Do Regulators Overestimate the Costs of Regulation?

http://yosemite.epa.gov/ee/epa/eed.nsf/WPNumber/2011-07

Abstract: It has occasionally been asserted that regulators typically overestimate the costs of the regulations they impose. A number of arguments have been proposed for why this might be the case, with the most widely credited one being that regulators fail sufficiently to appreciate the effects of innovation in reducing regulatory compliance costs. Most existing studies have found that regulators are more likely to over- than to underestimate costs. Moreover, the ratio of ex ante estimates of compliance costs to ex post estimates of the same costs is generally greater than one. In this paper I argue that neither piece of evidence necessarily demonstrates that ex ante estimates are biased. There are several reasons to suppose that the distribution of compliance costs would be skewed, so that the median of the distribution would lie below the mean. It is not surprising, then, that most estimates would prove to be too high. Moreover, we would expect from a simple application of Jensen’s inequality that the expected ratio of ex ante to ex post compliance costs would be greater than one. In this paper I propose a regression-based test of the bias of ex ante compliance cost estimates, and cannot reject the hypothesis that estimates are unbiased. Despite the existence of a number of papers reporting ex ante and ex post compliance cost estimates, it is surprisingly difficult to get a large sample of such comparisons. My most salient finding does not concern the bias of ex ante cost estimates so much as their inaccuracy and the continuing paucity of careful studies.

...

A very thorough comparison of ex ante to ex post estimates of costs was conducted in 2000 by Winston Harrington, Richard Morgenstern, and Peter Nelson. The researchers considered 28 regulations written by EPA, OSHA, and a handful of other regional and international regulators. A number of different industries were covered. Ex ante cost estimates were considered “accurate” if they were within ± 25% of ex post values, and either too high or too low if they fell outside this range. By this standard total costs of regulation were overestimated in 15 instances, underestimated in only three, and deemed reasonably accurate in the remaining 11.

...

The next major retrospective study of the costs of regulation was completed in 2005 by the Office of Management and Budget (OMB 2005). OMB reviewed 47 regulations initiated between 1976 and 1995. EPA issued 18 of the regulations in the OMB sample, the most of any of the five federal agencies included in the study (the others were the National Occupational Safety and Health Administration (13 regulations included), the National Highway Traffic Safety Administration (8), the Department of Energy (6) and the Nuclear Regulatory Commission (2)). As is generally the case with estimates of regulatory costs, the sample was determined by the availability of data, not by any attempt to generate a random cross-section of regulatory activity. The results of the OMB study are less striking than those of some other researchers. Of 40 regulations for which comparable ex ante and ex post data are available, 16 ex ante projections overestimated cost, 12 underestimated them, and 12 were approximately accurate. The OMB study was not completely independent of earlier work, however: for instance, nine of the studies in its sample were adopted from Harrington, et al. 2000.

At least three studies have been conducted of the accuracy of ex ante cost measures in other countries (in addition, Harrington et al. 2000 includes three examples drawn from Singapore, Norway, and Canada among their 28 case studies). While such inquiries obviously consider costs generated under different legal and regulatory structures than prevail in the U. S., they may still be useful in interpreting general approaches to regulatory cost estimation. It might also be noted in passing that international standards for the analysis of regulatory impacts have become more similar over time, with the United Kingdom (MacLeod, et al., 2006) and the European Union adopting such requirements.5 A study conducted by the Stockholm Environmental Institute considered the cost estimates presented by industry in regulatory negotiations, and found them to be consistently higher than ex post realizations of actual costs (Bailey, et al., 2002).

Benefit-cost analysis of spruce budworm (Choristoneura fumiferana Clem.) control: Incorporating market and non-market values

http://www.sciencedirect.com/science/article/pii/S0301479711003215

Abstract: This study employs a benefit-cost analysis framework to estimate market and non-market benefits and costs of controlling future spruce budworm (Choristoneura fumiferana) outbreaks on Crown forest lands in New Brunswick, Canada. We used: (i) an advanced timber supply model to project potential timber volume saved, timber value benefits, and costs of pest control efforts; and (ii) a recent contingent valuation method analysis that evaluated non-market benefits (i.e., changes in recreation opportunities and existence values) of controlling future spruce budworm outbreaks in the Province. A total of six alternative scenarios were evaluated, including two uncontrolled future budworm outbreak severities (moderate vs. severe) and, for each severity, three control program levels (protecting 10%, 20%, or 40% of the susceptible Crown land forest area). The economic criteria used to evaluate each scenario included benefit-cost ratios and net present values. Under severe outbreak conditions, results indicated that the highest benefit-cost ratio (4.04) occurred when protecting 10% (284,000 ha) of the susceptible area, and the highest net present value ($111 M) occurred when protecting 20% (568,000 ha) of the susceptible area. Under moderate outbreak conditions, the highest benefit-cost ratio (3.24) and net present value ($58.7 M) occurred when protecting 10% (284,000 ha) of the susceptible area. Inclusion of non-market values generally increased the benefit-cost ratios and net present values of the control programs, and in some cases, led to higher levels of control being supported. Results of this study highlight the importance of including non-market values into the decision making process of forest pest management.

Highlights
► We assess the benefits and costs of controlling spruce budworm outbreaks.
► A contingent valuation method and a wood supply model are used in the analysis.
► A number of outbreak severities and control program scenarios are considered.
► Net present values are highest when protecting 10–20% of the affected land base.
► Including non-market values can help justify larger control programs.

by Wei-Yew Chang, Van A. Lantz, Chris R. Hennigar, David A. MacLean; all of Faculty of Forestry and Environmental Management, University of New Brunswick, P.O. Box 4400, Fredericton, NB, Canada E3B 5A3; Tel.: +1 506 458 7775; fax: +1 506 453 3538.
Journal of Environmental Management via Elsevier Science Direct www.ScienceDirect.com;
Volume 93, Issue 1; January, 2012; Pages 104–112

Keywords: Contingent valuation; Timber supply model; Natural disturbances; Forest pest management; Forest protection; Benefit-cost ratio; Net present value; New Brunswick

Process analysis and economics of drinking water production from coastal aquifers containing chromophoric dissolved organic matter and bromide using nanofiltration and ozonation

http://www.sciencedirect.com/science/article/pii/S0301479711003422

Abstract: In regions characterized by water scarcity, such as coastal Southern California, groundwater containing chromophoric dissolved organic matter is a viable source of water supply. In the coastal aquifer of Orange County in California, seawater intrusion driven by coastal groundwater pumping increased the concentration of bromide in extracted groundwater from 0.4 mg l−1 in 2000 to over 0.8 mg l−1 in 2004. Bromide, a precursor to bromate formation is regulated by USEPA and the California Department of Health as a potential carcinogen and therefore must be reduced to a level below 10 μg l−1. This paper compares two processes for treatment of highly coloured groundwater: nanofiltration and ozone injection coupled with biologically activated carbon. The requirement for bromate removal decreased the water production in the ozonation process to compensate for increased maintenance requirements, and required the adoption of catalytic carbon with associated increase in capital and operating costs per unit volume. However, due to the absence of oxidant addition in nanofiltration processes, this process is not affected by bromide. We performed a process analysis and a comparative economic analysis of capital and operating costs for both technologies. Our results show that for the case studied in coastal Southern California, nanofiltration has higher throughput and lower specific capital and operating cost, when compared to ozone injection with biologically activate carbon. Ozone injection with biologically activated carbon, compared to nanofiltration, has 14% higher capital cost and 12% higher operating costs per unit water produced while operating at the initial throughput. Due to reduced ozone concentration required to accommodate for bromate reduction, the ozonation process throughput is reduced and the actual cost increase (per unit water produced) is 68% higher for capital cost and 30% higher for operations.

Highlights:
► Southern California’s coastal aquifer has Chromophoric Dissolved Organic Matter.
► We analysed two processes for CDOM removal, nanofiltration and ozonation.
► The ozonation process must be amended to reduce bromate by-products.
► The effect of bromate formation is an increased cost for ozonation.
► Overall, nanofiltration has lower operating cost, for the case studied.

by R. Sobhani 1, R. McVicker 2, C. Spangenberg 3 and D. Rosso 4
1. Department of Civil and Environmental Engineering, University of California, Irvine, CA 92697-2175, USA
2. Mesa Consolidated Water District, Costa Mesa, CA 92627, USA
3. Irvine Ranch Water District, Irvine, CA 92618, USA
4. Urban Water Research Center, University of California, Irvine, CA 92697-2175, USA
Journal of Environmental Management via Elsevier Science Direct www.ScienceDirect.com
Volume 93, Issue 1; January, 2012; Pages 209–217

Keywords: Chromophoric dissolved organic matter; Nanofiltration; Ozonation; Economic analysis; Seawater intrusion; Bromate

In Bat Deaths, a Catastrophe in the Making?

http://green.blogs.nytimes.com/2012/01/19/in-bat-deaths-a-catastrophe-in-the-making

A “biodiversity crisis”: that’s how some conservationists describe new numbers released this week by the federal Fish and Wildlife Service on so-called white-nose syndrome. According to the agency, 5.7 million to 6.7 million bats have died from the fungal ailment in eastern North America since an epidemic first broke out in upstate New York in 2006.

The new numbers are striking, and far higher than the previous bat mortality estimate of one million released in 2009, yet it is hard to put the number into perspective because researchers lack baseline data for many bat species populations from before the disease started demolishing colonies.
...
What is known is that when the fungus gets into a cave or mine where bats are hibernating, 70 to 90 percent of the bats die. In some cases, the mortality rate is 100 percent.

Over the past three years, the disease has spread from 88 sites in nine states in 2009 to at least 200 sites in 16 states today....  There are 45 species of bats in North America, 26 of which are hibernating species potentially susceptible to the fungus. While the disease has infected only six species so far, some researchers worry that it could wipe out as many as 20 bat species in the next few years.

Researchers have estimated that bats save farmers at least $3.7 billion a year by keeping down crop pests (see http://www.envirovaluation.org/2011/05/bats-worth-billions-to-agriculture-pest.html).

Ann Froschauer of the U.S. Fish and Wildlife Service emphasized that each bat species fulfills a specific ecological purpose.... “Different species eat different things, hunt in different locations and fit into the ecological puzzle in a unique way,” she said. “Losing one bat species would be huge — losing 20 would be catastrophic.”

...
by Joanna M. Foster
FOR FULL STORY GO TO:
http://green.blogs.nytimes.com/2012/01/19/in-bat-deaths-a-catastrophe-in-the-making
The New York Times Green Blog http://green.blogs.nytimes.com
January 19, 2012

Simultaneously Mitigating Near-Term Climate Change and Improving Human Health and Food Security

http://is.gd/vISA4I

http://www.sciencedaily.com/releases/2012/01/120112193442.htm

A new study led by [Drew Shindell of NASA's Goddard Institute for Space Studies (GISS) in New York City], highlights 14 key air pollution control measures that, if implemented, could slow the pace of global warming, improve health and boost agricultural production.

The research ... finds that focusing on these measures could slow mean global warming 0.9 ºF (0.5ºC) by 2050, increase global crop yields by up to 135 million metric tons per season and prevent hundreds of thousands of premature deaths each year. While all regions of the world would benefit, countries in Asia and the Middle East would see the biggest health and agricultural gains from emissions reductions.
...

Shindell and an international team considered about 400 control measures based on technologies evaluated by the International Institute for Applied Systems Analysis in Laxenburg, Austria. The new study focused on 14 measures with the greatest climate benefit. All 14 would curb the release of either black carbon or methane, pollutants that exacerbate climate change and damage human or plant health either directly or by leading to ozone formation.

Shindell and his team concluded that these control measures would provide the greatest protection against global warming to Russia, Tajikistan and Kyrgyzstan, countries with large areas of snow or ice cover. Iran, Pakistan and Jordan would experience the most improvement in agricultural production. Southern Asia and the Sahel region of Africa would see the most beneficial changes to precipitation patterns.

The south Asian countries of India, Bangladesh and Nepal would see the biggest reductions in premature deaths. The study estimates that globally between 700,000 and 4.7 million premature deaths could be prevented each year.

Black carbon and methane have many sources. Reducing emissions would require that societies make multiple infrastructure upgrades. For methane, the key strategies the scientists considered were capturing gas escaping from coal mines and oil and natural gas facilities, as well as reducing leakage from long-distance pipelines, preventing emissions from city landfills, updating wastewater treatment plants, aerating rice paddies more, and limiting emissions from manure on farms.

For black carbon, the strategies analyzed include installing filters in diesel vehicles, keeping high-emitting vehicles off the road, upgrading cooking stoves and boilers to cleaner burning types, installing more efficient kilns for brick production, upgrading coke ovens and banning agricultural burning.

The scientists used computer models developed at GISS and the Max Planck Institute for Meteorology in Hamburg, Germany, to model the impact of emissions reductions. The models showed widespread benefits from the methane reduction because it is evenly distributed throughout the atmosphere. Black carbon falls out of the atmosphere after a few days so the benefits are stronger in certain regions, especially ones with large amounts of snow and ice.

... The new study builds on a United Nations Environment Program/World Meteorological Organization report, also led by Shindell, published last year.
...

Abstract: Tropospheric ozone and black carbon (BC) contribute to both degraded air quality and global warming. We considered ~400 emission control measures to reduce these pollutants by using current technology and experience. We identified 14 measures targeting methane and BC emissions that reduce projected global mean warming ~0.5°C by 2050. This strategy avoids 0.7 to 4.7 million annual premature deaths from outdoor air pollution and increases annual crop yields by 30 to 135 million metric tons due to ozone reductions in 2030 and beyond. Benefits of methane emissions reductions are valued at $700 to $5,000 per metric ton, which is well above typical marginal abatement costs (less than $250). The selected controls target different sources and influence climate on shorter time scales than those of carbon dioxide–reduction measures. Implementing both substantially reduces the risks of crossing the 2°C threshold.
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A 2007 Stanford University study calculated that carbon dioxide was the No. 1 cause of man-made global warming, accounting for 48 percent of the problem. Soot was second with 16 percent of the warming and methane was right behind at 14 percent.  But over a 20-year period, a molecule of methane or soot causes substantially more warming then a carbon dioxide molecule.

The new research won wide praise from outside scientists, including a conservative researcher who held a top post in the George W. Bush administration.

"So rather than focusing only on carbon dioxide emissions, where we have to make a tradeoff with energy prices, this strategy focuses on 'win-win-win' pathways that have benefits to human health, agriculture and stabilizing the Earth's climate," said University of Minnesota ecology professor Jonathan Foley, who wasn't part of the study. "That's brilliant."

John D. Graham, who oversaw regulations at the Office of Management and Budget in the Bush administration and is now dean of public and environmental affairs at Indiana University, said: "This is an important study that deserves serious consideration by policy makers as well as scientists."

The study even does a cost-benefit analysis to see if these pollution control methods are too expensive to be anything but fantasy. They actually pay off with benefits that are as much as ten times the value of the costs, Shindell said. The paper calculates that as of 2030, the pollution reduction methods would bring about $6.5 trillion in annual benefits from fewer people dying from air pollution, less global warming and increased crop production.

In the United States, Shindell calculates the measures would prevent about 14,000 air pollution deaths in people older than 30 by the year 2030. About 0.8 degrees Fahrenheit of projected warming in the U.S. would be prevented by 2050.

But health benefits would be far bigger in China and India where soot is more of a problem.

The study comes a day after the U.S. Environmental Protection Agency released the most detailed data yet on American greenhouse gas emissions. Of the emissions reported to the government, nearly three-quarters came from power plants. But with methane, it's different. Nineteen of the top 20 methane emitters were landfills.

Stanford University climate scientist Chris Field, who is a leader in the Intergovernmental Panel on Climate Change but wasn't part of this study, praised the study but said he worried that officials would delay cutting back on the more prevalent carbon dioxide. Focusing solely on methane and soot and ignoring carbon dioxide "tends to exacerbate climate change," he said.

Also see:

http://www.unep.org/dewa/Portals/67/pdf/Black_Carbon.pdf

http://www.giss.nasa.gov/staff/dshindell/

http://www.nasa.gov/topics/earth/features/interactive-charts.html
http://www.giss.nasa.gov/staff/dshindell/
http://www.nasa.gov/topics/earth/features/cleanair-warming.html
http://abcnews.go.com/Technology/wireStory/scientists-cut-soot-methane-curb-warming-15348267#

by Drew Shindell 1,*, Johan C. I. Kuylenstierna 2, Elisabetta Vignati 3, Rita van Dingenen 3, Markus Amann 4, Zbigniew Klimont 4, Susan C. Anenberg 5, Nicholas Muller 6, Greet Janssens-Maenhout 3,  Frank Raes 3, Joel Schwartz 7, Greg Faluvegi 1, Luca Pozzoli 3,†, Kaarle Kupiainen 4, Lena Höglund-Isaksson 4, Lisa Emberson 2, David Streets 8, V. Ramanathan 9, Kevin Hicks 2, N. T. Kim Oanh 10, George Milly 1, Martin Williams 11, Volodymyr Demkine 12 and David Fowler 13

1. NASA Goddard Institute for Space Studies and Columbia Earth Institute, Columbia University, New York, NY 10025, USA.

2. Stockholm Environment Institute, Environment Department, University of York, York YO10 5DD, UK.

3. Joint Research Centre of the European Commission, Ispra 21027, Italy.

4. International Institute for Applied Systems Analysis, Laxenburg A-2361, Austria.

5. U.S. Environmental Protection Agency, Washington, DC 20460, USA.

6. Department of Economics, Middlebury College, Middlebury, VT 05753, USA.

7. Department of Environmental Health, Harvard School of Public Health, Boston, MA 02215, USA.

8. Argonne National Laboratory, Argonne, IL 60439, USA.

9. Scripps Institute of Oceanography, University of California, San Diego, San Diego, CA 92093, USA.

10. Asian Institute of Technology, Bangkok 10400, Thailand.

11. Environmental Research Group, King’s College London, London SE1 9NH, UK.

12. United Nations Environment Programme (UNEP), Nairobi 00100, Kenya.

13. Center for Ecology and Hydrology, Midlothian EH26 0QB, UK.

† Present address: Eurasia Institute of Earth Sciences, Istanbul Technical University, Istanbul 34469, Turkey.

* To whom correspondence should be addressed. E-mail: drew.t.shindell@nasa.gov

...
Science www.sciencemag.org
Volume 335, Number 6065; January 13, 2012: pages 183-189