Economist: Clean Air Regs Cost U.S. $21 Billion A Year But Produce $100 Billion In Benefits

Clean air regulations cost the United States about $21 billion per year in lost productivity, a University of Chicago economist said this afternoon.
But the benefits of environmental regulation—improved health, reduced infant mortality, increased property values—are typically estimated at more than $100 billion, said Chad Syverson, professor of economics at the University of Chicago Booth School of Business.
"It looks like—you've got $21 billion on this side, $100-something billion over here—the scale is actually suggesting that the marginal benefit of regulation is quite a bit bigger than the marginal cost, at least over the sample," Syverson told about 40 people gathered in a campus lecture hall.
Most researchers have assumed that environmental regulation causes lost productivity, but in 1995 economist Michael Porter suggested that regulation may improve productivity by spurring industry to invest, investigate, and innovate.
Syverson and two colleagues set out to test the Porter Hypothesis by comparing regulatory data from the EPA with productivity data from the Annual Survey of Manufactures.
"Even if you're sure regulations are going to reduce productivity, it's important to know how much," Syverson said.
They found a 2.6 percent drop in productivity among industrial plants in counties the EPA had declared "non-attainment" counties under the Clean Air Act between 1972 and 1993—the last year the manufacturing productivity data was available.
The researchers looked at regulations aimed at specific pollutants, including ozone, sulfur dioxide, total suspended particles, and carbon monoxide. They found one instance in which the Porter Hypothesis seemed to hold true:
Productivity increased 1.7 percent in response to carbon monoxide regulation, largely in response to greatly improved productivity at refineries.
"If you take refiners out of the sample, you don't find a positive effect on productivity from non-attainment designations," Syverson said.
Regulation hit the organic chemicals industry hardest, causing a 16.8 percent drop in productivity, Syverson said.
As Syverson spoke, the Environmental Production Agency put out a call for comment on a draft of its latest greenhouse gas inventory:
"The draft report shows that in 2010, overall greenhouse gas (GHGs) emissions increased by 3.3 percent from the previous year," the EPA reported.
"This trend is attributed to an increase in energy consumption across all economic sectors, due to increasing energy demand associated with an expansion in the economy. There was also an increase in air conditioning use due to warmer summer weather during 2010. Total emissions from GHGs were about 6,866 million metric tons of carbon dioxide (CO2) equivalent. Overall, emissions have grown by 11 percent from 1990 to 2010. "