The Macroeconomic Effect of the Clean Air Act; how it provided incentive for development in clean air technologies.

by theintrospectivemaster

The Clean Air Act seeks to protect human health and the environment from emissions that pollute ambient, outdoor air. The enactment of the clean air act began in the year 1955, followed by a series of revisions in the year 1970, 1977, and 1990. Before 1970 the federal government played no significant role in the regulation of air pollution and as such, that responsibility was left to state governments. The Clean Air Act (CAA) has left a legacy of economic benefits across urban and rural communities in addition to benefits to both small and large businesses. The economic benefits of the Clean Air Act have exceeded the controlling costs of air pollution emission. Through the implementation of stringent regulation such as the Clean Air Act have fueled the U.S economy in terms of environmental technology development which led to the creation of 1.3 million jobs between 1977 and 1991.

Introduction

The Clean Air Act upon its inaction was determined as a progressive means for environmental control policy in the United States. The Clean Air Act imposes restrictions and standards on the types of emissions produced, since its inception the Act has come under criticism in terms of how the act has reduced jobs, driven up production costs, and not provided the health benefits equated to its costs as promoted by the act. The purpose of this paper is to explore the cost to benefit ratio the Clean Air Act has applied in relative terms of the Macroeconomic impact of the United States Economy.

 

Overview

The enactment of the clean air act began in the year 1955, followed by a series of , revisions in the year 1970, 1977, and 1990. The Clean Air Act requires that the EPA to set a standards of ambient air quality, sets deadlines for the achievement of those standards by state and local governments, in addition requiring the EPA to set national standards for emissions of sources of air pollution. This includes motor vehicles, industrial sources and power plants. The Act in addition mandates emission controls for 188 hazardous air pollutants(McCarthy, 2005).

The Clean Air Act seeks to protect human health and the environment from emissions that pollute ambient, outdoor air. The Environmental Protection Agency is required by the Act to establish minimum national standards for air quality, and the responsibility of those standards primarily reside to the states to assure compliance with the standards. Non attainment areas which are referred to as areas that do not meet proposed standards, are required to implement sir pollution control measures. Mobile sources of air pollution, emissions that cause acid rain, sources of 188 hazardous air pollutants are held to federal standards as established by the Act. The Act implements a comprehensive permit system for all major sources of air pollution. The prevention of pollution in clean air areas and protection of the stratospheric ozone layer are addressed by the Clean Air Act (McCarthy, 2005).

Before 1970 the federal government played no significant role in the regulation of air pollution and as such, that responsibility was left to state governments. Lacking federal legislation, few states found it in their interests to impose strict regulations on polluters. Concerned with the detrimental health impacts of Nitrogen Dioxide, Sulfur Dioxide, and other particulate matter, Congress enacted the 1970 Clean Air Act Amendments (Greenstone, 2002).

The 1970 amendments to the Clean Air Act established the following: National standards for air quality, required a 90% reduction in emissions from new automobiles by 1975, require the best new technology of control for major new sources of air pollution, the establishment of a program to regulate air toxics, enforce federal authority. The 1977 amendments adjusted the auto emissions standards, offered an extension of the deadline for the attainment of air quality standards and the prevention of significant deterioration program to protect cleaner air than that of national standards . 1990 brought changes to the Act including the following provisions: classify non attainment areas, tighten auto and other mobile source emission standards, require alternative fuels in the most polluted areas, establish a new technology standard, acid rain control program in addition to other variances (McCarthy, 2005).

 

Examination

The Clean Air Act (CAA) has left a legacy of economic benefits across urban and rural communities in addition to benefits to both small and large businesses. The CAA has also led to advancements in environmental control that have improved public and worker health. In addition, it has spurred the creation of millions of jobs and technological achievements and innovations; exported new industries around the world(Atten & Hoffman-Andrews, 2010).

The CAA shows, verified by studies shows that the economic benefits of the act have exceeded the controlling costs of air pollution emission. The Office of Management and Budget estimated the total economic benefits of the CAA are at more than four to eight times the costs of compliance. By protecting public health and the environment, the CAA has fostered a long period of economic growth and development. Emissions of the most common air pollutants have declined by 41% in the last two decades, while the Gross Domestic Product (GDP) has increased by more than 64 percent. The CAA has spurred important technological innovations i.e. catalytic converters which have helped spur job growth. The creation of 1.3 million jobs between 1977 and 1991 in the environmental technology industry was spurred by environmental regulations implemented by the CAA (Atten & Hoffman-Andrews, 2010).

 

Economic Benefits of the Clean Air Act

Under section 812 of the 1990 Clean Air Act Amendments, the Environmental Protection Agency (EPA) is required to periodically conduct reviewed studies that asses the costs and benefits of the CAA. Since the 1990 amendment, the EPA has conducted two studies (reference table 1-1). The table shows the estimates of benefits and costs developed in two studies. The first study was retrospective and investigated the costs and benefits of the CAA from 1970 to 1990. the composite of the analysis compared the state of the environment and public health. The conclusion of the study showed that the benefits of the CAA was shown by the form of improved worker productivity, increased agricultural yields, reduction in mortality rates, and other economic, public health benefits all of which far exceeded the costs of compliance (Atten & Hoffman-Andrews, 2010).

Between the years of 1970 and 1990, the CAA yielded $22.2 trillion in economic benefits; in comparison, the compliance costs to achieve the pollution reductions at an estimated $523 billion which equates to a cost benefit ratio of 40:1 with net economic benefits of $21.7 trillion dollars. The calculated benefits of the CAA come from the reductions in air pollution emissions. Sulfur dioxide emissions declined by 40 percent, Nitrogen dioxide emissions were reduced by 30 percent, Carbon monoxide emissions were reduced by 50 percent and particular matter emissions were reduced by 75 percent (Atten & Hoffman-Andrews, 2010).

The calculations to determine the effect of the Clean Air Act Amendments were compiled by having the EPA monetize the public health benefits of pollution reductions, effects on worker productivity etc…(reference table 1-2). The study finds that the cumulative economic benefits of the CAAA from 1990 to 2010 total $690 billion, while compliance costs would only total $180 Billion. This equates to a 4:1 cost benefit ratio. In 2010, Sulfur dioxide were reduced by 31 percent and Nitrous dioxide reduced by 39 percent (Atten & Hoffman-Andrews, 2010).

The Office of Management and Budget (OMB) estimated the range of benefits from regulation between 1992 to 2002 to be $121 billion to $193 billion with costs equating to $23 billion to $27 billion. This calculates to $4 to $8 in benefits for every dollar invested into clean air. In 2005, research showed that the acid rain program’s benefits exceeded its cost by more than 40:1 in 2010 (Atten & Hoffman-Andrews, 2010).

 

Spurred Innovations

Through the implementation of stringent regulation such as the CAA have fueled the U.S economy. The environmental technology industry led to the creation of 1.3 million jobs between 1977 and 1991 as spurred by the Clean Air Act. These innovations led the U.S. to becoming a world leader in environmental control technologies. Exports of environmental technologies grew by 130 percent between 1993 and 2003, and valued at $30 billion in 2004. The use of stringent controls has led organizations to turn to technological development tools. These controls acted as incentive for producers to develop new tools to meet the standards as proposed by the CAA (Atten & Hoffman-Andrews, 2010).

 

Defects

The three basic objectives of the Clean Air Act are: the regulatory system created by the statute should readily incorporate new knowledge as it arises. Our understanding of pollution is too limited and too rapidly evolving to allow the statute as it stands to be built on today’s hypotheses. Second, the system should control pollution in the most economically efficient manner. Third, the mechanical, legal, and procedural workings of the control scheme should strive towards simplicity and consistency. The act fails to deal with any of these issues. The CAA fails to incorporate the continuing evolution and discovery of pollution in its many facets which ultimately hinder the operations of the CAA upon implementation; so by the time amendments may be drafted and applied, the period for those to have substantial effect have already passed. (Pedersen, 1981).

Conclusion

The Clean Air Act has greatly reduced the amount of air emission pollutants since its inception and throughout its history through amendments. The amount of sulfur dioxide and carbon monoxide being among some of the greatest achievements that the Clean Air Act has offered in terms of reduction. The CAA has also led to the creation of millions of jobs in new fields of technology, specifically green technologies. These developments were a direct result of the stringent controls and liens placed through the CAA that brought about such growth and development. The CAA has also proven that the cost to benefit ratio is not as high as was originally projected before its proposed use, and instead shows that the ratio of benefit to ratio is in favor of benefit in comparison to costs. The CAA has not only provided increased benefit to quality of life but in addition productivity of working conditions and managed to reduce air borne pollutants while experiencing economic growth and development throughout. The simple fact remains that the CAA has proven to have a positive impact on the overall macroeconomic economy of the United States. By reducing negative externalities from production and increasing the benefit provided to society all while creating job growth.

Table 1-1
Monetized Benefits And Costs Of The Clean Air Act
Study Benefits Costs Benefit-Cost Ratio
CAA 1970 through 1990

EPA retrospective study
(1990 dollars)

$22.2 trillion
$523 Billion
42 to 1
CAAA 1990 through 2010

EPA prospective study
(1990 dollars)

$690 Billion
$180 Billion
4 to 1
Stratospheric Ozone Protection

EPA prospective study
(1990 dollars)

$530 Billion
$27 Billion
20 to 1
(Atten & Hoffman-Andrews, 2010).