Federal report shows EPA regulations produce more economic benefits than costs

Living on Earth

Gina McCarthy’s nomination to head the Environmental Protection Agency was stalled late last week in the Senate's Environment and Public Works Committee, after a GOP boycott of a hearing.

But while McCarthy is expected to eventually win confirmation, the administration of President Barack Obama is fighting back. The latest annual review from the Office of Management and Budget shows the benefits of EPA rules far exceed their costs.

Joe Aldy, a former Obama White House staffer who now teaches at Harvard's Kennedy School, said the OMB review also revealed that the EPA has the largest share of both costs and benefits within the federal regulatory structure.

"They found that the estimated benefits are significantly larger than the estimated cost of the regulatory actions — both in the past year as well as over the past 10 years of the regulatory action," he said.

Specifically, he said, the federal government has between $50 and $115 billion in benefits from its regulations — with 60 to 80 percent coming from the EPA. The vast majority of benefits come in the form of reducing premature mortality, he explained.

On the cost side, the federal government spends about $15 to $20 billion, with roughly half attributable to the EPA.

"So they impose a cost on the economy but they're delivering, by about a factor of 10, additional benefits to the United States in terms of reducing air pollution and the associated mortality," Aldy explained.

To be sure, the EPA does impose costs on the economy. And those costs are typically concentrated in very specific industries, which can make life difficult for businesses in those fields.

"There are a lot of really old coal-fired power plants that have never done anything to the control emissions of mercury and other air pollutants. They all actually have to incur significant different cost to install scrubber technology to clean up the pollution," Aldy said.

And, those costs are easy to see on balance sheets and in SEC filings. It's much more theoretical to compute the value of better health or longer lives to people who are sensitive to pollution in the atmosphere. Big businesses also tend to have lobbyists participating in the political process — something the average asthma sufferer can't afford.

"It’s the difference between the balance sheet for a corporation, and the health of families around the country," Aldy said. "That fundamentally is the difference between the benefits and the cost of many of the EPA’s regulations."

McCarthy, he said, is pragmatic — and the driving force behind many of the EPA regulations the drive the most economic benefits to society. Her track record, he added, is that of a person who works to implement regulations that "deliver the biggest bang for the buck" for Americans.

Aldy says it's important to remember that the EPA, through its regulations, is making us a healthier society — something that gets lost in the discussion. 

"And that’s the whole point of government regulation. What I teach at the Kennedy school, the government should intervene in the economy and implement new regulations if they can identify a market failure — certainly pollution is a sign that the market is not working — and do so in a way that increases the net benefits to society," he said.

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