Not Considering Costs in Setting Ambient Air Quality Standards: A Costly Mistake

Abstract:     
This paper describes the economic analyses such as benefit-cost analysis, cost-effectiveness analysis, and risk-risk analysis that could be used to improve environmental rulemaking if Congress were to implement the Clean Air Act such that EPA could consider costs when setting National Ambient Air Quality Standards (NAAQS). I show that setting NAAQS without considering costs could eventually lead to scenarios where US Environmental Protection Agency (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 standard are necessarily taken away from other uses. Because a 2001 Supreme Court ruling upheld the EPA’s interpretation of the Clean Air Act that EPA may not consider costs when setting NAAQS, Congress should amend the Clean Air Act to state that the EPA Administrator should consider costs when 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.

Keywords: Clean Air Act, NAAQS, benefit-cost analysis, cost-effectiveness analysis, risk-risk analysis

JEL Classifications: Q28, Q25, L51, I18

Working Paper Series