Don't Blame Regulations

Nov. 5, 2012
Environmental and safety mandates don't harm U.S. economic growth.

Unless you've been on a remote tropical island in the South Pacific you've heard that regulations are why jobs are moving out of over-regulated states and even fleeing America. That's bunk, I say. The Massachusetts Institute of Technology a while ago published an article titled "The Economic Impact of Environmental Regulation" by Stephen M. Meyer (available online at http://web.mit.edu/polisci/mpepp/Reports/Econ%20Impact%20Enviro%20Reg.pdf) that shows there's no correlation between jobs and the toughness of environmental regulation. One of the interesting conclusions of the study is "the overall odds are better than 15:1 against the proposition that environmental regulation hurt state economic growth during this period (1982-1989)." Concerning the suggestion that excessive regulation hurts most during a recession, the author had this to say, "The odds that environmentalism is negatively associated with annual growth in gross state product during the recession are about 3 to 1."
So, put aside any lingering thoughts that environmental regulations significantly affect economic growth.

What about safety mandates? Complying with safety regulations, though a pain, has in fact led to fewer deaths from cancer and accidents, less friction between communities and chemical plants, and lower insurance premiums. When I worked at Archer Daniels Midland (ADM) I was surprised to find the firm had cut its insurance premiums to a third in 10 years. In Decatur, Ill., where the company is headquartered, ADM had been known as "Another Dead Man." At one time, the firm averaged one death per year! Now, safety training is a point of pride inside the doors of the company.

This points up a benefit of compliance with regulations: corporate image. BP has spent over $3 billion so far for the 2010 spill in the Gulf of Mexico. However, this cost is minor compared to what BP will pay in additional scrutiny and loss of credibility.

Consider Johns Manville, once a manufacturer of asbestos insulation. It long fought to hide evidence accumulated since the 1920s about the detrimental health effects of asbestos. The firm declared bankruptcy in 1982 after losing several class-action lawsuits involving asbestosis. Though it survived, the company still is known for its connection with asbestos. This is not a legacy any firm would want in its corporate brochure.

Society benefits substantially when a culture of respect for regulations exists. If regulations are unambiguous, and punishment is swift and certain, engineers waste less time strategizing over meeting regulations and grappling with the desires of production units to avoid them. Once, I was instructed to ignore a missing conservation vent on a tank containing gasoline. The pipeline company didn't want to bother with one and felt no risk in not meeting API 2000. It's a guideline, I was told. So, I had my subordinate, who was writing the engineering report, include a carefully worded paragraph stating we were meeting the client's standards. Hopefully, this takes us off the hook. We advised the client of the standards. We can't enforce compliance. This is a typical dilemma in the consulting world.

Part of the problem with environmental and safety regulations is you need a lawyer to understand them. Either purposely or by blind stupidity, regulators make interpreting their rules difficult. This is especially true outside of the chemical plant or refinery. Engineers working on pipelines waste hundreds of hours a year divining which government agency has control: OSHA, EPA, DOT, the state fire marshal or the Coast Guard. Generally, the strictest rule applies. Getting a handle on exactly what compliance is required takes time better spent ensuring good engineering practice. For instance, at too many sites, safety departments let different units use different standards.

Lastly, I would be remiss in not mentioning the value of environmental regulations about carbon in promoting efficiency. Take General Electric's Evolution series of diesel locomotives (see: www.ge.com/products_services/rail.html). Built in Erie, Pa., these engines are hot sellers throughout the world and turn a tidy profit for GE. They were designed to meet the EPA's 2005 locomotive standards. Those standards were a very smart example of encouraging industry to meet the needs of society. Who said compliance is a financial drain? In my opinion, the EPA only has begun the scratch the surface in how it could promote energy efficiency and reduce emissions.

DIRK WILLARD is a Chemical Processing Contributing Editor. You can e-mail him at [email protected].

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