Would Limiting Carbon Emissions Destroy The Economy?

Jeff Spross explains why limiting carbon emissions won't damage the economy, as the fossil fuel industry claims.

Obama wants the Environmental Protection Agency (EPA) to place, for the first time, limits on carbon pollution emissions from the nation’s power plants. It’s the centerpiece of his wide-ranging plan to use the executive branch’s regulatory authority to combat climate change.

This is the perennial response when lawmakers try to clean up the environment, cut pollution, or reduce greenhouse gas emissions: you can do it, but only if you’re prepared to wreck the economy.

People or the environment. Jobs or the planet. That is the tradeoff.

There’s just one problem: the historical record provides scant evidence this tradeoff exists.

a reliable pattern has emerged: new regulations are proposed, warnings of crushing costs and job losses ensue, and then — if the regulation survives — little of the prophesied destruction comes to pass.

“Most of the time,” according to Brian McLean, a nearly four-decade EPA veteran, “the cost is lower than what people thought.”

... the companies that have to follow regulations — and even the agencies that enforce them — have routinely overestimated the cost of compliance for one environmental regulation after another, going back four decades. Sometimes wildly.

All other things being equal, no businesses wants to voluntarily make things harder on itself. They’re not going to push the envelope on their own. Because pollution is what economists call an “externality” — damage that one person causes, but another person has to pay for — there’s no inherent profit motive to avoid it. Any business that tries will just leave itself at a disadvantage to its competitors.

This is the basic conceptual justification for regulation: it makes pollution control just another feature of the land a business and its rivals all have to navigate. Whoever does it cheaply and effectively reaps the biggest profit, and then everyone else follows suit.

There’s also a big-picture, macroeconomic layer to all this. It’s a key reason all those job losses and hits to economic growth stubbornly refuse to materialize, and it’s a point free-market conservatives make regularly in other contexts: economies are really complex.

In short, opponents of regulations are themselves routinely tripped up by complexity. They only tally up one side of the ledger.

The general argument is that regulations are different because they reduce rather than increase productivity, but as history shows, that isn’t necessarily the case. The argument also tends to rest on the a priori assumption that regulations are frivolous or driven by mere aesthetic concerns. But they’re often responding to real damage to our health and ecology. That damage carries real economic consequences. And so does preventing that damage. [bold mine]

Tags: carbon emissions regulation, overestimating costs

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