What's a healthy baby worth? A pristine lake? How about the market value of an IQ point? Some people might say it's impossible to put a price tag on such things. But the Environmental Protection Agency has been doing it for decades, proving that it is possible---though also very difficult to do in a way that pleases everyone.
Case in point: On Monday of this week, the Supreme Court upheld a challenge to a 2013 EPA regulation that required coal plants to install costly, mercury-scrubbing filters to their smokestacks. Compared to the health benefits the upgrades would supply, the plaintiffs argued that the $9.6 billion economic burden was out of balance, and should have scuttled the regulation before it was ever enacted.
Coming up with the total economic burden of the scrubbers is easy: Just calculate the price of equipment, labor, and industrial downtime, then subtract that total from each power plant's bottom line. "But estimating the anticipated economic cost of regulation is a lot easier than estimating the savings that come from environmental benefits," says Robert Stavins, a Harvard economist who specializes in environmental policy. But how in the hell do you calculate the savings that come from regulations to lower that pollution?
It turns out the EPA has published those cost-comparing guidelines based on scientific research dating back several decades. "There are executive orders going back to Ronald Reagan that require estimations of economic value of environmental protection," says Stavins. "But for me to explain those to you, you'd need to take my Environmental Economics course at Harvard. It's 26 class sessions at an hour and a half each." We'll still try to cover it all, though. You might not get an Ivy League-level education on cost-benefit analysis, but at least WIRED University won't saddle you with decades of debt.
Every new environmental regulation starts with an impact analysis. The one for the mercury rule the Supreme Court kiboshed is 510 pages long, and that burger is pretty much all patty. Underneath all that meat are the bones of a process called cost-benefit analysis. It's basically a three-step process: Identify the various risks associated with emissions; Quantify the positive or negative value of those various pollutants; Compare the environmental costs of no-regulation to the savings of yes-regulation. Of course, it's that middle step that's the doozy. "The really tough science is how specifically do you make those links and how do you put dollar values on it," says James Stock, an economist at the Harvard Kennedy School and a former economic advisor to President Obama.
Let's take a look at just one of the items in the Mercury and Air Toxics Standards: How the EPA assigned a market value to IQ.
In developing fetuses, mercury causes brain damage. One of the ways this happens is when pregnant mothers eat fish contaminated by coal power plant emissions. Turns out, the associated risk of getting dumber from mercury adds up to between $4 and $9 million. To get to that number, the EPA started by establishing that coal power plants contribute mercury to the air. Then they ran those emissions through models quantifying how that mercury gets into the world and accumulates in fish, which humans eat. Those models also tied together what we know about mercury consumption and IQ loss, and runs through those numbers in several different mercury emissions scenarios. All well and good, all well and super confusing.
But that's just to set the baseline that unfiltered smokestacks equal mercury, and mercury plus fish plus baby equals brain damage. We're not even to the part where they assign a dollar value to those lost IQ points. That's done through a mechanism called social discount rate. which reflects how a society values its current wants and needs versus future quality of life. Methods for coming up with a discount rate vary, and typically involve some balance of how the thing in question will affect public consumption, private investment, and international borrowing across the economy.
Along the way, this calculation builds in some less-than-concrete assumptions. Like that there's a linear relationship between IQ and salary (Spend a few minutes ingesting cable punditry and you can see the flaw in that logic). This in turn affects how minutely those effects can be measured, like how many decimal places of IQ point loss correlate to lost salary dollars. The method also assumes that the value of intelligence will remain the same in the future. In other words, the numbers aren't perfect.
The EPA makes sure to point all this out, and carries on with its rate assessment. There are a number of ways to calculate how valuable something is, but in this case, the EPA figured out the dollar value of getting dumber by estimating how it would affect lifetime wages. A low social discount rate favors the future. In developed countries, this rate typically falls between 3 and 7 percent. For safety's sake, the EPA's assessment included estimates at both ends. In the modeled scenarios, the cost of a lost IQ point (in 2007 dollars) was around $10,317 for the 3 percent discount rate, and $1,526 for the 7 percent discount rate.
And that's just one example out of hundreds of risks---and their associated costs---in this assessment. That doesn't just cover mercury, either. The mercury filters also capture arsenic, cadmium, lead, nickel, antimony, beryllium, chromium, cobalt, manganese, selenium, and sodium dioxide, so the EPA assessment does cost benefit analyses of those, too.
In fact, most of the pages in the EPA assessment describe the path to some sort of environmental savings or industrial cost. You want figures? There are over 50 maps, charts, and graphs to visualize. You want tables? There are over 100. References take up nearly 50 pages. And that's not counting the hundreds of doctors, economists, academics, technicians, and assorted professionals the agency enlisted to author various technical reports with titles like "Integrated Science Assessment for Particulate Matter," "The Effect of Dose and Timing of Dose on the Association between Airborne Particles and Survival," and "Advisory on Plans for Health Effects Analysis in the Analytical Plan for EPA’s Second Prospective Analysis---Benefits and Costs of the Clean Air Act, 1990-2020."
It doesn't stop there. The report also explains every conceivable benefit that could not be monetized. And these aren't trivial: Things like better visibility, wetland health, and more productive forests.
Briefly, the EPA's Mercury and Air Toxics Standards cost-benefit analysis is pretty damn comprehensive. So what was the big deal with the Supreme Court ruling? The coal industry had a problem with the point at which all that analysis fit into the development of the regulation. In essence, the EPA decided to regulate mercury before it calculated how much regulating mercury would save the American public. Further, when you take the savings associated with mercury reductions, it adds up to around a few million dollars. Which, compared to the $10 billion the regulation was estimated to cost the coal industry, didn't add up. (This doesn't count the associated savings from the mercury filters---the fact that they catch other pollutant particulates---add up to about $26 to $89 billion a year.)
The industry's argument, basically, is that if the EPA had done the math beforehand, they wouldn't have written the damn regulation in the first place. And the Supreme Court agreed. Kinda. Based on this incongruity, the court ruled that the regulation was economically unjust to coal companies.
But this ruling doesn't really do much. All it does is send the regulation back to the DC circuit court for re-evaluation. The EPA will have to revise the regulation (it will stay in effect until they do).
Either way, it's not hugely consequential at this point. Most of the country's coal power plants have already installed the mercury filters. So why did the coal industry bother? What this ruling does is open up more legal ground for them to challenge future regulations. "It is an additional step and opens up the agency to potential litigation regarding whether they’ve met the requirements of the supreme court in terms of adaqueatley estimating the regulation," says Stavins.
This pushes the interpretation of regulatory impact statements back to the original intent of Ronald Reagan's original executive order on regulatory cost-benefit analysis. Issued in 1981, the order required that any regulation with an economic burden greater than $100 million would need research showing that the environmental and health benefits were of at least matching value. Presidents Clinton and Obama both rolled back the hard line of the original executive order by acknowledging in their reauthorizations that some health and environmental effects were impossible to quantify.
Which brings us back to today. In essence, this whole legal argument is part of the push and pull over how important it is to quantify every health and environmental effect... And then, examine the importance of the health and environmental effects that cannot be quantified.
