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The Backstory of Obama's Ozone Rules

Cass R. Sunstein is a Bloomberg View columnist. He is the author of “The World According to Star Wars” and a co-author of “Nudge: Improving Decisions About Health, Wealth and Happiness.”
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Last week, the Environmental Protection Agency proposed, after White House review, an ozone regulation very similar to one that President Barack Obama personally blocked some three years earlier. On both the right and the left, and in news stories as well, the new proposal is being portrayed as an intensely political reversal: Unburdened by the prospect of reelection, the president is said to be following his instincts, appealing to his base and ignoring the complaints of the business community, to which he capitulated in 2011.

Nothing could be further from the truth. The real lesson of the controversy over ozone regulation involves not politics, but the importance of sensible environmental priority-setting -- and the distinctive requirements of the Clean Air Act. (Disclosure: I was Administrator of the Office of Information and Regulatory Affairs in 2011, and at the president’s direction, I wrote the return letter to the EPA, explaining that he did not support finalizing the ozone rule.)

The saga begins in 2008, when the George W. Bush administration finalized its own ozone regulation, calling for a national ambient air quality standard of 75 parts per billion. The 75 ppb standard rejected the views of the EPA’s own Clean Air Scientific Advisory Committee, which had suggested, on public-health grounds, a range between 60 and 70 ppb. In 2010, the EPA proposed to issue a new regulation within that range, and it asked the general public (environmental groups, the business community, politicians, state and local governments, and everyone else) to comment.

Under the Clean Air Act, national ambient air quality standards must be based on public health, not on cost-benefit analysis. Nonetheless, recent presidents, both Republican and Democratic, have required agencies to catalogue the costs and benefits of significant regulations. EPA estimated that at 65 ppb, the annual cost of a new ozone regulation could have been as high as $44 billion -- by far the most expensive on record. Even at 70 ppb, the annual cost could have been as high as $25 billion -- also the most expensive on record, and more than double the cost of all significant regulations reviewed by the White House in most years.

Those costs would not have been imposed on some abstraction called “business” or “power plants.” They would have had a wide range of adverse economic effects, potentially including higher electricity prices (especially harmful to the poor), decreased investment and economic activity in the U.S., and increased unemployment.

At the same time, the public-health benefits -- mostly reflecting the monetized value of deaths and illnesses prevented -- of a new ozone regulation would have been significant and, by the EPA’s estimates, in the same general vicinity as the costs (at least at 70 ppb). But on some of the agency’s estimates, the net benefits would have been zero. Moreover, a strong majority of the benefits would have resulted not from ozone reductions but from “co-benefits” -- reductions in particulate matter, which come as an incidental benefit of the technologies that reduce ozone emissions.

In rejecting the regulation, the president emphasized that the EPA was under no legal compulsion to issue it. The Clean Air Act sets out a five-year cycle for revisiting national ambient air quality standards, whose issuance initiates an immensely complex compliance process in the states. Departing from that schedule would create severe uncertainty for both the private sector and for state and local governments, which were already working to comply with an assortment of important (and cost-justified) air quality regulations issued by the Obama administration.

Now fast forward to last week. Because the five-year cycle had expired, EPA faced a court order to issue a new ozone proposal by Dec. 1. It had no discretion to ignore that order. Consistent with the latest science, EPA proposed a standard between 65 and 70 ppb. Aware that some environmentalists favor a 60 ppb standard, and that many people in the business community argue for retaining the 75 ppb standard, EPA is sensibly taking comment on those alternatives as well.

No one denies that the proposed regulation would be extremely costly -- on the EPA’s numbers, $3.9 billion at 70 ppb and $15 billion at 65 ppb. In a tough economic period, costs of that magnitude should not be welcomed. But on the latest projections, the expected costs are billions of dollars lower than the benefits, and dramatically lower than they were in 2011 (perhaps because of environmentally beneficial shifts in the energy supply, driven by both market forces and other regulations). While the law forbids EPA from basing its decision on cost-benefit analysis, it will undoubtedly be interested in public comments on the best ways to achieve public-health goals while minimizing economic burdens.

Some environmentalists live in a fantasy world of good guys and bad guys, where it makes sense to suspect that whenever a pollution regulation is not adopted, the government has capitulated to wrongdoers. But an air pollution regulation is not a good idea merely because it is an air pollution regulation.

In 2011, Obama was unquestionably right, on the merits, to reject EPA’s ozone regulation -- and last week, the EPA was unquestionably right, on the merits, to propose a similar regulation.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Cass R Sunstein at csunstein1@bloomberg.net

To contact the editor on this story:
Cameron Abadi at cabadi2@bloomberg.net