Clean air… hot air

With elections just about a year away, Americans can expect to hear a lot about regulation during the next twelve months—most of it from Republicans and most of it scathing.

Republican frontrunner Donald Trump typifies the GOP’s attitude toward regulation. At the conclusion of a speech on 14 September in Dallas, he said: “We’re going to get rid of all these ridiculous – everything is so bad – we’re going to get rid of the regulations that are just destroying us. You can’t breathe. You cannot breathe.”

Given the rambling nature of Trump’s speech it is difficult to know exactly what he was talking about, but the mention of breathing may have been a reference to regulations imposed by the federal Environmental Protection Agency (EPA), which has a mandate to establish and enforce regulations aimed at reducing air pollution, as well as protecting land and water resources.

Trump is not alone: the EPA is among the Republicans’ least favorite agencies. Presidential candidates Jeb Bush, Rand Paul, and Marco Rubio all call for cutting back on the EPA’s influence. During the 2014 election, candidate —now Senator — Joni Ernst (R-Iowa) advocated abolishing the Environmental Protection Agency altogether. And Senator Jim Inhofe (R-OK), chairman of the Senate’s Climate and Public Works Committee, whose skepticism of the overwhelming scientific evidence of climate change knows no bounds, is quoted as having compared the EPA to a “Gestapo Bureaucracy.”

Republican-leaning business groups like the US Chamber of Commerce, National Association of Manufacturers, and the American Legislative Exchange Council all carp about the cost of EPA regulations on American business.

Do these regulations, in fact, impose a cost on business? Of course, they do. But that is only half of the story.

Suppose you own a company that manufactures Jeb Bush barbecue aprons — a steal at $30 (and made in the USA!). Your company is very profitable. Consider the following fictional example. Let’s assume that for every $1000 worth of aprons you sell, you earn $100 profit; however, the manufacturing process is environmentally unfriendly — manufacturing $1000 worth of aprons spews 100 pounds of pollution into the atmosphere. The pollution is a byproduct of apron production, something economists call an ‘externality.’ Since the $100 profit is yours and yours alone, but the air pollution is shared with everyone in the neighborhood of your factory, you have an incentive to continue to pollute.

And so you do…until the EPA comes along and writes a regulation prohibiting you from belching pollution into the atmosphere. Your dismay is understandable— you have been making barbecue aprons for years and all of a sudden the government is robbing you of your hard-earned $100 profit. Your bottom line takes a hit (you cannot switch production into Carly Fiorina necklace flasks — only $22.50 — because they are imported). And opponents like the US Chamber of Congress increases their estimate of the crushing burden of federal environmental regulation by $100 and argues even more forcefully that environmental regulation is destroying American business.

But the above calculation of the regulation’s costs ignores its benefits. If 100 pounds of pollution causes $250 in damage to the economy (for example, from environmental damage and future health care costs arising from the increased incidence of lung diseases), restricting the polluting activity will make the economy as a whole better off, since society’s gain — in terms of improved health and environmental quality — exceeds your firm’s loss by $150.

Writing regulations that generate net societal gain is the object of administrations, both Democratic and Republican. In his 2007 Report to Congress on the Benefits and Costs of Federal Regulations and Unfunded Mandates on State, Local, and Tribal Entities, President George W. Bush— not known as the most environmentally friendly president— estimated that 39 EPA rules written between 1996 and 2006 cost between $39 and $46 billion, but brought benefits of between $98 and $484 billion. In other words, the benefits of these regulations were between 2 and 12 times the costs. President Obama’s 2014 edition of that report, considering 34 EPA rules introduced between 2003 and 2013, estimated that benefit-to-cost ratios were nearly twice as high, with benefits between 4 and 24 times costs.

It is, of course, reasonable to argue about the fine points of these calculations. However, the cost-benefit analysis of both Bush and Obama EPA regulations is so clearly on the side of benefits to society, it is reasonable to conclude that Republicans are more worried about the impact of environmental regulations on their friends in industry than about their benefits for the rest of us.

I wonder if the Marco Rubio 100% organic cotton made in the USA baby bib (only $15) is environmentally friendly.

Featured image credit: UN Climate Talks 2010. Cancun, Mexico, 2010 (United Nations) by UN Climate Talks. CC-BY-2.0 via Wikimedia Commons.