Prometheus 6   

Shoddy bookkeeping?

The EPA's Cost Underruns

By William K. Reilly

…An industry spokesman quoted in The Post responded to the report by claiming that the EPA typically underestimated the costs when proposing new regulations. That is no doubt a widely held view. It is dead wrong.

…The electric power industry estimated that eliminating one ton of sulfur dioxide (the bill aimed to eliminate 10 million tons) would cost more than $1,300.The EPA, CEA and OMB ultimately agreed on a cost estimate of $600 to $800 per ton. We got it wrong: Over the ensuing decade the cost proved to be less than $200 per ton.

In fact, a review of some of the major regulatory initiatives overseen by the EPA since its creation in 1970 reveals a pattern of consistent, often substantial overestimates of their economic costs. Catalytic converters on cars, the phaseout of lead in gasoline, the costs of acid rain controls -- on each of these, overly cautious economic analysts at the EPA advocated proposals they considered important but projected high-end costs that undercut the acceptance of, and heightened the opposition to, their initiatives. In fact, the OMB report makes clear that the weakness in analyzing the likely impact of new environmental rules lay in a highly conservative calculation of benefits. Where the costs of four major EPA rules in the 1990s were $8 billion to $8.8 billion, the benefits are now calculated to have been between $101 billion and $119 billion.

It seems to me it's time that the EPA's critics acknowledged the care and sensitivity to costs, the overly conservative approach to benefits, that have historically characterized the agency's work. The explanation for the large variation between anticipated and realized costs of regulation lies in the difficulty in foreseeing what new technologies, inventions or replacement strategies challenged companies will develop to comply with new requirements. The agency has not assumed technological breakthroughs but acquitted itself cautiously in integrating the protection of health and the environment with concern for the economy. It has resisted the temptation to play down costs. And it has been directly responsible for fostering new technologies and promoting the genuine integration of the nation's environmental aspirations with its economic goals.