Oren Cass‘ article in the latest print edition of National Review offers an excellent description of federal government misuse of cost-benefit analysis.
The Obama administration and its many allies in the environmental movement survey this scene and call for further regulation. In their estimation, as reflected in the cost-benefit analyses they publish to justify each new rule, every turn of the regulatory ratchet produces enormous benefits that dwarf any costs. Thus the EPA reports that its proposal for a new and lower ozone threshold would produce improvements in public health that it values at $19 billion to $38 billion annually, as compared with $15 billion in annual cost for the new standard.
Unfortunately, the EPA arrives at these dollar estimates through the juvenile approach of tallying up every possible benefit it can associate with its rule while ignoring all but the most obvious and immediate costs. The accounted-for benefits of reduced ozone include, for example, the economic output that would result from a parent’s not having to miss a day of work to care for a child who had to stay home from school owing to air-quality-related health problems. Two-thirds of the predicted benefits are not related to reduced ozone levels at all. Instead, they are so-called co-benefits — other environmental benefits that could be achieved as side effects of the regulation.
The cost side of the ledger, meanwhile, includes only the actual dollars that companies will spend to comply with the regulation — the cost of purchasing, installing, and operating the new pollution-control technologies. Macroeconomic impacts on investment and employment and prices are ignored. So, too, are the broader social costs of crippled industries and unemployed breadwinners, and the lost opportunity of firms never born and innovations never pursued. Meanwhile, because existing technology will not be sufficient to meet the EPA’s new standard, EPA analysts simply assume that better pollution controls will be developed in the future at reasonable cost. So one-third of the cost estimate is tied to existing technologies that companies could actually purchase today, and the other two-thirds comes from a hope that a better but still affordable technology will come.
This is not a cost-benefit analysis; it is a show trial. And it is business as usual for Obama’s EPA. In 2012, the Obama administration put forward the “Utility MACT” (maximum achievable control technology) rule, mandating tight controls on mercury emissions from coal-fired power plants, and predicted $37 billion to $90 billion in benefits compared with only $9.6 billion in costs. But only $4 million to $6 million (that’s “million” with an “m”) of the projected benefits were to be achieved from the reduction of mercury and other hazardous pollutants. The rest of the regulation’s projected “benefits” came from an expectation that its prohibitive expense would force plants to shut down entirely, a prospect that the EPA relished but was powerless to order directly.
The cleverly worded fact sheet released by the EPA highlighted the health benefits that would be produced by its regulation: “Until now there were no national limits on emissions of mercury and other air toxins from power plants. Uncontrolled releases of toxic air pollutants like mercury — a neurotoxin — can impair children’s ability to learn.” While it is true that uncontrolled releases of toxic air pollution can impair children’s ability to learn, the anticipated improvement in children’s average IQ as a result of the MACT rule was 0.0021 points. Susan Dudley, a former White House administrator who was responsible for monitoring regulatory costs, succinctly summarized the situation in congressional testimony about the rule: “On the benefits side of the equation, EPA quantifies or lists every conceivable good thing that it might attribute to a decision to set new emission limits, while on the cost side, it only considers the most obvious direct and intended costs of complying with the regulation.”
