September 12, 2011

Weak Environmental Regulations Show Little Faith in U.S. Business

Before the big job speech, President Obama made an important decision about the economy and public health. About 10 days ago he reversed himself and his own EPA to stop a regulation that would've reduced smog-causing pollution. The U.S. Chamber of Commerce and the Republican Congressional leadership quickly declared this a major victory for "job creators" and business in general.

It's anything but.

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I'll give a major concession on this argument and put aside for the moment the danger of ignoring solid science and what it tells about public health (which is that, in the words of NRDC Director Frances Beinecke, "strong smog standards would have saved up to 4,300 lives and avoid as many as 2,200 heart attacks every year...[and] made breathing easier for the 24 million Americans living with ashthma...").

Ok, let's imagine those health benefits don't matter. Even from a business perspective these laws make sense and it's ridiculous to keep them weaker than they should be.

Choosing weaker environmental regulations actually makes our country less competitive and shows amazingly little faith in our business community to innovate.

Just because something may be difficult doesn't mean it will be expensive as well. For decades now, every major environmental regulation has met significant resistance from the industries most affected. That should be expected, but let's deal in reality, not hyperbole.

This time, industry opponents say it will cost enormous sums of money to comply with a regulation that moves the standard from 75 parts per billion to 60 to 70 ppb. We've heard this argument before. The claims of economic destruction, outrageous costs, and lost jobs are almost always seriously overblown.

Every now and then, a business leader admits the falseness of these Chicken Little cries. Former BP CEO John Browne once told Fortune, "Every time there's a new piece of regulation, we say it's the end of our industry...[we have] an appalling track record in this regard."

The most famous example, though, is the battle over the Clean Air Act Amendments of 1990, ultimately signed into law by the first President Bush. This law established the first major "cap and trade" system; it didn't restrict carbon dioxide as current iterations propose, but mandated reductions in acid-rain-causing sulfur dioxide. At the time, industry claimed compliance would cost up to $1,500 per ton of SO2 reduced. For the next decade, the industry never spent more than $200 per ton, and usually far less, as Dan Esty and I discussed in Green to Gold (see p. 75). So business was off on cost estimates by a factor of 10.

But it gets better every time. Friday's laughable assertion from Representative Eric Cantor that changing the smog standard would cost the economy $1 trillion and millions of jobs makes the acid rain cost claims seem quaint.

Granted, the fiscal logic for stricter pollution standards doesn't seem as clear as the cost-saving potential of energy efficiency standards such as those for light bulbs and cars. (Of course politicos are fighting those as well, even though the fact that they truly drive innovation and save everyone money has already been demonstrated repeatedly). But this seeming lack of economic logic applies if you only consider one side of the ledger, the cost to companies most affected. But on the other side we have public health savings, which are estimated at $37 billion per year, and the benefits to other industries.

What about the companies and entrepreneurs that create cleaner ways of operating or provide the pollution-reducing technologies? Those are real jobs too, aren't they? And our companies will be more competitive globally as every country struggles with pollution. Or just consider the productivity benefits to all companies of having their asthmatic employees breathe easier.

But here's what really galls me: saying that stricter pollution standards will cost enormous sums of money shows a staggering disregard for our capacity to innovate.

If American business is the engine of growth that our politicians make it out to be, why can't we find new ways to do things that save money, cut pollution, and make our companies more competitive. When given constraints, the tough and smart get going and innovate (and, by the way, the new standard wouldn't go into effect until 2013, giving us some time).

I have faith in our businesses.

Why don't our industry and political leaders?

(This post first appeared at Harvard Business Online.)

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