ECONOMIC ANALYSIS

ECONOMIC ANALYSIS EPA policies cannot force economic choices

Almost five years ago, a colleague and I were sought out by a large think tank to help develop a study to value natural resources on federal lands. This was during the height of the Bush administration.

Several dozen scientists were working on the project, and my colleague and I were to lead the economic analysis. As it happened, we offered a couple of approaches to the study. Our preferred method was a widely respected environmental modeling tool that had been in use for almost three decades and was easily the most appropriate tool.

Halfway through our presentation, we were stopped by the senior representative from the think tank. She explained that, while every economist she’d ever worked with would have proposed the same method, the Environmental Protection Agency director would not accept it since it wouldn’t give agency officials the answer they wanted. We quit the study team.

Needless to say, I imagined that the Obama administration would install folks at the EPA who would be an improvement on the last administration’s choices. That audacious hope was dashed last week as I listened to a National Public Radio interview with Lisa Jackson, the new head of the EPA. She told the interviewer: “What this country needs is one single national road map that tells automakers who are trying to become solvent again, what kind of car it is they need to be designing and building for the American people.” Even the NPR reporter was shocked by that answer.

We are at a critical moment in environmental policy. We suffer a dearth of frankness on the matter that imperils the quality of our decision-making. Here are some examples of carefully crafted halftruths straight from the mouths of today’s policy debate.

“We can replace all our coal use with renewable energy.” Sure this is true, but not in this century, and then only in the United States, not in China or India.

“We can create thousands of new jobs in renewable energy.” Again, this is true, but we might want to count the tens of thousands of jobs destroyed through the higher cost of energy in the process.

“There is clean coal.” Well, there is clean coal, but only if it remains in the ground. Making it clean will likely cost several times what it does now. That means doubling, or even tripling, energy costs.

There are many more myths out there, but here is an undying truth: Whatever environmental policies we want to enact will have to face the harsh reality of the laws of economics. These laws cannot be repealed by the mere mortals who inhabit Congress any more than they can repeal the law of gravity or round Pi to a prime number.

The EPA folks will soon find this out if they really want to get into the business of designing America’s cars. For while I am sure they can now force Chrysler and GM to make the cars the administration wants, I am equally certain they cannot compel anyone to buy them.

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Hicks is director of the Center for Business and Economic Research at Ball State University. His column appears weekly. He can be reached at cber@bsu.edu.