What are the economic impacts of U.S. EPA's proposed ozone rule revision? During today's OnPoint, Greg Bertelsen, director of energy and resources policy at the National Association of Manufacturers, discusses his organization's latest study pointing to bad economic news for the manufacturing sector and states if EPA moves forward with its proposed revised numbers. NAM's report has received criticism for the methodology used in its assessment, and Bertelsen responds to the pushback.
Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. With me today is Greg Bertelsen, director of energy and resources policy at the National Association of Manufacturers. Greg, thanks for coming on the show.
Greg Bertelsen: Thank you for having me on.
Monica Trauzzi: Greg, your organization released a new study last week assessing the impacts of the Obama administration's proposed revisions to EPA's ozone standards. You're contending the rule provision overall is bad news for the U.S. economy. Talk about how you got there. How did you reach that conclusion?
Greg Bertelsen: Sure. Well, in July, Monica, we released a study measuring the economic impacts of a 60 parts per billion ozone standard, and remember, we're talking about ozone, we're talking ground-level ozone, something that people often refer to as smog. Smog is formed from man-made sources like automobiles and factories, but also from natural sources like trees and forest fires. And when we looked at the 60 parts per billion standard, we found that the cost would be astronomical on levels that we've never seen for regulations. So expensive that it would have been the most expensive regulation of all time. We were thankful that when the EPA released their proposed rule in November, they took 60 parts per billion off the table. What they proposed was a 65 to 70 parts per billion standard, which we suspected would also be very expensive. We also quickly reviewed the rule, like many, and found that some of the assumptions they made in their own cost-benefit analysis were a little off. They found that the category of controls known as unknown controls would actually be less expensive than some of the known controls. So we knew that we had to take a closer look at it, and that's what we hired NERA Economics also to do.
Monica Trauzzi: So in this reassessed study, what is the number that you use? Because EPA has proposed this range of 65 to 70, so what's the number that you plugged in?
Greg Bertelsen: So we had NERA model 65 parts per billion standard, which was the low end of the proposed range, and what they found was the costs would, again, be astronomical. Hits to GDP per year of $140 billion, which equates to 100 -- or, I'm sorry, $1.7 trillion over the course of the compliance period, which would run through 2040, 1.4 million job losses, $830 per household in lost consumption, so money that's now being spent on housing expenses and food and clothing would essentially be going to complying with the new ozone regulation.
Monica Trauzzi: But is it fair to use that lower number if that's not necessarily going to be what we see coming from the agency?
Greg Bertelsen: Well, it's in the proposal, so we think it is, and it's also, keep in mind, on the high end of what some on the other side of this issue are proposing. We've seen folks go into the agency and into the White House asking for a standard as low as 60 or even lower, so until EPA takes it off the table, we absolutely think it's appropriate to measure what the economic impacts would be.
Monica Trauzzi: So there's been a lot of pushback against this study, and specifically the methodology that you used to arrive at the outcome, both your study late last year and this new one. Where is there an inclusion of benefits in your modeling?
Greg Bertelsen: Sure. So first let me say that we absolutely are committed to having a clean air and clean environment. We have made incredible progress in reducing ozone foreign emissions since 1980. Those emissions are down over 50 percent. We know that, based on regulations already on the books, including EPA's current 2008 standard, that emissions will fall another 36 percent by 2025. These are EPA's own numbers. So we're absolutely committed to continuing that progress.
Our study only assessed the economic impacts of the rule. Again, we looked at the proposed rule and found some serious discrepancies with what we would consider a credible analysis. One of those is their estimate of what these unknown controls would be. EPA plots a path towards compliance. Only about 35 percent of the controls necessary to get to a 65 parts per billion standard are what EPA terms known controls. That leaves 65 percent -- and again, this is EPA terminology, would be unknown controls. In that calculation of what the costs of unknown controls would be, they assumed one number for all unknown controls, every ton of ... emissions that's reduced from the economy. We know, based on experience and from our own analysis, from other economists in the field, that as you get closer and closer to zero emissions, closer and closer to background emissions, which is really what this proposal is doing, it's getting to levels that are near background levels, the cost per ton of reduction goes higher and higher. Assuming one flat rate is just an unreasonable assumption, and that's why EPA's costs are so underestimated.
Monica Trauzzi: Talk a bit about some of the breakdowns that you have in the report and who specifically could get hit the hardest, which sectors of the economy, which states.
Greg Bertelsen: Sure. What was really surprising and startling about the report is that really the entire economy gets hit. In the manufacturing sector across the board we're negatively impacted. But it expands to other sectors as well. Every state in the economy would have negative economic impacts from this rule. States like Texas, states in the Midwest with heavy manufacturing bases are particularly hard hit.
Monica Trauzzi: So this adjustment that the -- that EPA has proposed, isn't EPA just complying with its duties under the Clean Air Act as it looks at rules, looks at that 2008 rule and makes the appropriate adjustments?
Greg Bertelsen: Well, EPA is required to look every five years at the existing standards for ozone, and not just ozone, but the other five criteria pollutants, but they're not required to revise it. Part of the process does involve consulting with their Science Advisory Board, but at the end of the day, it's the administrator's duty to make a policy decision about where the standard should be set. The Supreme Court has weighed in and said that costs should not be included in setting the ... but they've also said that the standard does not need to be set beyond what is necessary. We know, again, that emissions are going to be reduced by 36 percent by 2025 with the existing standard, the rules that are already on the books. If you allow us to comply with those rules, we'll get further progress without having to incur this $1.7 trillion rule. We think incurring that rule or imposing that rule on us would be beyond what is necessary under the Clean Air Act.
Monica Trauzzi: Congressman Olson says he plans to reintroduce his legislation that would have EPA include feasibility and economic impacts when issuing major rules. Is there a need for Congress to step in here and look at the Clean Air Act and amend it in some way?
Greg Bertelsen: Well, first, our hope is that the administration will land at a reasonable place, and in our view, the reasonable place to land is keeping the standard where it is, but absolutely there's a role for Congress here. We would support any legislation that provides a little bit of relief. I think we're at a point now with the Clean Air Act, with the accomplishments that have been made, that it's time to start looking at some of those reforms, start thinking about things like what are the economic impacts of going further and further towards background levels, further and further towards zero emissions, so we absolutely would support a proposal that would include those things in the consideration.
Monica Trauzzi: All right, we'll end it right there. Thank you for coming on the show.
Greg Bertelsen: Thank you.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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