Boiler Owners Use Old Recipe to Cook Up New Numbers

Today, the Council of Industrial Boiler Owners (CIBO) released a ‘study’ (subscript required) claiming that forthcoming EPA rules to cut toxic and other pollution from thousands of industrial sources would (drum roll, please) . . . cause economic ruin and devastation.

Specifically, the ‘study’ says the cost of upgrading equipment to reduce pollution would cost between $9 - $18 billion in order to comply with the rule that was proposed. (They offer a higher estimate based on a rule that wasn’t proposed, as well, but since that rule wasn’t proposed, I’m not going to bother with it. For that matter, if they are so worried about saving money, they might start with not paying people to ‘analyze’ proposals that aren’t being made.)

The first thing to know is that those who are about to be asked to reduce pollution have a habit of crying wolf with howling estimates of the economic ruin and devastation that will result if the rules are implemented/law is passed. As I’ve mentioned before, industry has consistently overestimated all kinds of compliance costs, sometimes by as much as 2,900%.

Given that past experience suggests that CIBO’s figures could be wildly overestimated, it is worth noting that EPA’s analysis finds that the costs of reducing the toxic and other pollution from industry smokestacks will be about $2.9 (annualized), one-third to one-sixth of industry’s estimate.

The second thing to know is that firms don't generally make capital upgrades that cost billions of dollars by just writing a check for the whole amount. They borrow the money to spread the cost over time.

But let’s pretend for a moment that CIBO’s figures are credible. What do we get for the investment in pollution reductions?

EPA estimates the economic benefits of just the reductions of particulate pollution required by the rule are between $15 billion and $41 billion dollars ($2008) in just the first year of implementation.

So in the best-case scenario, the economic benefits of reducing these pollutants outweigh the costs by $32 billion dollars – in the first year alone. Worst-case scenario, it takes until the second year of pollution reductions for the benefits to outweigh the costs.

Of course, a lot of people and businesses will be enjoying the benefits of lower toxic and soot pollution in the first year pollution is reduced, regardless of how one counts the money, since the EPA estimates the pollution reductions will prevent between 2,000 and 5,000 deaths and avoid 250,000 lost workdays, in just the first year of implementation.

And bear in mind, that since CIBO seems to be assuming that companies will pony up all those capital costs in the first year (which isn’t really how businesses finance major capital investments) we’ll be enjoying the pure benefits of the pollution reductions for years to come. Which makes it reasonable to expect this rule to end up producing a cost/benefit ratio similar to what the Clean Air Act has historically produced – a $40 worth of benefits for every $1 worth of compliance costs.

In fact, the Clean Air Act has produced an awful lot of economic value, when we look back at it. As my colleague Laurie Johnson recently blogged

“as EPA approaches its 40th birthday (December 2, 2010), we can celebrate an economy with a GDP 3 times its 1970 size, household incomes that are on average 45% higher, the creation of tens of thousands of jobs in the environmental protection industry, and tens of thousands of lives saved from a cleaned up environment.”

And another colleague, Dave Hawkins just pointed out, (giving me an easy way to conclude this blog):

“As we see renewed claims from polluters that new EPA rules for the largest remaining pollution problems will cost jobs and raise energy prices, it is important to remember they said the same things about every rule EPA adopted in the past 40 years.  They were wrong every time.  Fortunately for all of us, past cleanup efforts went forward despite these claims.  Let’s highlight these facts as we work to bolster EPA and state efforts today and secure continued support from Congress for this remarkable law.”