Saving Money with Environmental Regulation
Joe Aldy (photo: Harvard Kennedy School)
Critics argue that EPA regulation is costly to business and the US economy. But a new report from OMB shows that the financial benefits of environmental regulation outweigh the costs ten-fold. Harvard Professor Joe Aldy talks with host Steve Curwood about benefits of EPA rules
CURWOOD: From the Jennifer and Ted Stanley Studios in Boston, This is Living on Earth. I’m Steve Curwood.
On May 9th, Gina McCarthy’s nomination to head the Environmental Protection Agency was stalled in the Senate’s Environment and Public Works Committee by a GOP boycott. And while Ms. McCarthy is likely to win full Senate confirmation eventually, the EPA itself is under attack from Republicans who say the agency imposes far too many costly regulations.
So the White House is fighting back. The latest annual review from the Office of Management and Budget shows that the benefits of EPA rules far exceed their costs. Joining us is economist Joe Aldy. He's a former Obama White House staffer who now teaches at the Kennedy School at Harvard. Welcome to Living On Earth.
ALDY: Thanks for having me, Steve.
CURWOOD: So, Joe, first off, what is the Office of Management and Budget?
ALDY: The Office of Management and Budget is responsible for coordinating the review of regulatory policy for the administration. So they are tasked, and they’ve been tasked dating back to the Reagan administration, to work with the regulatory agencies as they develop, propose and eventually finalize regulations, and especially the major regulations - the ones that have significant economic benefits and/or cost to the US economy.
CURWOOD: Now, what’s this report that OMB puts out?
ALDY: So in their role as the coordinator of regulatory policy they conduct this annual review that they submit to Congress. As they found in their assessment of the regulatory program across the government, EPA has a significant role in regulatory policy. They have the largest share of benefits and cost in terms of the federal regulatory program, and importantly, 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.
CURWOOD: Give me some of the numbers here, Joe.
ALDY: Right. So if we look back in 2012, the federal government had benefits from the regulatory program in the order of about $50 to $115 billion, and 60 to 80 percent of those benefits were from EPA regulations. And the vast majority those benefits are actually from reducing premature mortality from air pollution. The costs in the federal program last year where about $15 to $20 billion. EPA was about half of those costs. So they impose a cost on the economy but their delivering by about a factor of 10 additional benefits to the United States in terms of reducing air pollution and the associated mortality impacts from it.
CURWOOD: So, wait a sec. We’re talking about a half a trillion dollars worth of benefits from air pollution?
ALDY: If we’re looking at it over time, over the past 10 years, you're looking at something along the order of half a trillion dollars worth of benefits.
CURWOOD: Joe Aldy, why then is there so much criticism that the EPA is costing the economy?
ALDY: Well, they do impose real cost. There are costs from their actions. Those costs tend to be concentrated in specific industries. They then express concerns about costs they have to bear. The utility air toxics rule that EPA has promulgated will deliver real costs on the utility sector. 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 - or they’ll have to shut down. So there are real costs there.
I think that people who raise concerns about these costs, put so much more weight on those costs and very little weight on the fact that especially the elderly, children and those with bad respiratory and cardiovascular health will benefit from having longer healthier lives as a result of that regulation. So I really think it has to do at the end of the day with the concentration of the costs born by industry and how they express their concerns through the political process.
CURWOOD: So what you’re saying is that the costs, more often than not, show up on the corporate balance sheet; the benefits, more often than not, show up with individuals feeling better.
ALDY: It’s the difference between the balance sheet for a corporation, and the health of families around the country. I mean, that fundamentally is the difference between the benefits and the cost of many of the EPA’s regulations.
CURWOOD: So how does this report impact the debate over the EPA’s role?
ALDY: Well, I think it’s important to illustrate again, and we’ve seen this over the course of a number of these reports that have been issued in the past decade, that EPA’s been promulgating regulations that make us as a society better off, that deliver public health benefits - when we monetized these public health benefits - that are significantly greater than the cost we as a society bear to deliver those benefits. 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. And that’s what this OMB report has found again, and I hope it helps to inform the debate about what constitutes thoughtful, prudent, regulatory policy in this country.
CURWOOD: I want to also ask you about Gina McCarthy? She’s the new nominee to head the EPA. If confirmed, how do you think this debate over the financial costs and benefits of regulation are going to shape her ability to do her job?
ALDY: Well, I think the important thing is, in my experience, Gina McCarthy is very pragmatic. She draws from incredible experience working at the state level, but also at EPA. In fact, if you look at the economic benefits and cost of EPA regulations that were reviewed by OMB, the vast majority of them are regulations she ushered through the process in her position as head of the air office of EPA. So I think this will continue to play an important role for her as administrator, assuming she’s confirmed, and I think her track record over the past four years demonstrates how she works on regulations to make sure they deliver the biggest bang for the buck for the American people.
CURWOOD: Joe Aldy is Faculty Chair of the Regulatory Policy Program at the Kennedy School at Harvard. Thank you so much, Joe.
ALDY: Steve, thank you for having me.
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