Regulating Our Way to Prosperity

March 28, 2014

If federal agencies' calculations of regulatory benefits are correct, the United States should be seeing great economic growth, says Roger Meiners, a senior fellow at the Property and Environment Research Center.

Federal agencies must perform cost-benefit analyses on regulations estimated to cost more than $100 million in order to be sure that the costs of a regulation do not outweigh its benefits. Pursuant to this, our agencies have been churning out regulations that project tremendous growth. Our economy may be sluggish now, but with central planners projecting such positive economic impacts from their regulations, surely that growth must be on its way.

How are these benefits calculated? Largely, they come from what is known as the social cost of carbon (SCC). Based on estimates of future carbon emissions from the Intergovernmental Panel on Climate Change, an interagency working group determined what they believed to be the price of carbon. Using that figure, agencies can justify nearly any environmental regulation, and they claim benefits will come in the form of increased gross domestic product (GDP).

The Environmental Protection Agency's (EPA) Utility Mercury and Air Toxics Standards (MATS) rule was finalized in 2011 at an estimated cost of $10 billion annually. How did this pass the cost-benefit test?

  • The EPA determined that the rule would create $37 billion to $90 billion in benefits for the economy (though it does not explain exactly how the benefits are monetized) in the form of higher GDP.
  • If the EPA is right, MATS alone should add 0.5 percent of growth to the U.S. economy.
  • The cost of MATS, however, is overwhelmed by these projected benefits (23,000 megawatts lost in electricity production, 200,000 jobs lost by 2015).
  • Similarly, a new set of standards from the Department of Energy for residential furnace fans projects that the industry will lose 21 percent of its value. How is that justified? With energy savings billions of dollars in benefits.

Americans can sit back and relax -- our agencies are regulating our way to prosperity, and surely our economy will begin to turn around as these rules kick in and these projected benefits come to fruition, Meiners jokes.

Source: Roger Meiners, "Regulating Our Way to Prosperity," Reason Magazine, March 18, 2014.

 

Browse more articles on Environment Issues