Yesterday the US Environmental Protection Agency (EPA) announced a highly anticipated and controversial new ground-level ozone air quality standard of 70 parts per billion (ppb). This is the least stringent standard recommended by EPA’s Scientific Advisory Committee. It is projected to have 2025 costs of $1.4 billion (2011$) and benefits of between $2.9 to $5.9 billion (2011$) nationwide (excluding California), and costs and benefits of $0.8 and $1.2 to $2.1 billion, respectively, in California.
The rule follows a contentious debate between industry groups and environmental and health advocacy groups about the costs and benefits of the proposed standard. Industry groups have claimed a tighter standard will cripple the economy. Advocacy groups have argued a standard less stringent than 60 ppb won’t go far enough to protect the public from health risks such as asthma attacks and premature deaths.
So what will the rule actually do? The answer is complicated, but we highlight five key takeaways from the new rule and the accompanying EPA analysis:
1. The new rule will have lower costs (and benefits) than previously thought by EPA.
EPA estimates that costs and benefits of the 70 ppb standard will be significantly lower than its previous analysis suggests. The estimated costs fell two thirds (from $3.9 billion to $1.4 billion) and the estimated benefits fell by about half (from a range of $6.4 – $13 billion to $2.9 – $5.9 billion) (2011$, excluding California). These changes are largely due to new modeling of the projected baseline emissions and ozone concentrations. With fewer emissions reductions needed to meet the new standards, costs are lower, and with ozone concentrations falling by more than EPA originally thought in the baseline by 2025, benefits from the rule are lower as well.
2. The new rule could have even lower costs than EPA thinks now.
As we note in our recent issue brief, the rule may even be less expensive if policy options such as a NOx trading program, a fuel tax, or a NOx-targeted vehicle retirement program are explored. EPA often grants states extensions, which will likely further reduce both costs and benefits. And if China follows through in implementing its air quality policies, including the cap-and-trade program it announced less week, some decline in ozone levels will occur at no cost to the United States at all.
3. The new rule is likely to have lower costs than industry groups feared.
Industry groups' drumbeat TV ad campaign has focused primarily on the negative consequences of a 65 ppb standard, which EPA did not choose. In addition, as we discuss in a recent issue brief and blog, industry cost estimates of that standard were based on unrealistic assumptions that, when modified, result in cost estimates similar to those made by EPA in its previous RIA. We find no support for the picture painted by industry groups and some members of government about the cost of tighter ozone standards. Claims made by these groups about the effect of the rule on low-income populations are on especially shaky ground since it is these populations that can expect to gain the most from tighter standards.
4. The new rule will have lower benefits than health and environmental groups hoped.
According to EPA’s own analysis, a standard more stringent than 70 ppb would result in significantly higher health benefits, many of which would have accrued to vulnerable populations. Coming on the heels of the Obama administration’s decision to back off a tighter standard in 2011, this represents a further disappointment to health and environmental interest groups, who have noted EPA’s legal restriction to not consider costs when setting the standard. Nevertheless, the standard is more stringent that the previous one, representing a worthwhile (if modest) step towards cleaner air.
5. EPA’s new regulatory impact analysis will not make academics happy.
Accompanying the new rule, EPA released an updated cost-benefit analysis. The new analysis includes different cost and benefit estimates and is based on revised cost and air quality modeling techniques. The radical changes in EPA's assumptions and analyses, regardless of their merits, will delay careful discussion of their results.