EPA Reforms How it Calculates Cost-Benefit Analyses

Published August 26, 2019

Continuing the Trump administration’s overhaul of how executive agencies arrive at their regulatory decisions, Environmental Protection Agency (EPA) Administrator Andrew Wheeler issued new instructions for how the agency conducts cost-benefit analyses of environmental regulations.

In a two-page memo to EPA officials, Wheeler said “the agency should ensure that its regulatory decisions are rooted in sound, transparent, and consistent approaches to benefits and costs.”

Rectifying Inconsistencies

Although consideration of benefits and costs has long been an integral part of regulatory decision-making at the agency, the departments and offices have not used standardized or consistent methods of accounting for or comparing costs and benefits, Wheeler stated.

“[B]enefits and costs have historically been treated differently depending on the media office and the underlying authority,” Wheeler wrote in his May 21 memo. “This has resulted in various concepts of benefits, costs, and other factors that may be considered.

“This memorandum will initiate an effort to rectify these inconsistencies through statute-specific actions,” said Wheeler.

Improving Quality, Transparency

Wheeler’s memo instructs the assistant administrators of EPA’s offices of Air and Radiation, Chemical Safety and Pollution Prevention, Land and Emergency Management, and Water to institute reforms outlining how cost-benefit considerations will be applied in areas in need of greater clarity, transparency, and consistency.

EPA’s agency-wide overhaul also includes yet-unspecified revisions to key methodological and modeling choices, assumptions, uncertainties, and contexts used in the cost and benefit calculations underlying regulatory actions across the different departments.

Critics of the agency have long raised concerns about the validity of projections of, for example, the number of premature deaths prevented by lowering the allowable amounts of various regulated criteria air pollutants, Wheeler noted in his memo. EPA’s reform is intended to standardize and improve the quality and transparency of such estimates.

‘More Good Than Harm’

EPA should impose new regulations only when they will produce net benefits, says Daren Bakst, a senior research fellow at The Heritage Foundation.

“EPA’s regulations should do more good than harm, a sentiment the agency has not always embraced historically,” said Bakst. “The agency issues some of the costliest regulations in U.S. history, affecting all our lives, yet it has often issued regulations without quantifying any benefits from limiting targeted pollutants.

“The Obama administration’s EPA argued it didn’t even need to consider the $9.6 billion in costs for its ‘mercury’ rule, a rule with just $4 million to $6 million in benefits,” Bakst said. “EPA should be commended for putting an end to past gaming and ignoring basic cost-benefit analysis.”

‘Should Thwart This Practice’

Wheeler is fighting an entrenched bureaucracy with this reform effort, says Jay Lehr, a senior policy analyst with the International Climate Science Coalition.

“Andrew Wheeler is to be congratulated for requiring all EPA departments to calculate cost-benefit ratios consistently and transparently,” said Lehr. “He remains stuck with a number of department heads who follow the Obama-era strategy of using EPA to dismantle much of the nation’s industrial base with fraudulent claims.

“This has allowed them to cook the books on cost-benefit analyses for carbon dioxide and other substances,” Lehr said. “Wheeler’s move should thwart this practice.”

Bonner R. Cohen, Ph.D. ([email protected]) is a senior fellow at the National Center for Public Policy Research and a senior policy analyst with the Committee for a Constructive Tomorrow.