EPA Regulatory Impact Analysis of Proposed Federal Ozone Standard: Potential Concerns Related to EPA Compliance Cost Estimates

17 March 2015
By Dr. David Harrison, Jr., Dr. Anne E. Smith, Scott Bloomberg, Conor Coughlin, Christopher D’Angelo, Julia Greenberger, Carl McPherson, and Andrew Stuntz

In this report, prepared for the National Association of Manufacturers, a NERA team led by Environmental Economics Practice Co-Chairs Dr. David Harrison, Jr. and Dr. Anne E. Smith reviews the data and methodology the US Environmental Protection Agency (EPA) used to develop estimates of the compliance costs of a more stringent national ambient air quality standard (NAAQS) for ozone. The team’s assessment is supported by numerical examples based on emission reductions and costs of a tightening of the ozone standard to 65 parts per billion (ppb), relative to the current standard of 75 ppb; however, the data and methodological issues discussed would apply to any of the alternative standards in the EPA ozone NAAQS Proposed Rule.

In its Regulatory Impact Analysis (RIA), EPA estimated that the additional annualized costs of achieving a 65 ppb standard beyond costs of attaining the current standard of 75 ppb, for areas other than California, would be about $15.4 billion per year, of which about $4.2 billion would be “known” controls and about $11.3 billion would be “unknown” controls—very substantial costs by any criterion. However, as explained in this report, NERA’s team finds that EPA’s estimate understates likely compliance costs.