September 1, 2012

ONLINE EXTRA: Costs vs. benefits of environmental regulation

Nowhere do pro- and anti-EPA opponents differ more radically than when it comes to tallying the costs of regulation.

When EPA issued rules on limiting airborne pollutants from power plants last December, the National Association of Manufacturers quickly alleged that the action would result in the loss of 1.4 million jobs. On the contrary, insisted the White House's Office of Information and Regulatory Affairs, the new regulations would create 1.4 million jobs. Both estimates were based on economic modeling, with the following data entered: electrical power and coal industry balance sheets, U.S. job market statistics, compliance costs, health benefits from new limits on pollution.

Clearly, findings can vary widely depending on the values attributed to a whole series of presuppositions. Emphasize the prospect of electrical companies shutting down because they're unable to comply, the loss in demand for the coal that fuels power stations, the costs of compliance (bookkeeping, supplies, man-hours), the lay-offs, and you'll get a gloomy picture. Focus on the “green energy” jobs needed to retrofit plants and to convert to renewable energy sources, as well as the expected health benefits from cleaner air and the concomitant increase in worker productivity, and the picture becomes a lot rosier.

Each side accuses the other of exaggerating for political gain. Much of the monetary benefit claimed by the federal government for reducing pollution from coal-powered plants comes from an actuarially dubious assumption, says Richard Trzupek, a coal industry consultant. The EPA model claims between 2,500 and 6,500 premature deaths avoided per year, using the “value of a statistical life” of about $9 million. “The agency applies this value to each premature death avoided, whether the theoretical death avoided involves extending an octogenarian's life by two weeks or a newborn's by 75 years,” Trzupek said in recent congressional testimony. That's just one example of serpentine federal reasoning, he says.

Federal officials, on the other hand, question the accuracy of dire estimates of lost profits and jobs. “For decades, industry has grossly overestimated job losses due to regulation,” says National Resources Defense Council spokesman Bob Deans. He cites data from the U.S. Bureau of Labor Statistics, which investigates the reasons for job lay-offs. Of the two dozen reasons given by employers for lay-offs, governmental regulation ranks near the bottom, accounting for less than half of a percent of all lost jobs.

Much of the confusion about the impact of federal regulation stems from mistaken assumptions and self-serving analyses, the Institute for Policy Integrity at New York University suggested in an April report.

Said the report's authors: “If analysts and advocates cannot reverse course, then the use of job impact analyses will remain a misleading distraction—nothing more than a red herring.”