When economics get lost in the smog

This week, the U.S. Environmental Protection Agency (EPA) revised its air quality standard for smog (or ground-level ozone), meeting, by a matter of hours, a court-ordered deadline to do so. The EPA tightened the existing standard of 75 parts per billion (ppb), set by the George W. Bush administration, to 70 ppb, the least stringent of the revisions it was considering.

{mosads}Industry groups have railed against this revision for months, calling the compliance costs overly burdensome. Environmental groups have pushed for a much tighter standard of 60 ppb or lower, citing the EPA’s own research about smog’s adverse health effects. The 70 ppb standard might help assuage some industry cost concerns, but economic and public health data reveal that a more stringent rule would have had higher net benefits for the American public.

Supreme Court precedent bars the EPA from considering costs when setting National Ambient Air Quality Standards (NAAQS) under the Clean Air Act. The court made clear that the stringency of these standards should not be compromised by cost considerations. However, the EPA still publishes information on the economic costs and benefits of all revisions to these rules. And while costs ostensibly aren’t part of the agency’s calculus in setting the stringency of air quality standards, benefits have exceeded costs for each of these rules (though the carbon monoxide standard did not include enough information to make this assessment).

Ironically, the agency’s inability to explicitly take costs into account may be leading to inappropriately weak standards. The rules for lead, nitrogen dioxide, sulfur dioxide and particulate matter would all have had higher net benefits (that is, social benefits minus social costs) if they were more stringent. This is again the case for ozone.

Social welfare would almost certainly be higher with an even tighter ozone standard. In the regulatory impact analysis that accompanies the EPA’s final ozone rule, the agency provides data on an alternative 65 ppb standard that it evaluated along with the 70 ppb stringency. While costs for a 65 ppb standard are significantly higher, the benefits more than make up for these costs. The midpoint of the estimated net benefits for a 65 ppb standard is $6.5 billion per year; it is only $3 billion per year for the 70 ppb standard that the EPA chose. (These figures exclude the benefits from California, which has a slightly different attainment timeline.) The 70 ppb standard is clearly an improvement over the status quo, but additional benefits are being left on the table with this new standard.

Furthermore, there is reason to believe that the EPA’s cost projections are artificially high. Industry groups have issued wildly inflated cost estimates for this rule, which have been widely discredited. But the EPA projections are likely excessive too. In 2008, the agency estimated that tightening the ozone standard to 65 ppb would cost $32 to $44 billion. In just seven years, that estimate has fallen to $16 billion, mainly due to technological innovation that has made emissions control technology cheaper. By the end of the 2025 compliance timeline, pollution control technologies will almost certainly have advanced further, and compliance costs will likely be lower than estimated.

The Clean Air Act requires our air quality standards to be based on public health concerns, not costs. Still, the economic benefits of cutting back on smog far outweigh the compliance costs. The quantified, measured and monetized benefits are so great that a more stringent rule would be economically justified and would be preferable to the one that the EPA promulgated.

The units of measurement for two ozone standards in this piece have been corrected.

Livermore is an associate professor of law at the University of Virginia School of Law. He is the coauthor, with Richard Revesz, of “Rethinking Health-Based Environmental Standards,” recently published in the New York University Law Review. Revesz is dean emeritus and Lawrence King Professor of Law at New York University School of Law, and director of the Institute for Policy Integrity. He is the co-author of the forthcoming book Struggling for Air: Power Plants and the “War on Coal.”