Last month, the U.S. Environmental Protection Agency (EPA) released what is almost certainly the best regulatory analysis it has performed in over 40 years. (To be clear, though, the bar for these analyses is pretty low.) More importantly, it provides President Biden with new impetus to finally follow through with the long overdue implementation of his administration’s “Modernizing Regulatory Review” memorandum.
The regulatory analysis was part of the EPA’s proposed chemical disaster rule, which seeks to strengthen implementation of an important part of the Clean Air Act called the Risk Management Program (RMP). Congress established the RMP to prevent dangerous explosions or releases of toxic chemicals at industrial facilities.
If ever there was a rulemaking that laid bare the theoretical and practical failings of cost-benefit analysis — the prevailing conservative approach to regulatory analysis, which pretends a rule’s costs and benefits can be comprehensively measured and directly compared through monetization — it’s this one. Many of the rule’s “benefits” — including preventing deaths and significant injury and promoting community peace of mind — cannot be meaningfully captured in monetary terms. Further, cost-benefit analysis is ill-equipped to properly account for the kind of “low-probability, high-impact events” that the program intends to address.
Many of the communities put in harm’s way by these facilities are predominantly low-income people of color — a reflection of decades of racist land use practices. Yet, cost-benefit analysis cannot account for the social injustices and inequities that are at the core of many of the pressing social challenges we are attempting to address through public policy.
Nevertheless, when the Obama administration sought to institute its own modest reforms to the RMP in 2016 following a series of high-profile environmental catastrophes, it vainly sought to assess the rulemaking through the lens of cost-benefit analysis. (The rule was later repealed by the Trump administration as part of its broader assault on safeguards. The Biden EPA’s proposal would restore and expand on the Obama-era rule’s provisions.) Among the few benefits the analysis monetized was preventing deaths via the controversial “value of a statistical life” methodology. Other important benefits categories — such as avoided emergency response costs and environmental damage — were not monetized and thus ignored in the final analysis. Unsurprisingly, the analysis concluded that the monetized costs of the rule outweighed the monetized benefits.
A Different Approach
In light of such flaws, my colleague Amy Sinden and I are pushing the EPA to take a different approach to assessing its new chemical disaster rule. In July 2021, I submitted comments to the agency urging it to assess the rule’s impacts according to the context-specific framework outlined in the Clean Air Act for the RMP; reject conducting a net benefits calculation; avoid monetizing impacts that are “nonmarket” in nature; effectively describe in qualitative terms all significant benefits categories; adopt an effective approach for characterizing and accounting for “low-probability, high-impact events”; and properly account for all relevant distributional and equity concerns.
In June 2022, Amy and I met with officials from the EPA and the White House Office of Information and Regulatory Affairs (OIRA), which oversees agency compliance with the executive order-mandated regulatory analysis requirements, to reiterate these recommendations.
When the Biden EPA released its proposed chemical disaster rule, we were pleased that the accompanying regulatory analysis followed many of our recommendations. First, and foremost, the EPA did not perform a traditional cost-benefit analysis of the proposal and the various alternatives it considered; it conspicuously refused to calculate the net benefits for any of them.
Second, the agency generally resisted attempting to monetize the rules’ benefits, electing instead to describe them in qualitative terms.
Finally, it performed a basic “breakeven” analysis to test the rule’s general reasonableness. It did this by determining the total costs of the rule’s requirements and then how many accidents the rule would have to prevent to “break even” with the rule’s costs. If that break-even number is lower than what the rule is anticipated to prevent, then that is compelling evidence of the rule’s overall reasonableness.
To be sure, this analysis required identifying a monetary value of preventing an accident, which in turn involved assigning monetary values to some nonmarket regulatory benefits (including preventing deaths). As compared to cost-benefit analysis, however, the practical, theoretical, and moral problems raised by the break-even approach are significantly mitigated though not eliminated). The agency also helpfully explains the rough and modest nature of this analysis, as well as the significant limitations on the accuracy and precision of its final result.
Room for Improvement
As heartening as this analysis was, the EPA still has considerable room for improvement (including in the analysis for the final version of the chemical disaster rule). For instance, the analysis only obliquely addresses social justice and distributional concerns (i.e., which identifiable communities, if any, benefit from the rule and which are harmed) as part of the qualitative description of the rule’s benefits, and instead leaves the full discussion of these issues for a separate environmental justice analysis. These issues are central to understanding the rule’s impacts and should be included in the benefits discussion.
In addition, the alternatives analysis is deeply flawed. The agency discusses only one “lower-cost” and one “higher-cost” alternative, and the higher-cost one is so overwhelmingly expensive compared to the option selected for the proposal that it is too easy to dismiss out of hand. The analysis would have been more meaningful if the agency had considered a more realistically affordable higher-cost alternative instead.
Despite these shortcomings, the EPA’s regulatory analysis for the chemical disaster rule is a marked improvement over the Obama analysis from six years ago. Unfortunately, unless and until the Biden administration reengages with the implementation of its Modernizing Regulatory Review memo, better analyses like this one will remain the exception instead of the rule. With a new executive order that codifies progressive approaches to regulatory analysis, the administration could seek to promote greater uniformity in performance among agencies and give these improved practices better staying power in future administrations.
The EPA has demonstrated that it is willing and able to move beyond the failed methodology of cost-benefit analysis. It’s long past time for the Biden administration to step up and lead on this critical issue.
For more on the agency’s proposed chemical disaster prevention rule, see this earlier blog post from my colleague Katlyn Schmitt. You can also stay up to date on the Center’s work and advocacy related to the rule by subscribing to our email list and following us on Twitter, Facebook, Instagram, and LinkedIn.