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Cost-Benefit Analysis of EPA Regulations and Clean Air

August 02, 2017
One of the main benchmark tests that has been used for the past several decades in determining the success and efficiency of government regulations, in particular EPA regulations, is cost-benefit analysis.

When it was first implemented as a part of standard procedure under Reagan in his 1981 executive order, it was not welcomed by many in Washington. This executive order directed regulatory agencies to fulfill cost-benefit analysis with any existing and future policies. [1] Since the initial rebuke from critics, cost-benefit analysis has become a commonplace practice in government for determining the validity of regulations.

Image: This chart shows the health benefits of the Clean Air Act programs that reduce levels of fine particles and ozone. Source: EPA.Image: This chart shows the health benefits of the Clean Air Act programs that reduce levels of fine particles and ozone. Source: EPA.

A recent regulation that had been proposed by the EPA in 2015 “lowered the level of ozone allowed in a particular area from 75 parts per billion to 70 parts per billion.” [2] This regulation has since been delayed in its enactment for a period of one year in order for states to develop air quality plans and investigate which areas are currently not compliant with the 75 ppb standard. [2] Prior to this delay, however, the EPA conducted cost-benefit analysis of this policy in order to ascertain the potential value of the regulation. According to the EPA’s website, “public health benefits of the updated standards are significant – estimated at $2.9 to 5.9 billion annually in 2025 and outweighing estimated costs of $1.4 billion.” [3] Among the criteria counted in the benefits, the major ones include lesser premature deaths, asthma attacks in children, and health related missed work days, while the costs include research and implementing cleaner manufacturing technology. [3]

The aforementioned Obama-era smog rules were put on hold temporarily by EPA Administrator Pruitt. They were rules which were an important step by the Obama administration to strengthen environmental regulation; a priority for a White House whose chief executive said, “No challenge poses a greater threat to future generations than climate change.” [4] However, one of the most important pieces of environmental legislation that this country has, the Clean Air Act of 1970, is also a controversial piece of legislation as it pertains to cost-benefit analysis. The Clean Air Act of 1970 shifted the role of the government as it pertained to controlling air pollution and it dramatically increased the government’s enforcement powers. [5] This act was actually adopted around the same time as the creation of the Environmental Protection Agency, and the newly created administration was tasked with implementing the regulations imposed by the new legislation. [5]

Image: Benefits and Costs of the Clean Air Act 1990-2020, the Second Prospective Study. Source: EPA.Image: Benefits and Costs of the Clean Air Act 1990-2020, the Second Prospective Study. Source: EPA.

Since the original passage of the bill (and like many other pieces of landmark legislation), there have been amendments added since which strengthen the original text and add new regulations. [5] The Clean Air Act Amendments of 1990 were important because they “[require] EPA conduct scientifically reviewed studies of the impact of the Clean Air Act on the public health, economy and environment of the United States.” [6] Since the passage of the amendments in 1990, the EPA has released three cost-benefit analysis studies that look at the various time periods under which the Clean Air Act has been active, and they look at its effect as compared to a hypothetical United States without the Clean Air Act. [6]

In March of 2011, the EPA issued a cost-benefit analysis entitled, “Benefits and Costs of the Clean Air Act, 1990 to 2020: Second prospective study.” [6] In a very succinct matter, the factsheet on the 2011 study lays out the numbers. [7] By the year 2020, the Amendments to the Clean Air Act passed in 1990 will have prevented 230,000 early deaths, and saved the country around 2 trillion dollars. [7] This is compared to the costs of the amendments, which the EPA calculated to be approximately 65 billion dollars. [7] The study does not just stop at the monetary benefits and costs, but it also even dives into the number of prevented emergency room visits, and lost work and school days. [7] With all of this information, the EPA makes it very clear the countless benefits to the United States that the Clean Air Act Amendments are having and will have in the future.

Despite the cost-benefit analysis clearly delineating the benefits to the United States and the economy, there is still a substantial amount of the population who would like to roll back the Clean Air Act and similar regulations. Over 100 Republican Congressmen have co-sponsored legislation in the new Congress that, according to Dana Nuccitelli of The Guardian, would “kill the EPA regulation of carbon pollution.” [8] The bill, titled “Stopping EPA Overreach Act of 2017,” would also make it so the EPA could not issue regulations that would at all harm employment unless the regulation was passed by Congress, and signed by the President. [8]

Even though the chance of the bill passing is small, it goes to show that regardless of cost-benefit analysis when it comes to economic costs, some portion of the population will only care about certain costs and certain benefits. While there are undoubtedly empirical ways to doubt the findings of the EPA in their cost-benefit analysis (the Heritage Foundation made arguments attempting to point out the flaws with the study), the House Republicans and many others choose to value employment in the short term over all else. [9] So when it comes down to it as it often does, the empirical analysis of a policy takes a backseat to politics, and politicians will use a cost-benefit analysis when it fits their narrative and ignore it when it doesn’t.

Student Blog Disclaimer
  • The views expressed on the Student Blog are the author’s opinions and don’t necessarily represent the Penn Wharton Public Policy Initiative’s strategies, recommendations, or opinions.


References

  [1] Eric A. Posner, “Controlling Agencies with Cost-Benefit Analysis: A Positive Political Theory Perspective,” University of Chicago Law Review, v. 68, 2001.
https://www.hks.harvard.edu/m-rcbg/Events/Papers/RPP_2-14-02_Posner1.pdf

  [2] John Siciliano, “EPA’s Pruitt delays Obama-era smog rules for a year,” Washington Examiner, June 6, 2017.
http://www.washingtonexaminer.com/epas-pruitt-delays-obama-era-smog-rules-for-a-year/article/2625154

  [3] “OVERVIEW OF EPA’S UPDATES TO THE AIR QUALITY STANDARDS FOR GROUND-LEVEL OZONE,” October 1, 2015.
https://www.epa.gov/sites/production/files/2015-10/documents/overview_of_2015_rule.pdf

  [4] Park, Madison. “Obama: No greater threat to future than climate change.” CNN. January 21, 2015. http://www.cnn.com/2015/01/21/us/climate-change-us-obama/index.html.

  [5] “Evolution of the Clean Air Act.” EPA. January 03, 2017. https://www.epa.gov/clean-air-act-overview/evolution-clean-air-act.

  [6] “Benefits and Costs of the Clean Air Act.” EPA. January 04, 2017. https://www.epa.gov/clean-air-act-overview/benefits-and-costs-clean-air-act.

  [7] “Benefits and Costs of the Clean Air Act Amendments of 1990: Fact sheet.” EPA. 2011. https://www.epa.gov/sites/production/files/2015-07/documents/factsheet.pdf.

  [8] Nuccitelli, Dana. “Repeal without replace: a dangerous GOP strategy on Obamacare and climate.” The Guardian. February 06, 2017. https://www.theguardian.com/environment/climate-consensus-97-per-cent/2017/feb/06/repeal-without-replace-a-dangerous-gop-strategy-on-obamacare-and-climate.

  [9] Katz, Diane. “Coming Clean on Regulatory Costs and Benefits.” The Heritage Foundation. March 3, 2011. http://www.heritage.org/government-regulation/report/coming-clean-regulatory-costs-and-benefits.

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