Will We Ever Stop Overestimating the Cost of Complying with Environmental Regulations?

Earlier this week, Greenwire (subscription required) had an interesting story about the role that EPA’s estimate of the cost to comply with the Mercury and Air Toxics Standards rule played in the politics and judicial review of the rule.  It turned out that compliance costs were much less than originally estimated by EPA – let alone by industry.  Unfortunately, the $9.6 billion price tag originally put on the MATS rule lived on, even after it was clear that that number was way off.

I’ve noted before that the history of efforts to estimate the cost of EPA rules tells a consistent story – they are almost always biased high.  And that’s not just industry’s estimates; EPA repeatedly overestimates the cost to comply with its rules.  There have been efforts to figure out why this happens so regularly.  I think that the most significant reason is pretty obvious.  People forget that markets work.  When EPA promulgates new rules that appear to carry big price tags, smart people get to work and figure out more cost-effective ways to comply.

This issue has significant resonance in the current moment, when we are facing a climate crisis that requires what is basically a complete reboot of a significant portion of our economy.  There are many who argue that we simply cannot afford the cost to reach a zero carbon economy.  Even aside from the totally legitimate riposte that we can’t afford not to do so, I feel pretty confident that, if we do succeed in making the necessary changes, we’ll find out that, not only have the benefits far exceeded the costs, but that the costs will have turned out to be much less than we currently expect them to be.

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