Republican presidential candidates at the Iowa GOP/Fox News Debate in Ames, Iowa, Aug. 11, 2011. Tim Pawlenty appearing here is no longer in the race. Rick Perry entered soon after. (AP Photo/Charlie Neibergall, Pool)

Among the Republican Party candidates vying to contest Obama in the 2012 presidential election, there is a recurring theme: the idea that environmental regulation prevents job creation. While only one candidate attacked the Environmental Protection Agency (EPA) in Monday’s Tea Party Express debate, Herman Cain’s comment that the agency has “run wild” drew enthusiastic applause. The notion that there is a tradeoff between jobs and the environment is not new, but it is a powerful argument when job growth has been painfully slow, and when immediate economic concerns understandably outweigh long-term and complex environmental ones. It draws political points easily as it taps into voters’ struggles and fears.

As a political tactic, then, the idea is compelling. As an actual policy prescription, however, is it accurate?

Several recent articles and many past research studies have examined the question. While uncertainties and nuances exist, two main points of consensus are clear. The first is, environmental regulations do increase costs and can prompt job loss in certain industries, though projected losses are often significantly overstated, and lost jobs are generally offset by job creation in other industries and wider societal benefits.

The second is, job creation is in fact tangential to environmental regulation. The purpose of these regulations is not to increase job growth, nor is their termination meant to solve persistent unemployment (President Obama’s ozone decision was political, not economic). Rather, their purpose is to reduce the market inefficiencies of pollution. In other words, Republican candidate Newt Gingrich was correct when he said Monday night, “Governments don’t create jobs. The American people create jobs.” This time, the enthusiastic applause made sense.

The evidence explains why the jobs versus environmental regulation argument is misleading, and does not form the basis for carefully thought-out policies.

Regulation Does Increase Costs – But They Are Overestimated

On the first point of consensus, regulation increases costs, yet the data show that industry regularly overestimates projected job losses. The New York Times cites an example from the late 1980s, when the EPA proposed amendments to the Clean Air Act to reduce acid rain from power plant emissions. A 1997 study by Resources for the Future shows the electric utilities industry argued that amendments would cost more than $7 billion and thousands of jobs, but actual industry costs were closer to $1 billion, and ultimately there was a small increase in jobs rather than a decrease. A study by the World Resources Institute agrees that on balance, job creation is larger than job loss because jobs move from pollution-based industries toward pollution-control industries.

While the fact that only some industries may be harmed by environmental regulation is no consolation to a person who loses their job, the wider societal context must be considered. Economists agree that such regulations do not take place in a vacuum. Environmental rules interact with pre-existing policies, such as taxes, and therefore will increase efficiency in areas outside the targeted market. For example, real estate and tourism benefit from less pollution, and society as a whole benefits from increased efficiencies, technological or otherwise. That is the essence of environmental regulation: the rules may constrain individual firms as they adapt, but the objective is to promote the greater good.

The same idea applies to the public health benefits of environmental regulation. While these numbers contain uncertainties and are not precisely comparable to costs (for example, investments in non-polluting technologies versus a decline in asthma cases), many economists find that society-wide benefits nevertheless significantly outweigh costs and are ultimately beneficial to those regulated. With regard to acid rain, the EPA estimated the public health benefits at more than $120 billion by 2010, and found a 64 percent reduction in sulfur dioxide emissions compared with 1990 levels by 2009. A study on the 1972 Clean Air Act amendments by Michael Greenstone found that between 1972 and 1987, polluting industries lost 590,000 jobs, $37 billion in capital stock and $75 billion in output – a substantial number for these industries, yet small compared to the entire manufacturing sector, and small compared to monetary benefits to homeowners and reduced infant mortality rates.

There is no Large-Scale Trade-off Between Environmental Regulations and Jobs

On the second point of consensus, jobs are not a critical issue when it comes to environmental regulation. Economic analysis is not jobs analysis. Whereas regulations are designed to prevent the market inefficiency of pollution, unemployment is a macroeconomic issue limited by monetary policy. As Eban Goodstein points out, even jobs that are created by environmental regulation do not have a significant impact on the unemployment rate.  Where it does occur, job loss is too small to create a tradeoff between unemployment and the wider economy.

Instead, the tradeoff is between regulation and output of goods and services. According to Peter Dorman, the three possible sources of unemployment in an economy are the level of aggregate demand, the trade balance and structural matters. Today’s economy is struggling because a lack of demand, not because of the existence of or increase in environmental regulations. The cement industry may currently be warning that proposed stricter standards for sulfur dioxide and nitrogen oxide emissions will cause a loss of approximately 13,000 jobs, but the real source of its problems is a troubled housing market and a lack of demand for cement.

The Trick is to Balance the Long and Short Term, Not Dismantle EPA Regulations

Regulations are blamed for many things, and in a bad economy, environmental regulations are an easy target. Removing them, however, does not help the overall economy recover anymore than putting them into place hurts it. The group Republicans for Environmental Protection points out that if the EPA were dismantled, as so many Republican candidates would like to do, the budget savings would be two-tenths of one percent of the federal budget. This number does not reflect industry’s costs of implementing EPA regulations, but it shows the minimal cost of government protection. While the timing of imposing new regulations is important to weigh in the short term, removing protections runs counter to the long-term reality that environmental health is the foundation of human health, productivity, innovation and well-being.

©WWF, Japan

As explained in a previous article, the Japanese Government has been examining its mid-term goal of greenhouse gas (GHG) reductions (2020) and is going to announce it in June. On 12 February, the committee on the mid-term goal, which has been established under the conference on global warming of the Government and has examined the mid-term goal of GHG reductions, proposed six plans concerning the GHG reductions. According to the six plans, proposed reduction rates range from a 6% increase to a 25% decrease.

Then, on 27 March, the committee disclosed results of economic impact assessment of those plans, which were carried out by several research institutes. The ranges of GHG reduction rates in this analysis became slightly modified to those of a 4% increase to a 25% decrease because the previous trial calculations of the reduction rates in GHG emissions looked at CO2 only, excluding other greenhouse gases that were included in the current trial calculations.

Economic impact assessment was carried out based on an assumption that Japanese GDP would increase annually by 1.3% and analysed economic impact of five plans compared to the other plan of increasing GHG emissions by 4%. According to the results of economic impact assessment, for example, in a case that Japan would reduce GHG emissions by 25%, the cumulative GDP losses by 2020 would be 3.2% to 6.0%; the maximum increase in the annual average unemployment rates would be raised by 1.9%; disposable income per household in 2020 would be pushed down by 220,000 yen to 770,000 yen.

Because the results of economic impact assessment of GHG reduction plans strongly emphasized negative economic effects, if people read them, they might feel threatened not to agree to the great reductions of GHG emissions. Although environmentalists and those who believe in ecological modernization (EM), may argue that strict environmental regulation would have positive economic effects, the committee might underestimate or even neglect positive effects of reducing GHG emissions greatly. Surely, environmentalists and EM believers would not agree to the results of economic impact assessment.

The battle between the industry side and the side of the Ministry of the Environment (MoE) over the mid-term goal of GHG reductions has been recently critically severe. In order to make people to stand by their own side, both of them have shown their results of economic impact assessment and cost estimation of GHG reductions. For instance, the Institute of Energy Economics, Japan, under the jurisdiction of the Ministry of Economy, Trade and Industry (METI), estimated that reducing GHG emissions by 7% by voluntarily introducing most up-to-date energy saving technologies would cost totally approximately 52 trillion yen by 2020. On the contrary, the National Institute for Environmental Studies, under the jurisdiction of MoE, analysed that reducing GHG emissions by 25% would cost annually approximately only 7 trillion yen. According to Sankei Shinbun, this difference was generated by different preconditions between them over costs of introducing energy-saving technologies and diffusion rates of them. Further, several economic associations, including the Economic Association of Japan (Nippon Keidanren), jointly carried out opinion advertising in major newspapers on 17 March. They emphasized that only the small amount of GHG reductions would cost 52 trillion yen for the society as a whole and approximately 1.05 million yen for each household. Regarding this argument, Tetsuo Saito, the Minister for the Environment, criticized that such an argument would be misleading people because it was the opinion of the industry side. World Wide Fund for Nature (WWF), Japan, also complained that if energy saving technologies were domestically used, it would expand domestic demand.

Although environmentalists and MoE have often criticized negative campaigns of the industry side including METI, it might be unfair if they were not entitled to do so. Because there are millions of uncertainties in economic assessment and cost estimation of GHG reductions, there might be no ‘right’ arguments and a wide range of conflicting opinions/data/analyses should be discussed in public whether they support for GHG reductions or not. Thus, the number of different opinions/data/analyses might be less important.

The more important thing is rather ‘who choose?’. It might be a waste of time and money if the Government did not ask what people want though a number of both public and private organizations/groups/individuals showed their own opinions/data/analyses to people. Choosing a plan for the mid-term goal of GHG reductions is a very important choice for the Japanese future. People should be involved in this important choice process. Because of millions of uncertainties over economic/social/environmental impact of GHG reductions, it might be highly difficult for the Government and Prime Minister to take a responsibility for consequences of the choice. Different opinions/data/analyses should be showed to people by different sides, especially the industry side and the MoE side. Then, examining them, people should choose a plan for the mid-term goal of GHG reductions even though they would choose the worst plan for the environment.