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One estimate of the cost of new EPA rules: $51 billion

Dan Weissmann May 30, 2014
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One estimate of the cost of new EPA rules: $51 billion

Dan Weissmann May 30, 2014
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On Monday, the Environmental Protection Agency will announce the Obama Administration’s biggest concrete push to combat global warming: The first-ever regulations to limit greenhouse-gas emissions from existing power plants. The U.S. Chamber of Commerce put out a report in advance of the rules, saying, in effect: “Hey, this is going to cost a whole bunch of money.”

The Chamber estimated that EPA’s regulations could reduce Gross Domestic Product  by up to $51 billion a year.  

Yale economist William Nordhaus — called the father of climate economics — does some quick math in his head when he hears that figure. “That’s a little more than two-tenths of a percent of GDP,” he says, “So, that would be one hundredth of one percent off the growth rate.”  In other words, he says, given the enormous size of the U.S. economy, and the fact that it grows every year, $51 billion is a rounding error.

Karen Harbert, who runs the arm of the Chamber that put out the $51 billion figure, cites a contrasting view of one- or two-tenths percent of GDP. “I think the White House put it best on Thursday with their energy plan,” she says, “when they were giving credit to the oil and gas sector for creating jobs. They said, ‘It was significant, they added .2 percent to GDP!’”

There’s also the cost/benefit analysis: What benefits could the money produce?  In this case: The plan is to mitigate global warming.

There are likely to be side benefits as well, says Dmitri Zenghelis, from the London School of Economics, who compares it to technological advances driven by Cold War competition with the Soviet Union. “You tend to find that you solve that challenge and provide all sorts of spillovers which give you things like Internets and hand-held devices and touch-screens,” he says.

“But let’s not kid ourselves,” he says. “It’s not going to be win-win. There are going to be some transitional costs, and there will be some losers in the interim.” Those losers can be expected to complain about their costs. 

In the end, those losses don’t justify inaction, Nordhaus says. “There’s just no argument I’ve heard for postponing this,” he says. “Because it is going to get worse, it is going to get more costly, and the longer we wait, the steeper up the damage curve we go.”

An analogy might be a homeowner who notices a couple of loose bricks in the wall of his or her house. A repair guy provides an estimate, which sounds expensive. But if the work doesn’t get done now, the expense will only multiply.

That analogy sounds about right to Dallas Burtraw, an economist with Resources for the Future. “You have a problem that you know inevitably is going to catch up with you,” he says, “but any single day, it seems to make sense to procrastinate.”

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