Do environmental regulations harm the economy?

Image courtesy SlopeMedia.org

One of the main themes of the Republican Presidential primary campaign has been that government regulations- specifically, regulations designed to protect the environment and public health from industrial pollution- is damaging to the economy. Nearly all of the Republican Presidential candidates have expressed this view: Rick Perry wants to “lock the doors and turn off the lights” at EPA headquarters, Michelle Bachmann thinks it should be called the “job-killing organization of America“, and both Newt Gingrich and Herman Cain want to abolish the agency entirely.

Is there any truth to the idea that environmental regulations cost jobs and are slowing the economic recovery? On it’s face, the idea makes sense. A business has a finite amount of money, and the more money they have to spend on complying with environmental regulations, the less money they can spend on hiring workers. If a business has to pay for new technology to reduce the amount of pollution their manufacturing process produces, the money spent on that technology is money that can’t be spent on new workers. The real question, though, is not whether there are costs to environmental regulations- there obviously are, and they can sometimes be quite high to particular industries. The real question is whether the benefits of these environmental regulations outweigh the costs.

Economists have a variety of methods to measure the benefit of the environment. Existence value, for example, is a measure of how much someone values the knowledge that something (i.e. the Everglades, polar bears, whatever) exists even if they don’t personally make money from that something- and, by extension, how much they should be compensated if that something is damaged or destroyed.  Existence values are used to calculate how much an oil company’s penalty is for the pollution associated with a spill.

Another method involves valuing the “ecosystem services” that a particular piece of the environment provides. These services include things like  reducing the impact of storms or providing habitat for early life-history stages of commercially important fish species (both of which are provided by wetlands). *

Finally, we can measure the amount of money that people save on their medical bills as a result of not getting sick from the pollutants that would have been there if not for these regulations, and measure the amount of productivity gained by not having workers get sick and miss work.

According to the U.S. Government Accountability Office, the EPA rarely performs formal cost/benefit analyses of their regulations. However, those regulations that have been studied tell an interesting story. For example, the Clean Air Act, one of the most significant environmental regulations in history, had enormous costs. Reducing pollution in compliance with the Act and it’s 1990 revisions was calculated to cost U.S. businesses over $65 billion enough money to pay for over 4 million minimum wage employees for a year! That’s a LOT of money! The Clean Air Act is obviously a major negative factor in our slow economic recovery…right?

Well, according to the same EPA study that calculated the $65 billion compliance cost, the benefits of the Clean Air Act are estimated to reach over $2 TRILLION by the year 2020. Where did this figure come from?

The Clean Air Act’s decades-long track record of success has helped millions of Americans live healthier, safer and more productive lives,” said EPA Administrator Lisa P. Jackson.”This report outlines the extraordinary health and economic benefits of one of our nation’s most transformative environmental laws and demonstrates the power of bipartisan approaches to protecting the health of the American people from pollution in our environment.” 

“The Benefits and Costs of the Clean Air Act from 1990 to 2020” shows that the benefits of avoiding early death, preventing heart attacks and asthma attacks, and reducing the number of sick days for employees far exceed costs of implementing clean air protections. These benefits lead to a more productive workforce, and enable consumers and businesses to spend less on health care -all of which help strengthen the economy.

In 2010 alone, the reductions in fine particle and ozone pollution from the 1990 Clean Air Act amendments prevented more than:
160,000 cases of premature mortality; 130,000 heart attacks; 13 million lost work days; 1.7 million asthma attacks” (emphasis mine)

Additionally, the compliance costs also can help the economy- the money that companies pay to make sure that their equipment meets regulatory standards typically goes to other companies:

” the nation’s first-ever standards for mercury and other air toxic pollutants which the EPA will finalize this fall — and which the Republican leadership aims to block — are estimated to create 31,000 short-term construction jobs and 9,000 long-term jobs in the utility sector through modernizing power plants. And the savings in health benefits are estimated to be up to $140 billion per year by 2016.” (SeaMonster blog)

While environmental regulations cost companies money, their net benefit greatly exceed this cost. It is disingenuous at best to blame any part of the current economic recession on environmental regulations. These regulations do something that used to be a non-partisan issue- protecting human health and human lives from industrial pollution- and should be enthusiastically supported by any reasonable political leaders.


* A 1997 study in the journal Nature calculated the ecosystem services of the entire Earth as being $33 trillion, almost twice the value of the entire global economy for a year.

  1. It’s not just internal EPA studies that show this. Muller et al. recently published another cost-benefit analysis of pollution in the US economy. The paper is freely accessible, so anyone really interested in this issue should probably go read it – though I seriously doubt any of the GOP Presidential candidates will do so.

    Besides backing up the claim that EPA regulations have actually been a tremendous bargain, the researchers found that even with those rules, there are some industries whose pollution damages exceed their total profits and wages. In those cases, it’s the industry that’s harming the economy, not the regulations. Coal-fired electric power currently leads that list (anyone surprised?), and relaxing the regulations on it would make the hemorrhage even worse. No matter how you slice it, we need more of these economy-boosting EPA regulations, not fewer.

  2. I remember my early working days in construction when you were told that if you fell off the roof you were fired before you hit the ground. I remember the days before health and safety committees and loss prevention and concepts unheard of that are now the rule. I remember the belief that the protections we have today were a prohibitive cost now realized as savings and turned into profits. Now I work in an industry that employs hundreds of thousands of people in wide ranging capacities and support services that would not be possible 30 or more years ago. It is my view that the only thing that will save the beast is more regulation; not less.

  3. Businesses and business people who do not understand the environment and the way it works will always think that environmental assessments will get in the way of business. But the regulations are in place for a reason.

    Imagine if the regulations were not there, then there would be no reason for protected areas because businesses would build through them.

    Oil and gas, mining, and other industries that rely on environmental resources will always think the regulations are crap, but they only represent a small percentage of the population. It’s up to the rest of us to speak up and let people know that we want our environment in tact.

    We get the same problem in Canada. During our stimulus budget, our Prime Minister wanted to abolish the Environmental Assessment process as it would hold up the stimulus part of the economy.

    Imagine the damage that would cause and the “catch up” we will need to take in order to clean up the mess our stimulus money did. Perhaps the environmental problem would cost the same amount of money as the debt of our economy.

    Great Article and discussion!

    • Andrew –

      Please share which industries do not rely on environmental resources.

      Restaurants (agriculture)?, Software (mining and energy)?, ecotourism (energy, agriculture)?

      I can’t think of one. Help me out.