A recent study from the National Association of Manufacturers (NAM) claims that smog regulations proposed by the Environmental Protection Agency (EPA) will cost the economy $270 billion. But the regulations, necessary to alleviate the unsafe smog pollution currently experienced by 140 million Americans, will likely achieve net benefits by reducing costs associated with medical expenses and premature deaths, while experts have said the NAM study uses "fraudulent" claims and is "not based in economic reality."
EPA Required To Strengthen Smog Standards, Save Lives
Agency Required By Law To Propose More Stringent Regulations. The U.S. Environmental Protection Agency (EPA) is legally required to regulate ground-level ozone pollution, commonly known as smog, under the Clean Air Act. The Act requires that the EPA revisit its National Ambient Air Quality Standards (NAAQS) every five years to take the latest science into account, and most recently, the science showed that the agency needs to strengthen its ozone standards. In June 2014, the EPA's Clean Air Scientific Advisory Committee recommended that the agency lower the limit of ozone pollution from its current standard at 75 parts per billion (ppb) to between 60 and 70 ppb. A federal judge ruled that the agency needs to produce a draft of new, more stringent ozone regulations by December. [EPA.gov, accessed 8/19/14; EPA.gov, 6/26/14; Huffington Post, 4/30/14]
Current EPA Ozone Regulations Expose 4 In 10 Americans To Dangerous Pollution. The American Lung Association's State of the Air report found that between 2010 and 2012, more than 140 million Americans, or more than 4 in 10 Americans, lived in areas with dangerous levels of ozone. ALA detailed the risks of living in such a situation:
More than 140.5 million people live in the 296 counties that received an F for ozone levels. These people live where the monitored air quality places them at risk for premature death, aggravated asthma, difficulty breathing, cardiovascular harm and lower birth weight. The actual number who breathe unhealthy levels of ozone is likely much larger, since this number does not include people who live in adjacent counties in metropolitan areas where no monitors exist. [American Lung Association, State of the Air 2014, accessed 8/19/14]
Stronger Ozone Rules Would Help Prevent Up To 12,000 Premature Deaths Per Year, Bring $100 Billion Economic Benefits. The EPA has performed a regulatory impact analysis of the forthcoming rule and determined that more stringent, scientifically sound standards could help prevent up to to 12,000 premature deaths per year, and provide up to $100 billion in economic benefits from mortality and health improvements. [EPA.gov, 1/7/10]
Proposed Regulations Under Attack, Industry-Funded Report Spreading Through Nationwide Media
Industry Lobbyists Already Attacking Proposed Rules -- Even Though They Don't Yet Exist. The National Association of Manufacturers (NAM), a trade group which lobbies for oil industry powerhouses like ExxonMobil and the American Petroleum Institute, commissioned a report from NERA Economic Consulting to attack the forthcoming rules on ozone pollution. The study asserted that the EPA's more stringent ozone regulations will have huge effects on the economy, analyzing specifically a potential standard of 60 ppb of ground-level ozone. From the report's executive summary:
A new study by NERA Economic Consulting and commissioned by the National Association of Manufacturers (NAM) reveals that a new ozone regulation from the Obama Administration could cost $270 billion per year and place millions of jobs at risk.
This would be the most expensive regulation ever imposed on the American public.
The study found that a stricter new ozone regulation could:
- Reduce U.S. GDP by $270 billion per year and $3.4 trillion from 2017 to 2040;
- Result in 2.9 million fewer job equivalents per year on average through 2040;
- Cost the average U.S. household $1,570 per year in the form of lost consumption; and
- Increase natural gas and electricity costs for manufacturers and households across the country.
NAM Report Cited By Media Across The Country. Several national and state newspapers and a wire service have covered the report's findings uncritically or cited it to attack the EPA:
- Bloomberg News amplified NERA's findings uncritically on August 1. The article noted that several Congressmen used the study to criticize the EPA, including Sen. David Vitter's (R-LA) statement that the regulations would "throw our country's economy into a black hole." [Bloomberg News, 8/1/14]
- An op-ed published in the conservative news site Daily Caller cited the study to claim that environmental groups are only demanding "steadily more restrictive standards" because these groups "need to stay in business," while the regulations are unnecessarily costly. [Daily Caller, 8/15/14]
- The Oklahoman board published an editorial titled "EPA regulations provide little long-term benefit," citing the NAM study to conclude that "with friends like the EPA, enemies are redundant." [The Oklahoman, 8/13/14]
- A column from Anastasia Swearingen was published in the Tampa Tribune, the American-Statesman, and the Las Vegas Review-Journal, and claimed that the proposed strengthening of the ozone regulation is an "overreach that promises shared pain for minimal gain, one that serves only to extend Obama's control over the economy." Swearingen is a senior research analyst at the "Environmental Policy Alliance," an industry lobbying and public relations group spearheaded by Rick Berman, someone who relishes being called "Dr. Evil," that has targeted several EPA regulations. [Tampa Tribune, 8/14/14; American-Statesman, 8/19/14; Las Vegas Review-Journal, 8/19/14; Huffington Post, 3/7/14]
- The Wall Street Journal published an op-ed from Jay Timmons, the CEO of NAM, to tout the report's findings and demanded that the "EPA should put on the brakes and allow the existing ozone standards to be implemented." [Wall Street Journal, 8/13/14]
- Several more newspapers and news sources across the country amplified the NERA report. [Pittsburgh Tribune-Review, 8/10/14; Examiner.com, 8/9/14; American Press, 8/11/14; CNS News, 8/8/14; The Daily Signal, 8/4/14; Times-Picayune, 7/31/14]
Media Should Be Wary: Experts Criticize Report's Many Flaws
NYU's Michael Livermore: They Calculated Costs "In An Insane Way." Michael Livermore, senior advisor at New York University's (NYU) Institute for Policy Integrity explained during a telephone interview with Media Matters how NERA calculated costs in their study. Livermore noted that the EPA has concluded that existing technologies are not sufficient to meet the proposed ozone standards, and that the agency forecasted that technological advances will be necessary to reach them. But NERA extrapolates from the "Cash for Clunkers" program to account for the non-existing technologies, which Livermore stated was "an insane way" of doing so as the vehicle scrap program is not ideal for achieving environmental benefits. He expanded (edited lightly for clarity and emphasis added): NOx [nitrogen oxide]
When EPA proposed revising the ozone NAAQS in 2010, it developed a list of technologies and their cost per ton of NOx [nitrogen oxide] reduction. Based on that list, NERA noted that existing technologies are not sufficient to meet the standards and then extrapolated an estimate for the costs of achieving the standards. So far so good. But they basically go about that extrapolation in an insane way.
For an anchor point, they look at the Cash for Clunkers program, which was basically an economic stimulus program, not an environmental program. And everyone agrees that it was an extremely expensive way to achieve environmental goals. As an environmental program, nobody thinks that this is a good idea. They look at that, they then look at the cost per unit of reduction of carbon dioxide in the Cash for Clunkers program and then draw a comparison to ozone. They estimate what they call a 75% NOx reduction and extrapolate a cost of a half a million dollars per ton of NOx reduction. Then they use a linear model to estimate the cost of achieving a new, tighter ozone standard, landing at a marginal cost of $120,000 per ton.
That's what they do, and on the basis of that per-year reduction estimate, they generate claims that there's going to be... $1600 per person per family cost and other extravagant numbers about what the economic effects of the ozone standards are going to be. But the foundational cost estimates are unmoored from any economic reality. Certainly from any political reality. [Michael Livermore, 8/15/14, via Media Matters]
MIT's Frank Ackerman: Job-Loss Estimates Are "Fraudulent." Frank Ackerman, lecturer in climate and energy policy at the Massachusetts Institute of Technology (MIT) and a senior economist at Synapse Energy Economics, criticized NERA for catering to the "demand" for "huge job loss" estimates by using "fraudulent" job-loss calculations. From an emailed statement to Media Matters:
[T]he job-loss calculations reported by NERA are completely fraudulent. As a careful reading of the report will reveal, the model they use NEVER calculates any actual job losses. It assumes full employment in every situation, following the theoretical prescriptions of the conservative, free-market-oriented economics that is based on. Yet, in the partisan circles they travel in, the demand for job loss estimates is overwhelming: what says "bad policy" better than "huge job losses"? So what they do is, literally, calculate a loss of income - typically based on complex economic modeling that suggests a slight reduction in average incomes - for the fully employed population. Then they divide the estimated total income loss by the average worker's income, and call the result "job-equivalent losses." That is, if they estimate a 1% overall drop in incomes (with everyone still employed, as their model always assumes), they report that as if it were a loss of 1% of all jobs. And since there are more than 100 million people employed in the US, 1% is more than a million people. [Frank Ackerman, 8/15/14, via Media Matters]
NERA Assumed "Unrealistic Picture" On Existing And Non-Existing Technologies. The EPA notes that technologies don't necessarily exist yet to bring ozone pollution levels down to the scientists' recommendations. Livermore explained that this is a common occurrence, and actually speaks more to why the regulations are necessary in an effort to spur needed technological development:
The EPA, in its own analysis, acknowledges that new technologies will need to be developed in order to reach the standard. That is not unusual, because companies don't have incentives to develop pollution control technologies if you haven't placed requirements on them. And so that's often the context when you have more stringent environmental regulation. When you have controls that you're expecting to be developed over time, it's hard to predict how much they're going to cost.
Typically, the costs of environmental regulation have not been as high as anticipated because we live in a dynamic economy - there's innovation, and there are a variety of ways that businesses figure out how to achieve environmental goals at low costs. So normally, the EPA adopts a regulation, businesses figure out how to comply, and it ends up being less expensive than anticipated. [Michael Livermore, 8/15/14, via Media Matters]
Yet NERA's findings jump on the fact that not all technologies exist yet, and fill in their own version of how they will be accounted for, according to Ackerman:
The NERA report simply rejects EPA's cost projections, and decides to use the cost of scrapping old vehicles as the basis for the costs of many future emission reduction technologies. This produces a big number for the cost of future technologies, which then can be used to project a big income loss, which then turns into a big "job-equivalent" loss even though everyone is still (by their own assumption) fully employed. [Frank Ackerman, 8/15/14, via Media Matters]
Livermore added that NERA's analysis developed "an extraordinarily high and basically unrealistic picture of how expensive those costs are going to be" because they fail to account for the economic reality of businesses achieving low-cost ways to meet the standards:
What NERA's done is they've taken this fact that we don't know what the technologies are going to be, and developed an extraordinarily high and basically unrealistic picture of how expensive those costs are going to be. And that picture is unrealistic for many reasons. They use the Cash for Clunkers program to develop their baseline, which is highly problematic. They fail to account for the fact that, in past environmental regulations, we've seen businesses and industries develop and achieve low-cost ways of meeting standards. [Michael Livermore, 8/15/14, via Media Matters]
NERA Doesn't Account For Well-Established Flexibility, Adaptability. Livermore explained that the regulations will take years to implement as states submit their own plans for approval, and that the EPA is typically very flexible in the time period for allowing areas to reach compliance with the standards, but that NERA doesn't account for this reality in their economic analysis:
There is flexibility built into the NAAQS process that is meant to address cost issues. This is a multi-year process: EPA proposes the standards and then the states have to propose their state plans. To get an accurate picture of costs, you need to account for the time lag, and the fact that states will develop plans that reduce costs, and the fact that EPA won't, as a political reality, impose ridiculous or draconian costs.
Finally, to estimate employment effects, which is always a difficult and complex endeavor, NERA's analysis (in addition to using cost estimates that have some basis in reality) would need to accurately predict the macroeconomic situation several years from now, when the standards are actually implemented. [Michael Livermore, 8/14/14, via Media Matters]
- In fact, EPA Administrator Gina McCarthy released a statement on August 14 that the EPA is going to allow time for several areas around the country that are still in non-attainment with the current ozone standards to reach compliance, writing that "the EPA believes it is appropriate to allow time for the affected states to consider appropriate measures to address the air quality problems." [E&E News, 8/18/14]
NERA Doesn't Account For Any Benefits, Is Answering A "Senseless Question": The EPA has estimated that even with the most stringent standard of 60 ppb, the economic benefits of a stronger ozone regulation would outweigh the costs: up to $100 billion in benefits compared to $90 billion in costs. Ackerman explained that by not including the benefits, NERA is answering a "senseless question" in their economic analysis:
[T]here's no reason to follow NERA in forgetting the health benefits - that's the whole point of a regulation like this.
So in cost-benefit terms, they are answering the senseless question, "If there were no resulting health and environmental benefits, would it be worth engaging in environmental regulation?" The negative answer is not surprising, and is also not informative. If you don't need food, is it worth spending money in a supermarket? Yet the supermarkets are full of shoppers. Many costly environmental regulations have benefits far exceeding their costs; but you can't tell that from a study like NERA's. [EPA.gov, 1/7/10; Frank Ackerman, 8/15/14, via Media Matters]
NRDC Attorney: NERA Leaving Out The Benefits "Speaks To What A Propaganda Piece This Is." Emily Davis, an attorney at the National Resources Defense Council (NRDC), stated in a telephone interview with Media Matters that the omission of benefits "speaks to what a propaganda piece this is and how divorced it is from reality" (edited lightly for clarity):
To take an even bigger step back, the most egregious part of their report is but also they don't even acknowledge anywhere that there are any benefits at all to reducing air pollution. We know for a fact that there are 150 million Americans in the country that breathe air that is unhealthy. Certainly they don't assign benefits to the tighter standards which is totally disingenuous in itself, and they don't even acknowledge that there's millions of Americans that have asthma, that have COPD, that have missed days of school and work because they can't go outside. More than anything, that failure to acknowledge the harms caused by air pollution, speaks to what a propaganda piece this is and how divorced it is from reality. [Emily Davis, 8/18/14, via Media Matters]
Analysis "Overlooks" Corresponding Strategies That Will Reduce Ozone. In a written statement to Media Matters, John A. "Skip" Laitner, a resource economist and principal consultant at Economic and Human Dimensions Research Associates, explained that the NERA analysis "overlooks two major strategies that are already in play which will both reduce costs and provide large-scale reductions in [o]zone concentrations," including the EPA's clean power plan (111d) which will reduce carbon pollution:
At the same time, the NERA analysis overlooks two major strategies that are already in play which will both reduce costs and provide large-scale reductions in Ozone concentrations. The first is the major fuel savings and emissions reductions from the new vehicle standards signed in to effect by the Obama Administration in August 2012...
The second is the large scale reductions catalyzed by the proposed EPA section 111d standards. In a May 2014 memo written by the EPA... the agency found that in addition to the climate benefits of reducing carbon dioxide emissions from electric power plants, health care benefits might range from $16 to $41 billion per year by 2030. [Skip Laitner, 8/18/14, via Media Matters]
There is well-established research showing that global warming worsens ozone concentrations, so the EPA's efforts to mitigate climate change will help alleviate smog pollution. [Union of Concerned Scientists, 2011]
EPA: NERA's Study Is Premature. An EPA spokesperson stated in an email to Media Matters that NERA's analysis is "premature" and "not based on actual agency actions," and pointed out that the 40-year-old Clean Air Act has a track record of cutting air pollution while still growing the economy:
Any economic analysis on a new standard would be premature at this point and not based actual agency actions. History has proven time and time again we can reduce pollution--and grow the economy at the same time. Over the past 40+ years, we've cut air pollution by more than 70 percent and in the same time GDP has tripled. [EPA, 8/14/14, via Media Matters]
Pro-Industry Bias Makes NERA Regulation Report "Suspicious"
NERA's Industry Bias Makes The Report "Suspicious." NRDC attorney Emily Davis stated that NERA has a history of economic analyses with "flaws in assumptions" and "built-in industry bias," and said that they "reveal themselves" in the latest report when they "essentially call for gutting the Clean Air Act":
They reveal themselves in the last paragraph [of the executive summary], where they essentially call for gutting the Clean Air Act. I think that is the real driving force here in that industry has a fundamental problem with the fact that the Clean Air Act requires standards to be based on health and health alone.
We've come across a number of reports that NERA has done in a few different contexts that NRDC has blogged about... the flaws in assumptions and typical of the built-in industry bias in their reports is easy to pull out and just makes this report look even more suspicious. [Emily Davis, 8/18/14, via Media Matters]
NERA Consistently Finds "Environmental Protect" To Be "Horrendously Expensive." MIT's Frank Ackerman agreed that report's conclusions were predictable, as NERA consistently uses a model to find that "environmental protection is horrendously expensive":
The NERA report uses a model that they have used, again and again, to find that environmental protection is horrendously expensive. It's reliable; try it on a new problem, you'll get the same answer. [Frank Ackerman, 8/15/14, via Media Matters]
NERA Produced Similarly "Disingenuous" Report In 2011. NRDC has detailed the flaws in previous NERA reports, including a similar "disingenuous" study in 2011 on the EPA's ozone regulations. NRDC's Laurie Johnson wrote that "the company has conducted numerous analyses at the behest of polluters." [NRDC, 8/16/11]
Image at top from Flickr user JC Tuclaud with a Creative Commons license.