Looking Back at Fifty Years of the Clean Air Act A Looking Back at Fifty Years of the Clean Air Act

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    Looking Back at Fifty Years of the Clean Air Act Joseph E. Aldy, Maximillian Auffhammer, Maureen Cropper, Arthur Fraas, Richard Morgenstern

    Working Paper 20-01 January 2020

  • Resources for the Future i

    About the Authors Joseph E. Aldy is a professor of the Practice of Public Policy at Harvard’s Kennedy School and a university fellow at Resources for the Future; he is also affiliated with the National Bureau of Economic Research and Center for Strategic and International Studies. His research focuses on climate change policy, energy policy, and mortality risk valuation. Aldy also currently serves as the faculty chair of the Regulatory Policy Program at the Harvard Kennedy School. In 2009–2010, he served as the special assistant to the president for energy and the environment, reporting through both the White House National Economic Council and the Office of Energy and Climate Change.

    Maximillian Auffhammer is a professor at University of California, Berkeley; a research associate at the National Bureau of Economic Research in the Energy and Environmental Economics group; a Humboldt Foundation Fellow; and a lead author for the Intergovernmental Panel on Climate Change (IPCC). His research focuses on environmental and resource economics, energy economics and applied econometrics. Auffhammer serves on the editorial board of the Journal of Environmental Economics and Management. His research has appeared in the American Economic Review, the Review of Economics and Statistics, the Economic Journal, the Proceedings of the National Academies of Sciences, the Journal of Environmental Economics and Management, the Energy Journal, and other academic journals. Auffhammer is the recipient of the 2007 Cozzarelli Prize awarded by the National Academies of Sciences, the 2009 Campus Distinguished Teaching Award and the 2007 Sarlo Distinguished Mentoring Award.

    Maureen Cropper is a professor of economics at the University of Maryland, a senior fellow at Resources for the Future, a research associate of the National Bureau of Economic Research, and a member of the National Academy of Sciences. A former lead economist at the World Bank, Cropper has made major contributions to environmental policy through her research, teaching, and public service. Her research has focused on valuing environmental amenities, estimating consumer preferences for health and longevity improvements, and the tradeoffs implicit in environmental regulations. Previously, at the World Bank, her work focused on improving policy choices in developing countries through studies of deforestation, road safety, urban slums, and health valuation. She is currently studying the externalities associated with pandemic flu control, the impact of reforms in the electric power sector in India, and the demand for fuel economy in the Indian car market.

    Arthur Fraas is a visiting fellow at Resources for the Future. At RFF, Fraas works on a variety of issues related to energy and the environment, including projects looking at issues and tradeoffs with energy efficiency regulations, the development of retrospective analyses of major environmental rules, the treatment of uncertainty

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    in regulatory analysis, and the potential regulation of greenhouse gases under the Clean Air Act. Before joining the OMB, Fraas was a senior economist at the Council on Wage and Price Stability, a staff member of the Senate Judiciary Subcommittee on Antitrust and Monopoly, an assistant professor of economics at the US Naval Academy, and a staff economist with the Federal Reserve System.

    Richard Morgenstern is a senior fellow at Resources for the Future. His research focuses on the economic analysis of environmental issues with an emphasis on the costs, benefits, evaluation, and design of environmental policies, especially economic incentive measures. His analysis also focuses on climate change, including the design of cost-effective policies to reduce emissions in the United States and abroad. Prior to joining RFF, Morgenstern was senior economic counselor to the undersecretary for global affairs at the US Department of State, where he participated in negotiations for the Kyoto Protocol. He served at the US Environmental Protection Agency in several senior roles and has taught at the City University of New York, Oberlin College, the Wharton School of the University of Pennsylvania, Yeshiva University, and American University. He has served on expert committees of the National Academy of Sciences and as a consultant to various organizations.

    Acknowledgements We thank Jieyi Lu, Mark Nepf, Ken Norris, and Laura Zachery for excellent research assistance. We also thank Nat Keohane, Dick Schmalensee, Howard Shelanski and workshop participants at Environmental Defense Fund and Resources for the Future for constructive feedback on an earlier draft. The authors acknowledge the financial support of the Smith Richardson Foundation. The first author also acknowledges the financial support of the Alfred P. Sloan Foundation under grant G-2017-9922.

    About RFF Resources for the Future (RFF) is an independent, nonprofit research institution in Washington, DC. Its mission is to improve environmental, energy, and natural resource decisions through impartial economic research and policy engagement. RFF is committed to being the most widely trusted source of research insights and policy solutions leading to a healthy environment and a thriving economy. Working papers are research materials circulated by their authors for purposes of information and discussion. They have not necessarily undergone formal peer review. The views expressed here are those of the individual authors and may differ from those of other RFF experts, its officers, or its directors.

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    Sharing Our Work Our work is available for sharing and adaptation under an Attribution- NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0) license. You can copy and redistribute our material in any medium or format; you must give appropriate credit, provide a link to the license, and indicate if changes were made, and you may not apply additional restrictions. You may do so in any reasonable manner, but not in any way that suggests the licensor endorses you or your use. You may not use the material for commercial purposes. If you remix, transform, or build upon the material, you may not distribute the modified material. For more information, visit https://creativecommons.org/licenses/by-nc-nd/4.0/.

  • Looking Back at Fifty Years of the Clean Air Act iv

    Abstract Since 1970, transportation, power generation, and manufacturing have dramatically transformed as air pollutant emissions have fallen significantly. To evaluate the causal impacts of the Clean Air Act on these changes, we synthesize and review retrospective analyses of air quality regulations. The geographic heterogeneity in regulatory stringency common to many regulations has important implications for emissions, public health, compliance costs, and employment. Cap-and-trade programs have delivered greater emission reductions at lower cost than conventional regulatory mandates, but policy practice has fallen short of the cost-effective ideal. Implementing regulations in imperfectly competitive markets have also influenced the Clean Air Act’s benefits and costs.

    JEL Codes: Q52, Q53, Q58

    Keywords: retrospective analysis, quasi-experimental methods, cap-and-trade, performance standards, regulatory performance

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    Contents 1. Introduction 1

    2. Background 4

    2.1. Overview of the Clean Air Act 4

    2.2. Ex Ante Regulatory Impact Analyses 7

    2.3. Selection Criteria for Inclusion in this Review 8

    3. The Impact of Environmental Regulations on Stationary Sources of Pollution 9

    3.1 . Sulfur Dioxide Cap-and-Trade Program 9

    3.2. NOX Budget Program 12

    3.3. RECLAIM Cap-and-Trade Program 15

    3.4. Air Toxic Regulations Under the 1990 CAAA 16

    4. Literature on the Regulation of Mobile Source Fuel Content 20

    4.1. Effectiveness and Health Benefits of RVP and RFG Regulations 22

    4.2. Market Impacts of RVP and RFG Regulations and Oxygenated Fuel Regulations 23

    4.3. Renewable Fuels Standard (RFS) 25

    5. Literature on Attainment Status Under the CAA 28

    5.1. Impact of Attainment Status on Emissions and Air Quality 28

    5.2. Impact of Attainment Status on Manufacturing Activity 31

    5.3. Impact of Attainment Status on Employment and Earnings 33

    5.4. Use of Attainment Status to Measure the Health Benefits of the CAAA 35

    6. Conclusions 38

    References 42

    Appendix 47

  • Resources for the Future 1

    1. Introduction The 1970 Clean Air Act (CAA), followed by the 1977 and 1990 amendments, is arguably the most important and far reaching environmental statute enacted in the United States. This legislation fundamentally shifted the state-oriented focus of most air quality regulation to the federal government and stimulated a broad-based and costly effort to limit harmful air emissions across the United States. Far more than aspirational, the Act included specific targets and timetables for action, empowered citizens with the right to sue government officials, and regulated entities that failed to perform their duties.

    Despite the quadrupling of gross domestic product since 1970, air quality across the United States has improved substantially. The US Environ