GAO Faults Cost Analyses for EPA Regulations

by Benjamin Goad (The Hill) A government report made public Monday finds fault with the Environmental Protection Agency’s analyses of the costs and benefits of its regulations. The Government Accountability Office report concluded that information incorporated into the EPA’s Regulatory Impact Analyses (RIA) was sometimes murky.
Additionally, the GAO found that the agency did not always monetize the costs and benefits of proposed actions and that the EPA had estimated effects of its regulations on employment by, in part, using a study that is more than two decades old.
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The 53-page report looks at seven EPA regulations designated as “major rules,” meaning that they carry an annual economic impact of $100 million or more.
Among them were rules involving the EPA’s renewable fuel standard, regulations governing Commercial and Industrial Solid Waste Incineration Units and emissions standards for heavy-duty trucks. READ MORE and MORE (U.S. House of Representatives Committee on Oversight and Government Reform) Download report

Excerpt from Committee on Oversight and Government Reform:  Key Findings:
EPA failed to use the economic analyses in regulatory decision-making.
‧         GAO reports that EPA, “did not use [economic analyses] as the primary basis for selecting the final regulatory option.” Agencies are required to conduct economic analysis because they are directed to select the regulatory approach that maximizes net benefits. Failure to use the economic analysis in the final decision-making means the regulatory approach selected may not maximize net benefits across the economy.
EPA economic analyses were unclear and confusing to the public.
‧         Statements of Need: EPA did not provide clear statements of need for the proposed regulatory actions. Agencies are required to provide a statement of need for the proposed regulatory action and agencies should use plain, understandable language. As GAO explained, “without a clear description of the problem the regulation is intending to address in the [economic analyses] the context and rationale for the analysis is unclear.”
‧         Regulatory Alternatives: EPA’s consideration of alternatives and presentation of the underlying analysis varied. In two of the seven rulemakings reviewed by GAO, only one other regulatory alternative was considered. In two other rulemakings, while EPA claims to have considered regulatory alternatives, EPA failed to include any information about the alternatives in the final economic analyses.
EPA did not consistently adhere to OMB guidance for estimating benefits and costs.
‧         Baselines: Office of Management and Budget (OMB) guidance requires agencies to provide a baseline of the expected state without regulation, so as to accurately compare regulatory alternatives. However, EPA failed to provide a baseline in more than 40% of the rulemakings reviewed by the GAO. In another rulemaking, EPA used a baseline from a 2002 regulation despite having revised certain aspects of the rule in 2006.
‧         Employment Analysis: EPA failed to consider the current state of the economy and employment when analyzing the effects of the regulation on employment. EPA also relied upon a study that was more than 20 years old, and the authors of the study have questioned the use of the study in regulatory analyses.
‧         Non-monetized Benefits and Costs: EPA did not monetize some of the key benefits and costs related to the primary purpose or key impacts of the regulatory action. Without a full attempt to monetize benefits and costs, the economic analyses will be limited in their usefulness for understanding economic trade-offs.
‧         Social Cost of Carbon: EPA uses a method of estimating the benefits of reducing carbon that reflect a global estimate, despite the OMB guidance requirement for domestic estimates. The EPA’s use of a global benefit estimate creates inconsistency with the remainder of the economic analysis, thus undermining EPA’s conclusions. READ MORE