The U.S. Environmental Protection Agency will explore new methods for considering the costs and benefits of regulatory actions, including the consideration of co-benefits to justify a regulation.
While Congress has prescribed ways for the EPA to consider the cost and benefit of regulations depending on the statute pursuant to which a rule is issued, the EPA said it has applied those requirements inconsistently. This has created "a risk of uncertainty and confusion for states, local communities, and industry," the EPA said.
Therefore, the agency has issued an advanced notice of proposed rulemaking to consider "ways to codify common-sense, best practices for cost-benefit analysis in rulemaking."
"Many have complained that the previous administration inflated the benefits and underestimated the costs of its regulations through questionable cost-benefit analysis," EPA Administrator Scott Pruitt said in a statement issued June 7. "This action is the next step toward providing clarity and real-world accuracy with respect to the impact of the agency's decisions on the economy and the regulated community."
Sen. John Barrasso, R-Wyo., said in a statement that the EPA under the Obama administration exaggerated the benefits of its regulations and misjudged how costly they were to the economy. Barrasso said the Trump administration is now ensuring that "the agency can no longer abuse the cost-benefit analysis process."
The Trump administration, however, has received similar criticism that the cost of compliance with the Clean Power Plan was improperly inflated in a proposal to repeal the carbon-cutting regulation. The EPA's updated regulatory analysis said the rule would cost $33 billion and therefore was in need of repeal.
Co-benefits to be examined
The EPA proposal is seeking feedback on whether it should promulgate regulations that provide "a consistent and transparent interpretation" when weighing costs and benefits in making regulatory decisions. The EPA is also asking for feedback on the appropriate approaches to quantifying the costs and benefits of EPA rules.
While each statute, such as the Clean Air Act or Clean Water Act, requires or allows some consideration of cost and benefits when setting a regulatory standard, the EPA said "virtually all environmental standards" leave the specifics on how costs and benefits are calculated to the agency's discretion. Moreover, many terms related to the cost estimates remain undefined by Congress.
"This has resulted in a variety of concepts of costs that may be considered across statutes and even under the same statute," the EPA said.
In the past, the EPA used considerations such as direct costs for compliance activities incurred by a regulated entity, compliance cost per ton of pollutant reduced, the number of regulated facilities that may go out of business as a result of the proposed regulation, or compliance cost as a percent of firm revenues. Sometimes the EPA considers the "social cost" of a regulation.
The EPA also said previous administrations have justified regulation of a certain pollutant by noting that a different pollutant would be reduced as a result of the proposed regulation. As an example, the proposal noted that when the EPA in 2011 issued the Mercury and Air Toxics Standards, it said the rule would also cut particulate matter and therefore the benefits of regulation outweighed the cost of compliance.
The EPA is now seeking to examine the "co-benefits" of rules, which some commenters recommended to the administrator during a previous call for feedback on EPA regulatory reform. Critics of the previous administration have argued that considering the co-benefits of a rule is not an appropriate platform upon which to base regulatory decisions.
According to EPA, its regulations have the highest compliance costs across the federal government. That claim, however, conflicts with a draft report from the White House's Office of Management and Budget issued in February that found the benefits associated with EPA regulations issued between 2001 and 2015 vastly outweigh the associated costs.
Comments will be accepted on the advanced notice of rulemaking for 30 days following its publication in the Federal Register.
