EPA’s New Ozone Standards And The Case For Optimal Pollution

Jim Huffman Dean Emeritus, Lewis & Clark Law School
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The Environmental Protection Agency (EPA) is set to propose a tightening of the standard for permissible ground-level ozone. The current standard is 75 parts per billion (ppb). EPA would reduce that to as low as 60 ppb. Jay Timmons, writing in yesterday’s Wall Street Journal, reports that 60 ppb ozone standard “could cost Americans $270 billion annually, put millions of jobs at risk, and drastically increase energy prices for consumers and manufacturers.” Timmons also notes that “the second-highest court in the land [recently] held that the current standard protects public health.”

Given that Mr. Timmons is CEO of the National Association of Manufacturers, environmentalists and many others will be skeptical of his sounding the alarm. After all, it is the companies he represents that will bear the costs of compliance or figure out how to pass those costs on to their customers. Besides, the EPA estimated in 2010 that the annual costs of a 60 ppb standard would be only $90 billion.

Either way – $270 million or $90 billion – there is no disputing that a lowered standard will have costs. Whether or not those costs are warranted is a question the EPA, and later the courts, will have to resolve. But however that assessment comes out, we can rest assured that environmentalists will continue to press for ever more restrictive standards for ozone and every other pollutant. We should also expect that the EPA, more often than not, will be sympathetic with their plea.

There are two reasons for this constant drive to ever-tighter pollution limits. Pressure for more restrictive regulations comes from within the EPA because the agency’s core business is regulation. New and regularly amended regulations are necessary to the maintenance and continued growth of the agency. A world without unacceptable levels of pollution is a world that barely needs the EPA, now the 12th largest federal department.

Environmentalist demand for steadily more restrictive standards is driven partly by a similar need to stay in business and to grow. Without unacceptable levels of pollution, environmental groups are without one of their main reasons for being, and therefore without a case to be made to foundations and other donors.

But more significantly, most environmentalists have never accepted the case for optimal pollution. That case was made 40 years ago by William Baxter in a little book titled People or Penguins: The Case for Optimal Pollution. Baxter, a former Stanford law professor who served as head of the anti-trust division in the U.S. Department of Justice, made the simple point that in a world of scarce resources no one can really justify a target of zero pollution because all human activities unavoidably result in one type of pollution or another. At some point the costs of eliminating pollution will exceed the benefits.

Baxter’s argument is rooted in the economists’ theory of diminishing marginal utility. The benefits of eliminating additional parts per billion of ozone decline as total ozone pollution is reduced. At some point the marginal benefit of another reduction will exceed the marginal cost of achieving that reduction. The optimal level of pollution is that level at which the marginal cost of the last ppb reduction equals its marginal benefit.

Most environmentalists hate it when people talk like this, but if we care about human welfare there is no denying that Baxter was right. If we had unlimited resources neither costs nor benefits would matter. But that is not the world we live in.  We do not knowingly spend more on any service or consumer good than it is worth to us. There is no good reason to behave any differently in the achieving the benefits of clean air. Insisting either that we are entitled to clean air and should not have to pay a dime for it or that clean air is worth whatever it costs is simply ignoring the realities of life in a world of scarcity.

I have no idea what the optimal level of ozone pollution is, but I do know it is not zero. Yet that is where the EPA and its enablers are heading. 60 parts per billion of ground-level ozone will not be their final demand.