EPA's proposal to reduce ozone standard may harm economy and manufacturers

Source: MAPI

Oct 14, 2010

In January 2010, the U.S. Environmental Protection Agency (EPA) proposed reducing the ozone standard to somewhere between 60 parts-per-billion (ppb) and 70 ppb, a regulation that, if enacted, would adversely affect the domestic economy in general, and the manufacturing sector in particular.

In Economic Implications of EPA’s Proposed Ozone Standard (ER-707), Donald A. Norman, Ph.D., Manufacturers Alliance/MAPI economist, utilizes detailed research that NERA Economic Consulting conducted on 11 states to estimate the costs of 60 ppb ozone standard for the entire United States. NERA’s cost estimates cover the years 2020 through 2030. The EPA expects that states will be fully engaged in their efforts to reach its new standard by 2020. Norman estimates that the annual cost of attaining a standard of 60 ppb would be $1.013 trillion between 2020 and 2030, equivalent to 5.4% of gross domestic product (GDP) in 2020. The present value of attainment costs over this period amounts to $7.1 trillion based on a discount rate of 7%.

Other key findings include:

  • GDP would be reduced by $676.8 billion in 2020 (in 2010 dollars), an amount that represents 3.6% of projected 2020 GDP in the baseline case (2.5% annual GDP growth);
  • Total U.S. job losses attributable to a 60 ppb ozone standard are estimated to rise to 7.3 million by 2020, a figure equal to 4.3% of the projected 2020 labor force;
  • Job jeopardy and the impacts of a 60 ppb ozone standard are largest in states where there is considerable manufacturing and refining activity. The states with the largest job losses include: Texas, which would lose nearly 1.7 million jobs at a total attainment cost and reduction in GDP of $452 billion (in 2010 dollars); Louisiana, which would lose 983,000 jobs at a cost of $270 billion; California, which would lose 846,000 jobs at a cost of $210 billion; Illinois, which would lose 396,000 jobs at a cost of $98 billion; and Pennsylvania, which would lose 351,000 jobs at a cost of $86 billion;
  • Together, annual attainment costs and reduced GDP in 2020 would total $1.7 trillion;

A previous MAPI report released in 2007 analyzed an EPA proposal to change the ozone standard from 84 ppb to 70 ppb. The EPA’s Regulatory Impact Analysis claimed that 80% of the required reduction in emissions would come from large manufacturers despite the fact that previous restrictions had left so few remaining emissions that there was no chance that any more than a small share of the emissions reductions could be provided by the manufacturing sector.

Norman warns that moving from a currently implemented standard of 84 ppb to the potential of 60 ppb is likely to be even more expensive.

“The marginal cost of ozone standards rises rapidly as ozone standards become more stringent,” he said. “The United States in general, and the manufacturing sector specifically, will bear the cost of a more stringent ozone standard. 

“Production costs would be further elevated while domestic markets would grow more slowly,” he added. “The net result would be another inducement for companies to move operations offshore to avoid bearing the attainment costs as well as to seek to capture markets in faster growing parts of the world.”

Read the complete report, Economic Implications of EPA’s Proposed Ozone Standard (ER-707).