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Co-Benefits and Regulatory Impact Analysis: Theory and Evidence from Federal Air Quality Regulations

Joseph E. Aldy, Matthew Kotchen, Mary F. Evans, Meredith Fowlie, Arik Levinson, Karen Palmer


This chapter is a preliminary draft unless otherwise noted. It may not have been subjected to the formal review process of the NBER. This page will be updated as the chapter is revised.

Chapter in forthcoming NBER book Environmental and Energy Policy and the Economy, volume 2, Matthew Kotchen, James H. Stock, and Catherine Wolfram, editors
Conference held 2020-05-21
Forthcoming from University of Chicago Press
in NBER Book Series Environmental and Energy Policy and the Economy

This paper considers the treatment of co-benefits in benefit-cost analysis of federal air quality regulations. Using a comprehensive data set on all major Clean Air Act rules issued by the Environmental Protection Agency over the period 1997-2019, we show that (1) co-benefits make up a significant share of the monetized benefits; (2) among the categories of co-benefits, those associated with reductions in fine particulate matter are the most significant; and (3) co-benefits have been pivotal to the quantified net benefit calculation in nearly half of cases. Motivated by these trends, we develop a simple conceptual framework that illustrates a critical point: co-benefits are simply a semantic category of benefits that should be included in benefit-cost analyses. We also address common concerns about whether the inclusion of co-benefits is problematic because of alternative regulatory approaches that may be more cost-effective and the possibility for double counting.

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