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Putting Economics On The Side Of The Environment

A group of government economists runs costs benefit analyses of government regulation to see if the expense for business is worth the savings for the rest of the world. It’s reviled by environmentalists and businesses, but both should get on board with its findings.

Putting Economics On The Side Of The Environment
Inside this building lurks the Office of Information and Regulatory Affairs, enemy of the environment and factories alike! Flickr user Tom Lohdan

Some folks seem to imagine that there’s a small, semi-secret team of economist-bureaucrats in the White House toiling away to scuttle environmental regulations. Others think this office of experts has unleashed a regulatory tsunami on businesses, drowning profits and washing away jobs.

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There is, in fact, such a group–though it’s not doing either of those things, at least not intentionally. It’s the unsexy but important Office of Information and Regulatory Affairs (OIRA), charged with weighing the economics of any regulation worth more than $100 million. Carefully reviewing the cost-benefit analyses agencies perform for each major rule, these (mostly) economists look to see if the experts have accurately examined whether, say, a rule requiring new scrubbers on smokestacks is worth the price of implementation.

Here’s what both sides of the debate need to come to terms with: When it comes to measures that protect public health, strong protections are often (although not always) economically worthwhile. Of all the environmental regulations proposed by the Obama Administration, the vast majority provide public economic benefits far in excess of the costs of complying. This means that, yes, it may cost businesses some cash to clean the air, but if they just continue their polluting ways, the cost is just imposed on the public instead–sometimes many times over.

In these cases, money is not saved by forgoing public health. It is simply transferred.

That hard economic numbers come out in favor of stronger environmental protections should be music to some ears. Pro-environment arguments are certainly strengthened by the fact that clean air and water protections earn more than we pay for them.

Yet rather than play to this major strength, too often advocates see OIRA as an adversary. There seems to be an assumption that the regulatory review deck is stacked against protecting the environment–that no matter what, cost-benefit analyses and the White House officials that review them are not to be trusted.

This sentiment can be seen in a recent report that questioned OIRA’s practice of meeting with members of the business community. The abundance of industry meetings is the result of OIRA’s open door policy, of which environmentalists can (and do) take advantage. The paper pointed to rules changed after these meetings but leaves out how they were changed: Were the changes technical or substantive? Did they strengthen the justification for the rule, or change the policy?

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The problem with taking this anti-OIRA tack is that it needlessly curdles the opinion of environmental groups toward cost-benefit analyses and misdirects advocates’ energy. Environmentalists are better off using a natural advantage–solid economics that support public health and safety protections–to advocate for stronger rules, rather than fighting an uphill battle against the wrong foe.

On the business side, concerns with OIRA manifest as constant complaints of over-regulation. No matter how many times cost-benefit analysis shows benefits outweighing costs, no matter how many cost estimates are proven to be exaggerations, no matter how many health studies are done, industry (for the most part) seems to refuse to acknowledge that their activities might need to be tweaked to protect human health.

Regulations are proposed to protect the public from the befouling of a shared resource: our air, water, and soil. The cost-benefit analyses done by agencies and reviewed by OIRA have become ever more sophisticated in pinning down exactly what is gained and lost with every ton of pollution that is cut, and OIRA’s economists have kept prodding them towards ever more fine-grained analyses. In many cases these reports are overly conservative, overestimating compliance costs and leaving too many public benefits on the table.

A recent review of just part of the Clean Air Act (PDF) demonstrates how analyzing the costs and benefits of public protections often shows their value. Using established economic techniques signed off on by academic and government experts, the agency judged that cleaner air is worth hundreds of billions of dollars to the public. In sick days spared, hospital bills rendered unnecessary, and untimely deaths avoided, these regulations combine to save Americans money far in excess of compliance costs.

Businesses who rail against OIRA and regulations in general must accept that when they do so, what they advocate is a shifting of resources from the pockets of the public to the bank accounts of their shareholders.

Cost-benefit analysis lays bare this trade-off in a way that should shame industry voices that oppose smart standards. Wouldn’t it be better to work with government to find cost-effective ways to reach these goals? What is the justification for inefficiently foisting large health costs onto the public?

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But until both sides come to terms with these truths about cost-benefit analysis, OIRA seems to be destined to remain the monkey-in-the-middle between environmental groups and industry types. Each view the office and its mission from polar opposite positions, but both seem to see a malevolent force. But since it is OIRA’s job to impartially focus on the cold, hard numbers, perhaps it is a sign of success that it has such few friends.

About the author

Michael A. Livermore is the executive director of the Institute for Policy Integrity and an adjunct professor at NYU Law.

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