EPA and the economy: Much ado about 0.1 percent

This week, House Republicans are continuing with their repeated criticisms of EPA regulations as a threat to the economy, and are about to vote on legislation calling for a new panel to study the cumulative effect of certain EPA rules and delaying, perhaps indefinitely, the implementation of two key rules. This stonewalling approach is misguided:  the combined costs of the EPA rules advanced by the Obama administration are not a threat to the economy. Once fully in effect:

  • The cumulative compliance costs of EPA rules finalized so far during the Obama administration will amount to between 0.04 percent and 0.07 percent of the economy

(Unless otherwise noted, all the findings in this post can be found in my report from last week).

  • The cumulative compliance costs of rules finalized or proposed (assuming all rules proposed so far are finalized) by the Obama EPA will amount to between 0.11 percent and 0.15 percent of the economy.

It is entirely implausible that compliance costs that comprise such a small share — about one-one thousandth — of the economy can have a huge effect on the economy’s direction, but that is what EPA opponents have been asserting for some time. The proposition that these rules are a serious concern for the economy is especially unlikely when one considers:

  • The rules would yield significant economic benefits — ranging from increased productivity by healthier workers or consumer savings due to greater fuel efficiency — that partly or in some cases fully offset the compliance costs.
  • The costs of EPA rules are often overstated by the government itself (see pages 21-23 of this EPI report from April).
  • The rules are phased in over several years, facilitating necessary compliance.

While the overall economic effects of these rules will be negligible, the health benefits will be profound, saving tens of thousands of lives and dramatically reducing respiratory diseases and heart attacks. When these health benefits are quantified in dollars, the EPA rules finalized and proposed so far by the Obama administration have net benefits that could exceed $200 billion a year.

To be sure, some important EPA rules may yet be proposed by the Obama administration, and their costs, and their benefits, should also then be considered. But the evidence to date is clear:  the hue and cry over the effect of EPA regulations on the economy is a counterproductive distraction. The lopsided attention to this topic is making it harder for the nation and Congress to focus on the changes in policies that could actually significantly improve the employment situation.