The Economic Impact of Environmental Regulation

Environmental Regulation


The political debate over environmental policy has never been as contentious or rancorous as it is today. In Washington the new Congress is moving swiftly to roll back twenty-five years of environmental legislation and regulation. Less noticed by the national media, but perhaps of even greater significance, are moves toward environmental deregulation underway in statehouses across the country. Driving these efforts is the widely held belief that three decades of creeping environmental controls has strangled the economy and undermined economic competitiveness. Still reeling from the recession of the early 1990s many state governments hope that untying the environmental regulatory knot will unleash a new burst of economic growth. Of course environmental deregulation will not be cost-free. Steady progress toward cleaner air, water, and land will be slowed significantly, if not reversed. While this may be of small concern in still pristine states such as Wyoming, the implications for public health, ecology, and the quality of life in states such as New Jersey are more dire. Protection and preservation of rapidly vanishing wildlife, plants, habitats, and ecosystems will be weakened nationwide. Undoubtedly we will lose parts of America’s natural heritage that might otherwise have endured. Nevertheless the economic gains forthcoming from environmental deregulation might well be worth the price. All which begs the question: What magnitude of economic gains should we expect from environmental deregulation? Are we talking about fractions of a percent growth in jobs? A doubling of growth rates? Amazingly, no one seems to know. Given the high stakes involved the reader might find it unsettling to learn that credible evidence supporting this policy shift is virtually non-existent. To be sure, anecdotes about companies ruined by environmental regulation abound. Yet they provide no clues regarding the likely economic benefits from deregulation. Moreover there are an equal number of anecdotes about companies pulled back from the brink of bankruptcy by environmental efficiency. And stories about the growth of green companies continue to proliferate giving rise to the argument that “environmentalism” – vigorous policies of environmental protection – actually spurs economic growth