Cross-posted from Legal Planet.
Cost-benefit analysis has become a ubiquitous part of regulation, enforced by the Office of Management and Budget. A weak cost-benefit analysis means that the regulation gets kicked back to the agency. Yet there is no statute that provides for this; it’s entirely a matter of Presidential dictate. And reliance on cost-benefit analysis often flies in the face of specific directions from Congress about how to write regulations. There are a few exceptions, such as regulations involving pesticides, bans on toxic substances, and thermal water pollution, where Congress called for EPA to balance costs and benefits equally. But almost all environmental laws direct agencies to use some standard other than cost-benefit analysis. The statutes generally place a greater weight on environmental quality and public health than on cost.
For example, it’s fairly obvious that Congress did not contemplate much of a role for cost-benefit analysis when it passed the Clean Air Act. Some key provisions of the Act are based completely on health risks and do not allow consideration of costs. When costs are a factor, Congress carefully specified factors to be taken into account and provided different standards for different situations. All of the fine distinctions in the table below would be erased if all regulations are simply based on the same cost-benefit standard.
| CAA Standards (in order of increasing stringency): | |||
| Standard: | Applies to: | Statute §: | Impact: |
| RACT
(Reasonably Available Control Technology) |
Existing sources in nonattainment areas | § 172(c)(1) | Requires all such sources to use average existing technology (not cutting-edge “best” technology) |
| BDAT
(Best Demonstrated Available Technology) |
Stationary sources under NSPS (New Source Performance Standards) | § 111(a)(1) | Specifically considers cost, but can require matching reductions of best-controlled similar source |
| BACT
(Best Available Control Technology, sometimes given as BAT) |
New major sources in PSD (prevention of significant deterioration) areas | § 165(a)(4) | Requires maximum feasible pollution reduction, considering cost and other factors on case-by-case basis; must be at least as stringent as NSPS under § 111 |
| MACT
(Maximum Achievable Control Technology) |
Major sources of hazardous air pollutants | § 112(d)(2) § 112(d)(3) | Requires existing major sources to match best 12% of industry; new major sources to match best-controlled similar source |
| LAER
(Lowest Achievable Emissions Reduction) |
New or modified major stationary sources in nonattainment areas | § 171(3) § 173(a)(2) | Requires most stringent existing emissions limit, whether achieved in practice or included in any SIP, for the applicable source category |
How does OMB get away with strong-arming agencies into violating their legal mandates by using cost-benefit analysis rather than the true legal standard? Basically, the trick is accomplished through a legal fiction — or more bluntly, through a transparent falsehood. The falsehood is that the cost-benefit analysis is merely informational and is not really the basis for the ultimate decision. If this were true, OMB wouldn’t pay any attention to the bottom-line of the cost-benefit analysis, only to making sure the methodology is OK. Everyone knows this is false. OMB cares a great deal about the balance between costs and benefits. But this legal fiction allows the executive branch to continue to maintain that it is executing the laws made by Congress rather than flouting them.
Legally, OMB gets away with this fairly transparent veil over its activities because of the limits of judicial review. The final decision is written up in terms of the statutory standard, and courts don’t look past the written document. Judges don’t want to inquire into whether the agency really based the regulation on the true legal standard or merely rationalized a decision made on other ground like cost-benefit analysis or a desire to placate voters in swing states.
Maybe it seems a little naive to worry about this situation, but our society does claim to believe in the rule of law. The disconnect between EPA’s legal mandates and the standards imposed by OMB is troubling, at least if we think the role of the executive branch is to carry out the law rather than to rewrite it to favor a different view of public policy.
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Daniel Farber | February 5, 2013
Cross-posted from Legal Planet. Cost-benefit analysis has become a ubiquitous part of regulation, enforced by the Office of Management and Budget. A weak cost-benefit analysis means that the regulation gets kicked back to the agency. Yet there is no statute that provides for this; it’s entirely a matter of Presidential dictate. And reliance on cost-benefit […]
Alexandra Klass | February 4, 2013
President Obama’s focus in his second inaugural address on the need to address climate change was welcome after many months of near silence on this critical issue. While tackling climate change will require significant efforts limiting emissions from power plants, automobiles, and other sources, the President has recognized in the past that improving energy efficiency […]
Sidney A. Shapiro | January 29, 2013
Congress created the Office of Advocacy (Office) of the Small Business Administration (SBA) to represent the interests of small business before regulatory agencies. It recognized that, unlike larger firms, many, if not most, small businesses can’t afford to lobby regulators and file rulemaking comments because of the expense involved. The Office was supposed to fill […]
Matthew Freeman | January 28, 2013
CPR Member Scholar David Driesen of Syracuse University has an op-ed in the January 28 Syracuse Post-Standard making the case that the President should reinvigorate his regulatory agenda, in part by diminishing the Office of Information and Regulatory Affairs’ power to stifle regulations. He puts the argument in the context of the pressing need for action on […]
David Driesen | January 24, 2013
Cross-posted from RegBlog. Nobody seems to have noticed, but the Center for Progressive Reform (CPR) recently recommended abolition of review by the Office of Information and Regulatory Affairs (OIRA) based on cost-benefit analysis (CBA). Its report on recommendations for the second Obama Administration made this proposal the sixth item in a list of seven executive orders that Obama […]
Frank Ackerman | January 23, 2013
Cross-posted from Triple Crisis. Climate science paints an ever-more-detailed picture: irreversible, catastrophic events are becoming increasingly likely as greenhouse gas emissions continue to rise. Climate economics, particularly in its policy applications, lags behind: leading models and analyses frequently ignore the extreme risks and the intergenerational aspect of the problem – and rely on simplistic and […]
Joel A. Mintz | January 22, 2013
The National Environmental Policy Act of 1969 (NEPA) was one of the first environmental statutes of the modern era. Best known for its environmental impact statement (EIS) requirement, and for establishing the Council on Environmental Quality, NEPA has been the basis for numerous lawsuits challenging federal government projects that will or may have an adverse […]
James Goodwin | January 18, 2013
Yesterday, the Mine Safety and Health Administration (MSHA) finalized the long overdue Pattern of Violations rule, a measure that will enhance the agency’s enforcement authority by making it easier for the agency to hold scofflaw mines strictly accountable for repeatedly and needlessly putting their workers at risk of chronic illness, severe injury, or even death. […]
Dan Rohlf | January 17, 2013
Secretary of Interior Ken Salazar will leave a decidedly mixed legacy from his four years at the helm of the federal department responsible for protecting many of America’s vast open spaces, treasured parks, and disappearing wildlife. Salazar’s Interior Department enjoyed some high-profile successes and on occasion took action to better protect important resources. It reached […]