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Report  | November 2012

A Critical Review of the Benefits and Costs of EPA Regulations on the U.S. Economy

By Nam D. Pham, Ph.D. and Daniel J. Ikenson

In 2010 and 2011, the Environmental Protection Agency (EPA) proposed sweeping new regulations of air emissions, water use, and the disposal of combustion residuals from burning coal. The EPA has concluded that the benefits of these emerging regulations would far outweigh their costs. However, industry experts and many scientists and economists have concluded that some of the EPA’s proposed standards would be impossible to meet with current technology and that most of the estimated health and economic benefits are highly uncertain if not illusory. Despite this disagreement, there is a consensus among officials from the EPA, academia, and the industry that the short-term costs of complying with only a few of these emerging regulations would be in the hundreds of billions of dollars. Such a tax on U.S. manufacturers and other producers, particularly when the economy is struggling to gain forward momentum, would be negligent, if not reckless.

This report assesses the EPA’s assumptions and conclusions present in its cost-benefit analyses for six of its proposed regulations. It confirms the results of other independent assessments that the impact of these emerging regulations on the U.S. economy—particularly on the U.S. manufacturing sector—would be far more severe than EPA estimates. In particular, the report concludes that the cumulative impact of the EPA’s proposed regulations could cost, by conservative estimates, roughly $100 billion annually and more than 2 million jobs. In a worst-case scenario, the regulations could mean the loss of $630 billion, 4.2 percent of GDP, and more than 9 million jobs. The upfront costs for U.S. manufacturing from just three of the EPA’s proposed rules could amount to 2.9 percent of the value of the manufacturing sector’s output. Estimated impacts on manufacturing in selected states are much higher. The heavy cost of these rules conflict with the Obama Administration’s pledge to strengthen the nation’s economy and double exports by 2014. This report also exposes flawed assumptions and analytical shortcomings inherent in the EPA’s assessments.