The latest example of big brother schemes brewing in Washington this year is the proposal of the Environmental Protection Agency (EPA) to significantly restrict solid particulate emissions from wood burning stoves. The Census Bureau estimated that 2.4 million U.S. homes use wood as a primary source for heating their homes. The EPA is proposing that manufacturers be required to reduce solid particulate matter emissions by any wood burning stove from the current level of 7.5 grams per hour to 4.5 grams per hour by 2015, and further reductions to 1.3 grams per hour by 2019 (see Table 3).
We should not be surprised that this proposal has the earmarks of inefficient bureaucratic design. When the potential cost savings from an efficient policy design are spread out across millions of taxpayers, there are too few concentrated benefits for anyone to justify the costs of lobbying for efficient regulations. Yet, when restricting individual liberties creates plenty of concentrated benefits for a relative few, this potential bounty justifies intense lobbying — especially when the probability of success is boosted by dispersing the costs of such inefficiency across millions of taxpayers. As my economist father always said, “Efficiency has no constituency in Washington.”
The inefficiency of this proposal is revealed in how the EPA calculates the health benefits and compliance costs of these new standards over the next eight years. They estimate that health benefits will range from $1.8 billion to $4.2 billion (see Table 8). This compares to their estimated cost of $15.7 million resulting from compliance by the manufactures — most of which will likely be passed on to consumers. Assuming the methodology is sound, this appears to be a good overall cost-benefit ratio.
However, this proposed regulation would be applied equally to all areas of the U.S. This typical government “one size fits all” approach to regulation ignores the basic economic principle of creating the biggest bang for the buck across all the different areas to be regulated. In other words, uniform regulatory enforcement fails to apply stronger emissions restrictions where the solid particulate pollution is heaviest (and the benefits of compliance would be highest), and fails to apply weaker emissions restrictions where alternative sources of heating fuel are much more scarce and expensive (and the costs of compliance would be highest). This approach could attain the same emissions reduction at lower total regulatory cost.
Further, making renewable energy heating sources like wood more expensive simply increases consumer demand for heating using finite fossil fuels like oil and coal, each with their own highly criticized emissions. It turns out the EPA intentionally omits this economic impact in their cost estimates, stating, “We have not determined the potential for consumers to choose other types of fuels and their associated appliances if the consumer costs of wood-fueled appliances increase and at what level that increase would drive consumer choice.” (See Section IV, subsection E.) This means the real cost-benefit ratio may be much less favorable.