Air Resources Board Research Division Economic Studies Section

Economic Studies Section Why u “The Air Resources Board’s mission is to promote public health, welfare and ecological resources through the effective and efficient reduction of air pollutants while recognizing and considering the effects on the economy of the State” u Legislative mandates on research and economic impact analysis

Economic Studies Section Who Malcolm Dole, Manager ( , Microeconomics and public economics ARB Unit Reza Mahdavi ( , Financial & economic analyses, California economy, cost-effectiveness Joann Lu ( , Financial analysis, economic & financial data Fereidun Feizollahi ( , Research Czar Economic impact analysis, benefits Research Czar Agency-Wide Unit Ray Olsson ( , Econometrics, resource and agricultural economics Lorraine Egan Marsh ( , Mathematical and natural resource economics Vacant Position

Economic Studies Section What u Agency-Wide Unit u Economic impact analysis u Review of economic analyses u ARB Unit u Extramural Research u Economic and Financial Analyses

Economics Unit Cal/EPA Economic Analysis Program What are the economic impacts of proposed regulations?

Cal/EPA Economic Analysis Program Assess Impacts on Economic California Businesses and Individuals u Direct and Indirect Creation or elimination of California jobs and businesses u Competitiveness of California businesses with out-of-state firms u Evaluation of Alternatives Prior to Public Notice

Cal/EPA Economic Analysis Program Risks and Benefits u Compare with 3 similar past risk reductions and 3 from other environmental agencies u Identify and tabulate quantified summary of benefits (if possible) and costs u Proposed regulations similar to federal rules must show no conflicts or duplication, and its costs must be justified with benefits Major regulation: imposes costs greater than $10 million in any given year

Cal/EPA Economic Analysis Program Cost Evaluation of Alternatives Consider and evaluate submitted alternatives during notice period that are: u consistent with statutory mandates u within authority of agency to adopt, u enforceable, and technically feasible

Cal/EPA Economic Analysis Program Summary u Significant adverse economic impact? u No alternative is as effective, less burdensome u Tabulation of risks, benefits, costs u No submitted alternative is equally as effective, less costly u Differences with Federal rules justified

Economic Impact Analysis Example Control of VOCs from Consumer Products: Mid-Term Measures

Affected Businesses u Identify the consumer products subject to the regulation u Identify Standard Industrial Classifications (SICs) u Classify the products by SICs u Identify manufacturers or marketers

Study Approach u Select a representative sample of businesses u Estimate compliance cost for each business u Adjust estimated costs for federal and state taxes u Calculate ROE for each business before and after the regulation u Compare before and after ROEs for potential impacts on profitability u Consider a reduction of more than 10% as an adverse economic impact

Profitability Ratio Return on Equity (ROE) = Net Profit Owner’s Equity ROE = Net Profit x Sales x Assets Sales Assets Owner’s Equity Net Margin = Net Profit / Sales Assets Turnover = Sales / Assets Accounting Equation: Assets = Liabilities + Owner’s Equity

Estimating Profitability Using ROE SICIndustryROE (%) ROE ADJ. (%) Change (%) 2841Soap and Detergents Specialty Cleaners Toilet Preparations Paint Products Agricultural Chemicals Lubricating Oils/Greases

Potential Impact on Consumer u Short-term effect u Long-term effect u Product performance (quality)

Potential Impact on Employment u No significant impact u California employment in affected industries u California employment as compared to national employment in affected industries u California employment in affected industries compared to total manufacturing jobs in California

Potential Impact on Business Status Possible creation, elimination, or expansion: u No significant impact u Some small businesses may be affected due to lack of financial resources to reformulate

Potential Impact on Business Competitiveness u No significant impact on the ability of California businesses to compete with businesses in other states u Proposed regulation regulates products not business operations u California value of shipment per employee not significantly different from U.S. average u Some small business may be affected

Economic Studies Section Extramural Research Examples u Economic Value of Hospitalization Associated with Particulate and Ozone Air Pollution u Correlate air pollution related hospital admissions to air quality u Calculate hospital, doctor, medical costs u Survey patients and assess their willingness to pay to avoid hospital admission

Economic Studies Section Extramural Research Examples u Assessment of Emission Reduction From Spare the Air Program u Design surveys and sample of drivers u Telephone survey of trips on a normal day u Telephone survey immediately after a Spare- the-Air Day u Assess trip and emission reductions

Economic Studies Section Extramural Research Examples u A Model of California Economy For Large Scale Environmental Regulations u Computable General Equilibrium u equations of California economy u 30 industrial sectors u Emission intensities for each sector u Impacts on industries and individuals

Economic Studies Section Extramural Research Examples u A Model for Economic Valuation of Air Pollution Control Benefits u Emissions and air quality data u Population and exposure data u Physical Effects u Valuation of effects