Congressional Research Service: CIBO boiler study used flawed economics
Posted February 16, 2011
Several months ago, in response to toxic air pollution standards proposed by the Environmental Protection Agency (EPA) for industrial boilers, industry predictably released a ‘study’ projecting devastating economic impacts: massive losses in economic output and jobs. The study was conducted on behalf of the Council of Industrial Boiler Owners (CIBO). Last September, I wrote a blog critiquing it. NRDC also had a professor grade the study as if it were a term paper handed in by an undergraduate (two other industry studies attacking clean air emission standards were also graded by professors). The good doctor gave CIBO’s study a D for quality and an F for transparency.
Our critiques have now been echoed by the non-partisan and well-regarded Congressional Research Service (CRS), which released a study (NOTE*** original blog linked to an October 21st version; the version cited here is January 24th, which apparently is not available to the public without purchase) making the following points:
CIBO made three critical errors inconsistent with basic economic theory, leading CRS to conclude that “little credence can be placed in CIBO’s estimate of job losses.” The errors were:
1) CIBO mistakenly assumed that output would be reduced by an amount equal to the capital investment required for compliance. The proper analysis would have estimated how much of the cost firms would have been able to pass on to consumers by raising prices, and then consumer responses to that price change;
2) CIBO failed to estimate jobs created elsewhere in the economy, i.e. in the pollution control sector. Since that sector is more labor intensive than the rest of the economy, typically there is a small, but positive, net gain in jobs resulting from environmental regulation. Expenditures on pollution control are not simply a loss to the economy: they stimulate demand and provide jobs in the pollution control sector;
3) CIBO mistakenly treated one-time capital investment costs as recurring expenses. Instead, the up-front capital investment should have been annualized over the life a loan required to finance it.
In addition, CRS notes that CIBO greatly exaggerated compliance costs:
- CIBO’s cost estimates for pollution controls were far higher than EPA’s, resulting in a total capital cost more than twice EPA’s (CIBO’s estimate was $20.7 billion, EPA’s $9.5 billion).
- The largest capital cost, hydrogen chloride controls, was three times EPA’s estimate, resulting in a capital cost of approximately $9 billion versus EPA’s $3 billion.
- CIBO estimates for other control mechanisms were orders of magnitude higher than EPA’s: the cost of carbon monoxide controls was 200 times higher, and the cost of carbon injection 180 times higher.
CRS also notes that CIBO failed to estimate the benefits of the regulation, which include. According to EPA estimates, beginning in 2013, emission reductions would lead to an:
- annual avoidance of 1,900 to 4,800 premature deaths;
- annual avoidance 1,300 cases of chronic bronchitis;
- annual avoidance 3,000 nonfatal heart attacks;
- annual avoidance 3,200 hospital and emergency room visits;
- annual avoidance 3,000 cases of acute bronchitis;
- annual avoidance 250,000 days when people miss work;
- annual avoidance 33,000 cases of aggravated asthma, and;
- annual avoidance 1,500,000 acute respiratory symptoms
The value of these benefits are an estimated $17 billion to $41 billion in 2013 alone—outweighing the annualized costs by at least $14 billion.
Not only that, EPA was unable to monetize the following:
- health benefits attributable to reductions associated with ambient fine particles
- health benefits from reducing toxic emissions
- health benefits from reducing thousands of tons of hazardous air pollutants (HAPs) and millions of tons of carbon monoxide
- benefits from reducing SO2 emissions, including from reduced acidic deposition in aquatic and terrestrial ecosystems, mercury methylation, and visibility impairment
- benefits from restoring health to ecosystems
Finally, CRS notes identifies other flaws, enumerated by the National Association of Clean Air Agencies (NACAA), an association that represents state and local air pollution control agencies. According to NACAA:
- CIBO’s costs were “grossly in error,” due to overestimating the number of sources that would need to take action to meet the new standards. CIBO assumed that any source for which there were no emissions data would have to install controls. NACAA, using existing data sources, looked at coal-fired boilers and found that 87% of the 39 units for which there were emissions data available already met EPA’s standard for carbon monoxide. CIBO assumed that none of the remaining 146 (untested) units in the subcategory would meet the standards.
- NACAA found that the available data revealed a continuum of emissions performance, with a substantial numbers of units having emission levels within 10 to 40 percent of the proposed standards. For many of these units, minor changes, such as blending in small amounts of clean fuel, would suffice in lieu of major capital projects.
- NACAA cited pre-regulation cost estimates by industry sources that turned out to be substantially overestimated. “The NACAA report cites the Clean Air Act ‘s acid rain program, catalytic converters on automobiles, the removal of lead additives to gasoline, the replacement of ozone-depleting substances in air conditioners, and the impacts of the 1997 National Ambient Air Quality Standards for ozone and particulate matter as examples of major regulatory programs whose costs were overestimated.”
- CIBO also overstated costs by ignoring significant opportunities for sources to meet standards by shifting the mix of fuels combusted on site, a lower cost compliance strategy that both EPA and CIBO did not consider.
Reputable sources have documented numerous and egregious flaws contained within the CIBO study. Politicians and policy analysts relying upon this study cannot be taken seriously. Proponents of EPA’s proposed standard should correct obstructionists trying to use this study to argue that cleaner air standards will result in economic ruin.
***Note, link to CRS study updated February 16th to most recent version, January 24th, 2011.