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Eco-Industrial Policy

Some would have environmental bureaucrats run the economy

By Robert W. HahnRobert W. Hahn is an associate professor of economics at Carnegie Mellon and a resident scholar at the American Enterprise Institute. / February 23, 1990



THIS year marks the 20th anniversary of Earth Day. Since that time, we have placed more and more responsibility for protecting the environment on the shoulders of federal bureaucrats. As a nation, we are moving toward greater state control of consumers and businesses in the hope that our bureaucrats will create for us a society free of environmental risks. In principle, this sounds great. If the feds can reduce cancer deaths by demanding that suspected carcinogens be removed from the air or the water, most people will gladly support such policies. As long as people do not see a direct connection between federal environmental policies and their consumption of VCRs and ice cream, such policies will receive widespread support.

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In all single-minded missions, however, there is a point at which zeal supersedes common sense. We may have already passed that point in the case of the environment. Consider two proposals circulating in Congress, which illustrate the dimensions of the industrial policy that the Environmental Protection Agency will be charged with administering.

Under current law, most firms are required to obtain construction permits for industrial facilities, but do not have to obtain operating permits from the federal government. The proposed Clean Air Act amendments would require almost all stationary emission sources - such as your local dry cleaner, bakery, and fast-food establishment - to have an operating permit approved by EPA.

This dramatically expands the power of federal bureaucrats to meddle in the affairs of ordinary people. And by increasing costs, it discourages the formation of innovative new businesses. This proposal provides incentives for firms to locate abroad, and does little to improve the environment.

The second example involves the regulation of toxic air emissions, such as benzene and asbestos. The president's proposal would reduce risks to about 1 in 10,000, which is less than 1/2 percent of the probability of dying in a car accident. Other bills would go further, requiring a risk estimate of 1 in 1 million.

If the more extreme number is chosen, EPA estimates conservatively that job losses could reach 200,000, a figure that dwarfs the direct job loss from acid-rain legislation. People in many regions and industries, including petroleum, steel, paper, and pharmaceuticals, would lose their jobs. The projected cost would be in the tens of billions, and the risk reductions would be very small.

We should not blindly embark on an industrial policy of this magnitude, developed by starry-eyed, well-intentioned congressional staffers and EPA bureaucrats, who do not have to pay for their acts of ``mercy.''

We now spend about $85 billion on the environment annually, and the figure will exceed $100 billion if the new Clean Air Act amendments pass. If policies are enacted to address concerns about global climate change, this figure could increase by a factor of five. That is, we could be spending over 5 percent of GNP on environmental improvement.

What can be done to protect the environment wisely, but to avoid an economic nightmare?

1.Spend more money on research. We understand very little about the environment and ecosystems. Instead of indulging themselves in a sea of green rhetoric, our leaders should design a long-term research program to encourage promising scientists and policy analysts to specialize in environmental studies and research.