Low-Energy Fridays: How do regulators value life?
It’s a morbid thing to consider, but policy changes—especially around energy and the environment—may result in more (or fewer) deaths. Beyond the obvious social tragedy, death itself carries an economic impact. This means government economists must estimate the economic downsides of death along with the benefits of avoiding it. This naturally elicits considerable debate about the appropriate method for estimating the economic benefits of avoided death.
The Trump administration recently reopened the discussion with a surprising move. Taking an extreme position, the administration announced it will no longer estimate the value of avoided mortality—effectively pegging it at zero dollars. Given that a considerable amount of energy and environmental policies are predicated on the benefits of preserving life, this policy change could impact future regulations and economic estimates significantly.
From a philosophical perspective, all life has equal dignity—nobody’s job, age, beliefs, health, or social status makes them more or less worthy of life. Consequently, the government should preserve as much life as possible. However, a fundamental tension exists here because overbearing regulation can be antithetical to life. For example, one could argue that car accidents kill people so cars should be banned to preserve life. But a complete elimination of transportation would also be harmful—likely fatally so—in many other ways. Regulators therefore need a way to compare the burdens of regulation to the benefits to human life, and thus we have a metric called the “value of a statistical life” (VSL).
One common misunderstanding of the VSL is that it equals the economic loss associated with an individual death. Part of this confusion comes from the fact that, when first applied in the 1960s and 1970s, the VSL was calculated based on the prospective earnings of an individual (i.e., the economic output lost if that person dies). Now, the VSL is calculated as a representation of the willingness of an individual to pay to reduce mortality risk. As the Department of Transportation explains, “[W]hen an individual is willing to pay $1,000 to reduce the annual risk of death by one in 10,000, she is said to have a VSL of $10 million.”
The VSL is then multiplied by the number of lives saved (or lost) as an effect of policy in order to determine the economic outcome. As of 2024, the VSL was $13.7 million. Given that number, if a regulation is expected to prevent 1,000 deaths, then the economic benefit would be $13.7 billion (discounted to a present-day value). That value would then be weighed against the industry burden imposed by the regulation. Cheery stuff, right?
From a policy perspective, the Trump administration’s decision to no longer consider the VSL when crafting regulations effectively eliminates the benefits that regulators would estimate as a result of avoided mortality. This makes it harder to pass new regulations that are considered economically beneficial due to avoided mortality.
From an economic analysis perspective, there are problems with the VSL and its application. Even though economists generally agree that regulators need some way to estimate the economic benefits (or costs) of their policies as they relate to mortality, details of the calculation are rarely agreed upon. One major source of disagreement is that the VSL, as currently calculated, effectively attempts to conflate individual willingness to spend on safety with economic benefits. As an example of why this can be problematic, consider that an older person with more resources is willing to spend more on their safety than a reckless teenager might be, yet the teen’s future economic output is larger—leading to some issues with the VSL as a determinant of economic impacts. But as one regulatory expert and former Office of Information and Regulatory Affairs administrator noted in remarks on the Trump administration’s announcement, “On one hand, the administration does make some valid points that E.P.A. statements have implied a false precision in the past. On the other hand, the way to rectify that is not to stop quantifying the health effects altogether.”
Eliminating the VSL is likely to be problematic. Lives have economic value, and failure to consider that fact may lead courts to strike down the administration’s regulatory actions, thereby creating uncertainty for industry as to future regulatory requirements.
Importantly, part of the ire against the VSL likely comes from the fact that some economists have used it abusively to fit certain narratives. For example, the 2018 National Climate Assessment featured one of the most well-known studies about the economic effects of climate change on the United States. In its coverage of the report, The New York Times boldly took a chart from the study out of context, stating that climate change could lower gross domestic product by 10 percent.
The Times took a severe liberty with the study, which included an estimate closer to the 1 percent to 4 percent range. However, the study was flawed in its assumption that if Americans make a minimal effort to avoid mortality, then the number of potential lives lost from heat increases will result in lost economic output when multiplied by the VSL. This is incorrect because the VSL is not an economic measure—it’s a measure of how much individuals value life-saving interventions. Additionally, this sort of misapplication of the VSL fails to consider people’s natural tendencies toward self-preservation, leading to skewed notions of likely economic damages. For example, a novel study on the economic benefits of people not walking into traffic would have little policy relevance because it assumes an unrealistic level of irrationalism.
The VSL can be abused in the other direction, too. When the Trump administration withdrew fuel economy regulations for vehicles, it justified the move by noting that lighter, more fuel-efficient cars are more likely to be involved in fatal accidents than heavier ones. When the Biden administration restored fuel economy regulations, it estimated the increased economic cost from additional fatalities but weighed that cost against fuel savings to justify the intervention. This sort of application could abuse economic benefits to living individuals as justification for imposing perverse utilitarian regulations that actually increase mortality.
While it’s obviously not perfect, the VSL serves the important function of helping regulators determine when to mandate life-saving actions. It will be interesting to see how regulations formed under this new model fare in court because even if the VSL methodology is flawed, arguing that the value of human life should not be considered may result in the reinstatement of older guidance rather than a revision of it.