Flawed guidance for monetizing nature should be withdrawn

The Office of Information and Regulatory Affairs (OIRA) has proposed new guidance aimed at improving how federal agencies account for environment-related costs and benefits in regulatory analysis. The guidance document proposes techniques for federal agencies to monetize and add together different environmental benefits and costs. This guidance is unnecessary, conceptually confused, and risks biasing agency decisions.

There are three main problems with the draft guidance:

First, OIRA has not demonstrated the need for additional guidance. The new document repeats and cites information already found in OIRA’s Circular A-4 on regulatory analysis. It does so while not clarifying which version of A-4 is being referenced, as A-4 is currently in the process of being updated.

This makes it difficult for the public to provide useful comments. At a minimum, proposing the draft guidance before the A-4 update is complete is premature.

Second, the draft guidance muddles together different types of natural capital, failing to properly distinguish between environmental assets whose returns are priced in markets and those whose are not. It encourages regulatory agencies to equate commercial resources that yield compounding financial returns through reinvestment with fleeting unpriced environmental benefits. Proper accounting would treat these natural assets differently.

Third and most importantly, by conflating these categories, the guidance risks baking irrationality into agency decision-making. The draft guidance would institutionalize behavioral biases like present bias and exponential growth bias into the regulatory process. This will lead to systematic errors in agency policy.

The draft guidance lacks a sound economic basis, risks regulatory failure, and should be withdrawn. Rather than improve regulatory analysis, it threatens to undermine it through “behavioral government failure.”

There are responsible ways to quantify environmental impacts without assigning a dollar value to everything. Indeed, the guidance offers some useful information along these lines. That information could easily be appended to existing OIRA circulars without issuing a new, unnecessary guidance document.

To read more on this, see my new comment to OIRA.