Earth Day: Environmental Protection Shouldn't Hurt Economy
What began as a protest should today be a celebration.
The first Earth Day in 1970 arrived on a crest of public outrage over deteriorating environmental quality. By the end of that year both the Environmental Protection Agency and the Clean Air Act had been born. The Clean Water Act followed shortly thereafter.
Forty-five years later, air and water pollution have plummeted. Atmospheric concentrations of major air pollutants are down more than 60%; thousands of contaminated water bodies are now clean.
Public concern has plummeted, too, and for the first time a majority of Americans rate environmental quality as good or excellent.
Federal policy should reflect this success, lessening the emphasis on further environmental improvement in favor of reforms that could unleash a wave of investment and job-creation.
Instead, despite economic health long since overtaking environmental health in the hierarchy of national problems, laws designed to slowly turn the ratchet on pollution continue to squeeze industry ever tighter.
A major culprit is the Clean Air Act's "New Source Performance Standards." Under the structure of the act, existing power plants and industrial facilities are typically allowed to operate with whatever pollution-control mechanisms they already have in place.
But any new facility, or any facility under renovation, must install the latest technology. For construction in a region where air quality is too poor, requirements are even more stringent, and any pollution from the new facility must be offset by pollution reductions from others.
Consider a manufacturing plant in a region with excellent air quality, whose owners want to double the plant footprint, the output and the jobs. This proposition should presumably be cause for celebration. An expansion of industrial output and jobs is, after all, an explicit priority of both political parties. Air pollution levels have declined almost every year for decades nationwide, and in the affected region air quality is not a concern.
But the law says no. The owners cannot even move forward by implementing better and more expensive pollution controls in the new wing of the plant. Undertaking the expansion requires the existing plant to be retrofitted as well. In many scenarios, a capital investment that might otherwise have offered attractive returns will instead not occur.
This approach ensures that as new capital stock replaces old, environmental protection becomes ever-stronger, but at extraordinary expense. Hundreds of thousands of jobs have been destroyed. The cost to the manufacturing industry is tens of billions of dollars each year.
The discriminatory treatment also distorts behavior by granting incumbents a cost advantage over new entrants and by discouraging needed renovations. The end result can be more pollution than if no regulation existed at all.
The EPA compounds these effects by continually redefining what constitutes clean air. In 2013 it tightened the fine particulate matter standard to a level more than twice as demanding as the European Union's.
It is now revising down the ozone threshold for the third time in less than 20 years at a cost of $15 billion per year — an estimate it reaches only by assuming the development of new technologies that do not yet exist.
Perhaps all these costs were justifiable when real GDP growth averaged 5% and the unemployment rate hovered below 4%; when, as the Clean Air Act explained in its introduction, "growth in the amount and complexity of air pollution brought about by urbanization, industrial development, and the increasing use of motor vehicles has resulted in mounting dangers to the public health and welfare."
None of that holds true today. Yet because each new facility faces more stringent requirements than those that came before, we are continuing to turn the ratchet.
Conversely, because discriminatory treatment functions like a dam holding back capital that would otherwise be invested, eliminating the act's New Source Performance Standards (along with a similar provision in the Clean Water Act) would unleash a flood of investment across the economy.
Deferred renovations would make sense, previously unattractive projects would offer healthy returns and barriers to entry would crumble. Today's existing-facility standards would apply to all new investments, preserving current environmental quality.
While increased economic activity would generate additional pollution, renovation of older and dirtier facilities would provide a significant offset. Intensive, continuous investment in anything — even environmental quality — will inevitably produce diminishing returns.
If Earth Day offers only a forum for demanding yet more environmental protection, those demands will inevitably become unproductive. But if we reflect on how far we have come we will find much to celebrate.
And if we revisit the economic-environmental balance that our policies strike in light of the economic and environmental conditions we now face, we will find great opportunities for a rebalancing that preserves progress made while pursuing the economic growth we need.
This piece originally appeared in Investor's Business Daily
This piece originally appeared in Investor's Business Daily