coalition for
regulatory innovation

August 29, 2018

EPA tackles the thorny problem of cost benefit analysis

The Coalition for Regulatory Innovation (CRI) stands behind three key priorities – accountability, transparency, and scientific integrity for reform of our burdensome regulatory process.  Each of these priorities are front and center in a new initiative from the Environmental Protection Agency (EPA), which recently sought comments on how the agency should harmonize its many standards for cost benefit analysis.

EPA’s Advanced Notice of Proposed Rulemaking (ANPRM) invited input from the public on three specific topics to inform their future reforms: “The Nature of Potential Problems of Inconsistency and Lack of Transparency;” “Possible Approaches for Increasing Consistency and Transparency in Considering Costs and Benefits in the Rulemaking Process;” and the “Potential for Issuing Regulations To Govern EPA’s Approach in Future Rulemakings.”  The comment period ended August 13, 2018.  EPA will now spend the next few months sorting through feedback and deciding how best to reform its regulatory processes.

In short, the agency is seeking to better understand the real world implications of their cost/benefit calculations that the agency uses to craft significant regulations.  Many have expressed the concern that the cost considerations vary depending on who occupies the White House.

A recent example that many point to is the lead-up to the issuance of the Clean Power Plan, when the EPA introduced new calculations just before launching the rule, showing that the “social cost” of carbon emissions had jumped substantially higher than it was in previous assessments, helping to better justify the rule on a cost basis.

While the Obama Administration placed the social cost of carbon at around $42 per ton, the Trump Administration revised the estimate to fall between $1 and $6 per ton.  Such wide disparities will obviously alter whether or not such a rule makes sense to implement.

Stakeholders suggested that this this type of policy whipsaw makes investment decisions difficult due to the uncertainty of major rules that influence how businesses operate.

The National Association of Manufacturers (NAM) gave 12 unique examples in their comments to the EPA of a lack of accountability, transparency, and scientific integrity in the rulemaking process, including the Clean Power Plan.

NAM’s letter highlighted accountability issues like emissions regulations on coal fired power plants, which did not analyze real-world costs and benefits at all.  Instead EPA just assumed away the impacts, suggesting that no market participants would want to build a new coal plant in the future.

NAM also pointed out problems with scientific integrity and the transparency of calculations used to calculate ozone and particulate matter standards and a tendency on the part of the EPA to consider costs narrowly—disregarding certification and delay costs with the Waters of the United States rule for example—while including a puzzlingly broad swath of benefits, including those accrued to other countries and decades in the future in many cases.

“Far too often we see the same themes arise: the process has been inflexible, unresponsive to stakeholder input, and wedded to outcomes that seemed predetermined. For the Agency to truly reform the way it regulates, it must look not only at individual regulations but also the whole regulatory system as applied under each statute.”

Other voices, including the Wall Street Journal Editorial Board have asserted that the discretion given to the EPA in the past to calculate costs and benefits was far too broad and that the agency routinely ignored best practices provided by from the Office of Management and Budget.

If successful, the effort to harmonize cost benefit standards while making them more consistent and transparent would have far-reaching implications since many of the regulations at issue are behemoths with costs in the billions.  These high costs can displace investments in jobs and have unintended consequences on hard working Americans.

Cultivating an environment where more accurate and transparent measures of how costs and benefits guide rulemakings would be a bold step towards improving the operation and efficiency of the U.S. government.