Federal climate regulations have imposed higher costs than benefits, with heavy reliance on co-benefits making them an inefficient policy tool.
Last month, EPA Administrator Lee Zeldin announced a proposed rule to overturn the 2009 endangerment finding. The finding, which declared greenhouse gases a threat to public health and welfare, provided the legal backbone for the federal government to regulate carbon dioxide from cars, trucks, power plants, manufacturing facilities, and more.
Much of the discourse following Zeldin’s proposed repeal has been about whether the agency’s actions will pass legal muster. An equally important question is whether the federal government’s regulation of greenhouse gases (GHGs) over the last decade and a half has been an effective climate policy. Our recent research tells us the answer is no.
A Closer Look at Climate Regulations
In a new technical working paper, we analyzed federal climate regulations in the power, transportation, and industrial sectors. We used the government-produced official estimates of costs and benefits for each regulation to measure its cost-effectiveness to avoid any bias.
While there is significant variation in the cost-effectiveness of these climate regulations, the broad takeaway is that regulations are suboptimal climate policy. The overall findings can be summarized by saying that even though regulators are careful to ensure benefits exceed costs, the methodologies they employ rely heavily on their future theorized benefits to justify ever-increasing costs to consumers.
This comes as little shock to the few of us who comb through federal climate regulations, but it may be surprising to those who have generally trusted regulators without checking their math. Our research also helps to explain the rising popularity of President Donald Trump’s deregulatory agenda; people are feeling the costs without seeing the benefits. This is especially true in the context of the $1.8 trillion of regulatory costs approved under the Biden administration.
But, while regulators are supposed to scrutinize the costs of their policies, our research has found that they may be significantly underestimating the burdens they impose by failing to consider downstream economic impacts. For example, regulators may estimate the increased direct costs a rule imposes on the electric power sector and electricity prices. Still, they may not include the total economic costs that come from pricier energy, leaving consumers with less money to spend while increasing production costs.
Lessons From The Clean Power Plan
The US Energy Information Administration (EIA) provided a glimpse of what this looks like. In 2016, following the US Supreme Court’s stay of the Obama Administration’s Clean Power Plan (CPP), the EIA modeled two scenarios in its 2016 Annual Energy Outlook: one with CPP in place and one without.
When looking at the EIA’s figures of the rule’s economic impact over 20 years, the total lost economic output resulting from the CPP would have been $861 billion (2024 dollars). Annualizing that value results in a cost of $43.05 billion, which was nearly four times the Environmental Protection Agency’s (EPA) estimate of $11.66 billion (2024 dollars).
Further relying on the EIA’s estimated effects of the CPP on emissions, we find that a more holistic econometric analysis indicates Americans are paying higher costs to reduce CO2 than regulators claim. In our paper, we note that the EPA’s analysis said the CPP would reduce 4.7 billion metric tons, producing an abatement cost of $30.97 per ton. Using the EIA’s figures, though, the abatement costs more than quadruple to $127.77 per ton.
Even without considering economy-wide impacts, many federal climate regulations were not a good deal for the economy or the planet. This is particularly true in the transportation sector, where the average abatement cost of these regulations is $467.02 per metric ton.
In nearly all major transportation climate regulations we assessed (9 of 11), the abatement cost per ton was more than the social cost of carbon (SCC) that was used when the rules were promulgated. The SCC is the government-calculated monetary harm imposed by emitting one ton of CO2 into the atmosphere. While there is substantial debate as to how the figure is calculated and whether it should be used in regulatory rulemaking, the fact that most of the regulations had abatement costs that exceeded the SCC demonstrates that the burdens of the regulations were likely to exceed any climate benefit.
The Problem of Co-Benefits
But how does a climate regulation with more cost than climate benefit get on the books in the first place? The answer is a heavy reliance on co-benefits, and especially on estimated energy savings to consumers. While the inclusion of co-benefits is standard, a heavy reliance on them tips the scales in favor of justifying ever-increasing regulatory costs. This is especially problematic, though, when regulators are making broad, tenuous assumptions about the future to justify immediate burdens to the economy. For example, the 2010 Corporate Average Fuel Economy regulations, which justified more expensive fuel-efficient cars based on gasoline savings, assumed that over the lifetime of regulated vehicles the average US gasoline price would be $5.67/gallon (2024 dollars)—but updating this figure with the most recent data produces an estimated fuel cost of $3.13/gallon, or 45 percent lower.
There are other instances where regulators confidently claim uncertain benefits. For climate rules that would force more electric vehicles (EVs) on the market, regulators argued that the rule would reduce technology and operating costs and that consumers lacked the knowledge to choose for themselves which vehicles were the most cost-effective. The reality is that in cases where it is more cost-effective for consumers to buy and own EVs, they do so without regulation, meaning regulators are claiming benefits they’re not responsible for, even if they do materialize. And this wasn’t the only time—similar logic was used in the 2024 power plant regulations, which justified carbon capture requirements on the assertion that the regulation could more effectively steer capital in a way that would reduce technology costs, but this is contrary to basic economic concepts since we know the mandates of the regulation will raise demand and thus increase costs.
Inefficient Climate Policy
But the ones who have the most to complain about are proponents of effective climate policy themselves. Instead of putting in the legwork to build a durable climate policy, both the Biden and Obama administrations relied heavily on climate regulations. Not only are these regulations easily rolled back, but a more sober examination of their claimed costs and benefits leads us to conclude that these climate regulations were highly inefficient.
The endangerment finding was put in place to protect public health and social welfare. Based on analysis of the government’s data, the subsequent regulations have failed to accomplish this objective and, in most instances, have imposed more social harm than good.
The Bottom Line
There has been too little scrutiny of regulators’ claims of costs and benefits, and our findings show that even if they were right, these policies would at best be inefficient. But there is far more reason to think they are wrong. Trusting Washington bureaucrats to make good policy based on what they think the world will look like decades in the future is a recipe for bad economic outcomes and overpromised environmental benefits.
About the Author: Nick Loris and Phillip Rossetti
Nick Loris is the Executive Vice President of Policy at C3 Solutions. Loris studies and writes on topics related to energy and climate policies, including natural resource extraction, energy subsidies, nuclear energy, renewable power, energy efficiency, as well as the ways in which markets will improve the environment, reduce emissions, and better adapt to a changing climate.
Philip Rossetti is a resident senior fellow with the R Street Institute’s energy and environment team.
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