The Clean Air Act's Investment Returns Rival Warren Buffett's
Posted February 11, 2010
What if I were to tell you that we are all shareholders in an investment vehicle that has produced better returns than Warren Buffett's Berkshire Hathaway over the past forty years. Strange as it seems it's true. Stranger yet, that investment vehicle is called the Clean Air Act.
According to the EPA study of the cost and benefits of the Clean Air Act, compliance costs totaled $500 billion from 1970 to 1990. While these investments in cleaner air, water and reduced death are indeed significant, they pale in comparison to the $22.1 trillion in benefits gained by its shareholders, the American people, over this time frame from lower mortality, fewer cases of chronic illness, and less frequent trips to the hospital (see table below):
During this period, emissions of sulfur dioxide (SOx), nitrogen oxide (NOx), volatile organic compounds (VOCs), and carbon monoxide (CO) were reduced by 30-50% while primary particulates fell 75% and lead (Lb) emissions fell 99%. These reductions were achieved while the population grew 23% and the economy grew 70% and clearly demonstrate how good environmental policy can produce exceptional economic results.
In fact, the returns on these investments in our health and welfare are so dramatic that they rival the performance of Warren Buffett's Berkshire Hathaway during its heyday. On an annualized basis, the Clean Air Act returned only 1% less than Mr. Buffett during the period from 1970 to 1990 (21% vs 22% on an inflation adjusted annualized basis).
Furthermore, the EPA's cost-benefit estimates for the 1990 Clean Air Act Amendments, which focused on reducing acid rain, ozone destruction, and other hazardous air pollutants are forecast to be equally successful as investments for us, the shareholders in America's future. In constant 1990 dollars, these additional programs are estimated to cost $210 billion from 1990 through 2010 and yield $1,200 billion in benefits.
This six-fold return on investment, combined with the returns from the program during the period from 1970-1990 put the Clean Air Act ahead of Warren Buffett's Berkshire Hathaway on an annualized basis during this forty year period. In fact, using the EPA's estimates, investments made to comply with the Clear Air Act actually outperformed Mr. Buffett by nearly 20% on a total return basis during this time frame (see graph below):
And while this comparison is far from exact given the difficulties in valuing death, sickness, and quality of life, it seems fair to say that these shareholder returns, which total nearly $37 trillion in current dollars, put the Clean Air Act in very good company indeed.