Zero Is the Magic Number for Cutting Red Tape

One of President Trump’s executive orders could transform how the federal government reviews and manages energy regulations that rule and constrain our lives. The new directive borrows from the business world by introducing a process known as zero-based regulatory budgeting. This process requires programs to be justified from scratch each budget cycle, rather than assuming prior-year allocations should continue.

The zero-based regulation approach has been effective in Idaho, which implemented an aggressive regulatory sunset process in 2019, wiping tens of thousands of restrictions off the books. Since then, the state has maintained a rolling five-year review cycle, requiring agencies to scrap rules and repromulgate those worth keeping.

Mr. Trump’s executive order borrows heavily from Idaho’s experience but so far is limited to energy regulations, requiring regulators to establish their own version of a sunset review, tailored to agencies’ unique congressional mandates.

The Environmental Protection Agency, Department of Energy, Federal Energy Regulatory Commission and Nuclear Regulatory Commission, among others, will begin crafting rules for procedures to implement this mandate and identify which statutes provide the legal basis for sunset reviews. Agencies may rely on broad “housekeeping” authorities, which grant them general powers to structure internal management processes. They can lean on such provisions as Section 610 of the Regulatory Flexibility Act, which requires agencies to review rules to reduce effects on small businesses. Particular agencies will likely point to other authorities unique to their operations that permit them to adopt a periodic review process.

These agency-specific process regulations will be enacted via the official rulemaking process, and they will insert sunset provisions into departments’ respective sections of the U.S. Code of Federal Regulations. Litigation is likely to follow as progressive interest groups claim the executive branch has no right or reason to sunset existing rules. But states’ experiences suggest otherwise. Roughly a third of America’s 50 states have some form of sunset review for regulations, as do many countries. These reviews aren’t radical. They are standard tools of good governance.

Still, activists will say essential protections are under attack. Some businesses will object too. That’s because rules entrench incumbents and block out competition. When red tape is cut, startups and small firms benefit most, not the biggest players who have already complied with the mountains of requirements on the books.

That’s one reason deregulation can be a hard sell politically. The benefits of streamlining regulation are spread diffusely across consumers and new market entrants. There’s no ultra-motivated, well-organized constituency to fight for deregulation. But the economic payoff can be huge.

British Columbia is a striking success story. In the early 2000s, the Canadian province reduced its regulatory requirements by more than one-third. Research suggests this added about 1 percentage point to its annual growth rate. Idaho also cut its regulatory pages by more than 30% and now ranks as the least regulated state in the nation. That kind of progress is possible at the federal level.

Agencies are expected to move quickly under the executive order, which requires that sunset rules be in effect by the end of September and expiration dates be set no later than a year after that. Even if only a few departments conduct meaningful reviews and let many rules expire, that would be a historic achievement. And if momentum builds, the effort could snowball into one of the most significant regulatory reforms in U.S. history.

Read more at the Wall Street Journal