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Costs & Benefits of Environmental Regulation

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  • 0:01 Environmental Regulation
  • 1:03 Environmental Regulation Costs
  • 2:29 Benefits of…
  • 4:15 Lesson Summary
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Lesson Transcript
Instructor: Jennifer Lombardo
Environmental regulation provides protection to society regarding environmental hazards. Economists continue to debate the costs and benefits of regulation on businesses. This lesson we will examine both some added costs and benefits of regulation and their impact.

Environmental Regulation

Can you imagine waking up to a world with no environmental regulation? Before December 2, 1970, the Environmental Protection Agency (or EPA) did not exist and our country was dealing with serious environmental issues such as polluted water, horrendous smog-filled air, toxic waste piled high, and businesses running wild with destructive behavior. This apocalyptic-looking world was the result of unregulated environmental actions.

Fortunately, the EPA facilitated environmental regulation, or a form of government intervention in the business world to reduce or eliminate environmental hazards against individuals and the world. There still is a constant debate between companies, societies, and economists regarding whether environmental regulation brings forth costs or benefits to the overall world. In this lesson, we will assess the costs and benefits of environmental regulation for a well-known hotel chain called Saucy Hotels.

Environmental Regulation Costs

One of the major negatives of environmental regulation facing Saucy is the overall financial cost. Saucy has to spend an enormous amount of their money on upgrading and improving their company's operations in order to follow regulation. In addition, the company has to constantly upgrade facilities, products, and operations due to new laws. Lastly, Saucy was hit with large financial fines for not adhering to a regulation just last year.

For example, a tax increase in gas to promote the use of alternative wind energy hurt Saucy's bottom line. The company did not have the ability at the time to use alternative energy sources, so they had to pay a higher amount for gas and in addition was levied a fine for not developing other energy sources for their hotels. In order to stay afloat, the added expense was passed on to their customers with higher hotel prices. This is another costly result of environmental regulation. The added expenses of companies following regulation requirements result in higher prices for products and services.

Saucy also feels that the environmental regulatory costs have limited their competitiveness in the global arena. Regulation adds an increase in costs that hurts Saucy's overall profitability. This results in having a more difficult time being competitive worldwide.

The Benefits of Environmental Regulation

As mentioned in the introduction, there were many costs to the environment when regulation did not exist. There are persuasive benefits to using environmental regulation within the business world. The first benefit is the protection of the environment. Saucy depends on tourists traveling the world and needing a place to stay for their vacation. If the world is a cesspool, there will not be any tourists visiting. In addition, the protection of the environment overall benefits Saucy and society as it provides a healthy, livable, safe, and beautiful world to live.

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