Yes, EPA Regulations Create Jobs and Economic Activity. But…

There are those who towards the laissez-faire side of things when it comes to EPA regulations; their general rule of thumb is the less government regulation and intervention, the better. Your obt svt is of this view. But is it, in fact, the case that EPA regulations actually help create, not kill, jobs. Let’s check it out.

The five main points generally advanced to support this position are as follows:

1. Lots of people are employed in the pollution-control industry, and the more government regulations we get, the more jobs that industry will be able to provide.

2. More regulation leads to greater innovation.

3. Retrofitting and upgrading older power plants to comply with new EPA regulations creates lots of jobs.

4. Manufacturers of green technology and other technology required to meet EPA regulations create jobs whenever their products are needed.

5. Environmental regulations lead to a whole lot of billable hours for lawyers and consultants.

Let’s see how these contentions hold up.

 Pollution control equipment manufacturers.

“The pollution-control industry provides lots of jobs — good ones.”

Evidently representatives of the emissions-control industry met with the White House Office of Management and Budget recently, and according to Clean Air Watch, “quite a few well-known companies are part of the emission-control industry, which employs scores of thousands of highly skilled workers.”

The emissions-control industry site notes that it has also “driven substantial technology development, economic growth, job creation and exports.” We’ll accept the point as read, certainly seems logical enough. Yes, the emissions-control industry does have lots and lots of jobs, many of which require advanced degrees and a fair bit of professional skill.

Researchers, engineers and chemists.

“More regulations lead to more innovation.”

This point was argued in a recent study, titled “Driving Innovation: How stronger laws help bring safer chemicals to market,” produced by the pro-environmental industry Center for International Environmental Law, a nonprofit environmental law organization based in DC and Geneva. In a recent article Forbes quotes the study’s author, Baskut Tuncak, as saying that regulation “creates a market for green chemistry.” Tuncak points to “the number of patents for alternative chemicals filed every time there’s new chemical regulation as evidence of the innovation spurred by regulation,” from the likes of Dow and ExxonMobil, in addition to green companies.

Basically this position holds that when government requires certain chemicals not be used in production anymore, companies have to scramble to find suitable alternatives, and this forced innovation creates jobs and spurs economic activity.

It certainly can’t be denied that whenever government does place some chemicals on the “Not Allowed” list, such as the European Union outlawing the use of phthalates, plasticizing chemicals used mostly in the production of PVC, producers do have to innovate to come up with workable substitutes. No doubt this does count as innovation, and jobs are most likely created which would not have existed before, jobs dedicated to finding specific answers to problems which didn’t exist before regulation.

Installation professionals and construction workers.

“Converting older, non-green power plants and buildings to comply with EPA regulations creates lots of jobs.”

Examples here are almost too numerous to mention. Plucking one almost at random, Nebraska news site 1011.com reported recently that The Grand Island City Council “approved a $42 million upgrade to the Platte Generating Station… to meet new regulations from the Environmental Protection Agency.”

Those would be specifically the Mercury and Air Toxics Standards, “requiring coal- and oil-fired power plants to make changes to reduce toxic emissions.” Grand Island city utilities director Tim Luchsinger said this will create jobs.

“For the most part we’re expecting the contractor to bring his own forces for this project. There will be some influence here on the job market as far as a lot of the concrete work, dirt work, site work that type of thing. We probably will have to hire additional staff at the plant after the system is in place, but we really aren’t sure what those numbers might be or the type of people,” Luchsinger told 1011. Basically retrofitting generates jobs in blue-collar construction and work for engineering architects and whoever else has to design what the retrofitted plant will look like

Other clean energy technologies.

“Requiring new EPA-compliant technology creates lots of jobs for people who make that stuff and install it.”

Sure does. One certain way to create jobs in any industry is for the government to require people buy that product — check out the number of jobs in the baby car seat industry before and after government required parents use them. Ditto for the bicycle helmet industry.

Again, there are myriad possible examples, one will suffice — last month in South Dakota Graycor Industrial Constructors Inc. announced that they “will be the general work contractor for the air-quality control system (AQCS) to be placed at the 450 MW Big Stone Plant.”

Graycor officials said they’ll buy “more than $20 million of additional equipment, erect the AQCS and hire and manage the employees and subcontractors required for the project.” The reason for the project and all the economic activity is that the AQCS must be installed by May 2017 to comply with U.S. Environmental Protection Agency regulations “and includes about $490 million in retrofits to the plant.” Safe to say that’s $490 million of economic activity that wouldn’t have happened without the EPA’s requiring it happen. And the manufacturers of that equipment ordered by Graycor appreciate the regulations.

Lawyers and their ilk.

“Lawyers and consultants make a lot of money off EPA regulations.”

This is in the realm of “death and taxes” — lawyers and consultants always make money no matter what. There’s also auditors, inspectors, and government agents aplenty who owe their salaries to hunting, catching, and slapping the wrists of those who fail to keep up with the ever growing list of regulations.

So is it true, as certainly seems to be the case, that EPA regulations create lots of economic activity, jobs and innovation? I think we can agree that yes, they do.

But the real question, of course, is the opportunity cost of all that EPA-directed economic activity.

The Real Cost

“Opportunity cost” is the economic concept which can be expressed simply as, “What else could you have done with those resources?” It’s devilishly difficult to come up with solid figures to calculate opportunity cost, so it frequently gets left out of the discussion. But consider: If the EPA requires you repaint your house blue, then you spend $5,000 hiring painters to repaint your house. There’s five grand of economic activity boosting your local economy and creating jobs for a few guys. All to the good, right? Well, what else might you have done with that $5,000? Probably something a heck of a lot more useful than repainting your house “just because.”

The great hidden cost of EPA regulations is the opportunity cost of what else might have been done with the money which had to be spent to meet EPA requirements. It’s not good for the government to congratulate itself on “creating” six jobs when with the same resources a private firm could have created ten. That’s not a net gain of six jobs, that’s an opportunity cost loss of four jobs.

In other words, the money spent complying with EPA regulations is not providing the greater economic value it could have provided. So yes, EPA regulations do create jobs and stimulate economic activity, but at the cost of the greater economic activity and job creation those companies could have accomplished with the same resources.

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Comments:
  • mark p
    March 21, 2013

    You fail to mention in your section title “The Real Cost” anything about externialities, that is, the environmental, health, etc. costs associated with an existing technology or product which would be regulated. For instance, what if the existing paint on your house outgassed its red pigment, which then landed on all the cars in your neighborhood, causing thousands of dollars in cost to re-paint those cars? Those people have no choice in their opportunity cost expenditures.


  • Christian Bonawandt
    March 21, 2013

    David,

    Great article. You’re point about “real costs” is very valid (as is Mark’s comment). But there are few other problems with your “mandatory house paint” metaphor.

    1. Yes, your average citizen would likely have wanted to spend that $5,000 somewhere else, but the fact that it is spent is all that is needed to stimulate the economy.

    2. Wealthier citizens (i.e. big businesses like power plants, etc.) would likely have just saved that $5,000, letting it sit there as corporate profit. Alternatively, they may have given some or all of to an executive as a bonus. Neither of these stimulates the economy.

    Now, the play devil’s advocate to my own argument, I realize that smaller businesses may be forced to renegotiate their own budgets to pay for the “paint.” That’s unfortunate but necessary because of the points moral imperatives mentioned in Mark’s comment above.

    The smallest businesses may even end up being crushed by the cost of compliance. That’s a loss, and a tragic one at that. But these are the exception, not the rule.

    The only time I agree that EPA compliance is unproductive is when the legislation is more about paperwork than pollution. That, while it may require a “job”, is only work for the sake of work.


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