Economic Modeling of Environmental Policies

Beginning with the 1937 Federal Flood Control Act, which required the benefits of water resource projects to exceed the costs, environmental laws have required analyses of the actual impacts of existing programs and policies, as well as estimations of the expected future outcomes of the implementation of policy alternatives.

Today, policy initiatives proposed under federal environmental statutes -- such as the Clean Air Act, Clean Water Act, Resource Conservation and Recovery Act, Toxic Substances Control Act, and Safe Drinking Water Act -- are typically evaluated using benefit-cost analysis or a more limited economic impact analysis. These analyses seek to estimate the economic implications or impacts of the policies and programs, as well as the size and distribution of the social value of those impacts.

Analytical Methodologies

To facilitate these analyses, our economists develop models that capture the essential economic and environmental relationships, employing a variety of analytical methods:

  • Facility modeling
    Characterizing the essential economic and environmental features of regulated entities to estimate costs, output, profits, employment, facility closures, and pollution generation
  • Market/industry modeling
    Modeling the market-level response of regulated facilities to determine the impacts on market prices and quantities of affected goods and services, and on industry revenues, costs, profitability, and foreign trade
  • Financial modeling
    Developing financial models of companies to determine the cost of capital and impacts on income statements and balance sheets
  • Benefits modeling
    Modeling pollutant impacts on human morbidity and mortality, ecosystem performance, materials and structures, and aesthetic features of the environment
  • Social welfare estimation
    Estimating the implications of policies and programs using applied welfare economics methods
  • General equilibrium modeling
    Estimating the macroeconomic implications of policies using economic theory and empirical data. For more information, see the descriptions of selected economy-wide models