Pareto Policy Solutions, LLC

advancing innovation through smart regulation

Pareto Policy Solutions, LLC is a policy analysis and advocacy firm committed to advancing sustainability through “smart” regulation: regulation that rewards, and does not penalize, superior performance.  Often, such actions leverage advances in science and technology and make the regulatory program itself more effective as well as more efficient.

The Ozone Standard

The President is expected to propose a lowering of the ozone standard by December 1st.  The debate over this EPA regulation is expected to be fierce and reflect a tradeoff between public health versus cost.

Ozone, a molecule consisting of three atoms of oxygen, can be found in two parts of the atmosphere:  in the stratosphere—miles above the earth—where it serves as a shield against harmful ultraviolet radiation and reduces the incidence of skin cancer and cataracts; and in the troposphere—low to the ground—where it interferes with lung function in humans, especially children and the elderly, and is the major component of smog.

Whereas the so-called “ozone hole” refers to the destruction of “good” ozone high above us, the ozone standard refers to efforts to keep tropospheric ozone, the “bad” ozone, from reaching harmful levels.  It is the latter issue that is the subject of much debate. 

How much tropospheric ozone is too much? 

It is actually an understatement to call this the billion-dollar question.  When President Obama proposed to lower the standard in 2010, EPA pegged the cost as high as $90 billion dollars per year, which would have made it the most expensive regulation in history.  The President never finalized that proposal, opting instead to punt and wait until now.  Judicial deadlines now require a proposal by December and a final rule by October 2015.

Forcing the President’s hand is the Clean Air Act, which requires a standard sufficient “to protect human health with an ample margin of safety”, a term the courts have interpreted to mean that cost cannot be considered in the setting of a National Ambient Air Quality Standard (NAAQS). 

Regions of the country that are in “non-attainment” with a NAAQS must develop a plan for compliance, involving reducing levels of nitrogen oxides and/or volatile organic compounds, both of which are emitted via human activities (e.g., automobiles, power plants, industrial facilities, consumer products), curtailment of which negatively impacts economic growth; hence the high price tag.  Once an area attains the standard, it is designated a “maintenance area” and requirements are put in place to avoid backsliding.

Research indicates that the NAAQS program does reduce economic growth and impose losses in jobs.  Michael Greenstone, an MIT economist and former member of President Obama’s Council of Economic Advisors, estimated that in the first fifteen years after the Clean Air Act (1972- 1987), nonattainment counties (relative to attainment ones) lost approximately 590,000 jobs, $37 billion in capital stock, and $75 billion (1987$) of output in heavily impacted industries, controlling for various alternative factors.  This loss in economic activity occurs years after a NAAQS standard is set and implementation is phased in; the effect is not immediate.  EPA’s own cost-benefit analysis for its last proposal showed that the costs, while extraordinary, are outweighed by the benefits in public health.  Other kinds of benefits (increases in home prices) also come into play.

Ozone levels can and do vary around the country.  There is a seasonal aspect as well, with summertime levels typically higher than the rest of the year. Some areas, however, can have high ozone levels year-round. And some areas, such as Southern California, have such severe ozone levels that attainment is unlikely.

Using a nationwide network of monitoring sites, EPA gathers data over time, and the overall trend is positive. Nationally, average ozone levels declined in the 1980s, flattened in the 1990s, and declined again since the turn of the century.

So will the President propose to lower the ozone standard by December? 

Probably.  The current 8-hour average standard, set in 2008, is 75 parts per billion (ppb).  On June 26, 2014, EPA’s science advisory panel recommended a level between 60 and 70 ppb.  EPA seldom (has it ever?) goes against the advice of its science advisory board when setting a NAAQS.

In anticipation of a Presidential decision, interest groups are gearing up.  Republicans in Congress and business groups have already begun the fight against the yet-to-be-issued regulation, saying that it would be too expensive and that states should be allowed to catch up to the 2008 standard first.  Nothing will be lost, they argue, because we have been making progress in lowering ozone levels.  Environmental and public health groups, on the other hand, are saying the current standard is not protective of public health; the science is clear, and the current standard must be tightened.

This debate over the ozone standard is just one of several high-profile regulatory proposals expected during the next year.  The Clean Power Plan, Waters of the United States, the Renewable Fuel Standard, and new requirements for Underground Storage Tanks---the list of economically significant rules is long indeed, pushing EPA regulations to the top of the President’s agenda in his last two years in office. 

But of all these big regulations, none presents the tradeoff of public health versus cost as starkly as the ozone standard.

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