How Do Environmental Regulations Affect the Economy? Experts Describe a Nuanced Picture

Misconceptions about the effect of environmental regulations on the economy and jobs are complicating federal efforts to create sound environmental policies, according to panelists at the 38th Annual AAAS Forum on Science and Technology Policy.

The polarized debate over regulations pits environmentalists against economists and does little to help lawmakers and the public understand environmental policy, the experts said during a panel discussion.

 

William Pizer [Credit: AAAS/Robert Beets]

William Pizer [Credit: AAAS/Robert Beets]

“This is an issue that has been a defining part of the debate over existing as well as potential future regulation,” said William Pizer, associate professor at Duke University’s Sanford School of Public Policy and faculty fellow at the Nicholas Institute for Environmental Policy Solutions.

 

Pizer took issue with the popular belief that the creation of the U.S. Environmental Protection Agency (EPA) in 1970 caused the modern-day decline in American manufacturing jobs. He noted that the biggest job losses occurred in the 2000s, long after the huge body of EPA regulations was issued in the 1970s and ’80s.

The reality of the relationship between EPA regulation and jobs is far more complex and varied by locality, and requires detailed statistical analysis, Pizer said.

Yet, the effects surely can be felt. Pizer cited a study that blamed U.S. environmental regulation for a roughly 10 percent increase in imported goods from Mexico and Canada in the ’90s and 2000s.

Other studies have found even larger effects at the local county level. During the first 15 years following the implementation of the Clean Air Act, an estimated half-million jobs shifted from counties with plants that were out of compliance with air quality standards, into neighboring counties where plants met the standards and were not subject to additional costs or penalties, he said.

On the macroeconomic level, however, those negative effects of environmental regulation have been relatively small, compared to the total 8 million jobs lost from 1977 to 1986.

However, public discussion of environmental regulations remains tinged with the fear that such regulations require the sacrifice of American jobs, said Cary Coglianese, the Edward B. Shills Professor of Law and a professor of political science at the University of Pennsylvania, where he directs the Penn Program on Regulation.

 

Cary Coglianese [Credit: AAAS/Robert Beets]

Cary Coglianese [Credit: AAAS/Robert Beets]

“It’s almost as if you can’t hear the phrase environmental regulation today without the phrase ‘job-killing’ in front of it,” he said.

 

Local stories of plant closings and job losses don’t accurately reflect the relatively low nationwide net employment impact associated with environmental regulations compared other economic drivers of unemployment, said Coglianese. Yet, those poignant personal stories affect public opinion and ultimately federal policymaking decisions.

Coglianese said the political process gives greater attention to the negative effects of regulation, even though regulation also delivers benefits to society.

“There are definite winners from environmental regulation, and those winners can go to work and be more productive in addition to being healthier and living longer because of regulations,” Coglianese said.

“Yet the winners often are not identifiable nor as vocal in the political process as those who suffer job losses or other negative effects from regulation,” he said.

While Pizer agreed that environmental regulation comes with enormous benefits, he cautioned that projected benefits should be scrutinized alongside costs.

“There are some people out there who argue that by regulating you can inspire innovation that can lower costs and increase efficiencies. In actuality, in most settings, it’s unlikely you are going to find a bunch of $20 bills on the floor,” Pizer said. “[Regulations] are costly, and those costs need to be scrutinized.”

Weighing the costs and benefits of environmental regulation can be difficult given how polarized the interpretations can be, he cautioned.

Liberals and conservatives each calibrate the issue differently, said Richard Morgenstern, senior fellow at Resources for the Future, a nonpartisan thinktank that researches the economic and social impacts of environmental and natural resource policy.

The policies of Presidents Clinton and Obama have emphasized environmental and health benefits, while President George W. Bush focused on regulatory costs, according to Morgenstern’s analysis of regulatory impact reports from all three administrations. Morgenstern and the other panelists stressed that environmental costs and benefits are more intertwined.

“The take away for me is that there is an economic cost to environmental regulation, even though some people in the past have tried to paint it as a free lunch. However, generally those costs have been small and they have been associated with significant human benefits,” said Pizer.