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Environmental Rules That Force Capital Upgrades Are Stimulative

The New York Times hosts a “debate” on job creation versus environmental regulation. In a way, this is the entire problem. There shouldn’t be a debate on these matters. The truth is that we have empirical evidence stretching over several decades that clean air laws and anti-pollution rules have benefits that far outweigh the costs. You can see that in this analysis of the EPA’s proposed air toxics rule. You can see it in this more cumulative analysis of finalized and proposed EPA rules, with benefits that exceed their costs by anywhere from 4-to-1 to 32-to-1. This has been the case through history. Literally every anti-pollution rule promulgated by the US government draws claims that industry cannot afford them and that jobs will be lost, and literally every time the claims are wildly overblown.

In this case, the “debate” is over the ozone standards rule, which the President abandoned last week. And we see the same false equivalency made between scientific data and economic empiricism, and the flaks for polluting industries:

Many economists agree that regulation comes with undeniable costs that can affect workers. Factories may close because of the high cost of cleanup, or owners may relocate to countries with weaker regulations.

But many experts say that the effects should be assessed through a nuanced tally of costs and benefits that takes into account both economic and societal factors. Some argue that the costs can be offset as companies develop cheaper ways to clean up pollutants, and others say that regulation is often blamed for job losses that occur for different reasons, like a stagnant economy. As companies develop new technologies to cope with regulatory requirements, some new jobs are created.

What’s more, some economists say, previous regulations, like the various amendments to the Clean Air Act, have resulted in far lower costs and job losses than industrial executives initially feared.

For example, when the Environmental Protection Agency first proposed amendments to the Clean Air Act aimed at reducing acid rain caused by power plant emissions, the electric utility industry warned that they would cost $7.5 billion and tens of thousands of jobs. But the cost of the program has been closer to $1 billion, said Dallas Burtraw, an economist at Resources for the Future, a nonprofit research group on the environment. And the E.P.A., in a paper published this year, cited studies showing that the law had been a modest net creator of jobs through industry spending on technology to comply with it.

While the preponderance of the evidence falls squarely on the side that clean air rules are net job creators and cost far less than industry claims, we’re still having these arguments, which were loud enough to move the President away from finalizing the ozone rule.

But most important, the Times analysis ignores the clear implications of a rule that would force changes to how industry processes and manufactures its products: somebody would have to be hired to create and install those modifications on industry plants. And that would be a clear stimulative measure, with capital spending that otherwise would not be done.

Something that forces firms to replace capital, even if that something seemingly makes them poorer, can stimulate spending and raise employment. Indeed, in the absence of effective policy, that’s how recovery eventually happens: as Keynes put it, a slump goes on until “the shortage of capital through use, decay and obsolescence” gets firms spending again to replace their plant and equipment.

And now you can see why tighter ozone regulation would actually have created jobs: it would have forced firms to spend on upgrading or replacing equipment, helping to boost demand. Yes, it would have cost money — but that’s the point! And with corporations sitting on lots of idle cash, the money spent would not, to any significant extent, come at the expense of other investment.

More broadly, if you’re going to do environmental investments — things that are worth doing even in flush times — it’s hard to think of a better time to do them than when the resources needed to make those investments would otherwise have been idle.

So this was a missed opportunity to leverage some capital spending and improve the economy for green jobs, essentially energy retrofits. Which could be a part of the Obama jobs speech this week. Nobody will remark upon how he let the most substantial energy retrofit possible, one which didn’t need the consent of Congress, lie fallow in the name of reducing “regulatory uncertainty.”

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David Dayen

David Dayen

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