A 'Cost-Benefit State'? Reports of Its Birth Have Been Greatly Exaggerated

• Date: 01 November 2016

11-2016 NEWS & ANALYSIS 46 ELR 10933

A R T I CL E S

A “Cost-Benef‌it

State”? Reports

of Its Birth Have

Been Greatly

Exaggerated

by Amy Sinden

Amy Sinden is the James E. Beasley Professor of Law

at Temple University. She also sits on the Board of

Directors for the Center for Progressive Reform.

Summary

In a spate of recent cases (Michigan v. EPA, EME

Homer City v. EPA, and Entergy Corp. v. Riverkeeper),

the U.S. Supreme Court has been widely viewed as

abruptly changing course in its treatment of cost-

benet analysis (CBA) in environmental decision

making. In fact, these cases represent less of a change

in course than is commonly believed. ey did not

so much eliminate the Court’s previously emerging

anti-cost presumption as narrow and perhaps more

clearly dene it. e term “cost-benet analysis” can

refer to a broad range of decisionmaking techniques,

and an even longer list of methods involve agencies

“considering costs” in one way or another. ese cases

indicate that the Court’s anti-cost presumption no

longer applies to informal CBA or feasibility analysis,

but they do nothing to disturb the presumption as

applied to other cost consideration tools. Indeed,

Riverkeeper can be read to at least gesture in the

direction of a continuing presumption against formal

CBA. It is not entirely clear that Michigan articulated

a pro-cost presumption at all, but to the extent it did,

that presumption can be read to exclude or at least

de-emphasize formal CBA.

In Michigan v. Environmental Protection Agency,1 the

U.S. Supreme Court waded into the decades-long

debate over the use of cost-benet analysis (CBA) in

environmental rulemaking.2 e decision struck down the

U.S. Environmental Protection Agency’s (EPA’s) limits on

mercury emissions from power plants for the Agency’s fail-

ure to consider costs, and so appears, supercially at least,

like a win for the pro-CBA camp. Prof. Cass Sunstein,

President Barack Obama’s former “regulatory czar” and

one of CBA’s most prominent cheerleaders, viewed it that

way, heralding the opinion as a “rie shot” ringing in the

arrival of the “cost-benet state.”3

Indeed, this is the third in a recent spate of Supreme

Court opinions that seem tosuggest—at rst blush, any-

way—that the Court may be reversing what had previ-

ously begun to look like a presumption disfavoringCBA.4

In Environmental Protection Agency v. EME Homer City

Generation,5 the Court upheld EPA’s consideration of costs

in setting limits on air pollution that crosses state lines, and

in Entergy Corp. v. Riverkeeper,6 the Court upheld EPA’s

use of CBA in setting standards for cooling water intake

structures at power plants. But while the earlier rulings

simply ratied agency decisions to consider costs, Michigan

1. 135 S. Ct. 2699, 45 ELR 20124 (2015).

2. Compare R L. R  M A. L, R R-

: H C-B A C B  P  E-

  O H 13-16 (2008), and M D. A 

E A. P, N F  C-B A (2006),

and C R. S, T C-B S: T F  R-

 P 19-20 (2002) [hereinafter S, C-B

S],and John D. Graham, Saving Lives rough Administrative Law and

Economics, 157 U. P. L. R. 395, 429, 432-38 (2008), and Edward J.

M, C-B A 390 (1976), and A.R. Prest & Ralph Tur-

vey, Cost-Benet Analysis: A Survey, 75 E. J. 683, 683-85 (1965), with

D A. K, R F N: E L

  S  O 104 (2010), and F A 

L H, P: O K  P  E

  V  N (2004), and S A. S  R

L. G, R R  R: R  P A-

 (2003), and M S, T E   E: P-

, L,   E (1988), and Amy Sinden, In Defense of

Absolutes: Combating the Politics of Power in Environmental Law, 90 I L.

R. 1405, 1410, 1452-60 (2005), and Steven Kelman, Cost-Benet Analy-

sis: An Ethical Critique, R. 33 (Jan./Feb. 1981), and A S,

T B P   U S 344-46 (1955).

3. Cass R. Sunstein, anks, Justice Scalia, for the Cost-Benet State, B-

 V, July 7, 2015. See also Cass R. Sunstein, Cost-Benet Analysis and

Arbitrariness Review (draft, SSRN, 2016); John D. Graham & Paul R. Noe,

A Paradigm Shift in the Cost-Benet State, RB, Apr. 26, 2016.

4. See Whitman v. American Trucking Ass’ns, 531 U.S. 457, 470-71, 31 ELR

20512 (2001) (holding that in the absence of a “clear” “textual commit-

ment,” provisions of the Clean Air Act (CAA) must be read as precluding

consideration of costs); American Textile Mfrs. Inst., Inc. v. Donovan, 452

U.S. 490, 510, 11 ELR 20736 (1981) (“When Congress has intended that

an agency engage in cost-benet analysis, it has clearly indicated such intent

on the face of the statute.”); Union Electric v. Environmental Prot. Agency,

427 U.S. 246, 257, n.5, 6 ELR 20570 (1976) (“Where Congress intended

the Administrator to be concerned about economic and technological infea-

sibility, it expressly so provided.”).

5. 134 S. Ct. 1584, 44 ELR 20094 (2014).

6. 556 U.S. 208, 39 ELR 20067 (2009).

Author’s Note: anks to Sid Shapiro and Marcia Mulkey for

comments on an earlier draft, and to Zyg Plater for helpful

conversation about Tennessee Valley Authority v. Hill.

Copyright © 2016 Environmental Law Institute®, Washington, DC. Reprinted with permission from ELR®, http://www.eli.org, 1-800-433-5120.

46 ELR 10934 ENVIRONMENTAL LAW REPORTER 11-2016

marks the rst time the Supreme Court has actually forced

cost considerations on an unwilling agency.

Nonetheless, we should not rush too quickly to ring in

Professor Sunstein’s cost-benet state. Appearances can be

deceiving. e term “cost-benet a nalysis” can refer to a

broad range of decisionmaking techniques, and an even

longer list of methods involve agencies “considering costs”

in one way or another. ere remains a fairly wide gulf

between the kinds of analysis the Court endorsed in these

cases and the particular brand of CBA that Professor Sun-

stein advocates. ere is, in fact, good reason to believe

that the Court remains quite skeptical of Professor Sun-

stein’s cost-benet state.

Agencies have many ways of considering costs in regula-

tory decisionmaking that are entirely distinct from CBA.7

e U.S. Congress has frequently, for example, directed

agencies to set environmental standards through the use of

various forms of feasibility analysis.8 ese kinds of analy-

ses consider costs in order to identify the most stringent

level of environmental protection that is economically and

technologically feasible, but do not balance costs against

benets as CBA does. Cost-eectiveness analysis—another

common tool used by agencies—considers costs but does

not involve CBA either.9 It takes a single regulatory goal

(like saving a human life) and compares the costs of reach-

ing that goal under various regulatory alternatives. So,

when the Supreme Court suggests a presumption in favor

of considering costs, as it did in Michigan, that is a very dif-

ferent matter from the Court endorsing a presumption in

favor of cost-benet analysis, as Professor Sunstein claims.10

Even CBA itself comes in many forms—from an infor-

mal, intuitive balancing of qualitatively described pros and

cons, to a formal, quantied method grounded in wel-

fare economics.11 Congress and the courts have generally

favored the informal kind.12 Yet, the CBA that Professor

Sunstein envisions for the cost-benet state is well toward

the formal end of the spectrum.13

At its most formal, CBA requires quantifying and mon-

etizing all of the social costs and benets of a regulation and

a host of incrementally varying alternatives, discounting

to present net value, and nding the point of net benets

maximization where the marginal cost curve intersects the

marginal benets curve. is is the kind of CBA embodied

in the CBA Executive Orders and promoted by the White

House Oce of Information and Regulatory Aairs

7. Amy Sinden, Cost-Benet Analysis, inE E E

 E L, V II, E D M

(Glicksman & Paddock eds., forthcoming).

8. See generally David M. Driesen, Distributing the Costs of Environmental,

Health, and Safety Protection: e Feasibility Principle, Cost-Benet Analysis,

and Regulatory Reform, 32 B.C. E. A. L. R. 1 (2005).

9. See, e.g., E J. M  E Q, C-B A 8

(5th ed. 2007).

10. Sunstein, Cost-Benet Analysis and Arbitrariness Review, supra note 3. See also

Driesen, supra note 8, at 6 (noting that CBA is often erroneously equated

with consideration of costs).

11. Amy Sinden, Formality and Informality in Cost-Benet Analysis, 2015 U

L. R. 93 (2015).

12. Id. at 129-47.

13. Id.at 164-65.

(OIRA).14 It is also the kind that has generated enormous

controversy for decades because it requires putting a dollar

value on intangibles, like good health and a clean environ-

ment, that are impossible to measure in monetary terms.

It was undoubtedly these kinds of concerns that led the

Supreme Court to apply a presumption against CBA in a

number of cases in the 1980s, 1990s, and early 2000s.15

Indeed, its 2009 decision in Riverkeeper, upholding EPA’s

cooling water rule for power plants, marked the rst time

the Court had ever upheld an environmental agency’s use

of CBA.16is was a big deal. But it was not as big a deal as

some have made it out to be.17 e Court did not employ

its earlier anti-CBA presumption, but neither did it cre-

ate a new pro-CBA presumption, as some have argued.18

Notably, the Court did not require Agency use of CBA

at all. It merely gave EPA discretion to use an informal

CBA if it chooses to, but also left it free to choose other

forms of analysis entirely. Moreover, the Court was careful

in Riverkeeperto conne its endorsement of CBA to the

most informal varieties and actually went out of its way to

express skepticism about more formal brands of CBA.19 In

so doing, it left the door wide open for a continuing pre-

sumption against formal CBA.

Nor did the Court’s subsequent decisions in Homer City

and Michigan close the door to a presumption against for-

mal CBA or create a new pro-CBA presumption. Indeed,

EME Homer City did not actually involve CBA at all.20

And in Michigan, all the Court said was that agencies

should generally consider costs in regulatory decisionmak-

ing, but that “[i]t will be up to the agency to decide ...

how to account for cost.”21 us, while it’s possible to read

Michigan as gesturing toward a presumption in favor of cost

consideration, that’s a very dierent matter from the kind

of presumption in favor of formal CBA that would herald

the dawning of the cost-benet state. Indeed, in Michigan,

both the majority and the dissent took pains to make clear

that they were not requiring agencies “to conduct a formal

cost-benet analysis in which each advantage and disad-

vantage is assigned a monetary value.”22

is Article proceeds in four parts. Part I denes terms,

identifying the broad set of decisionmaking techniques

that can be described as involving some “consideration of

costs” and that include but are not limited to the various

varieties of CBA, formal and informal. Drawing on ideas

laid out more fully in my previous work,23 this part also

provides an analytic framework for conceptualizing the

variety of methods that are usually lumped together under

the umbrella term “cost-benet analysis” and for arrang-

14. Id. at 147-52.

15. See supra note 4.

16. Entergy Corp. v. Riverkeeper, 556 U.S. 208, 226, 39 ELR 20067 (2009).

17. Graham & Noe, supra note 3.

18. Id.

19. Riverkeeper,556 U.S. at 223.

20. See infra notes 189 to 191 and accompanying text.

21. Michigan v. Environmental Prot. Agency, 135 S. Ct. 2699, 2711, 45 ELR

20124 (2015).

22. Id. at 2711. See alsoid. at 2717 (Kagan, J., dissenting).

23. See Sinden, Formality and Informality in Cost-Benet Analysis, supra note 11.

Copyright © 2016 Environmental Law Institute®, Washington, DC. Reprinted with permission from ELR®, http://www.eli.org, 1-800-433-5120.