Co-Benefits and Regulatory Impact Analysis: Theory and Evidence from Federal Air Quality Regulations
Indirect co-benefits play a significant role in determining the effectiveness of major Clean Air Act rules.
This paper considers the treatment of co-benefits in benefit-cost analysis of federal air quality regulations. Using a comprehensive dataset on all economically significant Clean Air Act rules issued by the EPA over the period 1997-2019, we show that (1) co-benefits make up a significant share of the monetized benefits; (2) among the categories of co-benefits, those associated with reductions in fine PM are the most significant; and (3) co-benefits have been pivotal to the quantified net benefit calculation in nearly half of cases. Motivated by these trends, we develop a simple conceptual framework that illustrates a critical point: co-benefits are simply a semantic category of benefits that should be included in benefit-cost analyses. We also address common concerns about whether the inclusion of co-benefits is problematic because of alternative regulatory approaches that may be more cost-effective and the possibility for double counting.
- The inclusion of co-benefits has been critical in the majority of EPA analyses to determine whether a policy promotes economic efficiency.
- Co-benefits make up a significant share of the monetized benefits in EPA impact analyses from 1997–2019.
- Among the categories of co-benefits, those associated with reductions in health effects due to fine particulate matter are the most significant.
- Consideration of co-benefits should account for the prospect of double-counting benefits across regulations.
- Although targeting co-benefits themselves is possible in theory, it is not necessarily more efficient.
Joseph E. Aldy
Joe Aldy is a university fellow at RFF and professor of the practice of public policy at Harvard’s Kennedy School. His research focuses on climate change policy, energy policy, and mortality risk evaluation.
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