Regulating Mercury: What's At Stake? Ted Gayer and Robert Hahn. March 2005.

This week, the Environmental Protection Agency is coming out with a new rule, some would say long overdue, regulating mercury emissions from power plants. The rule will be released more than four years after departing Clintonites left the Bush folks a mandate to regulate mercury in response to a court ordered deadline.

Former Clinton EPA Administrator Carol Browner declared that “mercury is one of the most potent health threats in the environment, posing particular risks to children and developing fetuses.” Supporting that view, an agency analyst suggested that 630,000 babies born each year might have been exposed as fetuses to unsafe mercury levels.

Well, the babies “might” be at risk, but then again, they might not. Dig a little deeper and you find that the 630,000 number appears to be based on faulty logic. When you do the calculation right, you get about 300,000 cases—less than half, but still sizable.

But that number is based on a reference dose for mercury that overstates the size of the problem. The EPA estimated a reasonably safe dose, lowered the dose by taking what statisticians call a 95% confidence limit, and then divided by 10 for good measure.  It is simply misleading to suggest 300,000 babies will be harmed each year by mercury exposure, though they might be.

Whatever the number is, it still begs a key question. Is the rule that EPA is going to issue actually worth it?

The best way to answer this question is to tote up the benefits and costs of the rule and compare them. The EPA was supposed to go through a serious cost-benefit exercise when it issued its proposed rule, but it punted instead.

In response to this void, we did our own cost-benefit analysis. We started with the two alternatives that EPA had on the table. One called for a 30% reduction in mercury emissions by 2008 using command-and-control regulation–where utilities do exactly what they’re told to by the government.

A second was a cap-and-trade program modeled on the highly successful market-based approach for reducing acid rain, pioneered by the first President Bush. It puts a cap on mercury emissions, but lets firms sort out the least costly way to achieve those emission reductions. In the case of acid rain, the market-based approach was estimated to have saved billions of dollars compared to the command-and-control alternative.

The environmental and economic success of the acid rain trading program helps explain why EPA is expected to choose the cap-and-trade option in its final mercury rule. That option appears to cost about $10 billion less than the command-and-control approach while achieving roughly the same environmental outcome.

But is the cap-and-trade program really worth it? We estimate the costs of cap and trade will be somewhere in the neighborhood of $4 billion based on existing models. There is a lot of uncertainty in these estimates because some of the technologies needed to reduce mercury emissions are not commercially proven.

What about the benefits of reducing mercury emissions? To compute the benefits, we need to identify them. In its preliminary analysis EPA identified particulate matter as a benefit. The current rule will do nothing to reduce particulate matter because there are other rules that put caps on the primary pollutants that cause particulate pollution, so scratch that benefit.

The main possible benefit from reducing mercury emissions from power plants is an increase in IQ. But the chain of reasoning that takes us from power plant reductions to IQ increases is uncertain. The basic idea is that reduced mercury emissions will reduce mercury in waterways, which will reduce mercury in fish, which will reduce mercury in pregnant mothers who eat fish, which will make newborns smarter. And these additional smarts are worth something to the newborn and society.

Being brazen, we tried to put numbers on all this stuff, recognizing there are major potential weaknesses in most links in the chain. We find a couple of points worth noting. First, shutting down all domestic coal-fired power plants would reduce U.S. mercury deposition by less than 20%, which is not likely to make a big dent in the problem. Second, if all power plant mercury emissions in the U.S. were eliminated, we reckon IQ points of newborns could go up by about .01 points, which is tiny by almost any measure.

When we try to monetize that benefit, we get numbers on the order of $100 million. And these numbers assume there is a strong link between mercury consumption and IQ—an issue that has not been resolved in the scientific community. 

While it is possible we left some key benefits out of the equation, like less heart disease, it is unlikely that we left so many out that the scales would tip the other way—at least based on what we know now. The bottom line is that $100 million in benefits is a lot less than $4 billion in costs, so regulating mercury doesn’t look like a good idea.

We take away three lessons from this exercise. First, when the benefits of a policy intervention are likely to be small, the probability of making things worse should be carefully considered prior to regulating. For example, a 2003 Harvard study revealed that woman of child-bearing age are eating less fish because of government warnings about mercury.

Second, if an administration wants to promote accountability and transparency in the policy process, it should require agencies to estimate key impacts of a regulation before that regulation is finalized—so interested parties can comment. The Bush administration failed to do so in this case, though its general record has been good in comparison with previous administrations.

Third, citizens may not want a government or regulatory apparatus that focuses on making the most efficient use of society’s limited resources. Nonetheless, when the resource inefficiencies are so great, we think it behooves our elected officials, as well as voters, to understand the implications of their decisions. Spending several billion dollars on regulation that yields few social benefits means that we have several billion dollars less to spend on other things that could do a lot more good.

Ted Gayer is associate professor of public policy at Georgetown University and a visiting scholar at the American Enterprise Institute. Robert Hahn is co-founder and executive director of the AEI-Brookings Joint Center for Regulatory Studies, and a resident scholar at AEI.