EPA Proposals Could Lead to Multibillion-Dollar Economic Losses for US: Study

An employee works on an assembly line at startup Rivian Automotive's electric vehicle factory in Normal, Ill., on April 11, 2022. Kamil Krzaczynski/Reuters

The U.S. Environmental Protection Agency’s (EPA) proposed regulations on air quality could end up costing the American economy billions of dollars and hundreds of thousands of jobs, said a report prepared by Oxford Economics for the National Association of Manufacturers (NAM).

In January, the EPA proposed new standards seeking to lower fine particulate matter known as PM2.5 from 12 micrograms per cubic meter to between nine and 10 micrograms. The proposed regulations will threaten $162.4 billion to $197.4 billion in economic activity while putting an estimated 852,100–973,900 present jobs at risk, both directly from manufacturing and indirectly from supply chains, according to the May 10 report (pdf).

In addition, the regulation can restrict growth in certain areas, thus limiting investment and expansion in these sectors in the coming years. As a result, the United States could lose out on $138.4 billion in output and 501,000 jobs through 2027.

In the manufacturing sector alone, $87.4 billion in economic activity and 311,600 jobs could be potentially lost, while in the supply-chain sector, $75–110 billion in activity, and 540,500–662,300 jobs can get impacted as well.

NAM chief executive Jay Timmons pointed out that improving America’s air quality is a top priority for manufacturers. The country’s manufacturers have “worked for years” to deliver some of the cleanest manufacturing processes in the world.

However, “this analysis makes clear these new regulations will weaken our ability to invest in the technology and processes that would continue to reduce emissions—while jeopardizing high-paying manufacturing jobs,” he said, according to a May 10 press release.

“We need to let manufacturers do what they do best: innovate and deploy modern technologies to protect the environment, while creating jobs and strengthening the economy.”

Regional Impact

According to the NAM report, California’s manufacturing sector will be the most affected by the EPA’s proposed regulations. It estimates that $31.6 billion in manufacturing activity and 119,000 jobs in California could be negatively impacted.

In Texas, $15.6 billion in activity and 29,000 jobs could be potentially lost. Manufacturing sectors of states like Michigan and Illinois “are also expected to be significantly exposed,” the report said.

The report found that only a few counties would be affected due to the fact that economic exposure is “highly concentrated” in a small number of industrial centers.

“Ten counties across the entire country account for 53 percent of the total national economic exposure” to the proposed rules, even though these counties account for only “9 percent of the U.S. population and 10 percent of its economy.”

The report estimates the economic exposure to cover “an average of 20 percent of the manufacturing industry in these counties.”

Cleaner Domestic Manufacturing, Shutdowns

Manufacturing industries in the United States are “often environmentally cleaner” than the global average, the report stated.

“If environmental regulations cause U.S. manufacturing output to contract, this will lead to a greater reliance on importing products manufactured overseas. This could have the unintended effect of increasing air pollution and greenhouse gas (GHG) emissions globally.”

Tougher air-quality standards can negatively impact manufacturers in areas that are subjected to stricter emission thresholds.

One implication is that these manufacturers would be forced to invest in new technologies so as to reduce emissions. However, if such a solution is not economically viable, companies might choose to downsize, relocate, or shut down their operations.

Any relocation, downsizing, or shutdown of business operations can affect future business investment in these regions.

“Existing literature has found that environmental regulations impose costs on manufacturers and that these costs are reflected in manufacturers’ decisions on investment and plant location,” the report noted.

“In particular, there is evidence of companies being less likely to open new facilities in areas with stricter regulations and investing less in facilities in such areas.”

The EPA is also pushing for stricter emissions standards in transportation. Its latest emission standards are projected to lead to two-thirds of new cars sold in the United States by 2032 being all-electric.

American Fuel and Petrochemical Manufacturers (AFPM), the main trade association representing oil refineries for gasoline and other petroleum products, has criticized the EPA for the new emission rules, warning that it would “effectively ban gasoline and diesel vehicles.”