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Product Abstract

The Direct and Indirect Costs of Regulatory Compliance

Product ID:1010567
Date Published:20-Feb-2006
Sector Name:Power Delivery & Utilization - Distribution & Utilization
Document Type:Technical Results
Price:No Charge

This Product is publicly available

   1.05 MB - Adobe PDF (.pdf)

Federal, state, and local environmental regulations require air pollution sources to comply with a vast array of emissions standards, technological mandates, and permit programs. Meeting these requirements is costly—often forcing companies to downsize, relocate, or shut down. By understanding the direct and indirect economic impacts of air quality regulations, the manufacturing industry can make a stronger case for the economic value of clean, electric transportation for regional economies.


The purpose of this study is to better understand the economic impacts of air quality regulations, particularly on the manufacturing industry. Once the impacts are understood, the challenge for industry is to have emissions reductions from electric transportation “count” as offsets for stationary sources. For example, a manufacturing facility that uses electric transportation in its mobile operations might be allowed to use its mobile emissions reductions to offset its stationary reduction requirements. Such flexible approaches to meeting compliance mandates could lead to greater investments, jobs, and growth in a region's manufacturing sector.


The project team evaluated direct and indirect costs of meeting air quality regulations. Direct costs relate to regulatory compliance, and the team examined data from the U.S. EPA, state implementation plans, empirical studies, and emissions trading markets to get a sense of these direct costs. Indirect costs affect the entire region and were explored through published case studies and a survey the team conducted of economic development and environmental regulatory offices around the country.


The report provides an overview of air quality and air quality regulation in the United States and reviews the theory and empirical literature on the economic impacts of environmental regulation, particularly on the manufacturing sector. Specifically, the document presents direct air quality compliance cost estimates and explores indirect, or regional, costs of air quality regulations. To help analysts quantify the direct and indirect economic impacts of air quality regulations in their specific regions, an analytical template and an example of its use are presented.

Application, Value and Use

This report makes an important contribution to developing the understanding, tools, and models the industry needs to quantify the negative economic impacts of air quality regulations. This, in turn, will provide key information for decision-makers who consider implementing electric transportation, including its costs and benefits. Electric transportation technologies tend to reduce key criteria pollutants, such as nitrogen oxides (NOx) and volatile organic compounds (VOCs), depending on the vehicles they displace. By offsetting emissions from the mobile sector, electric transportation provides emissions offsets for stationary sources. These offsets are very valuable to a region—not only do they reduce the direct costs to industry (for example, the costs of purchasing and installing an emissions control device on a smokestack), but they also reduce the much higher indirect economic costs to a region. Indirect costs include decreased productivity, declines in labor markets, reduced competitiveness with firms located in other regions, depressed wages, and plant closures and downsizing.

EPRI Perspective

Since environmental regulations have direct and indirect costs on regional economies, efforts to reduce air pollution in alternative ways imply regional economic benefits. For example, emissions reductions from using electric transportation technologies benefit local economies because they can offset emissions reductions that would normally be required from stationary sources, thereby alleviating stationary source compliance costs. Those reduced compliance costs impart both direct and indirect benefits. The specific value of these benefits will vary depending on the region; for example, non-attainment areas (areas identified by the U.S. Environmental Protection Agency, or EPA, as not meeting limits for one or more criteria pollutants) will have much to gain by implementing electric transportation.
2005 Program 18   Electric Transportation
  • Electric Transportation
  • Environmental regulations
  • Emissions offsets
  • Environmental economics

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