Contrary to conventional wisdom, environmental regulation often creates jobs.Image: truthout.org

Let’s start with the conventional wisdom. House Majority Leader Eric Cantor (R-Va.) recently called for the repeal of 10 “job-destroying” regulations, calling them “costly bureaucratic handcuffs that Washington has imposed upon business people who want to create jobs.” On the list are regulations that limit air pollution, maintain the ozone layer, curtail greenhouse-gas emissions, and prevent contaminants from entering ground water. (Also on the chopping block: labor standards and health protections.) The rationale behind the proposed repeal of these important environmental regulations is somewhat baffling, but here’s an example to try to sort it out.

The Environmental Protection Agency’s new regulation of space-heating boilers would, according to Cantor, impose “billions of dollars in capital and compliance costs.” The question is, where do those billions of dollars go? If we are to believe the majority leader, this money is flushed down the proverbial toilet. Its only impacts are to raise the costs of goods and services, and to put hundreds of thousands of jobs at risk (presumably, employers — cash-strapped after flushing all that money — would have to fire workers to make ends meet). Environmental regulation, we are told, is nothing but a burden both to business and labor.

This strange and clearly disingenuous characterization of the impacts of environmental regulation has taken center stage in today’s national policy debate. A few fuzzy points in this logic, however, could benefit from some closer examination. Three questions come to mind.

What happens to the billions spent in capital and compliance costs? Far from being thrown away, this money supports jobs in sectors that manufacture capital goods and provide support services for compliance. Often called “green jobs,” the employment generated spans from the blue-collar assembly line to white-collar scientific research. Installing new equipment to prevent pollutants from leaching into our air and water also brings work to electricians, plumbers, and other more specialized technicians. Money spent for environmental regulation is spent productively, and the result is job creation.

When facing these new costs, will employers cut their workforce? This old supply-side warhorse gets dragged out every time regulations need to be cast in a negative light. When the cost of doing business goes up — and especially when those cost increases are just a small share of revenues, as they are with almost every environmental regulation — firms don’t start cutting production and, consequentially, their workforce. Instead, they pass the costs on to their custumers and keep production and employment steady. (At present, with profits relatively high and demand low, it’s not even clear that prices would increase — it could be a pure Keynesian stimulus, forcing a small share of profits to be spent on goods and services, without any price changes.) Whether higher costs will dampen customers’ demand, and producers will respond by cutting back, is a separate, more complicated question. For many of the goods and services most affected by environmental regulations — electricity generation, for example — demand is extremely insensitive to small changes in the price. Studies have shown [PDF] that environmental regulations very often create more jobs than are lost from reduced demand for the regulated, and therefore more expensive, goods and services.

What about the benefits of environmental policy, and the cost of allowing pollution to continue? Missing from the call to repeal key regulations is any mention of these policies’ benefits for environmental and public health. A recent EPA study estimated that just one law — the Clean Air Act — prevented 230,000 deaths, 3.2 million lost school days, and 13 million lost work days a year in 2010. The benefits of this act, including savings in medical expenses and increased worker productivity, are 30 times greater than its cost of implementation, and the benefits of regulation, more generally, also have been shown to exceed costs [PDF]. Not inconsequentially, clean-air (and other) regulations also provide us with a cleaner, healthier natural environment.

It may be hard to believe after watching a little too much cable news, but environmental regulations prevent senseless deaths and improve our standard of living, often while creating new jobs. Yes, they make the goods and services that pollute our neighbors’ air and water more costly — and any economist should be willing to admit that correcting these sorts of “market failures” is all for the good — but their job-killing powers have been greatly exaggerated. The jobs-environment trade-off is a scary story, but it’s not based in fact. When we are asked to choose between jobs or clean air, the answer should be “both.”

Cross-posted from TripleCrisis.

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Climate inaction: Are the long-term costs worth the short-term savings?Your house might not burn down next year. So you could probably save money by cancelling your fire insurance.

That’s a “bargain” that few homeowners would accept.

But it’s the same deal that politicians have accepted for us, when it comes to insurance against climate change. They have rejected sensible investments in efficiency and clean energy, which would reduce carbon emissions, create green jobs, and jumpstart new technologies — because they are too expensive.

While your house might not burn down, your planet is starting to smolder. Extreme weather events are becoming more common, and more expensive: In the first half of 2011, Mississippi River floods cost us between $2 and $4 billion, while the ongoing Texas drought has cost us between $1.5 and $3 billion, according to the National Climatic Data Center. And there’s much worse to come: Climate-related extremes are already forcing millions of people from their homes worldwide; ice sheets and glaciers are melting much faster than expected; the latest research shows we are rapidly heading for summer temperatures at which crop yields in America will start to plummet.

How expensive are these damages? The Bush administration simply ignored the question. The Obama administration, to its credit, took it on — but addressed it with antiquated models, developed long before we understood the urgency of the climate crisis. Using early 1990s economics, they concluded that the damages from carbon emissions are worth a mere $21 per ton of carbon dioxide. If you paid for it at the gas pump (which no one has proposed), that would be just $0.21 per gallon.

But our new research, published this week by the E3 Network, finds that suffering the impacts of climate change could cost us far more than that. Our report finds deep flaws in the U.S. government’s $21 per ton estimate. That inaccurate estimate promotes inaction, with enormously harmful consequences.

Our research incorporates an up-to-date understanding of climate risk and uncertainty, and finds that the true cost of carbon emissions could be almost $900 per ton today, and more than $1,500 by 2050. Granted, these are the high-end of the range of 16 scenarios that we studied. We aren’t sure that the costs will be that high — but we also can’t be sure that climate change won’t be that expensive. It’s the fire insurance problem: You buy insurance because you can’t be sufficiently sure that your house won’t burn down.

How much would it cost to buy climate insurance, to invest in emission reduction? The early stages would cost little or nothing; many energy efficiency measures, and the most cost-effective forms of clean energy, such as wind power in suitable locations, are already competitive with fossil fuels. To control the climate crisis, we’ll need to move beyond those early stages; several research groups have estimated the costs of very ambitious worldwide emission reduction scenarios at $150 to $500 per ton of carbon dioxide by 2050.

That sounds expensive, unless you compare it to the cost of inaction. Of our 16 scenarios, 14 find that the costs of climate damages — the costs we’ll suffer if we do nothing — will be equal to or greater than the costs of ambitious emission reduction. Those 14 scenarios reflect real risks, measuring how badly climate change could turn out — and those risks mean that inaction is the more expensive and shortsighted choice. Financial prudence in Washington requires immediate action on climate change: It requires us to stop paying for climate damages and to start investing in guarding against them.

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With a good climate policy, we could save money and our environment.

Congress is off for its summer vacation, and once again, they left the Capitol without adopting a climate policy. Is it impossible to pass a bill that’s good for both the earth’s climate and the American taxpayer? Or did Congress just drop the ball again?

The good news: A well-designed climate policy could slash greenhouse-gas emissions while putting money in the pockets of most Americans. The bad news: That’s not the policy Congress has been debating.

What would it look like to do climate policy the right way? In a recent study [PDF] released by Economists for Equity and Environment (E3 Network), we explored the impacts on emissions, and the costs to households throughout the country, under a wide range of scenarios. We found two basic principles for designing a fair, effective climate policy: We need to put a price on carbon dioxide emissions, and we need to use the resulting revenues wisely.

Start with the price: To reach the widely discussed goal of a 20 percent reduction in greenhouse-gas emissions by 2020, the price of emitting a ton of carbon dioxide in that year should be $75. That’s definitely higher than Congress has been contemplating.

How could anyone afford that? It’s simple. If most of the carbon revenues are refunded to households on an equal per capita basis, then a large majority of Americans will come out ahead. That is, your refund will be larger than the amount you pay for carbon emissions. If 85 percent of carbon revenues are refunded to households, then four-fifths of the country, including a majority in every state, will be better off. That’s a bigger refund than Congress has yet considered.

Under such a policy, you’d pay a lot for carbon emissions, at the gas pump and on your electric bill ­– but you’d get it all back, and more, in your refund check. You would come out even farther ahead if you save energy, whether by turning off unneeded lights or by buying a more fuel-efficient car. Then you’d pay less but still get the same refund. That’s the point of the plan: the market incentive to reduce emissions.

Now for the not-so-good news: How does this differ from the ever-changing proposals emerging from Washington? Let’s look at three basic questions.

First, is the price on carbon emissions high enough to really reduce emissions? The risks of climate change are real; the laws of physics don’t need 60 votes in the U.S. Senate to make the world grow dangerously warmer.

Reducing emissions is an urgent worldwide priority, but until the largest, richest economy (that would be us) takes the lead, the rest of the world is unlikely to follow.

On this score, all recent legislative proposals have been disappointing. They have ceilings on the price of emissions, typically limiting it to $40 per ton or less in 2020 ­– roughly half of what’s needed to reach the targeted 20 percent reduction.

Next, who gets the money ­– or the permits to emit carbon dioxide, which are worth a lot of money? If emission permits are given away to industry, it’s businesses and their stockholders that reap the benefit. If all permits are sold, then the revenues can be refunded to households, as we propose. One recent proposal, the Cantwell-Collins bill, comes closest to our suggested approach, selling all permits and refunding 75 percent of revenues to households. Other leading proposals include large permit giveaways, wait decades to give refunds to most citizens, and divide revenues among many competing uses ­– some worthy, others pure pork.

The third question is, what else would the policy do to reduce emissions and help build a new, green economy? Investments in energy efficiency and renewable energy can reduce emissions, in concert with price incentives.

These investments should be targeted to the states with the highest per capita emissions ­– generally those most dependent on coal for electricity generation. Reducing America’s reliance on coal is essential to the creation of a new, sustainable energy system. On this point the legislative proposals are more mixed; none seek to phase out coal, but most do invest in efficiency and renewables. Under our plan, 15 percent of revenues remain available after the refunds, and we recommend spending much of this money to reduce emissions and create jobs, especially in the highest-emission states.

If Congress adopts a fair, effective policy when it returns in September ­– one with the right answers to these three questions ­– we can do our part to fight climate change, put money in the pockets of most Americans, and start building a green economy.