EPA sets the record straight! The Clean Air Act is a net gain to the economy, the environment, and public health
Posted February 11, 2011
On February 1st, in response to several measures (click here, here, here, and here) being introduced in the U.S. House and Senate by opponents of one of America’s best environmental and public health safeguards, the Clean Air Act (CAA), Congressmen Henry Waxman (D-California) and Bobby Rush (D-Illinois) asked EPA Administrator Lisa Jackson to provide an assessment of the Act’s role in American job creation and economic growth.
The agency’s analysis couldn’t have been more hard-hitting: it didn’t just provide a few numbers or cite a few studies. It did a comprehensive fact-based review, drawing upon numerous peer reviewed articles in the economics literature and analyses conducted by well regarded institutions. Yes, fact-based arguments. Something opponents of clean air are unwilling (euphemistically speaking) to provide.
Let’s start with the end goal, protecting public health:
The record in unmistakable: the CAA has delivered in spades.
The Office of Management and Budget (a tough evaluator of EPA), examined ten CAA regulations finalized in 2008, 2009, and 2010, and concluded that all ten had benefits that exceeded costs, by a ratio of 7 to 1 on average.
In a comprehensive, meticulously documented, and heavily peer reviewed analysis, EPA estimated that, by 1990, implementation of the CAA:
- Prevented an estimated 18 million child respiratory illnesses per year
- Prevented 850,000 asthma attacks per year
- Prevented 674,000 cases of chronic bronchitis per year
- Prevented 205,000 premature deaths per year
The monetized value of saving Americans from these harms is projected to reach over $2 trillion in 2020 alone. From 1990 through 2020, the CAA’s benefits are estimated to deliver $12 trillion in net benefits. That’s equal to about 86% of today’s $14 trillion economy.
Equally important is what is not enumerated in EPA’s report to the Congressmen. Where possible, the analysis also estimated environmental benefits. Only a few such benefits could be monetized (forest and agricultural productivity, visibility, and recreation (e.g. fishing in restored lakes)), but even this small subset added up to almost $800 billion (Table 7.1). Non-monetized benefits include things like plants, biodiversity, wildlife, and ecosystems…minor things.
All this at what “cost” to the economy?
1) Job growth and increased economic output
2) Innovation and a more productive workforce
3) Minimal compliance costs
1) Job growth and increased economic output:
Because environmental protection is more labor-intensive than the rest of the economy, environmental regulation on average generates net increases in jobs. Some highlights:
- Looking at four of the most heavily regulated industries (pulp and paper, refining, iron and steel, and plastic) Morgenstern et al. (2002, Journal of Environmental Economics and Management) estimated a net increase in employment of 1.5 jobs per $1 million in environmental spending over alternative expenditures.
- Bezdek et al. (2008, Journal of Environmental Management) also found a net employment gain from environmental spending, noting that “environmental protection has grown rapidly to become a major sales-generating, job-creating industry--$300 billion/year and 5 million [direct and indirect] jobs in 2003.” These jobs are shared widely across many states, and often located in the same highly industrialized regions where unemployment is particularly high. Jobs created span a wide spectrum of wage earners: factory workers, engineers, computer analysts, accountants, clerks, ecologists, truck drivers, consultants, and many more.
- By 2008, the U.S. environmental technologies industry was supporting 1.7 million direct jobs (2010, Environmental Business Journal). Air pollution control equipment alone generated revenues of more than $18 billion in 2007 (U.S. Department of Commerce).
- Data from the International Brotherhood of Boilermakers indicates that the number of boilermakers in the U.S. increased by 6,700--or 35%--as a result of the CAA.
- The Institute for Clean Air Companies estimated that complying with just one standard created approximately 200,000 person-year jobs in the past seven years (about 29,000 full time jobs each year on average).
- These results are consistent with many studies on clean energy and climate legislation (click here, here, here, and here).
2) Innovation and a more productive workforce:
The environmental technology sector is very real, and growing. According to the heads of the European Environmental Agencies in 2005, the annual world market for environmental goods and services will surpass $700 billion by 2010, making it comparable to the aerospace and pharmaceutical industries. And thanks to our strong environmental laws, the U.S is well positioned in this market, exporting more to other countries than it imports, and generating more economic output overall:
According to the Department of Commerce:
“[T]he U.S. is regarded as a world leader in many environmental technology categories including: engineering, design, construction, consulting services;…stationary and mobile air pollution monitoring and control equipment;…and information systems/software for environmental management analysis.” Environmental technology exports have grown dramatically from less than $10 billion in 1990 to about $44 billion in 2008, and the U.S. share of foreign environmental technology markets has been increasing (Department of Commerce International Trade Administration). In 2008, the U.S. had a net trade surplus of $11 billion in environmental technologies, helping the U.S. balance of trade.
A series of studies led by Dale Jorgensen at Harvard University found that implementing the CAA actually increased the size of the economy (contrary to industry predictions):
Even after accounting for capital being diverted away from other uses, improved health and a more productive workforce increased net economic output. Reduced pollution led to fewer lost work, school, and restricted activity days, fewer fatalities, fewer hospital visits and other medical expenses, and avoided expenditures on education needed to address diminished IQ levels caused by neurotoxins. The research concluded that by 2010, GDP was approximately 1.5% higher than it would otherwise have been since 1970, and this excludes all of the environmental benefits (e.g. ecological preservation) not accounted for in GDP estimates.
3) Minimal compliance costs:
Another reason critics are wrong when they say environmental regulation will kill jobs and drive manufacturing overseas: their claims about exorbitant compliance costs never come true. Some highlights:
- The U.S. Census Bureau conducted an annual survey of the U.S. manufacturing sector and found that pollution abatement operating costs were on average only 0.4% of overall manufacturing costs, including not just air pollution controls but all other abatement costs.
- The share of total revenues allocated to pollution abatement by U.S. manufacturing has been small, ranging from 0.4% to 0.6% since 1980, despite a substantial increase in the number and scope of environmental regulations impacting this sector. For the most heavily regulated industries, the figure is typically between 1% and 1.5% since 1980 (U.S. Census).
- Abatement costs as a percent of GDP have been remarkably constant over time, always less than 0.3% (usually between 0.25% and 0.3% of GDP). These costs remained low despite huge gains in air quality over the same time period, suggesting that industry found ways to reduce costs even as regulations became more stringent (U.S. Census).
- CAA opponents said electricity prices would skyrocket if the 1990 CAA amendments were passed. Not so. Electricity prices actually declined in the decade following 1990 approximately 18%, leveling off to almost where they had started by 2008. Clearly environmental regulation did not have the disastrous impacts industry claimed it would.
- Even if electricity prices had increased, energy costs are only a small fraction of production costs, approximately 2% (U.S. Census Bureau).
- Peer reviewed articles in top economics journals find little evidence that environmental regulations have dampened U.S. competitiveness or led to outsourcing (Jaffe et al., Journal of Economic Literature (1995); Levinson, American Economic Review (2009); Taylor, The B.E. Journal of Economic Analysis & Policy (2005); Levinson, Review of Environmental Economics and Policy (2010)).
- Want to have some fun? Click here, here, and here to read about industry hyperbole.
Contrary to what clean air opponents want us to believe, strengthening and protecting the CAA is good for the economy. It creates jobs, increases the health and productivity of the workforce, increases the U.S. balance of trade, and helps preserve the environment.
Would we really want to have weak environmental standards? In China, 700,000 people die from pollution every year, you never see the sun, people walk around with masks, and those who can afford to move out. Is that what these CAA opponents in the House and Senate want for the US?
One last point: the argument that we can't do anything because we are in a recession is nothing more than a red herring and scare tactic. In fact, a good argument can be made for the opposite being true. In this stagnant economy, investors are holding on to record amounts of cash. Setting standards that phase in over time lets them know they will have a guaranteed end market in the future for environmental technology investments they make today.
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