Testimony before the Subcommittee on Environment and the Economy
House Committee on Energy and Commerce, Subcommittee on Environment and the Economy, February 15, 2011
In the forty years since the Environmental Protection Agency was established, EPA regulations have imposed enormous costs on the American economy and purchased enormous benefits. Some of the costs and benefits have been in the form of jobs lost and gained—the favorite political metric of economic impact. But many other consequences have been important as well. On the cost side, these include higher prices; the loss of many good things outside the realms of environmental quality and employment, such as the quality and reliability of some products and services; and an increase in the uncertainties and delays of the legal system, translating in many cases into lower property values. On the benefits side, they include substantial improvements in public health; in recreational values and opportunities; in the amenity and aesthetics of life, especially in cities and industrial areas, translating in many cases into higher property values; and in the quality and diversity of fish, plants, and wildlife.
A simple but fair summary of the economic record of environmental regulation, based on a large literature of academic research, is as follows:
- Environmental regulation has been one of the success stories of American government, producing large and palpable public benefits;
- But it has been, in retrospect, much less cost-effective than it could have been—we could have achieved the same environmental quality at lower cost or more environmental quality at the same cost (or some or each);
- It has generally become less rather than more cost-effective over time;
- There is a wide variation in the effectiveness of EPA’s various authorizing statutes for controlling air, water, and land pollution; and
- Based on what we have learned, we could revise the EPA statutes to greatly improve their environmental and economic results.
To understand these propositions and what might be done to improve current policies, it is useful to consider two singular features of government regulation, features of environmental regulation and also of many other programs of health, safety, energy, and economic regulation. The first is that the costs of regulation are largely “off budget.” Almost all of the costs of environmental regulation are realized in the private sector in response to EPA mandates (the agency’s budget is a tiny sliver of the costs of complying with its rules). These very large expenditures, incurred privately but for government purposes, are subject to none of the political and managerial disciplines that apply to direct government spending—authorization, appropriation, budgeting, and taxing or borrowing to raise the funds. In an era of hundred-billion dollar spending authorizations and trillion dollar budget deficits, one may wonder whether the formal spending restraints amount to much anymore. Yet large spending bills, deficits, and debt are often front-page political controversies—they played a large and probably decisive role in the 2010 elections—while regulatory costs seldom receive equivalent attention. The costs of environmental policies are, as a political matter, relatively stealthy: they take the form not of taxes or scary headlines about public spending, but rather of higher prices for private goods and services and foregone employment and other opportunities. And these costs, while they may be estimated in the aggregate, are usually invisible to citizens and voters. The higher prices are not revealed in the way that (say) sales taxes are, and the lost opportunities are usually completely insensible. The exception is when specific plants are closed in response to environmental edicts—which is why such cases are so controversial and why EPA avoids them whenever possible. Plants that are never built in the first place, or that slowly decline as production moves to other nations with less costly environmental rules, may involve equivalent costs but will attract little political attention.
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