The Supreme Court today upheld a decision from the Bush administration’s EPA that was good for industry and bad for the environmental health of our rivers and estuaries (my brief press statement on the case, Entergy v. EPA, is here; the court’s decision is here). But the majority opinion by Justice Scalia was written narrowly in a way that gives the Obama administration the leeway to approach these kinds of decisions in a more productive way. I’m hopeful they will seize that opportunity and avoid using cost-benefit analysis to set environmental standards in this case and beyond. The profound environmental challenges we face in the 21st century demand a different approach. If the EPA confronts the climate crisis with methodology that requires putting a dollar figure on every bird, bee and ecosystem that faces devastation from a warming globe, they’ll be paralyzed. This case involved EPA’s regulation of cooling systems at power plants. Power plants withdraw billions of gallons of water per day from rivers and estuaries for cooling purposes. In doing so, they kill billions of fish and other aquatic creatures that get crushed against the plants’ cooling water intake structures. The question here was whether EPA was authorized by statute to make this decision based on cost-benefit analysis. EPA decided that it was, and the Supreme Court today agreed. This is bad news for fish. For 30-some years, industry has been pushing for cost-benefit analysis to be the standard by which environmental regulations are promulgated. They have good reason for doing so. Cost-benefit analysis inevitably under-estimates the benefits of regulation in comparison to costs and therefore results in less stringent regulation. It’s relatively easy to estimate the costs of regulation in dollar terms – the amount it will cost industry to install technologies that will lessen environmental harm. It is far harder to attach a dollar figure to the benefits of environmental regulation. That requires putting a dollar figure on things like fish, ecosystems, and human health. EPA’s decision-making process in this case was a perfect example of why cost-benefit analysis is such an irrational way to make decisions about protecting the environment. In order to complete a cost-benefit analysis of the rule, EPA tried to come up with a dollar figure for the benefits of saving billions of fish and other aquatic creatures from being squashed against cooling water intake structures. It had a very hard time. Data were vastly incomplete. And even if they could estimate a number of fish affected, how should they value them in money terms? After it released its first estimate, EPA came under fire from all sides. Industry-backed economists said EPA’s methods were overestimating the benefits; other economists said they were vastly under-estimating. In the end, EPA threw up its hands and said it would only count the 1.8 percent of affected fish that humans would eat. The agency acknowledged that this estimate only captured a narrow slice of the full benefits of the rule. Indeed, it warned against drawing any conclusions from the analysis, saying: “A comparison of complete costs and incomplete benefits does not provide an accurate picture of net benefits to society.” But nonetheless, at the urging of the Office of Management and Budget, EPA then used this admittedly incomplete and inaccurate cost-benefit analysis as the basis for rejecting a proposal that would have imposed more stringent requirements on power plants (see my piece here on OMB’s absurd reports to Congress that claim to give an accounting of the costs and benefits of its regulations). Although the Supreme Court today upheld this irrational decision by the Bush EPA, the Court did not go as far as it could have:
- The Court left in tact the technology-based standards in the Clean Water Act that protect our rivers and streams from the discharge of pollutants. It gave EPA no authority to weaken these with the use of cost-benefit analysis.
- The Court gave EPA discretion to use cost-benefit analysis in setting standards for power plant cooling systems, but did not require the agency to do so. The rule is being remanded to EPA, so the Obama EPA will have a chance to reconsider what the prior administration did.
- The Court suggested that the EPA’s discretion to use cost-benefit analysis may not extend so far as to authorize “a rigorous form of cost-benefit analysis.” (p. 13) The Court suggested that EPA’s authority only extends to determining whether costs are “significantly disproportionate” to benefits. (p. 16) This may preclude the kind of overly formalized, monetized cost-benefit analysis that tries to put a dollar figure on every fish.
While it could have been worse, this decision is yet further evidence of a Supreme Court that—like the Bush EPA—is out of step with the kind of thinking that will be necessary to tackle the environmental problems of the 21st century. Scientists are telling us that climate change may drive nearly 40 percent of the species on the planet to extinction by mid-century. But how do we put a dollar figure on a bumble bee or the plankton in the ocean? If we try to approach the climate crisis with this kind of narrow-minded bean counting that only allows us to count the species we can eat, we will fail miserably. We can only hope that the Obama EPA will take a more forward thinking approach.