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EPA’s Benefit-Cost Proposal Will Improve Regulatory Process

On June 4, EPA moved a step closer to improving the Clean Air Act (CAA) rulemaking process with a proposal to enhance consistency and transparency in considering the benefits and costs of proposed rules. Yesterday ACC joined other industry groups to submit comments on EPA’s proposal.  

The importance of benefit-cost analysis

Effective, efficient regulation starts with a true picture of both benefits and costs to society. Sound benefit-cost analysis (BCA) helps policymakers and the public determine which regulatory proposals are worthwhile. It reveals potential impacts. And of course, it benefits the environment by helping to prioritize actions and allocate resources. BCA is the foundation for smart regulation.

Why reform is needed

Despite robust BCA guidance from administrations over four decades, EPA has a history of inconsistent approaches. In 1981, President Ronald Reagan signed an executive order requiring federal executive agencies to perform a CBA for each major rule and directing the Office of Information and Regulatory Affairs (OIRA) to coordinate this activity. In 1993, President Clinton ordered agencies to analyze the costs and benefits of their most significant regulations. OMB’s regulatory “best practices” include accounting for expected costs and benefits and showing that benefits exceed costs.

OMB and benefit-cost reviews are clearly required for significant regulatory actions.  But for this to be as meaningful and impactful as possible, it’s important that EPA be consistent in its approach and use clear data.  BCA should be consistently performed for significant rules, and economic impact assessments should be complete, transparent, and based on quality information.  In the past, some assessments have not included cumulative impacts, making it unlikely that agencies will identify the least burdensome way to achieve a regulatory goal. Other times, the problem is with the quality of the data, methodology, or risk assessments that underlie many EPA actions.

Elements of EPA’s proposal

ACC commends EPA’s initiative to improve the use of benefit-cost analysis in rulemaking, which will help de-mystify and standardize the process and empower policymakers and the public to make good regulatory decisions. Modernized BCA will also support capital investment, R&D and innovation that drive economic growth.

Regarding specific elements of the proposal:

• BCAs should be standard: EPA should perform and fully consider BCAs in making regulatory decisions under the CAA unless the relevant statutory provision clearly prohibits doing so.

• Employ best practices: EPA wisely proposes that scientific, engineering, and economic best practices be consistently used in benefit-cost analysis.  The preamble of the final rule should include detail as to best practices, which should be adequately described in the regulatory text.

• Ensure high-quality risk assessments: Risk assessments underlying significant CAA rulemakings should be part of the BCA review, and they should reflect best practices in the relevant sciences.

• Conduct in-depth examination of costs: The final rule should require EPA to assess the direct, indirect, and implicit costs of proposed significant regulatory actions and their alternatives, when feasible.

• Provide context: EPA should present BCAs in a way that is consistent with reasoned economic and scientific judgments regarding uncertainties in data or methodology.

Next steps

Ensuring clear, consistent, accurate, and transparent examination of benefits and costs in the regulatory process is a common-sense idea that has earned bipartisan support by presidents, policymakers and experts. With thoughtful reforms, benefit-cost analysis can fulfill its important role in regulatory review.