Are EPA Regulations Really Worth Billions In Benefits?
In April President Obama’s Office of Management and Budget (OMB) released their “2013 Draft Report to Congress on the Benefits and Costs of Federal Regulations and Agency Compliance with the Unfunded Mandates Reform Act.”
Pause for breath.
The report is the sixteenth annual one since OMB began issuing this Report in 1997, and “summarizes estimates by Federal regulatory agencies of the quantified and monetized benefits and costs of major Federal regulations reviewed by OMB over the last 10 years.”
Good News! Government Reports $800 Billion in Regulatory Benefits.
In other words, it purports to be an accounting of government regulations’ costs and benefits. The bottom line, as far as the Administration’s in-house OMB is concerned, is that “the estimated annual benefits of major Federal regulations reviewed by OMB from October 1, 2002, to September 30, 2012, for which agencies estimated and monetized both benefits and costs, are in the aggregate between $193 billion and $800 billion, while the estimated annual costs are in the aggregate between $57 billion and $84 billion.”
These ranges “reflect uncertainty in the benefits and costs of each rule at the time that it was evaluated,” the report notes,
So to sum up, the report collects the agencies’ own estimates of the costs of their regulations in a political climate where “less is better,” and for some unexplained reason they present their findings in 2001 dollars, which were worth about 30 percent more than dollars today are. Oh, and the costs and benefits ranges are “uncertain.”
So On That Solid Footing, Let’s Proceed.
Wayne Crews writes for OpenMarket.org, the OMB reports’ cost-benefit breakdowns “incorporate only benefits and costs that agencies or OMB have expressed in quantitative and monetary terms, omitting numerous categories and cost levels of rules altogether.”
That’s right, there are whole classes of costs the report just ignores: “There are far more rules, and far more costs, in reality. Costs of rules from independent agencies are entirely absent in this report,” Crews notes, adding a bit diplomatically that “Cost-benefit analyses are also sensitive to basic assumptions about how regulations translate into benefits.”
So for instance, when the Environmental Protection Agency (EPA) reports regulatory costs of $30.4 to $36.5 billion with benefits of $112.0 to $637.6 billion, besides being a heck of a wide range, that’s the agency scoring themselves on how well they’ve done on some (but by no means all) major regulations with no corroborating audit and reporting them in 2001 dollars.
So for what it’s worth, there you are: According to the Obama Administration, the EPA’s regulations are about paying dividends of up to $637.6 billion.
The 800-Pound Gorilla’s Big Stick: Air Quality Regulations.
And the EPA is unquestionably the 800-pound gorilla in the room. “The rules with the highest benefits and the highest costs, by far, come from the Environmental Protection Agency and in particular its Office of Air and Radiation,” the report says, adding that EPA rules “account for 58 to 80 percent of the monetized benefits and 44 to 54 percent of the monetized costs,” with air quality regulations accounting for virtually all of that, and “the reduction in public exposure to a single air pollutant: fine particulate matter” the lion’s share of that.
As the report clarifies, “The estimated benefits and costs associated with the clean air rules provide a majority of the total benefits and costs across the Federal Government.” But don’t bet the farm on the report’s numbers, because as they admit, “some of the scientific and economic questions are not resolved… significant uncertainty remains.”
Another Point of View.
The Heritage Foundation’s James Gattuso and Diane Katz recently authored an analysis of the government’s regulatory costs, titled “Red Tape Rising: Regulation in Obama’s First Term” and released in early May.
They agree with the OMB report that the most costly regulations were issued by the EPA. Gattuso and Katz singled out the new automotive fuel-economy standards, issued jointly by the EPA and the Dept. of Transportation, “which the EPA calculated will cost $10.8 billion annually. The bulk of this cost will fall on drivers, who will pay an estimated $1,800 more for a new vehicle.”
Then there was the EPA’s Utility MaCT regulation, costing more than $10 billion annually, which requires utilities “and other electricity generators that use fossil fuels to install the ‘maximum achievable control technology’ (MaCT) to limit emissions.”
As Fox News noted, there’s really no such thing as an independent accounting of government’s actual costs, and certainly nothing resembling solid numbers when it comes to estimated benefits: “But government agencies, as well as think tanks like Heritage, have tried to track the price tag by looking at records maintained by the Government Accountability Office and agencies’ own estimates.”
Estimates are really all anybody has to conjure with, but if you’re interested in a relatively accurate assessment, you use those numbers that can be most solidly verified.
But What About the Jobs?
Of course the main reason anybody cares about costs of regulations is that the costlier the regulations, the more jobs it will ultimately end up costing. To that end, in 2012, according to William L. Kovacs, the U.S. Chamber of Commerce’s senior vice president of environment, technology and regulatory affairs, the Chamber commissioned the economic research firm NERA (National Economic Research Associates) “to undertake a study to review and assess EPA’s methods for estimating employment impacts related to air quality regulations,” which are acknowledged by all to be by far the single most important component in the discussion.
That report, titled “Impacts of Regulations on Employment: Examining EPA’s Oft-Repeated Claims that Regulations Create Jobs,” found that the EPA really doesn’t like talking about the employment impacts of its regulations.
In fact, NERA’s research shows the agency discussed the employment impacts of proposed air quality regulations “in only 11 of the 48 rulemakings over the 1995 through 2010 period,” and after 2010, they discussed employment impacts in 7 of 9 rulemakings. NERA reviewed each regulatory impact analysis the EPA deigned to offer, “to determine the economic methodologies used and evaluated their adequacy.”
And Those Are The Good Ones.
As might be expected, the instances where the EPA did discuss employment impacts were those where they found job-creating net benefits. But NERA’s analysis uncovered “striking omissions and inconsistencies in EPA’s analyses.” using what NERA described as “a jobs impact formula that relies on aggregated data from four individual industries that do not mirror the industries targeted by recent EPA rules and which was derived from 1980s data that are no longer relevant for assessing current impacts.”
The EPA, according to NERA, also only considered “part of the potential overall employment impacts” and “ignored the effects of regulatory compliance costs on prices.”
You can contend that the U.S. Chamber of Commerce has its vested interests, and probably wouldn’t publish research complimentary of government regulations. You’d probably be correct. You can also contend that the EPA has its vested interests as well, and wouldn’t publicize anything that made it appear as if its regulations were killing jobs. You’d probably be correct there as well.
The difference being, however, that as a publicly-funded government agency, the EPA has the responsibility to disclose the numbers and let us, its bosses and funders, decide for ourselves.