Both our economy and population require a healthy environment in order to prosper. Environmental regulations are put in place to help ensure the proper management of shared resources such as land, air, water, ecosystems and natural resources, providing a benefit to all. They also ensure our economy can continue to grow through access to natural resources and a healthy workforce. However, those subject to the regulations face private costs of compliance associated with changing their behaviour.
Key Messages
There has been a persistent argument against environmental regulations on the basis that the compliance costs to regulated firms and industries are too high; however, mounting evidence shows that the cost of complying with environmental regulations are often overestimated. Estimates of anticipated costs made prior to the regulation’s implementation are more often than not much greater – at least double, often as much as 10 times greater (or more).
Economic activity requires a healthy environment and well-managed natural resources. Environmental regulations are one tool that can help limit the detrimental impacts of our activities on our environment and the ecosystems it contains, ensuring our future health, wellbeing and prosperity.
Four case studies provide evidence of how compliance costs of individual regulations have been overestimated: Three American examples (The Clean Air Act, the Acid Rain program and The Montreal Protocol) and one Canadian example (the Sulphur in Gasoline Regulations.) In all cases, there is evidence that the costs of complying with environmental regulations were overestimated.
This analysis underscores the importance of making best efforts to estimate compliance costs in advance of regulation and argues for better ex-post analysis of actual compliance costs. There is very limited analysis of the compliance costs of Canadian environmental regulations available, meaning such efforts would be particularly important for Canadian policy makers and regulators.
