Every day we all have to make trade-offs between various goods, services, and opportunities. So when we spend our money, most of us try to make sure the benefits of what we purchase or invest in outweigh their costs. Surely government regulators should strive to do the same thing, right? If the costs of a regulation outweigh its benefits, then it would be a bad idea to adopt it.
That's the simple idea that Environmental Protection Agency (EPA) chief Scott Pruitt advanced this week in a memorandum on updating the country's National Ambient Air Quality Standards (NAAQS). The memo asks the agency's independent Clean Air Scientific Advisory Committee to watch out for "any adverse public health, welfare, social, economic, or energy effects which may result from various strategies for attainment and maintenace of such NAAQS."
For some activists, that makes this memo an outrage.
You may have assumed that the government already tries to weigh the benefits and costs of clean air regulations. It doesn't. In the 2001 case Whitman v. American Trucking Associations, Justice Antonin Scalia, writing for the majority of U.S. Supreme Court, noted that under the Clean Air the EPA is instructed "to set primary ambient air quality standards 'the attainment and maintenance of which...are requisite to protect the public health' with 'an adequate margin of safety.'" Scalia concluded that the Act's mandate to protect public health "unambiguously bars cost considerations from the NAAQS-setting process." Notionally speaking, this implies that there's no limit to the amount the EPA could force emitters to spend if by reducing air pollution by one more molecule it might prevent one extra asthma attack. Never mind the jobs lost, the wages foregone, the health insurance premiums unpaid, the doctor's appointments never made, and the cancer diagnoses missed.
In a concurring opinion, Justice Stephen Breyer did suggest that there might be a limit to just how much clean air standards should cost. As he observed, "preindustrial society was not a very healthy society; hence a standard demanding the return of the Stone Age would not prove 'requisite to protect the public health.'" At minimum, then, regulations that would entirely de-industrialize the country would likely be ruled out.
Barack Obama's EPA took Scalia's reasoning to heart when it issued new regulations on power plants that aimed to reduce their emissions of mercury. In the 2015 case Michigan v. EPA, the same Justice Scalia who ruled that costs were no object in Whitman noted that the agency's own Regulatory Impact Analysis "estimated that the regulation would force power plants to bear costs of $9.6 billion per year. The Agency could not fully quantify the benefits of reducing power plants' emissions of hazardous air pollutants; to the extent it could, it estimated that these benefits were worth $4 to $6 million per year. The costs to power plants were thus between 1,600 and 2,400 times as great as the quantifiable benefits from reduced emissions of hazardous air pollutants."
In this new majority opinion, Scalia and the court distinguished between the provisions of the Clean Air Act setting NAAQS and those limiting the emissions of pollutants from power plants. The majority concluded that "it was unreasonable for EPA to read [the statutory provisions] to mean that cost is irrelevant to the initial decision to regulate power plants. The Agency must consider cost—including, most importantly, cost of compliance—before deciding whether regulation is appropriate and necessary." The Court sent the case back to the agency for another try.
The Obama EPA duly issued a 2016 supplemental finding claiming that putting limits on power plant mercury emissions would produce clean-air benefits worth up to $90 billion at a mere cost of $9.6 billion. A 2016 study funded by the Electric Power Research Institute countered that about 99 percent of the rule's monetized health benefits from reduced particulate pollution were projected to occur in areas that had already attained the appropriate NAAQS for particulates. In other words, the agency was padding its calculations by double-counting benefits.
At the request of the Trump EPA, the Court of Appeals for the District of Columbia Circuit agreed in April 2017 to delay litigation over the new mercury emissions rule while EPA reviews the supplemental finding.
The EPA is supposed to review and update the NAAQS every five years. Pruitt's proposal to bring a bit of economic rationality to the new review has provoked outcries from activists. "It's stacking the deck on behalf of industry," the Harvard Joel Schwartz environmental epidemiologist tells the Associated Press. "This is all an attempt to create a process that limits the science that can be considered and include external factors that aren't relevant, with a goal of ripping out the heart and lungs of the Clean Air Act," Paul Billings of the American Lung Association tells InsideClimateNews.
On its face, the EPA's proposal to balance the costs and benefits of air pollution regulations makes a lot of sense. As the saga of the Obama administration's supplemental finding on mercury emissions suggests, agencies can gin up pretty much whatever figures they like to justify their regulatatory decisions. There are a lot of opportunities to put your thumb on the scales when combining econometric models, regional pollution projections, and highly elastic epidemiological studies. In this case, the pendulum swing of regulatory action might at least for a while swing back toward economic rationality.