Clean Air Act Amendments of 1990 Slow U.S. Economic Growth

Given the continued weakness of the U.S. economy, stubbornly high unemployment rate and sluggish investment spending, lawmakers should closely examine the economic and health benefits from regulatory policies like the Clean Air Act Amendments of 1990 (CAAA) and whether the cost benefits are based on sound economic modeling.  ACCF Senior Vice President and Chief Economist Dr. Margo Thorning testified on the impact of CAAA today before the Senate Subcommittee on Clean Energy and Nuclear Safety and Subcommittee on Children’s Health and Environmental Responsibility.

Thorning specifically analyzed a much-touted claim from the Environmental Protection Agency that the CAAA will provide  $2 trillion in annual economic benefits in 2020.  She noted that the figure is based on survey data that asks individuals what they would be “willing to pay” (called “stated” WTP) for a small increase in life expectancy and the wage differential between occupations of different riskiness, such as a commercial fishermen compared to an office worker (“revealed” WTP). The academic surveys of WTP used by EPA have no link to overall economic activity and do not address how (or if) WTP affects the components of GDP (consumption, investment, government spending and net exports). “Willingness to Pay” responses by survey participants or the wage differential between occupations with different levels of risk do not create any new jobs, cause any investment or increase levels of spending in the U.S. economy.

Conversely, EPA’s own simulations with its macroeconomic model show that the CAAA has significant negative impacts on U.S. GDP growth over the 2010-2020 period. GDP declines by $79 billion in 2010 and by $110 billion in 2020 relative to the baseline forecast.

By 2020, there is a tiny increase in GDP ($5 billion) under the labor force adjusted case. Note that EPA’s calculation of a $5 billion increase in GDP in 2020 when health benefits are included is only a tiny fraction (0.25 %) of the $2 trillion in claimed “economic benefits” from the CAAA.

Thorning also cited several scholars that have documented the link between economic growth and declines in the U.S. mortality rate.  “Policymakers should analyze current and proposed regulations under sound economic principles and widely respected economic models. EPA’s estimated $2 trillion in ‘economic value’ from the CAAA clearly does not meet those criteria and stands in stark contrast to its own economic modeling,” Thorning said.  “Restoring strong growth, job creation and investment spending will not only benefit the U.S. economy, but it will also have long-term benefits by fostering better health and reduced mortality.”

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