CIBO's rehashed and discredited analysis of toxic emission standards

As part of their ongoing jobs-scare campaign to block public health standards (and protect their bottom line), the Council of Industrial Boilers (CIBO) just rehashed its discredited 2010 economic “study” (click here for a summary of critiques by myself, the Congressional Research Service, the National Association of Clean Air Agencies, and a respected economics professor we asked to grade the report (it earned a D for quality and an F for transparency, and was graded as if it were an undergraduate level paper)). In that report, CIBO projected economic ruin would result if large industrial and commercial facilities were required to reduce their toxic air emissions from boilers.

Public health benefits ignored by CIBO

Before looking at the problems with CIBO analysis, it’s worth summarizing the expected health benefits unaccounted for in their report: in 2015 alone, these standards would prevent an estimated (p. 141)

• 3,100 to 8,000 premature deaths
• 2,000 cases of chronic bronchitis
• 4,900 nonfatal heart attacks
• 5,350 hospital and emergency room visits
• 4,600 cases of acute bronchitis
• 390,000 days when people miss work,
• 51,000 cases of aggravated asthma, and
• 96,000 cases of respiratory symptoms

These benefits are worth an estimated $25 to $67 billion, more than 16 to 44 times the cost of $1.5 billion.** Moreover, they are 60 percent higher than, and cost half as much as, the rule as it was initially proposed in 2010. Then, the proposed rule was expected to bring an estimated $15 to $41 billion in benefits, at a cost $2.9 billion (still a great return).

As discussed below, CIBO’s flawed cost estimates were much higher than EPA’s.

EPA’s estimated employment impacts versus CIBO’s

Against the huge health gains, EPA originally estimated a modest net gain of 3,000 jobs, with a range of -6,000 jobs to +12,000. For the reconsidered rule** just released, the central estimate is now +1,600, with a range of -3,000 to +6,300. Basically inconsequential—and consistent with four decades worth of regulatory experience showing slightly positive net gains in employment resulting from environmental regulation. (It’s important to note that net gains do not necessarily mean actual jobs were lost: for the most part, more jobs were created in the environmental protection industry than would have been created had the resources spent on compliance been invested elsewhere).

In contrast, CIBO estimated 337,702 jobs would be at risk from the 2010 proposed (recall CIBO used its analysis of the proposed rule for the “new” figures) rule. CIBO’s estimates look…well…kind of ridiculous.

CIBO’s extreme job loss estimates are a result of an extremely flawed analysis, inconsistent with even the most basic economic theory taught in introductory courses. Some of the most egregious mistakes were (click here for a more exhaustive review):

1)    CIBO incorrectly 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. A pertinent example: the International Brotherhood of Boilermakers reported that the number of boilermakers in the United States increased by 35 percent over just two years – from 1999 to 2001—as a result of the EPA’s standards to implement the Clean Air Act (see p.6 for citation).

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.

Finally, fed into this flawed analysis were exaggerated costs. CIBO’s capital costs were more than twice EPA’s in the proposed rule, and four times higher than what was ultimately promulgated**. Some control mechanisms were orders of magnitude greater: in the proposed rule, CIBO’s cost of carbon monoxide controls was 200 times higher EPA’s, and the cost of carbon injection 180 times higher.

Conclusion

Reputable sources in government and academia 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.

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**These figures are for the revised/reconsidered version (just released) of the final promulgated rule, after EPA considered some additional data. In the final rule, benefits were estimated at $22 to $54 billion, and costs $1.4 billion. CIBO cost estimates were based upon the proposed rule.