EPA's Proposed Ozone Regulation Could Cost $1 Trillion

The EPA’s latest proposal for ozone regulation would damage the economy.

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Thomas Pyle is the president of the Institute for Energy Research

The EPA has proposed to tighten the screws on American businesses and households by reducing acceptable ozone levels. The proposal could render up to 96 percent of U.S. counties noncompliant, and by some estimates would impose economic damages exceeding $1 trillion. There is no compelling health reason to foist such draconian regulatory changes on the fragile U.S. economy. The proposed regulations amount to serious costs with negligible benefits.

EPA regulates ground-level ozone levels under the Clean Air Act. The current primary regulatory standard for ozone is 0.075 parts per million (ppm), established in 2008. (Implementation of the 0.075 ppm standard was suspended in 2009 pending further study.)  EPA reviews its air quality regulations every five years, so normally EPA would review the ozone standards in 2013. Yet for some reason, the Obama administration has decided that it needs to raise energy and regulatory costs on U.S. businesses right now, two years ahead of schedule.

The official decision has not yet been made, but the EPA’s new ozone regulations will likely fall in the range of 0.060 to 0.070 ppm. That works out to a range of 60-70 parts per billion. To give an idea of just how miniscule these concentrations are, consider that this range is the equivalent of less than one cup of water poured into an Olympic-sized swimming pool. [Read: The Hidden Costs of Obama's Fuel Efficiency Standards]

To grasp the significance of the proposed change in the regulatory threshold, we can compare the compliance rates of U.S. counties under the current and proposed levels. According to an analysis conducted by the Business Round Table, 66 out of 736 counties nationwide do not meet the EPA’s current ozone standard of 0.075 ppm. However, if the EPA lowers the acceptable concentration down to 0.060 ppm, then the estimated number of non-attainment counties would skyrocket to 628 (out of 736) according to the Business Roundtable. That means fully 85 percent of the nation would be in non-attainment. The EPA’s own analysis is even more pessimistic, predicting that up to 96 percent of monitored counties would be non-attainment with the stringent 0.060 ppm threshold.

Regions in non-attainment would be subject to greater EPA regulation and would need to alter their activities in an attempt to reduce emissions. Businesses might have to install new technologies to reduce emissions, cars might undergo more frequent inspections, and electricity prices could be significantly higher as utilities switched to different fuels. Naturally, taxpayers from all over the country would foot the bill for the actual enforcement costs of the stringent regulation.

The estimated economic damages from such compliance vary, but they may be quite severe. For example, the Manufacturers Alliance/MAPI released a 2010 study by economist Donald Norman on the effects of the 0.060 ppm standard. Norman projected that during the years 2020 to 2030, the annual compliance costs would exceed $1 trillion (in 2010 dollars). That cost works out to 5.4 percent of GDP in 2020. Total job losses by 2020 could reach 7.3 million by 2020, which represents an estimated 4.3 percent of the total labor force that year. [See a collection of political cartoons on the economy.]

Such are the possible downsides of the proposal, but what are the benefits? Many scientists and organizations, including the American Heart and Lung Association, have expressed support for the stricter standard. They claim that lower concentrations of ozone would benefit people suffering from conditions such as bronchitis and asthma.

Yet there are always tradeoffs. Policymakers need to decide if the benefits of the new rule outweigh the costs. Even the EPA’s own statements on the issue should give Americans pause: It has claimed the new regulations could save up to $100 billion per year on healthcare expenditures by 2020, yet the EPA also acknowledges that the compliance costs to business could be as high as $90 billion by 2020. This is a small margin for error, especially in light of the far more severe costs estimated in other studies.  [Read: Taxes on Oil Producers Will Hurt, Not Help, With Deficit]

It is difficult to have a rational discussion on this issue because proponents of the stricter standard are imagining kids with asthma choking in a smog-filled LA highway. This is very misleading. In reality, the proposed 60 parts per billion standard is so strict, that even areas of Yellowstone National Park may not be in compliance. To the extent that some areas will be affected by ozone emitted elsewhere (even outside the United States), it may prove literally impossible to comply with the draconian new regulations.

With unemployment hovering above 9 percent—and the actual figure remaining much higher—and regular households already struggling to keep up with energy bills and prices at the pump, now is hardly the time for the EPA to tighten the screws on the economy. The proposed standards for ozone would impose real economic hardship for dubious medical benefits.

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