Volume 15, No.2, Summer 1997

EPA Chokes on Ozone Standard

By Daniel K. Benjamin

Good intentions often yield unintended consequences, especially when incentives are ignored. According to a recent article in the American Economic Review, federal policy directed at cleaner air is a prime example: The Environmental Protection Agency’s efforts to clamp down on peak exposures to harmful ozone have produced a rise in the total exposure facing many Americans.

Ozone is a component of smog. Breathing it can cause coughing, asthma attacks, chest pain, and possibly long-term lung-function impairment. Ozone is one of several air pollutants subject to national ambient air quality standards, set by the EPA, which counties must meet. When the ozone standard was established, the EPA believed that only high spikes of ozone were harmful. So the standard is based on one peak value reading: A county is in attainment with the standard if its highest hourly reading does not exceed 0.12 parts per million (ppm) on more than one day a year. It is in nonattainment if this reading is exceeded on more than one day. (The EPA recently proposed to tighten the ozone standard to 0.8 ppm averaged over an 8-hour day.)

During the period studied by economist Vernon Henderson (1977-87), EPA ozone regulation appears to have reduced by about 15 percent the number of counties with high peak concentrations. A success, it would seem at first. Yet there are also fewer counties with very low peak readings; instead, peak readings now tend to cluster just below the federal standard of 0.12 ppm. The distribution of peak and average ozone concentrations thus has become more compact. Overall, the variation in peak readings has dropped about 20 percent.

Average, and thus total, concentrations have not declined due to EPA regulations. Indeed, they have risen by about 10 percent. Cuts in emissions due to the reduction in peak emissions in nonattainment counties have been more than offset by higher off-peak emissions in those counties and by rising emissions in attainment counties.

Henderson identifies three separate responses to the EPA ozone standard. First, many factories actually have reduced emissions of ozone-producing pollutants (organic compounds and nitrogen oxides). That was EPA’s goal and these cutbacks have tended to reduce both peak and average concentrations.

But two other responses were not what EPA officials had in mind. For example, the timing of economic activity over the day has changed. In nonattainment counties, particularly in California, businesses apparently are shifting their activity from peak times to off-peak times. More importantly, some businesses have moved their operations from nonattainment counties to attainment counties, areas where there is still room to increase pollutants without hitting the EPA’s peak standard. These two responses–clearly unintended consequences of the EPA standard–have reduced peak emissions, but they have on balance raised total emissions.

These last two responses violate the intent of the Clean Air Act, but they have reduced the social costs of meeting EPA standards by enabling firms to meet the standards in the most efficient manner. Moreover, even though they have bumped up emissions in off-peak times and in cleaner counties, the resulting "smoothing" of ozone concentrations over time and over counties may be beneficial if the adverse health effects of ozone are in fact driven by peak exposures.

The bottom line is that because it has focused on one narrow feature of the problem–peak ozone concentrations–EPA regulations have reduced the average quality of the air they were supposed to improve. At the same time, the business sector’s response to EPA rules–changing the time and place of emissions–has violated the intent of the law but has had the beneficial effect of reducing the social cost of EPA standards.

Phaedrus, at least, would understand.

Daniel K. Benjamin is a PERC Senior Associate and Professor of Economics at Clemson University. "Tangents" investigates policy implications of recent academic research.

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