From an EPA press release on Wednesday:
The Environmental Protection Agency has obtained commitments from industry, governments and other regulated entities to reduce pollution by nearly 900 million pounds in fiscal year 2006. Today's report reflects a sustained three-year record of pollution reduction, totaling almost 3 billion pounds, and requiring companies to invest almost $20 billion in pollution control equipment. More than 70 percent of these reductions were achieved by addressing high-priority air and water pollution challenges.
Unfortunately the press release doesn't have enough information to figure out the cost/benefit ratio, and I'm too lazy on a Friday to dig much deeper (did I mention there's a big football game in Columbus tomorrow?) so let's just do a quick back of the envelope calculation....
From the release:
EPA's enforcement program targeted significant environmental problems facing the country, including harmful air emissions, noncompliance at petroleum refineries and water pollution. EPA's top air enforcement actions will result in reductions in harmful air emissions totaling 379 million pounds of sulfur dioxide and 92 million pounds of nitrogen oxides annually. When fully implemented, the annual human health benefits from these air emission reductions are valued at $3.5 billion. These health benefits include reducing about 500 premature deaths in people with heart or lung disease, prevention of hundreds of cases of bronchitis and nonfatal heart attacks, as well as thousands of cases of respiratory ailments, including aggravated asthma.
The $3.5b benefit per year is for air pollution reductions only. The $20b in pollution control equipment investment is for all pollution control. The press release states that 70% of that ($14b) is for air and water programs. From the EPA compliance and enforcement website, the ratio of air pollution reduction expenditures to water pollution reduction expenditures is about 2.2 to 1 so about 73% of the air and water pollution reduction expenditures are for air. That means the costs of air pollution reductions are about $10.22b. So is it worth a one-time investment of $10.22b to provide $3.5b in benefits into the indefinite future?
According to my calculation, any discount rate less than 35% would make the $10.22b expenditure pass a benefit cost test. Keeping in mind that the OMB recommended discount rate is 7% and CBO rate is 2%, it looks like the EPA's self-promotion is warranted--in a sloppy, made-up, back of the envelope sort of way. So the only question that remains is: Could it have been done cheaper?
