The Consistency of EPA Benefit-Cost Analysis.

• Author: Brannon, Ike
• Position: BRIEFLY NOTED

The notion that rules promulgated by federal government agencies should only be approved if it can be shown their benefits outweigh their costs--which Executive Order 12866 has required since 1981--is not terribly objectionable. However, once in office, denizens in both parties have chafed at this constraint and gone to great lengths to get around it in order to achieve both short-term and long-term political objectives. Evading its strictures has proven to be rather easy.

In a rare act of regulatory self-restraint, the Environmental Protection Agency recently issued a proposed rule that would limit the flexibility the agency has shown when conducting benefit-cost analysis of proposed rules under the Clean Air Act. Among other provisions, the rule would formalize the analysis process, following the Office of Management and Budget's Circular A-4 and the EPA's own Guidelines for Preparing Economic Analyses. It would also prohibit the inclusion of co-benefits when determining a rule's net benefits, thereby avoiding the double-counting problem that infamously influenced the Obama administration's Mercury and Air Toxics Standards.

This regulatory reform would force the EPA to adhere to a set of standards that--it is hoped--would not change much across administrations. The intention is to depoliticize the agency's actions and focus its efforts on promulgating rules that indisputably benefit the country.

Preemptive caving/ The mechanism within the federal government that produces and analyzes benefit-cost analyses--namely, the executive-branch agencies themselves and the Office of Information and Regulatory Affairs (OIRA)--can work only if all of the entities involved are guided by the same set of rules and are operating with a clear and consistent understanding of the process. Unfortunately, this is not always the case.

For instance, while the executive order mandates that agencies provide to OIRA a benefit-cost analysis for any proposed rule with an economic effect that exceeds $100 million, agencies tend to discover numerous proposed rules that appear to have an effect just below that threshold, making them immune to OIRA review. Research by Sam Batkins has found considerable evidence of this behavior.

Another problem is that the agencies typically perform the benefit-cost analysis on their own proposed rules, which creates a form of moral hazard. Agency staffers have a vested interest in their proposed rule passing muster, as their careers are...