Economic benefits from two fuel standard rules alone offset much of modest compliance cost of all Obama EPA rules

As Republicans in Congress intensify their attacks on EPA rules, largely on the grounds they disrupt the economy, it is important to keep in mind that in terms of the overall economy, these rules are essentially inconsequential.  Previously I’ve blogged on how the total compliance costs of all the major rules proposed or finalized by EPA so far during the Obama administration amount to only about one-tenth of one percent of the U.S. economy.  What I failed to quantify is how the 0.1 percent figure itself, as small as it is, significantly overstates the potential economic effect of the rules.

This can be demonstrated by looking at the economic benefits of just two of the rules finalized so far by EPA.  These are joint rules with the Department of Transportation that regulate greenhouse gas emissions from, and establish fuel standards for, various-size vehicles for model years 2012-2016.  The economic benefits from these two rules are particularly sizable, as they produce large savings to drivers in the form of reduced expenditures on gasoline.

In 2010 dollars, a conservative estimate (see explanation below) of the economic benefits from these two rules amounts to $6 billion to $20.6 billion a year.  This range is above the range of estimated compliance costs for all 11 major rules finalized so far by the Obama EPA; that range is $5.9 billion to $12 billion a year.  Even if the four major proposed rules are also taken into account, the economic benefits from the fuel standard rules alone offset much of the combined costs of the final and proposed rules ($19.7 billion to $27 billion a year).

Stated simply, the economic benefits of just two of the major Obama EPA rules offset much of the economic compliance costs of all the rules.  It also bears noting that companies have several years or more to comply with the rules, diminishing immediate costs and facilitating transitions.  Further, an array of economic benefits is not considered here, including the economic benefits from the other nine final rules and the four proposed rules; these economic benefits range from workers spending more time at their jobs because they or their children are healthier to reduced expenditures on health care.  The modest employment gains from the largest rule, the air toxics rule, are also not considered; these gains reflect the fact that compliance expenditures generate jobs when the economy has substantial unused capacity.

So especially once offsetting economic benefits are considered, it is hard to conceive how the EPA rules advanced so far during the Obama administration could drag down the overall economy.

What is conceivable, and indisputable, is that the health benefits from these rules are large.  Every year, the cleaner air and other environmental benefits from the rules will save tens of thousands of lives, prevent tens of thousands of heart attacks, and mean hundreds of thousands fewer people will contract respiratory illnesses, thereby diminishing hospital stays.  When all benefits, including health benefits, are considered, the benefits from the rules dwarf any compliance costs.

Note:  Explanation of calculation.  For the two rules that raise fuel standards for, and reduce greenhouse gas emissions from, various-sized vehicles, this blog considers the following benefits as economic:  reductions in fuel expenditures, the value of time savings from needing to refuel less often, and the value of the decreased chance of economic disruption due to reduced dependence on foreign oil.  The costs of time lost due to increased congestion (due to more driving since fuel costs less) and the costs of increased crashes (also reflecting more driving) are considered economic losses.  The additional value drivers attach to driving more are not considered economic, nor are the costs assigned to increased traffic noise (reflecting more driving).  The method is conservative because due to technical obstacles, no economic benefits are attached to reducing carbon dioxide or other emissions.  Additionally, the health benefits from these rules, which EPA calculated for 2030 and did not annualize, are not included in the calculation.