Judicial Review and Cost-Benefit Analysis

For the last few years now, CPR’s Member Scholars have made the case that cost-benefit analysis is, by itself, fundamentally deregulatory in nature.  Unfortunately, other institutions in our federal government tend to exacerbate the deregulatory nature of cost-benefit analysis.  Whether by design or dumb luck, cost-benefit analysis allows regulatory opponents to use those institutions—most notably judicial review—to further their deregulatory agendas.

The Clean Air Mercury Rule (CAMR) case is a good example.  In February, the Supreme Court decided not to accept an appeal of a case on CAMR, which was the Bush Administration’s feeble regulatory plan for addressing air mercury pollution from power plants.  The story of CAMR demonstrates how judicial review has been used to amplify the deregulatory impact of cost-benefit analysis, and it's emblematic of the deregulatory synergy between cost-benefit analysis and judicial review.  This synergy typically plays itself out through a 4-step pattern that has repeated itself many times over the last few years.

In the first step, an environmental, health, or safety agency promulgates a rule, either preemptively or at the direction of OIRA, that is far weaker than what is called for under the relevant statute.  From beginning to end, the process of drafting a new rule and tweaking it to pass OIRA muster takes two to ten years, and sometimes even longer.  In the case of CAMR, it took an astonishing 15 years for the EPA to promulgate a rule regulating air mercury pollution that was specifically called for in the Clean Air Act Amendments of 1990.  At the end of this 15-year process, the Bush Administration produced a weak regulatory plan that relied on the implementation of a feeble cap-and-trade system, which wouldn’t produce any real emissions reductions until 2018.  Usually, the agency will promulgate a weak rule to avoid conflict with OIRA over the cost-benefit analysis.  In the case of CAMR, however, Bush’s political appointees at EPA promulgated the weak regulatory plan first and then produced not one but two separate cost-benefit analyses in order to justify it.

In the second step, the rule is challenged in federal court on the grounds that the regulatory standard it imposes is too weak to be supported by the statute under which it was promulgated.  These suits are frequently brought by a state or local government entity, by a public interest organization, or some combination thereof.  In the case of CAMR, the rule was so universally reviled that no less than 15 states, two state environmental agencies, a municipality, and numerous environmental organizations filed challenges against it.

In the third step, the federal court agrees that the rule is too weak, and is therefore inconsistent with the underlying statute.  The federal court then vacates the rule, and sends the agency back to promulgate a new, more stringent rule that perhaps better accords with the underlying statute.  The time required to challenge a rule in federal court and run it through all the available appeals processes can be well over five years.  This is precisely what occurred in the CAMR case.  The Court of Appeals for the D.C. Circuit—hardly a hotbed of environmentalist sympathizers—found that the weak cap-and-trade regulatory plan was inconsistent with the Clean Air Act, and that EPA did not provide an adequate justification for failing to adopt the strict technology-based requirement for regulating air mercury pollution that was explicitly called for in the Clean Air Act.  The Court of Appeals vacated the rule, thereby reestablishing the pre-regulatory status quo for air mercury pollution emissions.  This pre-regulatory status quo will continue to prevail unless and until EPA can promulgate a new regulatory plan for addressing air mercury pollution emissions.

In the fourth and final step, the agency goes back and generates a new, stronger rule.  They must also produce a new cost-benefit analysis, which must be manipulated enough so that the new, stronger rule also—somehow—passes muster with OIRA.  As with step 1, this process of writing and justifying a new rule can take many years.

The regulation of air mercury pollution has just completed step three.  It has taken almost 20 years to get to this point; by the time step 4 is completed (if it is completed), it may have taken more than a quarter of a century to promulgate a rule.  Meanwhile, power plants have been free to release as much mercury as they can squeeze out of their smokestacks, a whole generation of children is left vulnerable to cognitive and developmental disabilities, and countless adults are rendered more susceptible to life-ending or life-altering heart disease.

When it comes to air mercury pollution, there's no cop on the beat; not even a weak one.

In a future post, I'll write about possible solutions to this problem.