Researchers Calculate The True Cost Of Clean Air
October 3, 2012

Researchers Calculate The True Cost Of Clean Air

Michael Harper for — Your Universe Online

Brother, can you spare some clean air?

There´s no such thing as a free lunch, and just as many countries and organizations are fighting for cleaner air on planet Earth, others are raising questions about the costs associated with this cleanup. Economists from the University of Chicago and MIT have now set about calculating the costs of working towards cleaner air, including the costs of regulations, new technologies and even the costs of reduced productivity and the outsourcing of American jobs.

According to this new study which was published by the National Bureau of Economic Research, extensive pollution and environmental regulations have reduced productivity by as much as 4.8% in addition to reducing profits by 9% from 1972 to 1993.

"There are good reasons to think environmental regulations might increase production costs, but we didn't know how large the effect might be," said Chad Syverson, one of the paper´s authors and a professor at the University of Chicago Booth School of Business.

"We are not saying that the regulations are a bad idea, but we wanted to know the cost."

Syverson and Michael Greenstone, 3M professor of environmental economics at MIT and their team studied the total impact these regulations had on the total factor productivity (or TFP) on these manufacturing plants. These regulations went into place in 1970 as a result of the Clean Air Act and, according to the study, have cost manufacturers an estimated $21 billion.

The Clean Air Act also provides for strict intervention whenever a company is found to be outside of the regulations. Thanks to the Clean Air Act of 1970, the EPA can enforce the installation of clean technologies in these violating plants.

“The equipment is part of the plant´s measured capital stock, but in itself is neither necessary nor useful for producing the plant´s commercial output,” said Greenstone, according to a report.

“A labor-input example of the same concept is the hiring of an environmental compliance officer for the plant.”

As every community is different and impacted differently by air pollution, the EPA simply judges whether a community is inline with these regulations. The EPA´s standards for determining a qualifying community include ozone health, total suspended particulates in the air, carbon monoxide levels and sulphur monoxide levels. Those manufacturing plants in the communities which the EPA does not find in line with their standards are more likely to see stricter enforcement and installation of these pollution abating technologies.

Syverson, Greenstone and team gathered their data from the US Census Bureau of company expenditures and profits and found that these regulations have very different effects on different types of plants.

“The largest declines in TFP are associated with ozone nonattainment, which incidentally is one of the most commonly emitted pollutants among our industries,” reads the paper.

The study also found that those companies who produce organic chemicals, such as turpentine or benzene, are the hardest hit by these regulations. These plants experienced a 17% hit to productivity as a result of these regulations while the industry on the whole lost $9.2 billion during the study period.

The researchers also said this kind of approach can also be used to study the effects of regulations on other industries as well.

“In principle, this approach can be applied to the costs of regulations that govern firm behavior in a wide range of contexts,” reads the paper. “We envision similar exercises being fruitful in areas that regulate work and labor conditions, health and safety legislation.”