New Consumer Product Rules Fail the Test of Good Economics
By Loren Kaye
President of the California Foundation for Commerce and Education
Monday, October 8th, 2012
Here we go again. The Legislature passes a vague and open-ended law intended to reduce exposure to hazardous chemicals. A state regulator proposes rules without any consideration of economic impacts or less burdensome alternatives. And predictably the regulator has unleashed a firestorm of criticism over the scope and consequences of the new rule.
Allow me to help.
The rulemaking for the so-called California Safer Consumer Products regulation is being finalized later this week by the Department of Toxic Substances Control (DTSC). This rule would implement the so-called Green Chemistry legislation passed four years ago.
Trouble is, DTSC never adequately completed a fiscal and economic analysis to divulge the economic, jobs, competitiveness and budget impacts of their rule - as required by law. Instead, in their zeal to kickstart a sweeping new regulatory program, the Department ran roughshod over basic transparency and accountability principles.
The Department's cavalier treatment of their obligation was so egregious that 16 Democratic legislators wrote to the Governor asking that the regulations be delayed until a thorough economic analysis is completed.
Since DTSC hasn't corrected this omission, the California Foundation for Commerce and Education has stepped into the breach. (CFCE is a policy institute affiliated with the California Chamber of Commerce.)
We commissioned a well-regarded policy analysis firm, Andrew Chang & Company, to independently assess the impacts of that regulation.
Today, we are releasing their findings.
The study found that over the next 25 years the potential net costs to California businesses and consumers could reach $150 billion and could lead to more than 100,000 direct lost jobs at the peak of implementation. The study was based in part on a number of analyses of a similar - though less stringent - regulation recently adopted by the European Union.
They also found that the timing of costs and benefits realization is critically important to understanding the regulation. Costs are certain and front-loaded while the full benefits from reduced medical spending and increased productivity will not be fully realized until several decades later. Early and certain costs - nebulous benefits achieved only after many, many years.
Evidence of these tremendous new costs on business and consumers is vital for knowledge for regulators and senior officials in the Brown Administration, not to mention the public. Most important, this information can help regulators decide if their preferred approach is the best alternative to reasonably implement the law.
Instead, DTSC failed to meet its obligation and submitted a fiscal and economic analysis that did not begin to address the potential costs and impacts of this regulation. In fact, DTSC completely glossed over the potential effects of their regulation in its submission, handwriting that their analysis was "Preliminary" on their submission, and ignoring any impacts on jobs, housing, and industry competitiveness and costs
Rather than provide an analysis with the "potential for adverse impact on California business," DTSC merely provided a descriptive analysis of the most "optimistic" scenario without any discussion of risks and costs and ignored current and available literature that quantifies the costs of similar initiatives.
The lack of oversight and clarity does a disservice to all Californians. The analysis is more than just an academic exercise; a true fiscal and economic analysis must be complete and accurate to create the best regulatory program possible. Without this comprehensive analysis, we do not have the faith that DTSC developed the best solution for California. Rather than blindly press forward, DTSC should go back to the drawing board and meet its obligations under the current law.
A full copy of the report, "The Consumer Impact of California's Green Chemistry Initiative," is available here.
Follow Loren on Twitter at @KayeLoren.
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