Regulation:

Institute for Policy Integrity's Livermore says economic analyses of rules misleading

Are economic analyses of U.S. EPA's air regulations effective? During today's OnPoint, Michael Livermore, executive director of the Institute for Policy Integrity at NYU Law, discusses a new report explaining why contradictory economic models can confuse the conversation and debate over air regulations. Livermore also discusses the impact of EPA's latest round of oil and gas air regulations.

Transcript

Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Michael Livermore, executive director of the Institute for Policy Integrity at NYU Law. Michael, good to have you back on the show.

Michael Livermore: My pleasure, thanks for having me.

Monica Trauzzi: Michael, news coming out of EPA with the latest round of air rules, these focusing on emissions from fracking, oil and gas wells. Industry asked EPA for more time to comply with these rules and EPA gave it to them. But by doing that, is the administration sort of sending mixed messages on the importance of air regulations and the direction that they're trying to take with the air regs?

Michael Livermore: Well, obviously, whenever you delay a regulation you're forgoing some benefits and that's a problem. It really can be complicated, because a little bit of delay time can also really substantially reduce compliance costs. So, it cuts both ways. Obviously, EPA is trying to balance business interests with the environmental interests and at some level that is a mixed message, but they're always kind of trying to balance those things. And I don't think this is out of line with their standard procedure.

Monica Trauzzi: The argument that industry makes is that the green completion equipment that they need to comply with these regulations simply doesn't exist. There aren't enough pieces of equipment that are available at this point in order for them to comply. Is that actually true and is that just cause for EPA to hold back on these regulations?

Michael Livermore: Well, with technology forcing regulations, you have to force the technology. So you can't delay forever. If you wait for the technology to exist, then, obviously, the regulation is not doing the work that it's supposed to be doing. So, they have to make credible commitments to force the technology, but at the same time, they need to create enough time for that technology to develop, you know, that's kind of feasible and realistic as well.

Monica Trauzzi: Let's talk about jobs. There's been a lot of talk from both sides on the impact of these regulations and all the other air regulations that we've seen come out over the last year. It can be confusing ground to cover because on the same day you can read two completely different studies that say opposite things about job creation. And you recently released a report that focuses on the effectiveness of these analyses on job creation. Is the use of economic models useful to the debate on air regulations?

Michael Livermore: It could potentially be, but I think right now it's largely not. Job impacts analysis is important and job impacts from environmental regulations are important, both the negative side, layoffs that are associated with a regulation, and the hiring that's associated with a regulation. So you would want to take that into consideration in a kind of rational way, but right now there's two major problems. One is that these analyses are out of context, so they're not put in the broader context of the costs and benefits of a rulemaking. It's just a screaming headline about jobs impacts, but what about the public health impacts and what about the other compliance costs that are associated with a rule? So, that's one problem. And that the other one is that the models and the way they're talked about are not done in a way that's kind of properly recognized as the uncertainty. It's very hard to predict how a regulation is going to affect the broader dynamic American economy, so there's uncertainty. And the models are subject to assumptions and that needs to be communicated in a way that is just not happening right now.

Monica Trauzzi: So, when someone says that a regulation is job killing, isn't there a significant amount of substantive evidence that's going behind that statement?

Michael Livermore: Well, one would hope that that was the case.

Monica Trauzzi: Right.

Michael Livermore: Really, what often is-well there's nothing that's ideology sometimes when people say that stuff and then, too, even when there's numbers and what looks like analysis, these are models that aren't like the same thing as evidence. They're not necessarily based on past experience or anything that you would really think is very strongly predictive. Now, the models, they can be valuable. They can tell us something, but folks should not take that as the gospel, because they're very subject to limitations and, again, it's just not communicated in a way to clarify. And often it's really used to confuse.

Monica Trauzzi: So, there has to be some way to figure out whether a particular regulation is going to be good or bad for the economy. Do you have any sense of how we can get there?

Michael Livermore: Well, one is to disaggregate this question of whether it's kind of what the economic costs and benefits are from the job impacts. So, of course, a regulation, we do very sophisticated cost-benefit analysis of regulations where we look at the public health impacts in economic terms and we look at the costs in economic terms. And so that really, more than anything, else tells us whether a regulation is on net a good thing for the economy. Now, jobs impacts can be part of that and they can actually get integrated in a better way into the cost-benefit analysis. But the reality is, for these major rules, a lot of the jobs effects will wash out. You'll have some layoffs. You'll have some hiring. And with a rule that's got like a 9 to 1 rate of return where the massive public health benefits at a relatively low costs, the jobs effects aren't going to change that. It's going to really be a small part of the broader economic effects of the rule.

Monica Trauzzi: So, with things so focused right now on the economy and jobs, is there any real way to shift the rhetoric at this point?

Michael Livermore: Well, I think we need to do is to become kind of smarter consumers of these reports and I think if we become smarter consumers and demand better reports, we'll get better rhetoric out of this. And so that means for policy types, that means for reporters, that we need to ask smart questions. What assumptions are being used? Have they done analysis to see how sensitive the model is to the assumptions? Are they looking at net effects or are they only looking at hiring or layoffs, rather than both? And I think if we start to ask those questions we'll get a better result.

Monica Trauzzi: How widely can various assumptions impact the outcome of a study?

Michael Livermore: Hugely. I mean there's an analysis we talk about, an example in the report, where looking at the same two rules, two different analyses, with different assumption and different models, one found over a million jobs gained from the two EPA rules. And another one found over a million job losses. And a million jobs is a huge effect. So, it can really matter a lot.

Monica Trauzzi: All right, interesting stuff. We're going to end it there. Thank you for coming on the show again.

Michael Livermore: My pleasure, thanks for having me.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

[End of Audio]