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In Defense of Environmental Regulations

Presidio Economics | Tuesday October 18th, 2011 | 0 Comments


3p is proud to partner with the Presidio Graduate School’s Macroeconomics course on a blogging series about “the economics of sustainability.” This post is part of that series. To follow along, please click here.

By Meghan French

Michele Bachman has promised to padlock the front doors of the EPA. The US Chamber of Commerce asserts that businesses are feeling suffocated by the cost and scope of environmental regulations. Rick Perry called the EPA a cemetery for jobs. We can only expect this heated rhetoric to intensify as the Presidential race gets closer.

So, what can you do when faced with someone who has regulation-phobia or believes that the EPA must be shut down? Be prepared with counterarguments, such as the three provided here.

Historical Patterns of Exaggeration

For years, industry executives and politicians have been embellishing the economic risks of environmental regulations and for years they have been wrong.

In the 1970s, when the first environmental regulations were put into place and the EPA was created to enforce them, despite dire predictions by industry to the contrary, US GDP tripled.

In 1990, in response to the Clean Air Act, the Business Roundtable, comprised of some of the country’s top CEOs, claimed that a minimum of two hundred-thousand jobs would be lost and projected numbers as high as two million. In fact, only about one to three thousand industrial jobs were lost each year, while tens of thousands of environmental jobs were created.

The oil industry, also responding to the Clean Air Act, claimed that the technology didn’t even exist to create reformulated gasoline and predicted major supply disruptions. In fact, there were no major supply disruptions and the cost of producing the reformulated gasoline only increased fuel prices by a few cents.

Even as recently as May of this year, the auto industry claimed that as a result of the new 62 mpg fuel efficiency standards, they will lose close to a quarter of a million jobs based on a report produced by the DOE. After reviewing the report, the DOE actually predicted that the new standards would create a quarter of a million jobs.

This method of using exaggerated scare tactics to scare the public into believing that regulations will kill jobs and hurt the economy has been in play for as long as environmental regulations have existed. It’s time to wise up.

Creative Destruction: Some Job Loss is Good

The truth is, for the economy to progress, creative destruction is necessary and inevitable. Creative destruction, a concept first identified by economist Joseph Schumpeter in 1942, refers to the process by which new, innovative industries take place of the old. Innovation leads to productivity increases, which lead to higher material standards of living. Environmental regulations serve to catalyze creative destruction in a positive way by incentivizing industries to innovate.

For example, if a price on carbon were implemented, there would be more incentive to innovate in the renewable energy sector. This innovation would ultimately lead to more productive means of creating renewable energy, potentially reaching a tipping point where renewable energy would be more cost effective than energy generated from burning coal. At that point, the new industry would replace the old and those in the coal industry would lose their jobs. However, many jobs in the renewable energy sector would be created. Energy costs would be reduced as a result of a more productive energy system, and people would breathe cleaner air.

Studies Show Job Creation and Lower Costs

New independent studies have begun to demonstrate that environmental regulations are not job killers and that they do not cost as much as initially projected.

  • The Economic Policy Institute produced a report that demonstrates there is no correlation between regulations and increased unemployment.
  • In fact, studies are beginning to project that more jobs will be created in new industries than those that are lost in the industries targeted by regulation, such as the study produced by the Northeast States for Coordinated Air Use Management or the DOE study referenced above.
  • Moreover, a study produced by M.J. Bradley & Associates, LLC, found that the total economic benefits of the Clean Air Act outweighed the costs of compliance by four to eight times.

These are just a sampling of the available independent reports that reiterate these points.

Hopefully, armed with historical examples of exaggerated claims, proven economic theory, and independent studies you will be able to debate effectively when seated next to a vocal Michele Bachman supporter at your next dinner party.

Image Credit: Senor Codo, Flickr Creative Commons

Meghan French is an MBA candidate at Presidio Graduate School. She enjoys exploring the dynamics of leveraging business for environmental change and examining the fruitful partnerships between the private and public sector. She can be reached at Meghan.french@presidiomba.org.

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