EPA

Regulations Do Impose Costs – But So Does Not Regulating

Steve Seidel, vice president for policy analysis, co-wrote this post.

With the failure of the Senate to act on climate change legislation, the focus of attention now shifts to possible regulatory actions by EPA. The Supreme Court in 2007 made it clear that greenhouse gases (GHGs) are pollutants under the existing Clean Air Act (CAA), and the overwhelming scientific evidence (spelled out in great detail in the endangerment finding) demonstrates that such pollutants represent possible harm to public health and welfare. 

Opposition to EPA action rests in part on concerns that any regulations will be excessively costly and burdensome to households and U.S. manufacturers. While it is certainly true that regulating GHGs will result in costs, it is also important to look at whether the economic benefits from those regulations will be greater than the costs they impose. In other words, will societal costs of allowing global GHG emissions to continue unabated (costs that will come in the form of impacts from rising sea levels, increased extreme weather including heat waves and droughts, among others) be greater than the costs of regulating those emissions responsibly?

This basic regulatory framework – that regulatory costs should be less than the resulting benefits – is codified in OMB review of all major federal regulations by both Republican and Democratic Administrations, has historically been applied to all EPA regulations, and would certainly be applied to any future regulations of GHGs.

So what have been the costs and benefits of past EPA regulations under the CAA historically? Congress required EPA to undertake a retrospective assessment of the costs and benefits of regulations under this statute. The conclusion of this retrospective review is that the CAA resulted in total benefits that are around $37 trillion, while total costs were $0.874 trillion (in 2010 dollars) – an astounding 40 to 1 benefit to cost ratio! 

EPA has also produced a prospective assessment of the costs and benefits of the CAA – this time for the time period of 1990 through 2010. In this review, EPA estimated that the most likely benefit to cost ratio of the CAA for this period is 4 to 1. While a very strong and positive value, the ratio is substantially lower than the estimated benefits for the first 20 years of the CAA. 

This is not unexpected – early gains are usually greater, and more cost effective, because simple or cheap remedies are the first to be applied in response to regulatory requirements. As those requirements become more stringent, creating additional benefits becomes more costly (from an economics perspective this is described as moving up the marginal cost curve).  

How credible is EPA’s assessment of its regulations? Alan Krupnick, formerly of the President’s Council of Economic Advisors, has testified before Congress about the credibility of EPA’s analyses:  “Under the auspices of the agency’s Science Advisory Board, both studies were scrutinized throughout the decade-long preparation by at least three expert committees of outside economists, air quality modelers, epidemiologists, and other health experts.” 

In addition to these EPA assessments, there have been a handful of quality external analyses of the costs and benefits of the CAA. The Office of Management and Budget (OMB) found that the “major rules” from EPA’s Office of Air resulted in total benefits between $145 and $218 billion annually, for the years between 1992 and 2002. This is compared to costs of between $22 and $25 billion over that same period. A study by researchers at MIT found total annual benefits rising from $50 billion in 1975 to $400 billion in 2000. This report accounts for the monetary benefits of avoided premature death differently than the EPA studies, and as a result reports lower values for the total benefits. A sum of the total discounted benefits yields a total benefit of $6.85 trillion from 1975 through 2000 – a figure still substantially greater than the EPA estimate for the costs of the regulations. 

So how might this play out in terms of future regulations of GHGs? EPA’s first GHG regulations were standards set for light duty vehicles (which it coordinated with the efficiency standards set by NHTSA). These standards are expected to lead to net benefits of between $0.5 and 1.2 billion dollars (discounted back to present values using 7 percent and 3 percent discount rates, respectively) without even including a social cost of carbon. If a value is assigned to the avoided GHG emissions associated with this regulation, the net present benefits are even greater! 

If there is a lesson that can be drawn from these previous regulatory efforts it is that while regulations do impose real costs, EPA’s actions under the CAA have consistently led to positive environmental and economic outcomes. By not regulating, we would have foregone these positive net benefits and incurred the social costs imposed by unabated pollution.

So the next time someone tells you that the costs of reducing air pollution are too high, ask them what would be the costs to society of not reducing those emissions. 

Russell Meyer is the Senior Fellow for Economics and Policy. Steve Seidel is Vice President for Policy Analysis.

The long-term impacts of “one-year” riders

Most Americans can recall from social studies class and Schoolhouse Rock that a bill becomes a law through a process of introduction, committee work, and votes in both chambers of Congress before being signed by the President. Yet in reality, Congress influences policy decisions and administrative actions in ways that are more complex and potentially less transparent.

The Constitution gives Congress the power of the purse over government. Congress passes annual appropriations bills that fund the various programs of the federal government, and the necessity for Congress to pass these bills every year makes them an attractive target to attach riders – legislative provisions not directly related to the bill at hand. Appropriations riders are added to a bill by a small number of Congressmen to avoid an open debate on the merits of a particular policy, relying instead on the political and practical necessity to pass the larger funding bill.

Several rider efforts have succeeded in prohibiting funding or delaying environmental programs, much as some are talking about doing to prevent EPA from implementing greenhouse gas regulation under the Clean Air Act. Unlike policy decisions set in authorizing legislation, funding restrictions only apply for the year of appropriations covered and must be renewed on an annual basis. Unfortunately, once the precedent is set, it is common for riders to reappear for multiple years, usually without an up-or-down vote on that specific policy decision.

When it comes to climate change, Rep. Joe Knollenberg (R-MI) took a bill that failed to gain any traction in the committee process and turned it into a barrier to productive climate work through the appropriations process. Reacting to the Kyoto Protocol, drafted in December 1997, Rep. Knollenberg introduced HR 3807, in May 1998, which would have prohibited the use of funds for “for rules, regulations, or programs designed to implement, or in contemplation of implementing, the Kyoto Protocol.” A broad reading of the phrase “in contemplation of” would have stopped federal funds from being used for any work on climate change, even educational workshops. When the bill failed even to move out of the Republican controlled committee to which it was referred, Rep. Knollenberg turned to the appropriations process, where he attached the bill as a rider to the appropriations bill that included FY1999 funding for EPA. The same language was included in several appropriations bills. In addition to the EPA bill, it was also included the next year for FY2000 funding. As a result, Rep. Knollenberg was able to inhibit the Clinton Administration’s climate change work without going through the regular process of enacting legislation.

Other environmental priorities have been the targets of appropriations riders and defunding efforts. These riders became popular shortly after the political upheaval of 1994, but the effects were often much longer lasting. Beginning in Fiscal Year 1996, a rider was attached annually to the transportation appropriations bill preventing increases in the Corporate Average Fuel Economy (CAFE) standard known as the “CAFE freeze rider.” Like the proposed riders on greenhouse gas regulation, this rider was in reaction to an action by the Clinton Administration, in this case an advanced notice of proposed rulemaking by the National Highway Traffic Safety Administration. The recurrence of this rider continued until Fiscal Year 2001 when the rider was dropped in favor of a study on raising CAFE standards, ultimately yielding to bipartisan support for new standards much later than initially anticipated. 

Environmental advocates have also used riders to avoid open policy discussion and votes. One of the longest running annual appropriations riders was a prohibition on offshore oil and gas leasing off the East and West coasts and certain parts of Alaska. That rider was included in appropriations bills for 27 years, from 1981 to 2008, without ever being a stand-alone piece of legislation passed by Congress.

The lesson of these and the plethora of other riders included on appropriations bill every year is clear: these provisions have staying power. The inclusion of a one-year delay on greenhouse gas reductions could easily continue for two years – or even twenty. According to the scientific information available, we don’t have the luxury of waiting that long to reduce our emissions. Instead, the United States should proceed with the prudent and reasonable series of regulations that have been outlined and are being implemented under existing law following the 2007 Supreme Court ruling in Massachusetts v. EPA. 

Michael Tubman is the Congressional Affairs Fellow

Vote on EPA Regulation Sends Senate a Signal to Act

On Thursday, the Senate defeated Sen. Lisa Murkowski’s (R-AK) “disapproval resolution” intended to prevent the EPA from regulating greenhouse gas emissions under the existing Clean Air Act.

The vote sends a clear signal that the Senate must act now. The Senate must invest its time and energy over the next two months to find the common ground solutions required to pass meaningful clean energy and climate legislation. The key building blocks for a final bill already exist, and the Senate must seize this opportunity to create a safer, cleaner, more secure energy future. 

A few things are clear from the vote:

  • 53 Senators voted in support of EPA’s finding that greenhouse gas (GHG) emissions pose a danger to human health and environment, with many stating their preference for Congressional action but not wanting to unilaterally disarm EPA.
  • Of the Senators voting for the resolution, at least 8 made statements saying that they believe we need to reduce GHG emissions.  Among these were 5 Republican Senators.
  • In total, at least 61 Senators, through their votes or statements today, expressed support for policy that would limit GHG emissions.

In addition, Sen. Murkowski and at least 17 of the Senators who voted for Sen. Murkowski’s resolution of disapproval framed their votes as intended to prevent EPA from regulating greenhouse gas emissions under the existing Clean Air Act or about the separation of powers, rather than as statements on climate science.  Following are excerpts from Senate floor statements or from press releases following the vote that indicate the Senators’ willingness to work toward Senate action on a clean energy and climate bill.

Sen. Lindsay Graham (R-SC):  What I propose is that the Congress, once we stop the EPA, create a rational way forward on energy policy that includes clean air and regulation of carbon. … Carbon is bad. Let's do something about it in a commonsense way. … If we can clean up the air in America, we would be doing the next generation and the world a great service. The key is, can you clean up the air and make it good business? I believe you can. Let's pursue both things: good business and clean air.

Sen. Ben Nelson (D-NE):  Now, I have no doubt that carbon emissions should be reduced in the U.S. But not through excessively costly EPA regulations or a complicated cap and trade proposal that could spur speculation that enriches Wall Street, while not cleaning the air above Main Street. …   In my view greenhouse gas emissions should be reduced through a comprehensive energy bill. One that promotes efficiency, innovation, new technology, and renewable energy such as wind and biofuels that can be produced in Nebraska's fields. An energy bill should help, not harm, Nebraska and the American economy as it cleans up the air.

Sen. Susan Collins (R-ME):  Our country must develop reasonable policies to spur the creation of green energy jobs, lessen our dangerous dependence on foreign oil, and reduce greenhouse gas emissions. We face an international race to lead the world in alternative energy technologies, and we can win that race if Congress enacts legislation to put a price on carbon and thus encourage investment here in the United States.

Sen. Mark Pryor (D-AR): There is clear consensus within the scientific community that human activities will have a serious and costly impact on our environment unless we take meaningful steps to mitigate pollution from greenhouse gases. … Congress should act quickly, but thoughtfully, in developing comprehensive energy and climate policies that meet our nation’s needs. The costs of inaction or wrong action are too great for future generations.

Sen. Olympia Snowe (R-ME): [I]t is Congress – and not unelected bureaucrats – that should be responsible for developing environmental policies that integrate our nation’s economic well-being as an urgent priority along with the reduction of carbon emissions, and I do not accept that these are mutually exclusive goals. … I will continue to work with my congressional colleagues to achieve our shared goals of fostering a healthy economy while moving toward a clean-energy future by replacing EPA regulations with a system that protects Maine employers and reduces greenhouse gases by the level that science dictates.

Sen. Mary Landrieu (D-LA): I look forward to working with Democrats and Republicans to find a better, smarter way forward in the weeks ahead.  Americans want and need energy solutions and more job creation, not overreach by regulators. That starts with real, public debate on climate change and energy challenges facing our nation.

Eileen Claussen is President

Wanted: A Real Solution to an Urgent Problem

This post also appeared today in National Journal's Energy & Environment Experts blog in response to a question about Congressional action related to EPA's endangerment finding.

Let’s be absolutely clear here. Overturning EPA’s endangerment finding -- that greenhouse gases are a risk to public health and welfare – would send exactly the wrong signal about the serious nature of this issue. To take such an action, just days after our nation’s top scientific body (the National Academy of Sciences) issued a loud and clear call for action, should be unthinkable.

Some may vote for the resolution not intending to repudiate the science but to reserve the right of Congress (and not EPA) to set policies to restrict greenhouse gas emissions.  If this is their rationale, then a vote to delay EPA regulations for two years (along the lines of Sen. Rockefeller’s bill) might make more sense.

Monitoring Planet Earth’s Vital Signs

While the Senate’s effort to take up comprehensive clean energy and climate legislation remains on hold awaiting a resolution of when and if an immigration bill will be considered, EPA just issued a new report that sends a loud and clear reminder about why Congressional action is urgent.  The report, Climate Change Indicators in the United States, presents detailed information documenting 24 different ways in which climate change is altering our nation and the world.

This is not your standard climate report with pages and pages of scenarios and model runs projecting out over time what future climate impacts are possible.  Instead, this report looks back and documents biological and physical changes that have already occurred.  It focuses on actual measurements of real conditions – from increases in greenhouse gas concentrations measured in the atmosphere to changes in sea surface temperatures to shifts in the length of growing seasons.

Key Roles for States and EPA

This post first appeared today in the National Journal Energy & Environment Experts blog.

As with many aspects of climate policy, there is some truth to the arguments on both sides of the debate over how federal legislation should treat state action and EPA Clean Air Act (CAA) authority. The answer is less about who is right or wrong and more about appropriately balancing the strengths and weaknesses brought to the table by states and the federal government. Both have important roles to play in a strong federal climate and clean energy program.

It’s No Joke: Fighting Climate Change Can Save Money and Reduce Oil Dependency

The federal government took the opportunity on April Fool’s Day to show the world the United States is not joking about its commitment to reducing greenhouse gas (GHG) emissions. The U.S. EPA and U.S. DOT have jointly produced a standard that will reduce CO2 emissions by 1 billion metric tons over the lifetime of vehicles covered and on average save consumers around $3,000 in fuel costs over the life of each vehicle purchased in 2016. The new rule requires the corporate average fuel economy (CAFE) for new passenger cars and light-duty trucks to be 35.5 miles per gallon by 2016. It will also limit carbon dioxide emitted from those vehicles to 250 grams per mile on average. The vehicle emissions rule shows how one policy can achieve multiple goals – reduce our dependence on foreign oil and reduce our nation’s GHG emissions.

The implementation of this regulation is a nod to complementary policies that combat climate change. As an organization that has long pushed for a comprehensive market-based mechanism, we are acutely aware of the importance of pricing carbon. However, putting a modest price on carbon, by itself, would not significantly reduce greenhouse gas emissions from this sector. For example, EPA’s analysis of the House-passed climate and energy bill found that the bill would cause the price of a gallon of gasoline to only rise by $0.13 in 2015, $0.25 in 2030, and $0.69 in 2050. The rule finalized Thursday addresses this problem directly by setting an increasingly more stringent standard for reducing GHG emissions but allowing vehicle manufacturers the flexibility to find the most cost-effective technologies to achieve those standards.

In evaluating regulations like these, one important factor to consider is coverage. The new vehicle rule covers over 60 percent of greenhouse gas emissions from the transportation sector. Other sources of emissions in transportation such as aviation, ships, and heavy-duty trucks will require additional actions (see our paper on aviation and marine transportation). EPA has announced its intent to propose GHG standards for heavy duty trucks in June of this year.

Another important factor to consider when evaluating regulations is cost. In order to meet the new standards, vehicle manufacturers will have to make fuel efficiency (as opposed to increased engine horsepower) one of their primary areas of focus for research and development. In doing so, future vehicles will cost more than they would without this rule. However, fuel savings over time will more than make up for that additional upfront cost.

The program is estimated to conserve 1.8 billion barrels of oil over the lifetime of vehicles covered under the rule. Reducing our overall oil consumption can reduce our reliance on foreign oil, which can translate into cost savings. A study by the U.S. EPA and the Oak Ridge National Laboratory estimated that a reduction of U.S. imported oil results in a total energy security benefit of $12.38 per barrel of oil, in part by reducing defense spending. Co-benefits like these are an important part of determining the worthiness of a policy. In the case of the new vehicle rule, the U.S. has taken a big step towards reducing its oil dependency and increasing its energy security.

Nick Nigro is a Solutions Fellow

So What Exactly Is a Disapproval Resolution?

This post also appears on the National Journal Energy & Environment Experts Blog.

With Thursday’s floor statement by Senator Murkowski (R-Alaska) announcing her joint resolution to override EPA’s endangerment finding, we were introduced to a new term to add to our lexicon – a disapproval resolution.  If like me, you only had a vague recollection that Congress had given itself the ability to override any new federal regulation, some quick research was in order.

EPA Advances the Regulatory Option

The recent announcement by EPA, declaring that greenhouse gases are a danger to public health and welfare, should not come as a surprise to anyone.  EPA has made it clear that it would respond to what the science demanded and to what the Supreme Court (Mass v. EPA) mandated.

The endangerment finding, by itself, does not regulate any sources, but it lays the necessary foundation for future EPA regulations.  The likely first one will be the recently proposed light duty vehicle and engine rule which is scheduled to be finalized in March 2010. 

But EPA’s future actions are best viewed in the broader context of other activities also aimed at reducing greenhouse gas emissions.  State and regional partnerships have stepped up to the plate over the past several years and now 23 states either have or are developing programs to regulate greenhouse gas emissions.  In addition, several recent court decisions (see for example, Conn. v. AEP) have opened the door for common law nuisance claims against firms emitting greenhouse gas emissions. 

Both the judicial and executive branches of our government have answered the call and have begun to actively address concerns about climate change.  Now is the time for Congress to take control and pass comprehensive clean energy and climate legislation.  A broad consensus exists that comprehensive legislation would be far more cost effective than leaving the field to individual states, EPA or the judiciary. The path forward in the Senate won’t be easy, but it certainly is necessary.

Despite the recent hue and cry over hacked e-mails, the overwhelming scientific evidence supports the link between greenhouse gas emissions and climate change.  Yes, there are certainly aspects of some of the recently exposed e-mails that suggest scientists themselves can act peevishly toward one another and more substantively, that better guidelines for making data available and transparent might be useful.  But let there be no mistake, the compelling evidence from multiple data sets and from multiple lines of research hasn’t changed.  The words of a recent report by the US Global Change Research Program resound loud and clear, “global warming is unequivocal and primarily human induced.”

The case for Senate action is also unequivocal.

Steve Seidel is Vice President, Policy Analysis

One Regulatory Program Per Customer, Please

The menu of policy options for reducing greenhouse gas emissions and tackling climate change is pretty lengthy, and the portions offered are quite substantial. Congress now has to make the choice of which regulatory option to order, and as we saw in last week’s hearings at the Senate Environment and Public Works Committee, they are open to recommendations. One interaction on Thursday between Senator Arlen Specter (D-PA) and Fred Krupp, President of the Environmental Defense Fund, highlighted the need to pick a single, effective strategy to tackle climate change and not overstuff our economy with duplicative regulations. The exchange focused on whether the EPA should continue to proceed with regulations through the Clean Air Act’s New Source Review (NSR) program even if a comprehensive climate change program is enacted.

Given existing requirements, regulation of greenhouse gases under any provisions of the Clean Air Act will trigger NSR. Under NSR rules, the construction of new stationary sources and major modifications of existing ones must be permitted to ensure that they will not contribute to significant deterioration of air quality. While NSR has long been used to regulate traditional air pollutants, when it comes to feeding an appetite for climate change regulation, NSR doesn’t really hit the spot.  NSR is rather inflexible, costly to implement, and results in relatively limited emission reductions. Given the difficulty in developing standards for the large number of sources that emit greenhouse gases and the need to provide incentives for technological change in order to achieve deep reductions over time, new source review simply isn't the right recipe for our current needs. 

This chef’s recommendation: a well-designed cap-and-trade program that is aggressive enough to yield needed reductions in greenhouse gas emissions while spurring the technological innovations we need to make those reductions and grow our economy. Enactment of a cap-and-trade program means we can send back duplicative programs like NSR and still be satisfied.

Sure, we’ll need complementary policies that work in a coordinated fashion with a cap-and-trade program. These side dishes of the cap-and-trade meal are targeted programs that are designed to enhance cap-and-trade’s impacts without getting in the way of the functioning of the primary program. A comprehensive climate bill can work just fine without NSR.

 

Michael Tubman is the Congressional Affairs Fellow

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