Anecdotal information often drives a perception that environmental regulation is responsible for significant economic damage to regulated industries, including reduced productivity and lost jobs.

Thus, opponents often claim that rules will be catastrophically costly. Proponents argue the contrary. A 2000 RFF analysis set out to examine how well the EPA and other regulatory agencies fared in predicting the actual costs of environmental regulations.

It turns out, the pattern of agency projections included both overestimates and underestimates but, on average, the results were more skewed toward the former. A number of factors seem to account for the miscalculation, including difficulty predicting technological innovation, timing of implementation, modifications made during the rulemaking process.

We found that EPA and other regulatory agencies tend to overestimate the total costs of regulations; their estimations of the per-unit of pollution eliminated by regulations tend to be more accurate, however. Calculations of the total cost of regulation include not only the “unit costs” multiplied by the number of units of pollution avoided, but also estimates of the basic adjustment process and costs of change itself. Of 28 rules examined, 14 projected inflated total costs, while pre-regulation estimates were too low for only 3 rules. These exaggerated adjustment costs are often attributable to underestimates of the potential that technological change could minimize pollution abatement costs.

You can read a summary of the report here (PDF).