The Effects of Environmental Regulation on the U.S. Economy

Abstract

The decision to examine the economic effects of environmental regulation served both a personal academic interest and a practical career oriented objective. Despite my support for environmental concerns I have always been curious and held some reservations as to the economic ramifications of environmental legislation. It is my understanding that this reservation was not mine alone, but is shared by businesses, and individuals who fear the personal negative economic ramifications of environmental regulation. These societal reservations were exploited in the 1980s by President Ronald Reagan, who used them to slow the environmental movement and cut back on environmental legislation. I undertook this project to examine the degree to which these reservations were valid. On the more practical side, I am a double major in economics and psychology with an area of emphasis in public policy and an indescribably desire to practice law. This project has helped me make a more informed decision regarding a career in environmental law. Therefore, this decision not only satisfied a personal academic interest, but served as a test run for a possible career as an environmental attorney. Given these goals, I structured the project so that it incorporates economics, the environment, and law. Doing this also meant blending theory and practical application, as environmental laws are born out of economic and ecological theory, and implemented in a world where exogenous factors abound. This mix provided an interesting learning experience as I witnessed the practical application of academic knowledge for which I have been exposed to during my time at Kalamazoo College. In order to achieve my objectives I chose to research environmental regulation in the United States and its economic effects, and then examine an actual environmental law suit. After discussing my objectives with the law from of Kreis, Enderle, Callender, and Hudgins, where I am currently employed, they agreed to open their files on a local environmental suit. The suit is perfect from an analytical perspective in that it deals with the major pieces of environmental legislation, the Clean Air and Water Acts, and is against Michigan's largest beef distributor, and Plainwell's largest employer (with 800 employees). The files and information used in this paper on the Michigan Department of Environmental Quality (MDEQ) v. Murco have been released by the President of Murco and are for use in this paper only. The President of Murco as well as the attorneys at Kreis, Enderle et. al. Would like to keep the information confidential. Therefore, the paper should not be solicited to any firms or organizations besides the employees and students at Kalamazoo College. Understanding and summarizing the main points in the Murco case demanded the extraction of information from several thousand case documents, as well as background research and attorney conversations. The paper contains three main sections, a history of environmental regulation, the MDEQ v. Murco case and analysis, and a research portion examining the effects of environmental regulation on productivity, employment, prices, wage rates, and the GNP. The compilation of research indicates that although there can be substantial negative economic effects at the local level, the overall effect of environmental regulation on the national economy is relatively small. Research indicates that environmental regulation slightly lowers firms productivity, raises their marginal costs, causing higher prices, and can increase the unemployment rate at the local level. However, environmental regulation has been shown to positively effect workers wages in firms surviving regulatory predation, and can actually increase the overall number of jobs. In addition, although the amount spent on pollution abatement each year is large, the actual proportion of money spent, relative to the GNP is actually quite small. Research indicates that the GNP is only slightly lower with environmental regulation than it would have been without it. Therefore, while the local effects of environmental regulation may seem quite large, on the national scale the overall negative effects are minimal at best. In addition to the negative effects, several social benefits of environmental regulation are also recognized. These benefits include increased health, lower health care costs (due to improved health), longer lives, and expanded recreational opportunity. Although the monetary value of benefits due to environmental regulation are difficult to determine, when analyzed in respect to the minimal negative effects of abatement and the inability of decentralized control to protect the environment, it becomes evident that environmental regulation is not only positive, but necessary.