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EPA Proposes Rule to Increase Consistency and Transparency of Benefit-Cost Analysis

The Environmental Protection Agency (EPA) on June 4 released a proposed rule to increase the “consistency and transparency” of benefit-cost analysis (BCA) in Clean Air Act (CAA) regulations. The proposal would require all future “significant” CAA regulations to be accompanied by a BCA, and all BCAs to be conducted according to “best practices.”

Here’s one such best practice: “If fewer than three options are analyzed, or if there is a continuum of options and the options analyzed do not include at least one more stringent (or otherwise more costly) and one less stringent (or otherwise less costly) option than the proposed or finalized option, then the BCA must explain why it is not appropriate to consider more alternatives.”

As CEI noted in its comments on the Safer Affordable Fuel Efficient (SAFE) Vehicles Rule, the EPA and the National Highway Traffic Safety Administration considered eight regulatory alternatives, but none less stringent than their preferred alternative of freezing fuel economy standards at model year 2020 levels. Presumably, once finalized, the BCA rule would compel the EPA to either propose an alternative less stringent than its preferred alternative or explain why it is not considering a less stringent alternative.

Another best practice the EPA seeks to codify pertains to how the agency estimates the mortality risks of air pollution exposures and the benefits of pollution control measures. The EPA will consider “the full set of studies as a means of providing a broader representation of the effects estimate, including high quality studies that do not find a significant concentration-response relationship.” [Emphasis added] In other words, benefit-cost analysis should attempt to correct for publication bias—the tendency of researchers to submit and journals to publish only studies with “positive” findings of air pollution mortality risks and ignore studies with “negative” findings.

Another best practice the BCA rule would require is to “clearly distinguish between the social benefits attributable to the specific pollution reductions ... targeted by the statutory provisions that give rise to the regulation, and other welfare effects.” Here the EPA responds to the concern that in many BCAs, “the majority of the monetized benefits for CAA regulations were attributable to reductions in fine particulate matter (PM2.5) even though the regulation did not target PM2.5.”

To put it in plainer terms, numerous economically significant CAA regulations since 1997 expressly targeting other pollutants have depended for most of their estimated benefits on collateral reductions of PM2.5. The Obama EPA’s power plant mercury rule is the classic case. Just considering the hazardous air pollutant reductions that were the rule’s statutory purpose, costs ($9.6 billion) exceeded benefits ($4 million to $6 million) by 1,600 to one or even 2,400 to one.

As the Supreme Court stated in Michigan v. EPA (2015), “One would not say that it is even rational, never mind ‘appropriate,’ to impose billions of dollars in economic costs in return for a few dollars in health or environmental benefits,” because “No regulation is ‘appropriate’ if it does significantly more harm than good.” However, by including an estimated $37 billion to $90 billion in collateral benefits from coincidental PM2.5 reductions, the Obama-era EPA made the mercury rule look like a bargain, providing $3 to $9 in benefits for every dollar of cost.

The Trump EPA clearly wants to limit the use of PM2.5 co-benefits as a magic wand to make regulatory excess look like a bargain at any price. However, the BCA rule seeks to spotlight that problem rather than directly solve it. Specifically, the BCA rule would require, in addition to an overall presentation of a regulation’s costs and benefits, a separate presentation of the “monetized value to society” of the specific statutory objective or objectives targeted by the rule. Even if not a solution, making the problem more “transparent” is a step in the right direction.