Proposed Guidance on Ecosystem Services Will Strengthen Regulatory Analysis

Last month, the Biden administration rolled out the latest piece of its comprehensive Modernizing Regulatory Review initiative: a proposed guidance on how to account for “ecosystem services” in regulatory analysis. As I explained in my comments, if implemented well, this guidance will reinforce the administration’s broader efforts to reprogram an important step in the rulemaking process known as regulatory analysis so that it provides a fairer and fuller picture of the impacts of planned rules.

But first, let’s do a little worldbuilding. “Ecosystem services” is just a fancy term economists use to describe all the great things nature does to enhance our lives. Examples include the wild seafood that we eat, the bees that pollinate our commercial crops, and the recreational experiences we enjoy when we go hiking in the woods.

For the most part, nature does all these things on its own. And the healthier our ecosystems are, the more of these ecosystem services we get. And by extension, the healthier our ecosystems are, the healthier our economy will be.

About 50 years ago, economists began studying just how significant ecosystem services can be for the healthy functioning of our economy. Even as this work has increased in sophistication, though, the government has largely failed to incorporate it into its own decision-making processes where consideration of ecosystem services would be relevant or perhaps even pivotal in shaping policy outcomes.

Regulatory decision-making offers a clear example of the harmful consequences of not accounting for ecosystem services. A series of executive orders stretching back to the Reagan administration have directed agencies to evaluate their planned rules using cost-benefit analysis. And while cost-benefit analysis is supposedly premised on obtaining a comprehensive picture of a rule’s likely impacts, ecosystem services have been systematically left out.

Or, as analyst might say, these ecosystem services have been assigned a value of $0, though we can be fairly certain they are worth much than that.

Given that the ecosystem services tend to add to the benefits side of the ledger in cost-benefit analysis, the failure to account of them has contributed to the methodology’s overall bias against strong environmental and public health protections.

The new guidance from the Biden White House Office of Management and Budget (OMB) is meant to change that. The document builds off OMB’s proposed changes to Circular A-4 from earlier this year. (Circular A-4 is a general how-to guide that agencies use for developing their regulatory cost-benefit analyses.) It first teaches agencies to recognize how their planned rules might impact ecosystem services, either positively or negatively. It goes on to provide detailed instructions on how to catalog and evaluate such impacts so that they might be incorporated into a broader cost-benefit analysis.

As a strong opponent of cost-benefit analysis, I approach the issue of incorporating ecosystem services into the methodology with considerable trepidation. After all, it raises the same fundamental legal, practical, and ethical objections I have against cost-benefit analysis more broadly. Accordingly, much of my comments were aimed at ensuring that implementation of the guidance got the “good” from evaluating the ecosystem-services impacts, while avoiding much of the “bad.”

For instance, given that many ecosystem services simply mimic many standard market transactions (for example, the flood protection services that wetlands can provide to coastal cities), capturing them in monetary terms does not raise the same fundamental ethical concerns. That said, several important forms of ecosystem services recognized in the proposed guidance do. It would be downright offensive, say, to attempt to reduce to dollars-and-cents terms the culturally valued experiences that nature provides for indigenous communities, such as fishing.

And even where the ecosystem services that a particular natural resource provides could be meaningfully monetized without raising any practical or ethical concerns, it is still critical to recognize the fundamental limits of what this monetary value represents. Simply stated, we must not lose sight of the fact that an acre of wetland is worth more than just a sum of the ecosystem services it happens to provide.

I was also pleased to lead several of the Center’s public interest allies in a joint comment to OMB on the proposed guidance. In that comment, we praised OMB for correcting this long-standing deficiency in cost-benefit analysis. But we also suggested several ways that the proposed guidance could be strengthened to avoid producing analyses that might systematically understate the value of ecosystem services. As we explain, “With these changes, the proposed guidance would not only be able to better accomplish its stated objectives; they would also better align the proposed guidance with the Biden administration’s broader policy goals and priorities.”

The comment period on the proposed guidance closed Monday. In the months ahead, OMB will work to incorporate the feedback it receives into a final version of the guidance. The administration has identified no target date for issuing a final guidance. Going forward, the Center and its allies will monitor agencies’ cost-benefit analyses to determine whether and how well agencies are following the recommendations contained in the proposed guidance. Keep your eyes on this space for further updates.