Sunday, January 02, 2011

Rational Debate About California's Environmental Regulation?

The Sacramento Bee has recently run a profile of Mary Nichols.  She is the Chair of the California Air Resources Board (ARB) and the ARB is in charge of rolling out California's AB32 carbon mitigation regulation.  The profile is upbeat and highlights the Chair's talents and personality.

125 comments are offered at the end of the piece and they are also worth reading.  Many of these posters (and I realize that this is not a random set of people) accuse the ARB of engaging in a power grab that has strangled the California economy.   This is a classic claim ;  that environmental regulation damages the economy.  Permit me to  offer a few thoughts.

1.  The unintended consequences of any government policy should always be factored in as a cost of regulation before the regulation is implemented.  Anticipating that regulation will create such consequences and that the future is hard to predict, regulation should build in some flexibility to reoptimize when this "new news" is learned (such as this MBTE case).    You might say this is self serving because this will create extra consulting work for economists such as myself. You are correct about this but this is a classic function that economists perform well.

2.  The Air Resources Board deserves a lot of credit for the air pollution gains in California.  If you are a person who likes evidence; take a look at Currie and Neidell

"We examine the impact of air pollution on infant death in California over the 1990s. Our work offers several innovations: First, many previous studies examine populations subject to far greater levels of pollution. In contrast, the experience of California in the 1990s is clearly relevant to current debates over the regulation of pollution. Second, many studies examine a few routinely monitored pollutants in isolation, generally because of data limitations. We examine four criteria' pollutants in a common framework. Third, we develop an identification strategy based on within zip code variation in pollution levels that controls for potentially important unobserved characteristics of high pollution areas. Fourth, we use rich individual-level data to investigate effects of pollution on infant mortality, fetal deaths, low birth weight and prematurity in a common framework. We find that the reductions in carbon monoxide (CO) and particulates (PM10) over the 1990s in California saved over 1,000 infant lives. However, we find little consistent evidence of pollution effects on fetal deaths, low birth weight or short gestation."

 These infants are now almost teenagers and I doubt they know the role that regulation has played in improving their lives.  The counter-factual (deaths from pollution in the absence of regulation) is difficult to imagine.

Or consider my paper with Joel Schwartz;

Urban air pollution progress despite sprawl: The "greening" of the vehicle fleet

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Kahn, Matthew E.
Schwartz, Joel
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Growing cities, featuring more people with higher incomes who live and work in the suburbs and commute by private vehicle, should be a recipe for increased air pollution. Instead, California's major polluted urban areas have experienced sharp improvements in air quality. Technological advance has helped to "green" the average vehicle. Such quality effects have offset the rising quantity of miles driven. This paper uses several vehicle data sets to investigate how California's major cities have enjoyed air pollution gains over the last 20 years.

For decades, economists have argued that labor regulation is a more important determinant of deflecting jobs than environmental regulation.  Firms spend more on hiring workers than on complying with environmental regulation.

Building on my past Green Cities work, I have always argued that the "golden goose" of local development is high quality of life.  Cities with high quality of life will attract and retain the skilled and will grow. The ARB's efforts have enhanced California's quality of life and have made its natural advantages (coastal location and temperate climate) even nicer.  Despite the tough times, the ARB's actions have strengthened California economy.

Now economists are straight shooters.  It is certainly possible that environmental regulation costs California jobs.  One leading study examined oil refining activity in California and Texas.  Eli Berman and Linda Bui used a "difference in differences" approach and found no evidence that increases in regulation in California cost California oil refining jobs.  Their control group were oil refining plants in Texas.  Texas plants faced less regulation.

This high quality study represents exactly what economists should be doing.  There is a reasonable conjecture (that regulation costs jobs) and apolitical economists set out and use transparent replicable methods to test the hypothesis.  This is applied social science at its best.

If the researchers had found that the regulation had "job costs", then California voters need to know this in deciding what policies to enact and how to soften regulatory efforts to achieve the best of both worlds of economic growth and reduced pollution.