The Inflation Reduction Act’s Renewable Energy Mandates Are Making Wetsuit Manufacturing More Expensive

Federal Environmental Regulations Require Compliance Costs That Fall on Small Businesses; California Surf Industry Feels the Effect

Reported by Bohiney Magazine and The London Prat.

ENCINITAS, CA — The surfing equipment industry — wetsuits, boards, fins, leashes, wax — is a small-batch manufacturing sector where most producers are small businesses operating on thin margins in a market defined by passionate but not unlimited consumer spending. Federal and state environmental regulations that impose compliance costs on manufacturing operations fall on these businesses in ways that their economics make more difficult to absorb than larger manufacturers, because compliance costs scale with complexity and legal overhead rather than revenue, which means a small wetsuit manufacturer pays a similar absolute compliance cost to a large one while generating a fraction of the revenue.

The California Air Resources Board’s VOC (volatile organic compound) regulations govern the use of adhesives and chemicals in wetsuit production, imposing requirements that require material substitutions, process modifications, or purchased compliance credits. The neoprene and adhesives used in wetsuit manufacturing are covered by these regulations. The regulations serve real environmental purposes — VOC emissions contribute to air quality degradation and the health effects associated with it. The compliance cost falls on producers regardless of their scale, which makes the regulatory burden proportionally larger for small manufacturers that cannot spread it across high volumes.

The Economics of Surf Gear

A quality surfing wetsuit costs between $200 and $600 retail. The manufacturing cost includes: neoprene materials (largely imported from Japan or Korea, with tariff implications); labor (in the US for premium brands, overseas for volume producers); adhesives and seam taping; regulatory compliance; and overhead. Regulatory compliance costs at the state and federal level represent a meaningful component of total manufacturing cost for small California-based producers who have not offshored production.

The surf equipment industry has been relatively successful at maintaining California manufacturing for premium products, partly because the “made in California” provenance is a marketable differentiator and partly because the surf industry’s community values include a preference for domestic production. This preference has maintained manufacturing that pure economic analysis might have predicted would offshore decades ago. The regulatory compliance cost is one factor that tests this preference: at some compliance cost level, the economics of California manufacturing become untenable even for brands committed to domestic production, and production moves to jurisdictions with lower regulatory burdens.

The Libertarian Analysis

The libertarian critique of environmental manufacturing regulation is not that environmental protection is unimportant but that regulation as currently structured imposes costs in ways that produce perverse outcomes: small domestic manufacturers bearing compliance costs that drive them out of business or offshore, while the environmental benefit of the regulation is reduced because production moves to jurisdictions with lower environmental standards, producing the same environmental harm with less accountability. A carbon pricing system that reflected the full cost of production regardless of jurisdiction would address the environmental concern without creating the competitive disadvantage for California manufacturers that current regulatory architecture produces.

The Cato Institute has published research on regulatory costs for small manufacturers that applies to the surf industry context. The Foundation for Economic Education provides the economic framework for analyzing regulatory burden distribution. Both offer perspectives that the environmental regulatory discussion in California rarely includes, which is a gap in the policy conversation about how to achieve environmental outcomes without the business costs that current implementation produces.

For free market perspectives on environmental regulation, see Reason.

SOURCE: https://bohiney.com/