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Laurie Johnson’s Blog

Still can't get NERA to the truth: industry's disingenuous attack on EPA's jobs analyses

Laurie Johnson

Posted March 6, 2013

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Funded by the industry trade association US Chamber of Commerce (not to be confused with the US Department of Commerce), a recent report by National Economic Research Associates (NERA) attempts to discredit the Environmental Protection Agency’s (EPA) analyses of employment effects of clean air regulations. It stops just shy of saying EPA’s employment analysis is fraudulent.

As with all these past analyses, the key points that NERA makes in this new report are not just debatable, they are wrong. These points are:  

1. "EPA’s model, which extrapolates results from the effect of past regulations on four industries, will vastly understate negative employment effects of air pollution regulations on power plants because such regulations will a) cause economy-wide energy price increases that will b) hurt industries across the entire economy."

Wrong: This sounds plausible but, as has been heavily documented (click here and here), in our 40+ years of experience with environmental regulations, no evidence can be found in the economics literature for either a) or b) (click here and here for why). In fact, general trends contradict industry claims: electricity prices significantly fell over the decade following the 1990 Clean Air Act Amendments (see 3rd paragraph under point 2 in this blog), and industries expected to be impacted the most by air regulations fared better than others (see point 3 in this blog).

2. "In contrast, NERA’s economy-wide model provides a comprehensive representation of an environmental regulation’s effects on employment and the economy."

Wrong: This is patently false. NERA has a toy model that projects hypothetical electricity price increases, implausible wage income losses to workers (cleverly disguised as “job equivalent” losses), and a world in which protecting public health and the environment doesn’t also protect workers and their income. The model doesn’t quantify one benefit that clean air standards give us—many of which protect jobs and income (not to mention millions of lives and illnesses). For example, cleaner air reduces medical bills, decreases the number of days when workers or their children are sick and consequently parents must stay home from work, and protects agriculture and many other outdoor industries. Numerous benefits cannot or have not been estimated; EPA makes a serious effort to do so while NERA completely ignores them (not surprisingly, NERA has also derided and attempted to discredit these estimates as well). Even with so many benefits un-quantified, EPA’s estimated benefits amount to $33 to $90 billion, in contrast to an estimated $10 billion in compliance costs. At the end of this blog, I’ve reproduced from EPA’s analysis tables summarizing the benefits it did (yellow highlights) and did not quantify—a sobering must see on both counts.

3. "NERA’s model shows that EPA’s mercury and air toxics standard will cause significant job losses."

Wrong: This easily rebutted by a careful look at NERA’s so-called “jobs loss” estimate. The figure is actually not an estimate of lost jobs—it is an estimate derived from the supposed losses in wage income NERA’s model projects. The calculation, called a “job equivalent,” is simple: divide total lost income by the average amount of income needed to support one job, and call the result lost jobs. Done! Interestingly, we only get the result of this calculation. Missing is the numerator and denominator. Based upon information provided in NERA’s report, the phantom income loss (the numerator) might be around $14 billion (calculation provided below the tables at the end of the blog)—so even if we believed it, it is not drastically far from EPA’s estimated compliance costs, and certainly eclipsed by the benefits.

4. "EPA’s job loss estimates are unrealistic and misleading, while NERA’s are realistic and truthful."

Wrong: This is also unsupportable. Let’s do a reality check comparing EPA’s actual job numbers with NERA’s phantom “job equivalents.” EPA projects a range of -15,000 to +30,000 jobs, with a best guess estimate of +8,000 jobs. NERA projects 180,000 to 215,000 “job equivalents.” Given that the empirical evidence overwhelmingly concludes that slightly more jobs are created from environmental protection** than lost (and pretending for a moment that NERA’s numbers are actually jobs), with the numbers in both directions miniscule and statistically insignificant (both points EPA is careful to make), whose model is likely to be more accurate?

NERA’s analysis is not surprising. Taking liberally from a previous blog of mine, the firm, and its author Anne Smith, have been in the business of anti-regulatory industry-funded studies for a long time. Over the years, the company has conducted numerous analyses at the behest of polluters (e.g. click here, here and here for studies conducted for the National Association of Manufacturers, the American Petroleum Institute, and the Electric Power Research Institute, respectively). In 2010, NERA also produced a state-by-state analysis (e.g. click here and here) against the proposed ozone standards (click here and here for critiques of a study that relied upon this analysis, by Professor Richard Howarth of Dartmouth College and myself, respectively). As former Vice President of Charles River Associates, Smith used to conduct similar analyses against environmental regulations (click here for CRA’s analysis of the Climate Security Act of 2007 supported by the American Petroleum Institute and Edison Electric Instiute, and here and here for their analysis (funded by the National Black Chamber of Commerce) of the American Clean Energy and Security Act of 2009 and my critique of it, respectively).

In sum…NERA’s critique of EPA’s analysis, and puffed feathers over its own, don’t hold any water. Just dirty air and dirty money.

**Should you look at the blog links under “Point 1” above, you will find documentation of millions of jobs in the environmental protection industry. Most of these jobs have been cumulatively produced over many years, and should be thought of as jobs that have been created instead of other types of jobs. That is, they are not replacing actual jobs. In contrast, employment impacts of the type estimated by EPA are actual jobs in existence that could be at risk if regulations increase the price of energy and other goods.

Health benefits headline 2.png 

 Missing health benefits 1.png

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Environmental benefits headline.png

Missing environmental benefits 1.png

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$14 billion calculation under “Point 3” derivation. NERA estimates 180,000 to 215,000 lost “job equivalents.” They note that a study used by EPA estimates the cost of supporting one job at approximately $35,000 in 1987 dollars. That’s roughly $70,000 in today’s dollars. The midpoint of NERA’s range is 198,000. So…$70,000 x 198,000 = $13.9 billion.

Update: This blog was updated to reorder the rebuttals to beneath each point. Their content was not changed, however.

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