Cost Benefit Analysis Federal Regulation: Cost-benefit analysis (CBA) is a tool used by regulatory decision makers to identify the costs and benefits, in financial terms, of a regulation to society as a whole. Persons preparing a CBA attempt to assign a monetary value (also know as monetizing) to all the predicted costs and benefits of a regulation.
Because this is such a long post, and was a process unfolding, I’m putting my main questions up here:
1. Did the 2020 proposed amendment to CBA at the EPA get passed? (Proposed Rule: Increasing Consistency in Considering Benefits and Costs in the Clean Air Act Rulemaking Process)
2. Do public hearings have any effect on the passing of a proposed ruling?
Federal register FAQ (seems Kafkaesque, entirely based on subjective assessment as to the import of public comments)
– – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – –
Co-benefits
It seems that the elimination of co-benefits is the biggest (and sneakiest) adjustment to the Clean Air Act. The call for “transparency” is another way of taking a linear approach that refuses to factor true cost (which is often systemic, not object oriented (in this case an “object” is a single pollutant). This object approach (is there a better term for it?) serves only the polluters and associated industries who do not want to be regulated because it costs them too much, and not people–especially poor people–who are subject to the toxic, often complex and systemic results of pollution as a result of living in proximity to pollution-producing industrial practices (be those factories, power plants, dumps).
Seems like MATS (Mercury and Toxic Air Standards) was scapegoated by those in support of the new ruling:
Co-benefits are pollution reductions that aren’t required by a rule, but occur as a result of its adoption. The Office of Management and Budget defines a co-benefit as “a favorable impact of [a] rule that is typically unrelated or secondary to the statutory purpose of the rulemaking.”
For instance, the main benefit of the EPA’s mercury rule is to reduce mercury pollution, but a major co-benefit of the rule is the reduction of particulate matter.
According to research by the Brookings Institute, environmental co-benefits tend to garner a lot of attention because they represent large sums of money. The EPA’s mercury rule, for example, has a projected co-benefit of $36 billion to $89 billion.
EPA Administrator Andrew Wheeler, a former lobbyist for the coal industry, billed the move to get rid of co-benefits as a push for more “honest” accounting methods.
– https://www.thewellnews.com/advisory-panel-slams-epa-proposal-to-overhaul-clean-air-accounting-methods/
– – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – –
The remainder of this post contains background on CBA, and a focus on the EPA’s very recent proposed ruling changes to the Clean Air Act under the helm of Wheeler.
I confess that getting to the CBA economic models was too much for me.
– – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – –
1984 Report to Congress (stored in the archives of the Government Accountability Office):
Office of Information and Regulatory Affairs (OIRA) has two missions:
1. to safeguard the analytical integrity of the cost-benefit analyses performed by agencies. This mission means that OIRA has largely been staffed by economists or those with significant economic training.
2. to help the President oversee the regulatory process and to make sure that agency regulations are consistent—to the extent permitted by law—with the President’s policy preferences.
Generally, these missions may conflict:
Analysis may show that a President’s favored policy will result in costs that greatly exceed its benefits. It could also show that ideas opposed by an administration confer net benefits upon the American people. The author writes that “when a conflict arises between politics and analysis, the politically based preferences of the President usually win out over analytical concerns.”
…the Trump Administration has demonstrated a hostile agnosticism toward good analysis, and the result has been the revival of questions about OIRA’s role and the future of cost-benefit analysis.
As one of its first actions, the Trump Administration issued Executive Order 13,771, which implemented a regulatory budget and “one-in-two-out” policy. But as former OIRA Administrator Sally Katzen has pointed out, President Trump’s order focused exclusively on reducing regulatory costs and never even mentioned the possibility of benefits from regulation. The Trump Administration was also years late in issuing required reports to the U.S. Congress on the costs and benefits of federal regulations. (Stuart Shapiro is a professor and associate dean of faculty at the Edward J. Bloustein School of Planning and Public Policy at Rutgers University.)
Googling EPA cost benefit analysis, I came upon two recent documents. The first is a lengthy report on BCA–
Guidelines for Preparing Economic Analyses (2010/2014)
Summary
(from the introduction; this document is hard to read as a layperson):
Analysis should focus on benefits and costs that accrue
to citizens and residents of the United States.
Potential regulatory alternatives are then modeled as
economic changes that move the economy from
a state of equilibrium absent the regulation (the
baseline) to a new state of equilibrium with the
regulation in effect. The differences between
the old and new states are measured as changes
in prices, quantities produced and consumed,
income and other economic quantities. These
measurements can be used to characterize the net
welfare changes for each affected group identified
in the model. Analysts can rely on different
outputs and conclusions from the general
equilibrium framework to assess issues of both
efficiency and distribution. These issues often take
the form of three distinct questions:
- Is it theoretically possible for the “gainers”
from the policy to fully compensate the
“losers” and still remain better off ? - Who are the gainers and losers from the
policy and associated economic changes? - How did a particular group, especially a
group considered to be disadvantaged, fare as
a result of the policy change?
The first question is directed at the measurement
of efficiency, and is based on the Potential
Pareto criterion. This criterion is the foundation
of BCA, requiring that a policy’s net benefits
to society be positive. Measuring net benefits
by summing all of the welfare changes for all
affected groups provides an answer to this
question.
The last two questions are related to the
distributional consequences of the policy. Because
a general equilibrium framework provides for the
ability to estimate welfare changes for particular
groups, these questions can be pursued using the
same approach taken to answer the efficiency
question, provided that the general equilibrium
model is developed at an appropriate level of
disaggregation.
The document separates the concepts and
approaches into the following three general
categories:
• the examination of net social benefits using a
benefit-cost analysis (BCA);
• the examination of impacts on industry,
governments, and non-profit organizations
using an economic impacts analysis (EIA); and
• the examination of effects on various subpopulations, particularly low-income, minority, and children, using distributional
analyses.
The second is a recent EPA press release under Wheelers’ administration:
EPA Proposes Honest Accounting Standard to Improve Future Clean Air Act Rules (2020)
Summary:
“Thanks to President Trump’s leadership on fixing broken regulatory mechanisms, today’s proposed action corrects another dishonest accounting method the previous administration used to justify costly, ineffective regulations,” said EPA Administrator Andrew Wheeler. “This is the one of many actions this administration has taken that will improve the transparency and consistency of EPA’s cost-benefit analyses.”
There was a public hearing on the proposed rule in July 2020.
Link to Public Hearing on the Proposed Rule: Increasing Consistency in Considering Benefits and Costs in the Clean Air Act Rulemaking Process
There are no minutes posted on the site, so I wrote to the EPA contact.
AMAZING! 3 hours later, I received pdfs of the transcripts from the contact listed on the page.
The following are excerpts from both morning and evening sessions:
Kelly Raymond: “I’m the senior adviser for the EPA’s Office of Air and Radiation. I am the presiding officer for today’s public hearing on the EPA’s proposed rule increasing consistency in considering benefits and costs in the Clean Air Act rulemaking process. On June 11, 2020, EPA published in the Federal Register a proposal for public comment concerning processes EPA should undertake when promulgating regulations under the Clean Air Act to ensure that information regarding the benefits and costs of regulatory decisions is developed and provided to the public in a consistent and transparent manner. The goal of this proposal is to ensure that all future significant regulations promulgated under the Clean Air Act be accompanied by a benefit cost analysis using the best available scientific information in accordance with best practices from the economic, engineering, physical, and biological sciences and ensuring transparency of the benefit cost analysis.
Public hearing attendees included industry reps, individuals, and spokespeople from grassroots groups (large and small).
Here are a few sample comments:
– Rachel Jones, representing the National Association of Manufacturers
made a blurry and very general statement in support of the call for transparency, and that environmental reg and economy does not have to be mutually exclusive, and small businesses need protection, as does innovation. Read like nonsense, said nothing, except to endorse BCA transparency.
– Howard J. Feldman , senior counselor at for Policy, Economics and Regulatory Affairs for the American Petroleum Institute. “API supports this proposal to provide consistency and greater transparency in analyzing the benefits and costs of proposed rules...Efforts to improve the consistency and transparency of these analysis should not therefore be viewed as an abandonment of the agency’s pursuit of improved environmental outcomes, nor has the API ever advocated for such a result. Rather, responsible public policy should rely on a more rational prioritization of resources that is informed by a meaningful weighing of the compliance burdens against the risks in full consideration of the uncertainty associated with those risks. It is essential that EPA explicitly require rulemakings to address and highlight uncertainties in data models and analysis used in decision making. This is particularly important when models are used to quantify benefits of an action at levels at or below existing standards of background (concern), for instance, of a regulated substance.”
– Christopher Fray, a past chair and the Clean Air Scientific Advisory Committee and a past member of the Science Advisory Board. These comments are on behalf of myself. “This proposed rule is poorly formulated, leaving unanswered key questions regarding what is the actual problem to be solved with its vague references to quote stakeholder unquote comments that are clearly self-serving, too regulated industries. This proposal is more evidence that the EPA has been captured by the industries that it’s supposed to regulate.
EPA should transparently disclose and provided administrative record for public review and comment regarding the problem identification, characterization, and analysis upon which this regulatory proposal was founded, if any.
The public cannot ascertain whether EPA has conducted a critical, fair and balanced assessment of stakeholder comments or simply granted wishes to regulated industries, EPA should explain the precedent for establishing regulations of scientific methods and economic methods rather than guidance. Why is it not sufficient to revise the guidelines rather than create a regulation?
EPA peppers the text with hypothetical examples that are unsupported with any citations, facts or evidence, and examples regarding vehicle emission standards. In fact, the EPA’s own science advisory board identified significant weaknesses in the analyses EPA use to justify the greenhouse gas rollback.
Whether there’s a question post by EPA, should a codify selection criteria for selecting amongst studies know, in general EPA should not regulate science. EPA should provide flexible guidance about science that allows science to evolve as the best practices evolve.
And finally, I’ll ask how does this proposed rule advance environmental justice as called for in various executive orders? There’s no mention at all and this is a requirement for a proposed rule.“
– Cara Cook, a public health nurse in the climate and health program manager at the Alliance of Nurses for Healthy Environment. The Alliance is a national nursing organization focused solely on the intersection of human health and the environment. “Our organization opposes EPA’s increased consistency in considering benefits and costs in Clean Air Act rulemaking proposal. Our organization has serious concerns that EPA proposal would result in inaccurate calculations of the benefits and costs to health, and therefore, potentially prevent or hamper the development of regulations that are necessary to protect health from harmful pollution. We urge EPA to maintain the long–existing longstanding practice of calculating the full benefits and costs of federal rules. Our organization opposes EPA’s increased consistency in considering benefits and costs in Clean Air Act rulemaking proposal. Our organization has serious concerns that EPA proposal would result in inaccurate calculations of the benefits and costs to health, and therefore, potentially prevent or hamper the development of regulations that are necessary to protect health from harmful pollution. We urge EPA to maintain the long–existing longstanding practice of calculating the full benefits and costs of federal rules. For this proposal, EPA has failed to identify any real problems that exist with the current system. EPA has a long history of examining the costs and benefits of proposed and implemented regulations. In the instance of the Clean Air Act, the benefits of clean air rules significantly outweigh the costs of regulation For this proposal, EPA has failed to identify any real problems that exist with the current system. EPA has a long history of examining the costs and benefits of proposed and implemented regulations. In the instance of the Clean Air Act, the benefits of clean air rules significantly outweigh the costs of regulation .
In its prospective study on the benefits and costs of the Clean Air Act, EPA estimated that the central benefits estimate exceeds cost by a factor of more than 30 to one. EPA’s recent action on the Mercury and Air Toxic Standards shows the problems with changing its cost-benefit approach.
One of the main adjustments to BCA would be that things cannot be double counted, and systemic complexity is avoided in favor of treating pollutants as if in isolation. They also do not factor who benefits or looses, because we know that environmental pollution affects the poor and PoC communities far more than others, because of proximity to their sources of emission.
– Paul Billings, National Senior Vice President of Public Policy for the American Lung Association. “Nearly 25 million people, including six million children, suffer from asthma. We advocate on behalf of everyone who breathes. In April, we released our 21st annual State of the Air report. The report found that nearly 5 in 10 people hundred or 150 million Americans living counties of unhealthy ozone or particle pollution. This represents an increase from last year’s report that showed 141.1 million people living in those counties. State of the Air highlights that people of color bear a disproportionate burden from air pollution. The American Lung Association strongly opposes this proposal and urges EPA to withdraw it. Last month, the American Lung Association and 13 health organizations requested an extension of the comment period of at least 30 additional days after the end of the national COVID-19 emergency or 30 additional days after the close of the currently scheduled comment period, whichever’s later. Cost benefit analysis has many limitations. Far too often, the estimates of costs far exceed with pollution cleanup actually costs, and frequently, the calculation underestimates the benefits or cannot calculate all the benefits. This rule does not address this fundamental weakness.
Instead, it appears this proposal is designed to further ignore the benefits of reductions of key pollutants. I acknowledge the cost-benefit analysis performed in a consistent way do show benefits of cleaning up air pollution. I note that EPA found its review of the benefits and costs of the 1990 Clean Air Act amendments, benefits exceeded costs by a factor of more than 30 to 1.
I also note the compliance (Mercury and Air Toxic Standards ) was much less expensive than estimated. In 2012 the EPA estimated that complying with the MATS would be $9.8 billion a year in 2015. The actual cost has been far less than that amount. More health benefits at a lower cost, that is a win.
In sum, we urge EPA withdraw this proposal and continue to follow past practice for calculating all the benefits when conducting cost-benefit analysis.
– Jonathan Levenshus, director of federal campaigns for the Sierra Club’s Beyond Coal Campaign. “EPA is advancing this process during a national public health emergency…EPA’s wholesale efforts to undermine environmental protections especially for populations impacted most by pollution…rollbacks have been premised on the claim that those safeguards would somehow impose unreasonably burdensome costs on industry, would hamper economic growth, or would not generate the kinds of health benefits that the agency had initially calculated…On the contrary, the Clean Air Act rules that EPA is now seeking to undermine have yielded major public health and environmental benefits, net of all costs, and we’ll continue to do so into the future…To obscure the damage that would result from its rollback proposals, the agency has issued analysis of regulatory costs and benefits that rely on specious and oriented reasoning while avoiding evidence-based science and economics that would, if applied correctly, impugning agency’s newly preferred course of action.
For decades, the EPA relied on evidence-based science, research, and economics to develop its rules. But with this proposal, the Trump administration has taken a decidedly anti-regulatory approach to a new level. For decades, the EPA relied on evidence-based science, research, and economics to develop its rules. But with this proposal, the Trump administration has taken a decidedly anti-regulatory approach to a new level.
If finalized, this rule would require the agency to show a, quote, “compelling need for federal government intervention in the market,” unquote, each and every time it undertakes a major Clean Air Act rulemaking. Not only has Congress never required such a demonstration, it already found that there was a compelling need for federal pollution standards by passing the Clean Air Act in the first place.
Additionally, the proposal would force EPA to differentiate between emission reductions of a rules targeted pollutant on the one hand, and emission reductions of all other pollutants or co-benefits on the other hand. Yet there is no legal, scientific or economic basis for such a distinction.
This proposal could also pave the way for EPA to ignore co-benefits altogether. An arbitrary and radical anti-regulatory step that Andrew Wheeler’s EPA has already undertaken in specific context. The EPA must not standardize this irrational approach simply because certain industries it favors have asked them to do so.”
– Daren Bakst, senior researcher, Heritage Foundation.
Offered language to better meet the EPA’s goals (in support)
– Steve Malloy, publisher of JunkScience.com “Over the decades, corrupt EPA staff have figured out how to gain cost-benefit analysis to justify ever more burdensome and pointless regulation. The epitome of this corruptions PM – is EPA’s PM2.5 Air Quality Regulation. EPA staff has claimed that PM and outdoor air kills anywhere from fifteen 15,000 to as many as 560,000 people per year.…
As you can see, the fundamental problem with EPA staff is one of honesty. Honesty is a problem that plagues many political endeavors which is largely what EPA has become.
I appreciate this rulemaking by the Trump EPA because it’s drawing attention and interest to the corrupt ways EPA has practices cost-benefit analysis.
While this rulemaking can’t fix the dishonesty ramping among EPA staff, it can shine a light on it. Thank you for that.“
– Trisha Dellolacono, national field manager, and Patrice Tomcik, project manager of state campaigns, for Moms Clean Air Force, an organization of over 1 million moms and dads united to protect our children’s health from air population and climate change.
– Aella Morad, a nurse, said she opposed BCA as a sole method. “I just think that’s not an appropriate cost benefit. As we can see what – in my comparison of the Paris agreement, that’s what’s created more holes and why people are not – why other countries are not respecting the agreement, the principles of the agreement, because no other countries are doing carbon trading and other countries continue to pollute just as much as they did before the Paris agreement. So, you need to – you can’t look at it in that type of perspective. You need to look at in a more holistic way of how it’s affecting the people and the benefits of that and that needs to outweigh the economic part of this. “
– – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – –
I am still trying to understand basic criteria in greater depth, I found
U.S. EPA Proposes Rule Governing Cost Benefit Analysis for Significant CAA Regulations (Blog Energy & Environmental Law Blog):
– BCA required on regulations generally having the largest annual impact on the economy– more than 100 million
– The BCA will be developed using the best available scientific information and in accordance with best practices from the economic, engineering, physical, and biological sciences. Under U.S. EPA’s proposal, the key elements of a regulatory BCA include: 1) a statement of need; 2) an examination of regulatory options; and 3) to the extent feasible, an assessment of all benefits and costs of these regulatory options relative to the baseline (no action) scenario.
– Procedural requirements will be followed to increase transparency in the presentation of the BCA results, while maintaining the standard practices of measuring net benefits consistent with E.O. 12866. Specifically, U.S. EPA proposes that BCA of significant CAA regulations include, at a minimum, a detailed explanation of the overall results of the BCA, how the benefits and costs were estimated, all non-monetized and non-quantified benefits and costs of the action, and the primary sources and potential effects of uncertainty. U.S. EPA also proposes to make the information that was used in the development of the BCA, including data and models, publicly available (to the extent permitted by law)