAAA.

Other EPA regulations both enacted and pending, should also be evaluated using accepted methods to quantify their costs and benefits. For example, the proposed National Ambient Air Quality Standards (NAAQS), the new standards for industrial and utility boilers and the revisions to the Clean Water Act will raise costs and increase uncertainty for the private sector, states and municipalities. New, tighter emission standards should not be imposed with out careful review of their costs relative to their benefits.

No one disputes the important need to implement reasonable pollution and environmental regulations to improve clean air quality. But given the continuing weakness of the U.S. economy, stubbornly high unemployment rate and sluggish investment spending, a careful examination of actual economic and health benefits from these regulations are greater than the costs.

Dr. Margo Thorning is senior vice president and chief economist of the American Council for Capital Formation, a nonprofit, nonpartisan organization promoting pro-capital formation policies and cost-effective regulatory policies. www.accf.org.