Regulations Create Jobs, Too

Vilified on the campaign trail, government rules often create as many jobs as they kill

When the Obama Administration announced tough new pollution regulations for power plants last year, the industry loudly protested. The rules, which among other things will require coal-fired plants to make deep reductions in mercury and sulphur dioxide emissions by 2015, will cost utilities at least $12 billion, the Environmental Protection Agency estimates. Coal producers put the price tag at $21 billion. They say electricity prices will spike 12 percent, dozens of plants will close, and thousands of workers will lose their jobs. “This rule is the most extensive intervention into the power market and job market that EPA has ever attempted to implement,” says Scott Segal, a lobbyist at Bracewell & Giuliani, which represents the utility Southern Co. He argues the regulation will “undermine job creation in the United States.”

Tell that to Cal Lockert, the vice-president of Breen Energy Solutions, a Pittsburgh manufacturer of equipment that absorbs acid gases to keep them from spilling out of smokestacks. Lockert spends his days persuading power companies that he can help them bring some of their oldest, dirtiest plants in line with the federal requirements. There’s been “a frenzy of engineering firms and utilities” calling him for demonstrations of his products, he says. He’s hired a dozen people in the past month and says he’s just getting started.

Nol-Tec Systems in Lino Lakes, Minn., also expects a boom in sales of its equipment, which uses baking soda to pull pollutants out of plant exhaust. Meanwhile, Thermo Fisher Scientific in Waltham, Mass., is building emission monitors that power plants will need to measure toxins under the new rules. The regulations “could easily add $50 million to $100 million dollars in revenue in a year or two years,” says Chief Executive Officer Marc Casper, “which is significant for a company like ours.” The Institute of Clean Air Companies, a trade association representing businesses that make products to reduce industrial emissions, forecasts the industry will add 300,000 jobs a year through 2017 as a result of the EPA rules.

This is the side of the story that rarely gets mentioned in Washington or on the campaign trail. In an election year that hinges on the economy, government rules have become politically toxic. President Barack Obama’s health-care overhaul, the massive Dodd-Frank financial reform law, and EPA clean air and water mandates come under frequent attack from Republicans who say burdensome regulations are stalling the nation’s recovery. In the GOP debates, the R-word is now habitually preceded by “job-killing,” as in Mitt Romney’s promise to put an end to “job-killing regulations.” Newt Gingrich refers to the EPA as a “job-killing regulatory engine.”

Romney and Gingrich aren’t wrong. Government regulations do kill jobs, often by the thousands. Although it’s too early to tell how many layoffs may result from health-care and Wall Street reforms, there is a body of research going back decades detailing what has happened time and time again when Washington handed down sweeping environmental regulations: Costs increased, prices went up, and workers were fired. Supporters and opponents of the EPA’s new power plant rules agree that they will almost certainly result in dozens of coal plants shutting down and hundreds of workers being laid off.

But that’s not the whole picture. Government employment figures also show that those same regulations usually wind up creating about as many jobs as they kill. “We find there is no net impact,” says Richard Morgenstern, the EPA’s director of policy analysis in the Reagan and Clinton Administrations and now a researcher with Resources for the Future, a nonpartisan energy think tank in Washington. “The job creation and the job destruction roughly cancel each other out.”

In 2002, Morgenstern and his colleagues published a landmark study detailing the effects of regulations on jobs in four polluting industries: paper, plastics, petroleum, and iron and steel. Drawing on more than 10 years’ worth of U.S. Census data, the study found new regulations led to higher production costs that pushed up prices, resulting in lost sales and layoffs. Yet those job losses were offset by new jobs in pollution abatement. “There’s always someone who is helped and someone who is hurt,” says Roger Noll, director of the Program on Regulatory Policy at Stanford University. “Which is why you have to look at the net effect on the economy.”

Between 1984 and 1994, a busy period for the EPA, the agency issued hundreds of clean air and water rules, which cost the four industries Morgenstern measured a total of $4.9 billion. In all, about 14,000 workers lost jobs. As the industries spent money to comply with the laws, they innovated. Steel companies hired workers to clean up and retrofit equipment. Plastics makers brought on engineers to develop safer products. Morgenstern estimates that in the end, the spending spurred by the government’s rules put 21,000 to 29,000 people to work. And that does not take into account other economic benefits that are overlooked in the political debate over jobs. Numerous studies across many years show that lower levels of pollutants in the air and water around power plants led to a decrease in illness, medical tests, missed days of work, and hospitalizations.

Figures like these aren’t much comfort to workers in coal mining and other industries who face losing their livelihoods in the name of a greater good. Luminant, a Texas utility, sued the EPA to block one of the new regulations, which would impose stricter limits on interstate air pollution. The EPA’s rules, Luminant CEO David Campbell said in a public statement, would “idle facilities and result in the loss of jobs.” Attorneys general in 14 states have joined the suit, and in December the federal appeals court in D.C. put the rule on hold to study the arguments on both sides. A hearing is scheduled for April.

The Obama Administration, girding for election-year attacks on its record, is trying to highlight the upside of government rules. The Office of Information and Regulatory Affairs claims the net benefits of regulations Obama enacted in his first three years in office total $116 billion. This is a reach. Part of that total comes from projections of how many lives the regulations will save, multiplied by a dollar amount per life. The EPA, for example, puts a life at $8.9 million, a number based on decades-old surveys in which economists tried to assess the value of people’s lives in part by estimating the value of their labor.

The number, adjusted for income growth through the years, has been controversial since the Reagan Administration first used it to justify regulations. “To say it’s not a precise science would be the world’s greatest understatement,” says Sidney Shapiro, a professor at Wake Forest University School of Law who specializes in government regulation. He advises skepticism when figures start flying in the heat of the campaign. “The numbers get politicized because no one knows what they mean,” he says. “So people pick a number that suits their viewpoint.”


    The bottom line: New coal rules could force thousands of layoffs while creating thousands of cleanup industry jobs.

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