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In California and the rest of the United States, there is an ongoing debate about the effects of air quality regulations on business costs and business location decisions. Some industry representatives have expressed the view that environmental regulations affect the cost of production of goods and services to the point of significantly reducing California's competitiveness. Reduced competitive-ness would tend to drive firms to move out of the state or discourage them from expanding here. In 1990, the California (and national) economy went into a severe recession; during the 1990-1993 period California suffered significant losses in incomes and jobs. The Air Resources Board funded this study to analyze the effect air quality regulations may have had on the economic downturn and on business relocations. |
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The investigators analyzed recent California business climate studies, academic literature on business location decisions, U.S. Department of Commerce and South Coast Air Quality Management District air pollution control cost data, and trends in economic growth and business relocations in California since 1990 to determine whether evidence on industry job trends supports claims that air quality regulations contributed significantly to "business flight" and poor business climate during the recession. In addition, they conducted a survey of firms subject to air quality regulations in California to determine costs of compliance and the impacts of air quality regulations on the operations of firms with various characteristics. |
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Air quality regulations were found not to create significantly higher costs for California businesses compared to those in other states. At the national level, industries' air pollution control expenditures amount to 0.26 percent of revenues; the corresponding figure for California industries is 0.29 percent. Moreover, in the South Coast area, one-half to two-thirds of the total estimated expenditures on compliance occurs in two industries: electric utilities and petroleum products. Together the two industries account for fewer than 1% of that region's job base. California job losses during the 1990-93 economic recession were caused primarily by industry trends largely unaffected by air pollution regulations -- specifically construction overbuilding and a sharp dropoff in civilian and military aerospace demand -- and a decline in real spending far beyond the decline in real income. Business relocations were not a significant factor in explaining California's job losses.
Location decisionmaking is quite complex in practice. Business climate studies show that many factors affect California business location decisions. These include workers compensation insurance costs, state business taxes, health insurance costs, liability laws, local fees and taxes, the cost of housing, the cost of labor, toxics regulation, air pollution controls, building rents, transportation concerns, and the water supply. In the studies analyzed and in the survey conducted for this study, air quality regulations were not cited as one of the two or three significant causes of the relocations that did occur during the period studied. In addition, most of the survey respondents were unable to quantify specific costs of complying with air quality regulations.
Perhaps the most important finding that emerged from the survey is that costs themselves are not the primary cause of complaints about "burdensome regulations". The investigators found that, instead, the process of getting information about regulations and obtaining permits to construct and to operate new facilities is viewed as unnecessarily complex, slow, and, sometimes, costly. The California Environmental Protection Agency and many local air districts have already acted on these findings. "Regulatory reform" at State and local levels has simplified and accelerated the permitting process, especially for smaller businesses. |
