Politics

06.09.14

The Chicken Littles Are Wrong: Environmental Regulations Always Spur Innovation

Every time the government raises environmental standards, industry leaders whine that the cost will be prohibitive. But they’ve been wrong every single time.

The Obama administration’s new emission standards, which require power plants to reduce the amount of carbon dioxide into the atmosphere over the next several years, has inspired predictable backlash from industry lobbyists, Republican officeholders, and the dwindling corps of coal-country Democrats. The regulations will hurt jobs, damage the economy, raise electricity prices, and generally have a poor economic benefit.

There’s a familiar ring to these complaints, as well as a familiar wrong.

Over the past century government efforts to improve vital commercial and economic systems have always incited reaction that was as apocalyptic as it turned out to be incorrect. Wall Street fought the establishment of the Securities and Exchange Commission tooth and nail; the SEC helped revive the industry. The banking industry found the idea of deposit insurance abhorrent; it allowed the industry to get back on its feet after an epic fail. Republicans railed harshly against Social Security, then Medicare and Medicaid, and then Obamacare—in almost exactly the same terms. They would turn the U.S. into a socialist country and destroy the economy. Um, no.

And we’ve seen it over the last few decades when it comes to the environment. Whenever the government tried to improve air quality or make our system more efficient through the imposition of new standards, industry and its friends in government howl.

Let’s review. In 2007, the Bush administration signed a measure that would finally bring the light bulb into the 21st century. As the day approached when bulb marketers would have to offer Americans products that consume 25 percent less energy than before, Tea Party types like Michele Bachmann and Rand Paul went ballistic. Joe Barton of Texas, one of the less bright bulbs in Congress, denounced the standard as yet another intrusion. “From the health insurance you’re allowed to have, to the car you can drive, to the light bulbs you can buy, Washington is making too many decisions that are better left to you and your family.” Besides, the new technologies would cost too much and prove burdensome to Americans.

Since the standard came into effect last year, of course, there has been no noticeable effect on the economy, or on the quality of household lighting in America. The lighting industry has rolled out a series of new products—LEDs, CFLs, new incandescent bulbs—that comply with the standard. Yes, the upfront cost might be higher than the old-fashioned bulbs. But they save purchasers a large chunk on their electricity costs and last longer.

In 2012, on the opening day of the Republican National Convention, the Obama administration promulgated new mileage standards for vehicles sold in the U.S.—increasing the required miles per gallon to 36.6 by 2017 and a whopping 54.5 by 2025. Impossible! Unworkable! Here’s the New York Times:

“But the Romney campaign has criticized the new rules as ‘extreme’ and said the standards would limit the choices when consumers shop for a new car. ‘The president tells voters that his regulations will save them thousands of dollars at the pump, but always forgets to mention that the savings will be wiped out by having to pay thousands of dollars more upfront for unproven technology that they may not even want,’ said Andrea Saul, a spokeswoman for the Romney campaign.”

An executive of the National Auto Dealers Association claimed it would shut people out of the new car market and tamp down sales.

Of course, we’ve instead seen a massive proliferation of choices in vehicles with better mileage. Not just hybrids (there are 50 different hybrids on the market) or electric cars, but basic pickups, SUVs, and sedans. Car manufacturers, having finally gotten religion about efficiency, have been innovating furiously, using new materials and technologies. All the same car models are available for sale at prices that aren’t much higher. They just cost less to operate. Oh, and car sales, far from plummeting, have soared to levels not seen since 2007. It does not appear that the standards have shut people out of the market.

In 2000, when the Clinton administration issued rules forcing big trucks and engine makers to reduce the amount of diesel emissions, the oil industry and many Republicans recoiled in horror, “warning that provisions of the rules could result in dangerous shortages and price surges in the fuel on which truck and bus transportation depends,” as the Times reported. Other industry officials argued that the regulations would cause refiners to Go Galt, and just stop making the fuel, raising the specter of shortages. None of those dire predictions came to pass.

In 1990, when Congress approved the first significant changes to the Clean Air Act since the 1970s, measures that were ultimately signed by President George W. Bush, Rep. John Dingell, the chairman of the Energy and Commerce Committee and a staunch ally of the auto industry, warned of punitive costs. “Everybody is going to find out that clean air is not free,” said the Michigan Democrat. “There are enormous costs in terms of jobs.” Reducing acid-rain emissions and imposing higher air-quality standards could cost industry up to $20 billion a year, which in 1990 was real money. The president of the Edison Electric Institute, the utility trade group, argued that changes would cost electricity users between $5 billion and $7 billion a year.

More often than not, higher standards, far from being punishments, are a spur to innovation.

Yes, utilities and power producers did have to splash out some cash to make sure the air in the eastern part of the country would be less hazardous to plants and animals. But the cost weren’t nearly as high as projected. In 2011, the New York Times reported that the evidence of economic damage was scant. “But the cost of the program has been closer to $1 billion, said Dallas Burtraw, an economist at Resources for the Future, a nonprofit research group on the environment. And the EPA, in a paper published this year, cited studies showing that the law had been a modest net creator of jobs through industry spending on technology to comply with it.”

And so on. In the 1970s and 1980s, appliance makers resisted national standards on efficiency for refrigerators, washers and dryers, arguing it would harm choice, and make their products more expensive. In 1987, Ronald Reagan—of all people—set up new standards. In the years since, there has been enormous innovation, expansion of choice, and improvement in efficiency of appliances, all without costs going up much.

Part of this is the expected behavior of people who don’t like change, or who find the status quo profitable, or don’t believe the government should be in the business of demanding that industry and consumers set their sights higher. Reactionaries gonna react. But it betrays a stunning lack of historical awareness and an unseemly lack of faith. Time and again, American businesspeople and engineers have figured out new and improved ways of doing things. More often than not, higher standards, far from being punishments, are a spur to innovation.