We Can't Rely On EPA Cost Benefit Analysis
April 11, 2001
Decision makers seeking to make the best use of scarce resources will not find answers in the Environmental Protection Agency's (EPA) reports on the benefits and costs of the Clean Air Act. The EPA's first report gave a "best estimate" of net benefits of $22 trillion -- roughly the aggregate net worth of all U.S. households in 1990.
In the 1999 sequel to its report, the EPA gave a "central" estimate of $83 billion for the net annual benefit in 2010 of the 1990 Clean Air Act amendments -- not including efforts to protect stratospheric ozone, which it estimated separately.
Critics say the report vividly illustrates why government regulatory agencies should not be asked to evaluate their own programs. For instance,
- The total annual cost of meeting air pollution standards for 2010 is likely to be at least $100 billion a year, not the $27 billion a year estimated by the EPA.
- The EPA described its key benefits estimate as a "central" case, although it is better interpreted as an upper-bound estimate.
- More than 90 percent of the benefits estimated by the EPA arise from the reduction of risks from particulate matter (PM); but those risks are highly uncertain due to the weak scientific understanding of the health effects of PM.
The EPA's own Science Advisory Board complained repeatedly that the reports failed to disaggregate costs and benefits or include indirect costs. And the agency deliberately neglected the cost of complying with mandatory deadlines for the states to meet national air quality standards.
Adjusting the EPA's estimate for those errors implies annual costs of about $104 billion in 2010 rather than $27 billion, just $6 billion short of EPA's "central" benefit estimate of $110 billion -- which critics consider high to begin with.
Source: Randall Lutter and Richard B. Belzer, "EPA Pats Itself on the Back," Regulation, Number 3, 2000, Cato Institute.
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