coalition for
regulatory innovation

October 18, 2018

Cost-Benefit Analysis Series: Best Practices

The Environmental Protection Agency (EPA) is currently engaged in a landmark effort to reorient the agency’s approach to rulemaking. EPA has long come under fire for what many stakeholders saw as an opaque, inconsistent, and unaccountable process that was frequently manipulated for political outcomes. Since regulations impose real costs on American families and job creators, it’s critical that new rules are created using the highest standards of accountability, transparency, and scientific integrity.

Now, the EPA is taking an overdue look at their process, particularly how it calculates costs and benefits during rulemaking—a process that has real world implications for every American, especially family farmers and small business owners.

In June, the EPA asked industry groups, think tanks, and all Americans what they thought could be done better through an Advanced Notice of Proposed Rulemaking (ANPRM). The EPA will hopefully use this input to craft a new set of rules incorporating the best of what stakeholders had to say.

Though it’s not yet clear what the final EPA policy will look like, the Coalition for Regulatory Innovation has sifted through thousands of public comments to uncover a few basic and widely agreed-upon principles for improved cost benefit analysis.

The principles don’t necessarily reflect the opinion of CRI’s membership.  Rather it is a sample of the overarching best practices on which there is wide agreement among key stakeholders.

These principles are gleaned from comments from the people who feel the impacts of regulations most directly—farmers, manufactures, trade associations and small-business owners including the National Association of Manufacturers, American Petroleum Institute, and the American Farm Bureau Federation. These principles also draw on the work of the work of journalists, think tanks like the Brooking Institute, and academics.

  1. The science and metrics used in rulemaking should be transparent and publicly available. The public, industry and outside researchers should be able to analyze, vet, and replicate the studies and assumptions used to decide when benefits justify costs. Any methodology used to calculate costs and benefits should also be public to increase transparency and allow public participation and input. Further Reading: Brookings Institution, Comments of the National Association of Manufacturers
  1. Agencies should have consistent empirical standards for studies. Not all studies are created equal. Agencies should have consistent objective standards in place for what meets the definition of a rigorous high-quality study and rules in place to ensure that these studies are the ones informing policy. When possible, agencies should make use of the most recent solid empirical data available and evaluate that research through balanced peer review and advisory panels. Further Reading: Brookings Institution, American Farm Bureau Federation
  1. It is the agency’s responsibility to provide an honest and apolitical accounting of costs. If a rule has costs and benefits that will impact the whole economy, an agency should model the impacts of the rule on that whole economy, not just a part. If a rule is intended to provide benefits 30 years from now, cost calculations need to include the whole of that time frame. These rules should not apply across all programs but instead focus on specific regulatory authorities statutorily granted to the EPA. Further Reading: Comments of the National Association of Manufacturers, Comments of the American Petroleum Institute
  1. Double-counting and co-benefits should not be used to justify rules. Many existing rules do not have benefits exceeding their costs but were implemented anyways because agencies are allowed to count “co-benefits.” These are incidental benefits that are not the goal of the rule but a side-effect. The EPA frequently counts these benefits to make rules appear cost-effective even if the agency lacks the statutory power to regulate these other impacts. Double counting is the other side of that coin, allowing agencies to count the same benefit (a reduction in particulate matter, for instance) over and over again for different rules, justifying costs by naming a benefit that would have occurred regardless as a result of other rules. Further Reading: Comments of the National Association of Manufacturers, Comments of the American Petroleum Institute 
  1. Rulemaking should be an inclusive and accountable process. Stakeholders must have a seat at the table early in the process and the public needs to have a window into how these rules are made and who is making them. To maintain public trust in the process, conflicts of interest should be disclosed readily, comment periods should be sufficient for comprehensive public input and the rulemaking process should be transparent and accountable from start to finish. This extends to the review process, where the Office of Information and Regulatory Affairs (OIRA) must have the authority and time to fully review the economic impacts of a rule before it is implemented, rather than during or after when companies have already invested in compliance. Further Reading: American Farm Bureau Federation, Comments of the National Association of Manufacturers, Comments of the American Petroleum Institute