November, 2008

Not Considering Costs in Setting NAAQS: A Costly Mistake

Key materials
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Summary

This Mercatus Center Working Paper discusses the economics of the EPA’s interpretation of the Clean Air Act and how considering costs could make society better off.

Our Findings

  • Setting National Ambient Air Quality Standards (NAAQS) without considering costs could eventually lead to scenarios where the EPA policies reduce human health and welfare. Every time the EPA sets a new ambient air quality standard, the resources devoted to compliance with the new standard are taken away from other uses. The allocation of scarce resources in the economy is forcefully altered, with more resources devoted to clean air activities at the expense of other investments.
  • While improving air quality can impart health benefits, so can investing in health care research, buying safer cars, paving potholes, or reducing childhood diabetes. When setting NAAQS under the Clean Air Act, the EPA should consider opportunity costs of its actions.
  • Because a 2001 Supreme Court ruling upheld the EPA's interpretation of the Clean Air Act, Congress should amend the Clean Air Act to state that the EPA Administrator should consider costs when setting NAAQS.  Such an amendment would allow the EPA to consider economic tools such as benefit-cost analysis, cost-effectiveness analysis, and risk-risk analysis in setting NAAQS. Allowed to consider such information, the EPA would be better equipped to choose regulatory actions that are most cost-beneficial or cost-effective for society.