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Environmental Regulations return billions to Taxpayers - December 30, 2013

This past year, the Office of Management and Budget (OBM), in accordance with the Regulatory-Right-to-Know Act, created a benefits and costs review of all the major federal departments and agencies. This review period spanned from Oct. 1, 2002, to Sept. 30, 2012.

The OBM report summarizes estimates by federal regulatory agencies of the quantified and monetized benefits and costs of major federal regulations during the past 10 years. The review might be surprising to some, as it finds that almost all rules and regulations created and upheld during this time period provided significant returns to taxpayers per their initial investments and the agency with the best benefits to costs ratio was actually the Environmental Protection Agency (EPA).

The estimated annual costs of countrywide regulations by all major federal departments and agencies was between $57 billion and $84 billion, while the estimated benefits ranged from $193 billion to $800 billion. Out of all the federal agencies and departments reviewed by the OBM, the EPA had the highest cost/benefit ratio by far.

From 2002-2012, it was estimated that the cost of EPA regulations per year was around $30.4 billion to $36.5 billion. The benefits derived from these regulations was estimated per year at around $112 billion to $637.6 billion. This means that taxpayers are seeing increasing returns of anywhere from 268 percent to 1,646 percent per initial cost for just the major EPA rules. The EPA manages to do all this despite the fact that over this 10-year span, it had the most major rules to follow and uphold, with 32, out of all the federal departments and agencies.­

The review shows the rules with the highest benefits and the highest costs, by far, come from the EPA, and in particular the Office of Air and Radiation. EPA rules and regulations account for 58 percent to 80 percent of the monetized benefits and 44 percent to 54 percent of the monetized costs in this OBM review. Of the EPA’s major 32 rules, 21 are related to the Clean Air Act and reducing airborne pollutants.­

The EPA rules that have either a primary or significant aim to improve air quality account for 98 percent to 99 percent of the benefits of all EPA rules, an overwhelming majority. The Office of Water, also under the EPA, had only five major rules, which cost between $0.7 billion and $0.8 billion annually, with annual benefits between $1.1 billion and $3.6 billion. The EPA also partnered with the Department of Transportation on three rules regarding motorized vehicle pollutants. The annual costs of these were between $7.3 billion and $14 billion, while the benefits were between $27.3 billion and $49.6 billion annually. However, not all rules and regulations created by the government fall on federal departments or agencies.

The report goes on to present an analysis of the impacts of federal regulations on state, local and tribal governments, small business, wages and economic growth throughout the country. During the past 10 years, only five rules have imposed costs of more than $100 million per year on state, local and tribal governments that have been classified as public sector mandates under the Unfunded Mandates Reform Act.

Of these five rules, three of them are EPA-based mandates. These mandates are focused on long-term enhanced surface water treatment and stage 2 disinfection byproducts of national primary drinking water and emission standards from coal, oil and electric utility steam generating units. These mandates have a combined annual cost of approximately $9.8 billion, while they have a combined annual benefit of between $34 billion and $92 billion. Keep in mind that the costs and benefits associated with these three mandates are through the state, local and tribal governments across the country.

Many people assume that as environmental regulations increase, this puts a burden on companies, which results in layoffs and less employment opportunities. However, the OBM report cites examples which counter this.

In a 2002 paper titled “Jobs Versus the Environment: an Industry-Level Perspective,” written by Morgenstern, Pizer and Shih, the authors examine four industries highly influenced by environmental regulations to see if there is an impact of higher abatement costs from environmental regulations on employment. Overall, the authors conclude that increasing abatement expenditures generally do not cause a significant change in employment levels.

The authors go on to state that “increased environmental spending generally does not cause a significant change in industry-level employment. Our average across all four industries is a net gain of 1.5 jobs per $1 million, in additional environmental spending.” There is also some research that shows that increases in environmental regulations often lead to increases in expenditures for research and development, in both employment and technology.

This most recent OBM report reiterates what many environmental advocates and advocacy groups have been stating for years: the long-term benefits often outweigh the costs for environmental regulations.

While many naysayers point to monetary losses for businesses forced to change due to environmental regulations, the benefits are often not monetary but immeasurable nonetheless. How much is a child growing up asthma-free or a family having access to clean drinking water worth? Overall, we can see that environmental regulations not only pay back billions of dollars to taxpayers, but also increase quality of life.


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