Study Says Pollution Programs Create Jobs, Cause Little Inflation

[CEQ/EPA press release - January 19, 1979]

The costs of air and water pollution clean-up required by federal legislation will add no more than 0.1 to 0.2 percentage points to the average annual inflation rate over the next eight years, says a new study of the economic effects of pollution controls. It also shows that the unemployment rate will drop an average of 0.2 to 0.3 percentage points during the same period due to the existence of federal clean-up programs.

These findings are contained in a new study titled "The Macroeconomic Impact of Federal Pollution Control Programs: 1978 Assessment," which was released today by the Environmental Protection Agency and the Council on Environmental Quality (CEQ). The study does not, however, take into account the many health and other benefits that result to society from cleaning up pollution.

"Over the last year or so government regulation has been subject to withering criticism for its inflationary effects. This study shows that environmental quality programs will add very little to inflation over the next few years, while at the same time reducing the unemployment rate," said CEQ Chairman Charles Warren.

"This study confirms previous findings that environmental regulations have some positive effects on employment," said EPA Administrator Douglas M. Costle. "Even without taking into account the benefits of regulation, the study shows inflationary impacts that are relatively small. We must continue to be vigilant in reducing the costs of individual regulations, but this study indicates that the total impacts are within reason."

Specific data in the new report show that the Consumer Price Index (CPI) and Wholesale Price Index (WPI) increased from 1970 through 1986 at an average rate of 0.2 to 0.3 percentage points higher for the CPI and 0.3 percentage points higher for the WPI than otherwise would have occurred due to pollution control spending required by federal law. Between 1970 and 1986, on a cumulative basis, the CPI will have risen 3.6 percent more and the WPI 4.2 percent more than would have been the case in the absence of federal pollution control requirements.

The report also estimates that the unemployment rate is generally lower with federal environmental programs than it would be without them. The difference is estimated to be 0.1 percentage points in 1978, 0.4 percentage points in 1980, and 0.2 percentage points in 1986.

Another conclusion of the study is that the stimulating effect on the U.S. economy of increased spending for pollution control equipment in the first part of the period (through 1981) raises the Gross National Product (GNP) slightly above the level which otherwise would be the case. However, because the pollution control expenditures slightly lower the rate at which measured "productivity" grows, the longer run rate of economic growth is expected to be lower with federal environmental programs than without them. Hence, by 1982 the level lf GNP will fall below what it otherwise would have been, to a level about 1.0 percent below the baseline forecast for 1986.

The 51-page report, prepared by Data Resources, Inc., a Cambridge, Massachusetts firm headed by Otto Eckstein, covers the period 1970-1986. It assesses the effects of federal environmental regulations on the U.S. economy and, therefore, does not include spending that would have occurred in the absence of federal pollution control legislation.

The pollution control cost estimates were provided by CEQ and EPA and are consistent with the CEQ estimates of incremental abatement costs to be published in CEQ's Ninth Annual Report. These estimates represent the added--or incremental--costs that will be incurred with the federal pollution control regulations.

In addition to omitting the benefits of pollution control, other factors that could affect the outcome were not included. For example, the study assumed that there would be no changes made in federal spending or monetary policies to lessen the impact of pollution controls on the economy. In fact, some changes could be made to reduce some of the impact of pollution control spending on the inflation rate. DRI made a separate analysis of this issue and concluded that it would be possible to adjust federal spending and the money supply in ways that would lessen the inflationary impact of pollution control spending without having a long term impact on employment.

Also, no consideration was given in the study to the impact of pollution control programs on the ability of companies to promote technological innovation or to increase productivity. And no effort was made to take into account the likelihood that the strong public concern for the environment over the past decade might have prompted large increases in pollution control spending, even in the absence of federal pollution control programs of any kind.