THE BLOG

An Opportunity for Timely Action: EPA's Transport Rule Passes the Test

04/25/2011 02:11 pm ET | Updated Jun 25, 2011

At a time when EPA regulations are under harsh attack, one new environmental regulation -- at least -- stands out as an impressive winner for the country. Studies of the soon-to-be-finalized Clean Air Transport Rule have consistently found that the benefits created by the rule would far outweigh its costs. By reducing sulfur dioxide and nitrogen oxide emissions from power plants in 31 states in the East and Midwest, the Transport Rule will create substantial benefits through lower incidence of respiratory and heart disease, improved visibility, enhanced agricultural and forestry yields, improved ecosystem services, and other environmental amenities. According to the EPA, these benefits will be 25 to 130 times greater than the associated costs. We document this in our new report, "A Guide to Economic and Policy Analysis of EPA's Transport Rule," which was commissioned by the Exelon Corporation.

Despite the benefits offered by the Transport Rule, some argue that it -- and other EPA regulations -- will stifle economic growth and threaten the reliability of our electric power system. However, a careful look at the evidence reveals that the Transport Rule is unlikely to create such risks. Analyses of the Transport Rule have found that it need not lead to significant plant retirements. Robust regulatory and market mechanisms ensure that the nation can meet emission targets while reliably meeting customer demand.

While compliance with the Transport Rule would -- in some cases -- require installation of new pollution control equipment, the capital expenditures required would comprise a small fraction of aggregate capital spending by the power industry. In fact, because of the Transport Rule's unique legal circumstances, in which the Courts have mandated that EPA replace a stringent predecessor, utilities have already begun to make pollution control investments needed to comply with the Transport Rule.

The Rule's timing can also contribute to lowering its cost and supporting other policy goals. Installation of the pollution control technologies needed to comply with the Rule could increase short-term employment. Although the longer term job impacts are less clear, these short-term employment effects would complement other policy initiatives aimed at supporting the nation's economic recovery.

EPA analysis estimates modest impacts on regional electricity rates, but reductions in health care expenditures could partially or fully offset these effects. Expanded supplies of low-cost natural gas can also help lower the Transport Rule's cost by providing a less costly substitute for power generated from coal.

Most importantly, actions taken to reduce emissions would create substantial health benefits. Tens of thousands of premature deaths would be eliminated annually, as would millions of non-fatal respiratory and cardiovascular illnesses. A diverse set of studies find that these health improvements will create $20 to over $300 billion in benefits annually. And, while the Transport Rule is designed to reduce the impact of upwind emissions on downwind states, upwind states would also receive substantial health benefits from the cleaner air brought about by the Rule. These upwind states have much to gain, because states with the highest emissions from coal-fired power plants are also among those with the greatest premature mortality rates from these emissions.

Along with these health benefits, the largest shares of short-term improvements in employment and regional economies are likely to accrue to the regions that are most dependent on coal-fired power, as they invest in new pollution control equipment. Thus, while designed to help regions downwind of coal-fired power plants, the Transport Rule also offers substantial benefits to upwind states.

As the U.S. economy emerges from its worst recession since the Great Depression of the 1930s and faces an increasingly competitive global marketplace, regulation such as the Transport Rule that creates positive net benefits and allows industry flexibility in creating public goods can complement strategies intended to foster economic growth. Such regulations are best identified by careful analyses to ensure that benefits truly exceed costs and avoid unfair impacts on particular groups or sectors. The Transport Rule has undergone a series of such thorough assessments, and the results consistently indicate that it would create benefits that far exceed its costs. Failure to take timely action on this opportunity would seem to be imprudent, if not irresponsible.

Richard Schmalensee is the Howard W. Johnson Professor of Economics and Management at the Massachusetts Institute of Technology; Robert N. Stavins is the Albert Pratt Professor of Business and Government at the Harvard Kennedy School.