National Center for Environmental Economics

Environmental regulation in the United States stands accused of causing a broad array of undesirable economic consequences. It is said that environmental regulation is too expensive, reduces economic growth, hurts international competitiveness, and causes widespread layoffs and plant closures. Sometimes, it is said, it even forces businesses to flee to more accommodating countries. The view that environmental regulation seriously harms the U.S. economy is so firmly established that it has become the centerpiece in the series of attempts over the last few years to roll back the very rules that have produced such dramatic improvements in environmental quality.

These are important charges. Even though they are usually put forward by interested partisans, they should not be taken lightly. If they are true, even partially true, some serious rethinking of environmental policy would seem to be in order. But if not, it might be helpful to explain, once and for all, why not. At the same time, we can see if some of these criticisms nonetheless still have something of significance to say about our environmental policies.

This article examines a variety of claims about the costs of environmental regulations by bringing to bear what accepted economic research had to say about these issues as of 1999 when the article was written. The following analysis is not about conflicting experts; these are areas in which economists are in substantial agreement. What is available from the literature may not always be conclusive, but as we will see, it certainly is an improvement over scary anecdotes and apocalyptic assertions. In addition, this article does not depend on dueling numbers - where economists have produced different numbers, they do not significantly change the conclusions drawn from them. Instead, this analysis explains what the numbers mean to economists, and more important, what they mean - or should mean - to citizens and policymakers, who want both environmental protection and a strong economy.

While the claims about supposed damage to the economy can mostly be attributed to misinformed advocates or simple exaggeration - plus a few headline-making events like the spotted owl controversy - in truth the majority of the fault lies in a lack of accurate communication of economists' findings about the effects of environmental regulation to the general public, a lack to which regulators, the regulated, and the economics profession all have contributed. In the contentious area of environmental policy, what does get communicated is sometimes misinterpreted or taken out of context. For example, worst-case economic impact scenarios for a regulation - say, potential increases in unemployment and plant closures - are reported not as low probability possibilities, but as very real looming threats. If the probability of being stuck by a meteor streaking to earth was presented in the same way, many people might never venture outdoors.

Specifically:

1. What Do We Spend on Environmental Protection?
2. Regardless of the Cost of Environmental Protection, Is It Still Money Well Spent?
3. Does Environmental Protection Cause Unemployment, Plant Closures, and Reduce International Competitiveness?
4. Does Environmental Protection Decrease U.S. Economic Growth?
5. Multi-Sector Economic Modeling Results Must Be Interpreted With Caution
6. What Conclusions Can We Draw?

See also:

Summary
References

From:
ENVIRONMENTAL PROTECTION: IS IT BAD FOR THE ECONOMY?
A Non-Technical Summary of the Literature
by Frank S. Arnold, Applied Microeconomics Incorporated
with the assistance of
Anne S. Forrest and Stephen R. Dujack, Environmental Law Institute

Prepared by Environmental Law Institute, 1616 P Street, NW, Washington, D.C. 20036
July 9, 1999

Prepared under EPA Cooperative Agreement CR822795-01 with the Office of Economy and Environment, U.S. Environmental Protection Agency, Washington, D.C. 20460
Project Officer: Alan Carlin
Office of Economy and Environment, Office of Policy
U.S. Environmental Protection Agency, Washington, D.C. 20460

Disclaimer: Although the information in this report has been funded wholly or in part by the United States Environmental Protection Agency under Cooperative Agreement No. CR822795-01 with the Environmental Law Institute, it does not necessarily reflect the views of the Agency and no official endorsement should be inferred. Mention of trade names or commercial products does not constitute endorsement or recommendation for use.