The Hidden Costs of Environmental Regulations


The Hidden Costs of Environmental Regulations

When looking for ways to protect the environment and crucial wildlife habitats, we would do well to take a closer look at the total, true costs of such regulation.

Environmental regulation is often portrayed as all good, no bad. After all, it draws on widespread public support for laws intended to give us clean air and water, help protect wildlife and preserve open space.

In reality, however, environmental regulation often fails to protect those things while also imposing substantial economic, social and even environmental costs.

One example of this occurs when the federal government designates “critical habitat” for endangered species, which has been done in California. In 2007, for example, the U.S. Fish and Wildlife Service designated 197,000 acres in Los Angeles, Orange, San Bernardino, San Diego and Ventura counties as “critical habitat” for the coastal California gnatcatcher, a small bird. The agency estimated the cost of designation would be $640 million over 23 years.

Yet according to David Sunding, professor of agricultural and resource economics at the University of California-Berkeley, the Fish and Wildlife Service’s estimate relies on a “simplistic and discredited method,” and the true costs of designating this critical habitat are actually four to five times greater, totaling between $2.6 to $3.2 billion.

Similarly, in 2005, Fish and Wildlife Service designated over 850,000 acres in Central and Southern California as critical habitat for 15 species that live in vernal pools, temporary wetlands that appear when it rains. The government estimated this designation would cost approximately $250 million over 20 years.

Again, this was a massive underestimate. Sunding and his UC Berkeley colleagues estimated the actual costs of designating this critical habitat was seven to 14 times higher, or as much as $3.5 billion.

The huge economic costs of designating critical habitat have a couple significant effects for individuals and families.

The complex process can make the home-buying process much more expensive by making the building process much longer, by driving up the costs of the land and housing and by reducing the number of homes available.

Trying to build housing near critical habitats becomes more difficult and more expensive, especially for lower income families.

“Taking housing as an example, an increase in the price of housing that results from CHD [critical habitat designation] implies that those with the lowest willingness to pay for housing, including those with the lowest incomes, will be priced out of the market and forced to locate in alternative areas,” Sunding writes.

The research also concludes that developers will likely “reduce the output of lower-end units” in response to critical habitat designations, which “can increase the average quality (and price) of new homes.”

The “economic impacts of critical habitat designations are borne disproportionately by consumers, particularly those on the lowest end of the housing affordability spectrum,” according to the study by Sunding and his colleagues.

Unfortunately, these critical habitat designations and the Endangered Species Act also appear to be contributing to urban sprawl, which has been identified as a major threat to wildlife by environmental groups. If you’re looking to build housing or a shopping mall, for example, avoiding critical habitat areas can significantly lower the costs of the project. It may also push the development further away from downtown or urban areas, contributing to the very same sprawl that many environmental groups would like to stop.

When looking for ways to protect the environment and crucial wildlife habitats, we would do well to take a closer look at the total, true costs of such regulation. It’s likely that there are alternatives that would better protect the environment and wildlife while also being less harmful to families, especially low-income families who already have a difficult time in Southern California’s expensive housing market.

Brian Seasholes is an environmental policy analyst at Reason Foundation.