Navigant Research Blog

New Emissions Rule Won’t Destroy the Economy

Ryan Citron — June 4, 2014

The Environmental Protection Agency’s (EPA’s) new emissions rule, released on June 2, proposes to reduce carbon dioxide emissions from power plants by 30% compared to their 2005 levels.  It follows a surge of reports warning of the dire consequences of failing to rapidly transition to a low carbon economy, including the Obama Administration’s National Climate Assessment, the National Security and the Accelerating Risks of Climate Change report from the Center for Naval Analyses, and a new study from researchers at the University of California Irvine and NASA.

Critics of the EPA’s proposal are once again arguing that environmental regulations will destroy the U.S. economy.  Senator James Inhofe (R-Okla.) stated that “More EPA regulations … threaten the reliability and affordability of our power grid, will weaken our economy, and drive more people into the unemployment lines.”  The U.S. Chamber of Commerce estimates that the plan would eliminate $50 billion a year in GDP.  However, the history of environmental regulation makes it clear that these alarms have not been borne out by subsequent events.  Similar responses followed the 1990 Clean Air Act (CAA) amendments, which targeted reductions in acid rain, urban air pollution, and toxic air emissions.  Auto industry executives at the time claimed that “[Further reducing auto emissions] is not feasible or necessary and that congressional dictates to do so would be financially ruinous.”  Peer-reviewed studies have demonstrated that the central benefits of the programs established by the 1990 CAA amendments have actually exceeded the costs of the program by a factor of more than 30:1.

Health experts have estimated that in 2010 alone, the CAA amendments were responsible for:

  • Avoiding more than 160,000 premature deaths, 130,000 heart attacks (acute myocardial infarction), millions of cases of respiratory problems such as acute bronchitis and asthma attacks, and 86,000 hospital admissions – thus avoiding the costs to the economy of all of these health issues.
  • Preventing 13 million lost workdays, improving worker productivity.
  • Keeping children healthy and in school, avoiding 3.2 million lost school days due to respiratory illness and other diseases caused or exacerbated by air pollution.

Adaptation and Innovation

The EPA estimates that while investments of about $8 billion a year will be needed to meet the emissions limits, the new emissions rule will save 6,600 American lives and $50 billion annually on health costs related to air pollution.  Additionally, a study by the NRDC and ICF International found that the emissions rule could create 274,000 jobs through energy efficiency and renewable energy solutions.

It’s clear that when challenged by stricter environmental rules, industry finds ways to adapt and innovate, and the savings to society outweigh the costs imposed on the particular regulated industry.  This is particularly true of the potentially disastrous costs of climate change.  Proponents of “cheap coal,” for example, ignore a 2011 study, published in the American Economic Review, which concluded that the mining and burning of coal actually imposes more costs on the economy than the value it creates by generating electricity.

The figure below from the Pacific Institute shows U.S. GDP from 1929 to 2013 in real 2009 dollars (corrected for inflation), along with major environmental legislation passage.  No correlation exists between the implementation of environmental regulations and damage to the U.S. economy.

(Source: Pacific Institute)

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