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Laurie Johnson’s Blog

Manufacturing and Allied Products Institute (MAPI): Junk analysis against protective ozone standards

Laurie Johnson

Posted September 21, 2010

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The Manufacturing and Allied Products Institute (MAPI) released a 'study' last week purportedly estimating compliance costs that would result from setting stricter standards on ozone pollutants and, of course, disastrous economic effects that would ensue. But the analysis is based upon fundamentally flawed methodology. Moreover, it ignores public health benefits of cleaner air.

Not surprisingly, the authors' estimates are more than 10 times higher than EPA's, and even EPA's estimates are likely to be overstated. In the past, EPA and other non-partisan institutions have systematically overestimated compliance costs for environmental regulations. For example, a comprehensive review of studies found that compliance costs for acid rain standards were overestimated by 41% to 2,900%. (Source: Goodstein, Eban (1999). The trade off myth: fact & fiction about jobs and the environment. Island Press: Washington D.C.).

This study is junk analysis, employing the same tactic industry used with every other public health regulation: fear. But we don't need to be frightened. No serious economist would consider this study valid:

Flawed Methodology

1.       Contrary to what it claims, the MAPI report does not estimate abatement costs. Abatement costs are a function of many variables, such as firm size, type of facility regulated, pollution levels of a given firm, the specific pollutants and quantities it emits, the type and size of the equipment it uses, and so on. Yet MAPI's model accounts for none of these factors. Instead, it predicts abatement costs as a function of the level of output, implying that pollution control equipment is a variable cost that increases in direct proportion to the level of output. This is silly.

Consider an analogy.

I know nothing about pizza production but, for the sake of argument, let's assume that restaurants purchase pizza ovens and vents separately, and then install them. Saying that manufacturers' output levels directly predict pollution abatement expenditures is like saying that if a restaurant's pizza sales increase by 10%, its expenditures on oven vents will also increase 10%.

Goblety guck.

One can immediately think of objections. Are the ovens being run at full capacity? Do the ovens vary in size? Does vent size, and its cost, vary with the size of ovens? Are there different types of vents with different costs? Does the type of vent required depend upon the type of building the restaurant is in? For example, is the restaurant a free-standing unit, or part of a complex?

While it may be true that restaurants selling high volumes of pizza on average have more ovens and therefore more vents than restaurants with lower sales volume, there is no clear one-to-one relationship between the two; other variables are probably more important. Just like the relationship between oven vents and pizza sales, pollution control expenditures are related to output levels only very indirectly. Many other factors matter.

2.       The analysis assumes that the resources spent on pollution abatement disappear. Nowhere in the report is there an accounting for where the money goes that gets spent on pollution abatement equipment. But in reality, someone will actually earn money from selling pollution control equipment, as will the people that transport, install, and maintain it. That's a lot of income, GDP, and jobs. In fact, consistent with the historical record on jobs and environmental protection, this economic activity could generate more jobs than any manufacturing output it displaces, because the pollution control industry is more labor intensive on average than the rest of the economy.

3.       MAPI's (incorrect) cost estimates rely upon on eleven data points; no serious economist would consider that a reliable sample size.

Public Health Benefits:

The analysis also ignores significant benefits from reduced ozone pollution. As reported by the Wall Street Journal, the Environmental Protection Agency (EPA) estimates that the reduction in ozone pollution resulting from increasing the standard will save approximately $100 billion in avoided medical costs per year, not to mention 12,000 lives every year as well.

The Bottom Line

The methodology used in this report is invalid; no economist worth his or her salt would stand by it. Rather than providing rigorous economic analysis to help improve public policy decisions, MAPI's sole objective in issuing this report was to generate scary cost estimates and undermine measures to improve public health. The only bottom line that matters to MAPI is its bottom line.

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