The US learns that green laws make sense after all

Make no mistake, US President George W Bush's office has conceded that green laws make sound economic sense. Although the White House reiterated what it states in a report released every year, greater significance is being attached to the review conducted this time because it is the most comprehensive ever. The study concludes that the quantified benefits of environmental regulations exceed the costs of implementing them by a much wider margin than previously believed. Another key revelation is that 60 to 70 per cent of the gains are attributable to a handful of clean air rules

 
By Chirag Shah
Published: Monday 15 December 2003

make no mistake, us President George W Bush's office has conceded that green laws make sound economic sense. Although the White House reiterated what it states in a report released every year, greater significance is being attached to the review conducted this time because it is the most comprehensive ever. The study concludes that the quantified benefits of environmental regulations exceed the costs of implementing them by a much wider margin than previously believed. Another key revelation is that 60 to 70 per cent of the gains are attributable to a handful of clean air rules.

The Office of Management and Budget (omb), an agency that assists the President in the development and execution of policies, regularly reviews the cost-effectiveness of major rules and presents annual estimates. It came out with the latest report -- 'Informing Regulatory Decisions: 2003 Report to the Congress on the Costs and Benefits of Federal Regulations and Unfunded Mandates on States, Local, and Tribal Entities' -- on September 22.

Apart from containing figures pertaining to 31 final major rules for the period October 1, 2001, to September 30, 2002, the document assessed the efficacy of 107 regulations finalised over the past decade (October 1, 1992, to September 30, 2002). Additionally, it laid down guidelines. It may be noted that though a fairly detailed study was conducted last year also, it covered a smaller time scale -- from April 1, 1995, to September 30, 2001.

According to the recent report, the estimated total annual quantified benefits of the 107 rules during the past 10 years range from us $147 billion to us $231 billion, while the total annual quantified costs vary from us $37 billion to us $43 billion (see table: Clear advantage). Only those rulemakings were included that generated annual costs or benefits of at least us $100 million.

CLEAR ADVANTAGE
Estimated total annual benefits and costs of US federal rules
Agency Benefits Costs
(in millions of US dollars at 2001 rates)
Agriculture 3,094 to 6,176 1,643 to 1,672
Education 655 to 813 361 to 610
Energy 4,700 to 4,768 2,472
Health and Human Services 9,129 to 11,710 3,165 to 3,334
Housing & Urban development 551 to 625 348
Labour 1,804 to 4,185 1,056
Transportation 6,144 to 9,456 4,220 to 6,718
Environmental Protection Agency 120,753 to 193,163 23,359 to 26,604
Total 146,812 to 230,896 36,625 to 42,813
Note: The data pertains to the period from October 1, 1992, to September 30, 2002.
Source: Anon 2003, 'Informing Regulatory Decisions: 2003 Report to the Congress on the Costs and Benefits of Federal Regulations and Unfunded Mandates on States, Local, and Tribal Entities', Office of Management and Budget, Office of Information and Regulatory Affairs, Washington, USA, P 7


Interestingly, four rules -- issued by the us Environmental Protection Agency (epa) pursuant to the 1990 amendments to the Clean Air Act -- yielded benefits worth us $101 billion to us $119 billion per year while costing just us $8 billion to us $8.8 billion annually. Included among these were two rules limiting emissions of particulate matter and oxides of nitrogen from heavy-duty highway engines, the Tier 2 rule curbing light-duty vehicle emissions, and the Acid Rain rule.

John D Graham, director of omb's Office of Information and Regulatory Affairs (oira), which produced the study, commented: "Our role is to report the best available estimates of gains and costs, regardless of whether the information favours one advocacy group or another." Expectedly, green groups are happy with the findings. Kevin Curtis of National Environmental Trust observes: "The bottom line is that benefits from major environmental rules over the past 10 years were (five to seven) times higher than costs." The industry is sceptical. " epa underestimates the cost of regulations. The tendency to make benefit numbers match favourable policy choices is strong," claims Jeffrey Marks, a clean air policy expert with the National Association of Manufacturers.

Critics assert that the inferences drawn in this year's report are not consistent with those made last time. Apparently, earlier estimates showed benefits at slightly lower levels. But officials explain that the previous report dealt with fewer rules and covered a shorter period. Further, the new study explains the anomaly of subtracting incorrect cost estimates for epa's rules establishing National Ambient Air Quality Standards for ozone and particulate matter. This rectification alone has reduced the aggregate cost of the regulations by roughly us $20 billion per year.

Doubts have been raised about methodology as well. " oira's cumulative cost-benefit estimates continue to suffer from vast analytical limitations, including outdated studies, prospective rather than retrospective data and the inability to monetise benefits," feels Reece Rushing of omb Watch, an organisation that tracks the agency's activities.

In this context, the latest report broadly talks about monetisation and decision-making relating to "net benefits". The document demands a cost-effectiveness analysis for all major health and safety standards, and an additional assessment of us $1 billion rules too. Crucially, it lays emphasis on discounting of lives saved in the future.

The entire initiative though comes as a bit of a surprise, given the Bush regime's dubious stand on environmental matters (see: 'Murky manoeuvre', Down To Earth, September 30, 2003).

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