The Troubling Basis for EPA’s Rosy Cost-Benefit Analysis of the Clean Air Act

by William Yeatman on March 31, 2014

in Blog

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Perhaps you’ve heard or seen the eye-popping statistics, trumpeted by EPA and its supporters, regarding the incredible benefits supposedly wrought by the Clean Air Act.

In a recent study, for example, EPA claimed that in 2020 alone, the Clean Air Act would be responsible for “approximately $2 trillion” in benefits. Given that the costs of the Clean Air Act are estimated to be $65 billion in 2020, this represents a benefits-to-cost ratio of more than 30, which, of course, renders EPA’s work in a very favorable light. And it’s not just EPA trumpeting these numbers. Last week, Senate Environment and Public Works Chairwoman Barbara Boxer cited data from the aforementioned report, in order to rebut Republican criticisms of EPA Administrator Gina McCarthy. Indeed, environmental special interests always are quick to cite these benefits when they defend the agency they’ve captured.

Eighty-five percent ($1.7 trillion) of the $2 trillion number is derivative of two variables: (1) how many deaths EPA purports to prevent and (2) the supposed value of these prevented deaths. EPA forecasts that its regulations will prevent almost 240,000 deaths in 2020; the agency estimates that the value of a statistical life is about $7.4 million. Multiply those two data points, then adjust for inflation, and voila!—you’re at $2 trillion in “benefits” in 2020.

In this post, I will briefly explain that this result is a total sham, because the underlying numbers are unreliable to the point of being meaningless.

Start with EPA’s calculation of “prevented deaths”—i.e., the mortality benefits of environmental regulations. In fact, this estimate is based almost entirely on controversial, “secret” science. To be precise, in establishing a relationship between decreased air pollution and decreased mortality, EPA relies on decades-old data from the two reports, the Harvard Six Cities Study and the American Cancer Society’s Cancer Prevention Study II. So when EPA claims that it will prevent 240,000 deaths in 2020, this number is an extrapolation from these two key studies.

And yet, despite the evident importance of these two studies, EPA refuses to make publicly available the underlying data. For two years, House Science, Space and Technology Committee Lamar Smith has pressed the Agency to produce this “secret science.” And for two years, his requests have been rebuffed by the EPA. Remember, these studies were taxpayer funded. They serve, moreover, as the justification for public policy. And yet, EPA refuses to turn over the data to a Member of Congress. To read about Chairman Smith’s diligent efforts to unlock this secret science, see here, here, and here. Senate Environment & Public Works Ranking Member David Vitter also is investigating the matter. Suffice it to say for this post, EPA’s estimates of mortality avoided due to the Clean Air Act cannot be trusted.

What about the other variable, the value of a statistical life? How does the agency calculate this figure? The EPA does not place a dollar value on individual lives. Rather, when conducting a benefit-cost analysis of new environmental policies, the Agency uses estimates of how much people are willing to pay for small reductions in their risks of dying from adverse health conditions that may be caused by environmental pollution.

Below is the example provided by EPA:

“Suppose each person in a sample of 100,000 people were asked how much he or she would be willing to pay for a reduction in their individual risk of dying of 1 in 100,000, or 0.001%, over the next year. Since this reduction in risk would mean that we would expect one fewer death among the sample of 100,000 people over the next year on average, this is sometimes described as “one statistical life saved.” Now suppose that the average response to this hypothetical question was $100. Then the total dollar amount that the group would be willing to pay to save one statistical life in a year would be $100 per person × 100,000 people, or $10 million. This is what is meant by the “value of a statistical life.”

Simply put, this metric makes no sense. The “value” of each “prevented death” is ascertained by asking people how much hypothetical money they’d be willing to spend in order to avoid a fraction of one percent chance of death. How could this possibly have meaning? Absolutely nothing is concrete. The question doesn’t actually pertain to your money, after all. More importantly, there’s zero referent for estimating the value of reducing your mortality risk by a fraction of one percent. The “benefit” is a total abstraction.

The purpose of this brief post was to expose EPA’s cost-benefit analyses as statistical gobbledygook. When EPA boasts of adding $2 trillion to the U.S. economy, the Agency is misleading the public, because the $2 trillion figure is the product of multiplying two highly suspect variables: (1) mortality avoidance due to the Clean Air Act and (2) the value of a statistical life. Variable 1 is based on “secret” science that EPA won’t share; variable 2 bears no relation to reality.

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