Thirty Years of Economics at the Environmental Protection Agency

When the modern era of environmental policy began with creation of the Environmental Protection Agency and passage of the Clean Air and Clean Water Acts, economists and economics were little used. Over time, economics became a major contributor to formation of environmental policy. Executive Order 12291 pushed economics into the policy process but also rendered benefit-cost analysis controversial. I report on economics' role in the policy process over time and examine contributions by economists to environmental policymaking. Advancing benefit-cost analysis is an obvious contribution. I describe other areas in which economists have contributed and highlight milestones for economics at EPA.Key Words: benefit-cost analysis, EPA, economics at EPA, Executive Order 12291, histoiy of environmental economicsIn 1984,1 joined a small group of economists working at the U.S. Environmental Protection Agency (EPA], I arrived at EPA eager to apply economic tools and models to environmental problems. After a few months, I wondered if I had made a big mistake. To my dismay, many did not share my conviction that economics had much to offer to policymaking. The notion that economists, with significant input from other scientific disciplines, could or should conduct benefit-cost analysis and help inform regulatory decision-making was either completely foreign or opposed by nearly all. Even offering a conceptual analysis of the form of a potential regulation-market incentives versus command-and- control regulation-proved difficult.Fast forward almost 30 years. Today, environmental economics is often (but not always] an essential part of the policymaking process. While not all EPA policymakers fully understand benefit-cost analysis and its underpinnings, there is widespread acceptance that economists contribute to our understanding of the consequences of environmental policy options and should be heard. Further, all of the various stakeholders in regulatory and policy development processes-decision-makers, industries, environmental groups, consumer groups, the U.S. Congress, and the White House-frequently draw on benefit-cost analysis in the course of policymaking. Economists at EPA offer suggestions on how to make regulations better by harnessing market incentives and cost-minimization incentives for polluters. Finally, economics is now considered a mainstream science, and economists, with knowledge of empirical methods, analysis at the margin, risk and uncertainty, and behavioral responses, are playing influential roles in risk assessment, research design, priority setting, and policy design.I review the history of economics and its role in policymaking at EPA and provide insight into how economics has changed national environmental policy in the United States. EPA economists and economics make significant contributions to the agency that extend beyond the very important one of providing decision-makers with a sense of the benefits and costs of relevant policy options. An obvious triumph of economics is widespread adoption of market incentive-based policy instruments. Other noteworthy contributions by economists exist but may be less obvious. Taken together, these success stories-or failures, for those who think economics should have made even bigger contributions-provide lessons on how economics can play its role in the policy process. Have economics and economists made a difference to environmental policy? The answer, from my experience, is an emphatic yes. And some of our most profound influences have probably been outside the scope of a benefit-cost analysis.Both in policy circles and in the policy literature, critics of benefit-cost analysis have argued that it is flawed and plays far too significant a role (Heinzerling and Ackerman 2005], That issue is beyond the scope of this discussion, although I do not want to leave the impression that economics dominates the policy process or is wholly embraced by every facet of EPA. …