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Ignoring All Costs Won't Clean Our Air

March 05, 2001|RANDALL LUTTER | Randall Lutter is a fellow with the AEI-Brookings Joint Center for Regulatory Studies in Washington

The U.S. Supreme Court's decision last week supporting the 1997 Clean Air Act establishes beyond a doubt the legality of the Environmental Protection Agency's position that it should set standards without any regard to feasibility or cost. But it also highlights the intellectual bankruptcy of current U.S. environmental policy.

The EPA's stance is contrary to the collective wisdom of the economics profession. For years economics textbooks have taught that pollution controls must balance incremental benefits and costs to maximize value to consumers. Controls established without regard to either costs or benefits will generally offer the most bang for the consumer's buck only through dumb luck. They will generally be either excessive or inadequate when compared to alternative and more considered ways of achieving the same goals.

The high court knew this wisdom because more than 40 of the best and the brightest economists signed a friends-of-the-court brief in favor of a ruling allowing the EPA to consider costs in setting air quality standards. But the Supreme Court rejected this recommendation on legal grounds.

The EPA's position is reflected in many federal environmental laws. Indeed, most statutes addressing health, safety and environmental risks limit federal agencies' ability to look at costs or benefits in developing their regulations. Agencies instead make decisions based on a narrow criterion, such as the existence of a control technology or evidence of health risks.

One result of regulatory decision-making with such blinders is that it can become Orwellian. Suppose that EPA scientists estimate that reducing ozone concentrations from 90 ppb to 80 ppb would annually prevent 5,000 asthmatics from being hospitalized and avoid 200,000 cases of temporary and mostly asymptomatic declines in lung function. This information leads the EPA to tighten the air quality standard from 90 to 80, even though analysts point out that attaining this air quality improvement would require draconian emissions cuts much greater than even the complete elimination of motor vehicles could achieve. If the necessary emissions cuts are indeed completely infeasible, then the estimated health improvements vanish like a desert mirage. Yet with the EPA's tunnel vision, these illusory and unattainable improvements would justify a regulation that gives the EPA enormous power over a broad variety of major economic decisions.

An important second point is that removing blinders would improve public health. Harvard researchers estimated that shifting existing risk-reduction efforts toward the more cost-effective alternatives (and away from those that are least cost-effective) would avoid about 60,000 deaths per year. Attaining the 1997 ozone regulation upheld by the Supreme Court would cost the country billions of dollars per year more than it would offer in health benefits, according to the EPA's overly optimistic estimates. Spending less money to control ozone and more to reduce, say, auto accidents or obesity would likely result in greater improvements in public health.

The Supreme Court's decision is the last word about the EPA's 1997 air quality standards. While the EPA has an opportunity to revisit them during the Bush administration, it seems unlikely to revise them because new EPA Administrator Christie Whitman has expressed support for the court's decision. The broader issue is what the Supreme Court ruling signals for the role of economics in environmental policy. People who recognize a role for economics in identifying the most efficient control strategies will have to fight hard to ensure that the next steps herald a renaissance and not a requiem for reform.

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