In the run-up to this morning’s oral arguments before the Supreme Court on the Environmental Protection Agency’s rule to limit hazardous air pollutants from fossil-fueled power plants—and indeed throughout the oral arguments themselves—opponents repeatedly pointed out that the benefits of the rule in reducing mercury pollution were “only” between $4 million and $6 million. Putting aside the ethically problematic question of trying to put a dollars-and-cents value on achieving improved public health and environmental protection, it is worth pondering this number and what it reveals about the significant methodological flaws that are endemic to cost-benefit analysis. (For the record, this number is supposed to represent the “value” of lost earning potential of children that the rule would protect against IQ point degradations. Do you see what I mean about ethically problematic?)
Opponents of the rule claim that this $4-million figure is the only valid benefit estimation of the rule that the EPA should able to count in evaluating its mercury rule. In making this argument, their real beef is that the EPA has also counted the co-benefits of the rule—that is, benefits that the rule achieves as an incidental byproduct of what is really trying to achieve. In this case, EPA’s rule is meant to address mercury and other “hazardous” air pollutants, but along the way would significantly reduce particulate matter and ozone, which are classified as- “non-hazardous” air pollutants, but are still known by scientists to cause a host of environmental and public health problems.
Even if we exclude the value of the rule’s co-benefits, that doesn’t mean the rule’s benefits are only worth $4 million, as the corporate polluters would have you believe. Instead, this value captures (poorly) just one aspect of one part of the benefits of reducing one of the many hazardous air pollutants covered by the rule. Yes, the rule would protect children against reduced IQ degradation, but does anyone believe that “lost earning potential” is the only negative consequence to flow from IQ degradation? Other negative consequences might include the lost quality of life the child experiences or the extra money that his family might have to spend to get him through remedial classes. And those, of course, are just the tip of the iceberg.
On top of that, impaired brain function isn’t the only public health threat that comes from mercury pollution. This pollution has also been linked to heart disease and damaged kidneys in human adults. Plus, this doesn’t include the damage that mercury pollution causes to plants, animals, and the healthy functioning of affected ecosystems.
And there’s more still to consider. Mercury is just one of the many hazardous air pollutants covered by the EPA’s rule. It also reduces power plant emissions of acid gasses and dioxin. Each of these air pollutants causes an array of negative human health and environmental effects as well.
In short, that $4-million figure covers just a fraction of a fraction of a fraction of all of the direct benefits provided by the EPA’s rule.
So, why aren’t all of these other benefits counted? By and large, it’s because we lack adequate data to translate these benefits into dollar amounts. And, when this happens, the default rule of cost-benefit analysis is to arbitrarily treat these benefits as if they are worth $0. Of course, this default rule makes no sense. After all, even though we don’t know what these benefits are “worth,” the one thing we are sure of is that they’re not worth $0. This irony notwithstanding, this is just how the “game” of cost-benefit analysis is played.
With things like $0-default-rule going in the background, it’s easy to see why polluters like cost-benefit analysis so much, and push for Congress to institute new requirements on agencies to include even more cost-benefit analysis. When there’s any uncertainty about a benefit whatsoever, it’s simply removed from the calculation as if it didn’t exist at all. Note that nothing analogous to this ever happens on the cost side of the ledger. Of course, this default rule gives polluters plenty of incentive to manufacture uncertainty about regulatory benefits, too. With enough effort and creativity, they are able to kick just about all of the benefits out of the calculation—hoping to emulate what has happened with the EPA’s hazardous air pollution rule. What’s left is a highly skewed analysis that all but guarantees that the rule will look like a terrible policy.
The more one looks at cost-benefit analysis, the clearer it becomes that it in no way resembles common sense, as its defenders contend. Let’s hope the Supreme Court uses this morning’s oral arguments as an important learning moment about this and the many other methodological and ethical defects of cost-benefit analysis that the case reveals.