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Environmental Regulations Impact on the Bottom Line

By: Jaclyn Crittenden

Blog Category: Economics of Environmental Regulation
 
Environmental regulations, through compliance costs, cause businesses to raise prices in order to make up for the decrease in their bottom lines. Regulations, such as those promulgated by the EPA, have cost as much as $45 billion over the past 10 years. However, these regulations also contributed to the economy as much as $640 billion. A complete cost-benefit analysis includes more than mere monetary considerations; it also focuses on social policies. While many economic and societal benefits outweigh the costs associated with environmental regulation compliance, this blog only briefly discusses two.

Former Senator Arlen Specter once noted that “[t]here’s nothing more important than our good health – that’s our principal capital asset.” There is no denying that a person’s well-being improves when they are not as heavily exposed to ozone and particle pollutants, such as those that environmental regulations seek to reduce. Such pollutants include gasoline vapors, chemical solvents, and combustion products caused by various fuels. These are often byproducts of large industrial facility processes, gas stations, vehicle exhaust, electric utilities, and small businesses such as dry cleaners, just to name a few. Billions in healthcare costs are spent every year on treatment of pollutant-related illnesses, such as respiratory and cardiovascular diseases, reproductive and developmental ailments, cancer, strokes, diabetes, and many other illnesses that cause premature deaths.  Additionally, a healthier population is a more productive population – a more productive population can earn more money that they can then spend on consumer products in the marketplace rather than medical bills.

Moreover, the economy is stimulated when new environmental compliance jobs are created due to new regulations. One result of environmental regulation is that companies must employ more people to clean up pollution, manage prevention and abatement efforts, and devise new, more environmentally friendly, production processes. While many businesses dislike eco-friendly regulations because they take away from their bottom lines, companies’ failure to respond to regulations by creating these new jobs risk a negative impact on their profit. This is because unemployment benefits are funded heavily through taxes assessed on businesses. So, when the unemployment rate is high, companies pay higher taxes, which then reduces their net-earnings.

The opinions expressed herein are strictly those of the author and do not necessarily reflect the opinions of the Widener Journal of Law, Economics & Race.  

Sources:

Am. Lung Ass’n, Particle Pollution, available at  http://www.stateoftheair.org/2013/health-risks/health-risks-particle.html#whatis (last visited March 13, 2014).

Jeff Spross, New Study: The Economic Benefits of EPA Regulations Massively Outweigh the Costs (May 3, 2013, 11:00 AM), available at http://thinkprogress.org/climate/2013/05/03/1955891/new-omb-study-the-economic-benefits-of-epa-regulations-massively-outweigh-the-costs.

Stephen D. Simpson, The Cost of Unemployment to the Economy (Aug. 9, 2011), available at http://www.investopedia.com/financial-edge/0811/the-cost-of-unemployment-to-the-economy.aspx.

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