Wednesday, October 15, 2003

Reality Bites

The holidays are coming. And you know what that means. Those tiresome arguments with your Republican relatives about what a great job the Bush Administration has done in relieving the “regulatory burden” on the poor suffering business community. But it ain’t so.

A standard refrain from Congress all throughout the Clinton Administration was “Help, help. Too many costly regulations. We’re all going out of business. The sky is falling. Woe is us.”

Well, now we have a former EPA administrator of the Republican persuasion arguing pointing out the environmental regulations are good for the economy – even better than EPA has argued.

Bill Reilly, EPA administrator under the first President Bush, writes about the OMB study that came out a couple of weeks ago showing that “the benefits of Environmental Protection Agency regulations -- benefits to both health and the economy -- significantly exceeded the economic costs of complying with those regulations”

Industry representatives, of course, disagreed. Reilly is not convinced:
An industry spokesman quoted in The Post responded to the report by claiming that the EPA typically underestimated the costs when proposing new regulations. That is no doubt a widely held view. It is dead wrong.
And not only was the industry wildly overestimating costs (no surprise there), but even the EPA overestimated the costs of regulations.

Referring to acid rain regulations issued while he was at EPA, Reilly describes reality:
The electric power industry estimated that eliminating one ton of sulfur dioxide (the bill aimed to eliminate 10 million tons) would cost more than $1,300.The EPA, CEA and OMB ultimately agreed on a cost estimate of $600 to $800 per ton. We got it wrong: Over the ensuing decade the cost proved to be less than $200 per ton.

In fact, a review of some of the major regulatory initiatives overseen by the EPA since its creation in 1970 reveals a pattern of consistent, often substantial overestimates of their economic costs. Catalytic converters on cars, the phaseout of lead in gasoline, the costs of acid rain controls -- on each of these, overly cautious economic analysts at the EPA advocated proposals they considered important but projected high-end costs that undercut the acceptance of, and heightened the opposition to, their initiatives. In fact, the OMB report makes clear that the weakness in analyzing the likely impact of new environmental rules lay in a highly conservative calculation of benefits. Where the costs of four major EPA rules in the 1990s were $8 billion to $8.8 billion, the benefits are now calculated to have been between $101 billion and $119 billion.
The main reason estimates of costs and benefits have been off is that official analyses fail to take into account technological innovation in response to regulations.

A 1995 study by the Office of Technology Assessment (OTA) on several OSHA regulations showed the exact same thing. The OTA
looked at several OSHA standards that had been in effect for a number of years to determine the accuracy of cost and benefit estimates by OSHA and the regulated industries. The study showed that not only does industry grossly overestimate expected costs, but even OSHA routinely overestimated the costs and underestimated the benefits of standards. OTA found that part of the reason that OSHA overestimates costs is that the agency fails to take into account the fact that American businesses are especially talented at developing new technologies that are much more cost effective and efficient than OSHA had predicted.
So cut this article out and take it with you when you head home for the holidays.