By: Alan Ahn

One keystone of the American regulatory system is the cost-benefit analysis. In other words, the costs and benefits of various regulatory options should be accurately weighed, and the regulation ultimately selected should pose the least burden on society and provide the greatest net benefit.

While this is a great idea on paper, there is nevertheless great difficulty in quantifying certain costs and benefits. This problem is never more evident than in environmental regulations.

The nature of environmental issues makes calculating costs and benefits exceedingly difficult. Perhaps most obvious is that while many environmental objectives are only achievable in the long-term, the costs of environmental regulations are immediately felt. Choosing between short-term loss and future gain is generally a subjective process.

Furthermore, while quantifying the benefits of environmental regulation is often frustratingly complex, the costs of such regulations are easily measurable in unambiguous dollar amounts. For example, in attempting to justify its proposed regulations, the EPA sometimes presents regulatory benefits in terms of dubious figures. While no science can predict exactly how many fewer asthma deaths will result from a reduction in air pollution, enforcing emissions reductions on power plants creates a quantifiable impact in terms of lost jobs, paperwork burden hours, etc.

In addition, environmental regulations tend to be far-reaching and disruptive as a result of the sheer scale of environmental problems. Environmental issues are not limited to a single region, demographic, or industry. According to regulatory principles, regulations should ideally be tailored to impose the least burden on society. However, such a task is often a tall order when it comes to environmental regulations.

While the market will not self-adjust to address the “tragedy of the commons,” it is also apparent that direct regulation is simply too problematic and impractical to solve our environmental troubles. How does one compare the value of preserving the environment with the massive and immediate societal costs that environmental regulations incur?

Perhaps the answer lies not in attempting to quantify the unquantifiable, but in looking towards entirely different solutions. In Executive Order 12866, President Bill Clinton issued a directive stating that agencies should “identify and assess alternatives to direct regulation, including providing economic incentives to encourage the desired behavior, such as user fees or marketable permits…” More recently, President Obama wrote that we should create a “21st-century regulatory system” and seek “more affordable, less intrusive means to achieve the same ends.” Offering incentives to adopt green business models or market-based solutions such as carbon permits are a few examples of alternatives to more intrusive government intervention.

Arguably, guiding the market indirectly is preferable to throwing a wrench at market mechanisms and implementing invasive regulations. Until we can definitively put a price on conservation, perhaps there is no other choice.