Warning about the cost of regulation is easier than proving it retrospectively. Individuals or industries know what they spend to function under a given regulation, but they usually can only guess about what they would have spent over the same time under a softer alternative or with no regulation at all. Unable to quantify differences essential to comparison, how can they argue that the regulation has cost them anything at all? And if immeasurability raises questions about costs of existing regulation, why should anyone heed warnings about costs of regulation not yet imposed?
US President Barack Obama employs this logic deftly and with clever exaggeration in defense of his administration's accelerating regulatory binge. Here's an example, from a June 25, 2013, speech at Georgetown University supporting policies on climate change: "Now, what you'll hear from the special interests and their allies in Congress is that this will kill jobs and crush the economy, and basically end American free enterprise as we know it. And the reason I know you'll hear those things is because that's what they said every time America sets clear rules and better standards for our air and our water and our children's health. And every time, they've been wrong."
Yes, whoever has predicted environmental rules would end American free enterprise has been wrong. So far, the system survives. But what about observers who have more modestly but just as seriously warned that the rules might not produce environmental benefits justifying the costs?
Regulations raise costs
Environmental regulations do raise costs. Often, environmental improvement warrants the extra burden. Sometimes it does not. Judicious regulation balances the values as well as it can. Injudicious regulation asserts either that costs don't exist or that they don't matter.
Costs inevitably increase when governments regulate economic activity. They always matter. But they're difficult to measure in retrospect. What never must be believed is that difficulty of assessment means regulation creates no cost at all.
History provides a convenient demonstration of the existence of costs of one major fuel regulation: the mandated removal, beginning in 2006, of most sulfur from diesel fuel. The Environmental Protection Agency imposed the regulation late in 2000, at the end of the two-term presidency of Bill Clinton. The move coincided with a requirement that new trucks be equipped with onboard antipollution equipment susceptible to damage from sulfur. Acknowledging the need, the oil industry recommended that the sulfur content of diesel be lowered by 90% from the prevailing average to 30 ppm. Refiners could have met that standard by operating existing equipment at elevated severities and with new catalysts.
EPA, though, set the sulfur limit as low as it legally could-at 15 ppm, a 97% reduction. In environmental performance, differences between the two standards were minor. The same can't be said for cost. For reasons of chemistry, removing the last remnants of sulfur from diesel is especially difficult. The tougher standard forced most refineries to install new desulfurization equipment and some to cease operation rather than make the needed investment. One analyst said regulation turned a secondary vehicle fuel into a high-value petrochemical.
The existence of cost related to that change remains uniquely visible. The price of gasoline provides a baseline. Before the ultralow-sulfur requirement, diesel nearly always sold at a discount to gasoline. Exceptions occurred in winter, when demand for chemically similar home heating oil increased. Since 2006, diesel has sold at a persistent, stout premium to the other vehicle fuel, even though gasoline standards, too, have been toughened. That altered price relationship reflects cost imposed by regulation stricter than it needed to be.
Yielding to overkill
American mobility didn't cease because of this. Free enterprise held course. But a measure of economic output since 2006 has yielded to regulatory overkill, reinstated zealously in the administration of a president who yearns to be remembered for environmental activism.
Also to be remembered is an economy barely able to grow.
