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Did the most expensive regulation ever just arrive at The White House?

By Chris Pandoni For Forbes

Look out! Last week, the Environmental Protection Agency (EPA) just sent what could be the most expensive regulation ever to the Office of Management and Budget for final review. We don’t know what the ozone rule will look like, but an EPA advisory board is pushing for standards that would, under EPA’s own estimates, cost about $100 billion to comply with every year. Another study by the National Association of Manufacturers estimates the rule could cost $270 billion per year and would put millions of jobs at risk.

Also pointing towards a huge price tag, EPA was ready to issue the ozone rule in 2011 but President Obama delayed the rule fearing the regulation’s cost would hamper his reelection chances. No longer encumbered by the electorate, the ozone rule will likely come at a huge cost. With the EPA already promulgating 9 of the 10 most expensive regulations in history, this sort of activity has become par for the course.

Diminishing returns

In high enough concentrations, NOx – which is what the ozone rule is intended to regulate – can cause respiratory problems. As such, EPA has been ratcheting down ozone emissions levels since 1997. The real contention with the EPA rule is that we have reached the point of diminishing returns – the cost of squeezing more NOx out of the ozone is extraordinarily expensive now that the air is relatively clean.

The nonattainment death sentence

The United States is broken down into hundreds of areas that monitor air quality. Under the ozone rule, areas that do not meet EPA regulations are placed in “nonattainment” status, which triggers a whole bunch of government interference.

Once a region is branded as nonattainment, regulators scrutinize nearly all economic activity that occurs within the area. States with nonattainment areas are required to submit state implementation plans (SIP) to explain to EPA how they intend to get back to attainment. These plans can significantly drive up costs for existing power generators and businesses and deter future investment. Businesses already operating in nonattainment areas can be required to spend enormous amounts of capital to upgrade equipment. Drivers will probably have to trek to their local DMV to get their car emissions okayed.

Manufacturers and new businesses looking to build new or upgrade existing facilities avoid nonattainment areas like the plague. In addition to new permitting requirements, new emissions in nonattainment areas must be offset. Since it is pretty difficult to construct a plant that doesn’t release emissions, businesses are forced to purchase emission credits or forgo construction.

Currently, the number of areas in nonattainment status are manageable:


Image from National Association of Manufacturers

Under a possible version of the new ozone rule, the number of nonattainment areas would skyrocket.


Image from National Association of Manufacturers

That’s not good.

Ignoring the price tag

How could such a ridiculous result come to be? EPA bases its ozone regulation in large part on the recommendations of EPA’s Clean Air Scientific Advisory Committee (CASAC). The CASAC, which sounds independent but is comprised of federal employees, has been ignoring its statutory obligation to advise EPA about the costs associated with its ozone regulation.

CASAC has a long history of burying its head in the sand. Former EPA Assistant Administrator for the Office of Air and Radiation Jeff Holmstead noted that “until recently, most CASAC members were not aware that they have a statutory obligation to advise the head of EPA on certain issues.  As far as I know, CASAC had never fulfilled this [109(d)] requirement as it relates to the ozone standard or any other.” On the eve of potentially the most expensive regulation ever, now might be a good time to start.

Holding the EPA accountable

A July 28 letter from Environment and Public Works Ranking Member Sen. David Vitter (R-La.) and Chairman of the House Science Committee Rep. Lamar Smith (R-Texas) outline “several types of adverse effects that are often excluded from the Agency’s cost analyses, including public health, welfare, social economic, or energy effects. Each of these criteria should be specifically addressed. This includes the public health and welfare losses from reduced income and employment that could result from a tighter standard that limits economic growth.” Seems reasonable, but EPA has yet to respond to the letter.

Even the inputs EPA does use are hardly bulletproof. As recently as April and May, while EPA was still working on its regulation, the agency issued two corrections memoranda that amended health estimates used to justify the rule. Only days after these errors were resolved, a witness identified new ones.

The consequences of EPA’s regulation are very real – job loss and economic stagnation. One would hope that the most expensive regulation ever would be based on the best data available.

Stay tuned for another post about the science behind the ozone rule.



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