A new rule from the US Environmental Protection Agency that impacts how benefit-cost analyses are conducted is not as restrictive as its critics contend.
Much concern has arisen over the rule “Increasing Consistency and Transparency in Considering Benefits and Costs in the Clean Air Act Rulemaking Process,” newly finalized by the US Environmental Protection Agency (EPA). Many are concerned that the rule’s new requirements for Regulatory Impact Analysis (RIA) will make it harder for EPA to justify rules governing emissions from power plants, industry, and the like.
We have heavily criticized the Trump administration's approach to rulemaking, which has often proven to be ungrounded in science and overly partisan. However, our reading of this new rule suggests that it is less problematic than many critics fear. Based strictly on the words in this rule—not the implications it might have in its application by a Trump administration—we do not see the rule as necessarily tying the Biden administration's hands.
The rule’s treatment of co-benefits has prompted the most concern. But rather than eliminate co-benefits from consideration (as some feared), the rule merely requires that—in addition to a summary of total benefits, costs, and net benefits—the preamble to a rule must also present the health and welfare benefits that pertain specifically to the Clean Air Act provisions under which the rule is promulgated. So, in the case of the controversial mercury rule for power plants, the RIA would develop estimates for all the benefit categories associated with the rule, including the co-benefits associated with reduced exposure to PM2.5. The preamble to the rule would present a summary of the overall benefits and costs of the rule and then present separately the health and welfare benefits that pertain specifically to the Clean Air Act provisions requiring reductions of mercury emissions. Most RIAs would identify the specific reductions directly required by the underlying Clean Air Act provisions separately in the body of the report and in the preamble anyway, so we think there is little cause for concern with this new rule. And, by our reading, nothing in this rule could stop the Biden administration from extending the preamble to include a full presentation of the benefits compared to the costs.
Another issue raised by critics of this rule relates to the social cost of carbon. The Trump administration has justified the repeal of a variety of rules that affect greenhouse gases by replacing the Obama-era estimate of the social cost of carbon, which factored in climate damages to both the United States and the rest of the world. By considering only the domestic damages, the Trump administration’s estimate of the social cost of carbon is about $7 per ton, considerably less than the previous administration’s estimate of $42 per ton. Despite fears that a social cost of carbon based solely on domestic factors would be mandated, the rule permits analyses that use both domestic and global social cost of carbon estimates. Undoubtedly, the Biden EPA will present benefits using both the global social cost of carbon and an estimate of the domestic effects. The rule would then require EPA to explain how it considered these estimates when making its decision on a final rule.
We interpret some other elements of the rule to be positive, as well. For instance, the rule does a good job suggesting how improvements can be made to address the considerable uncertainty underlying both cost and benefit estimates.
On the other hand, some provisions in this rule seem to impose unnecessary burdens. The rule requires a benefit-cost analysis for all significant rules, extending the benefit-cost analysis requirement to a much broader set of rules than solely those that are “economically significant.” A complete, detailed benefit-cost analysis for many of these rules likely would have only a limited payoff. In addition, the provisions addressing the selection and quantification of human health endpoints are overly restrictive and, if strictly implemented, likely will exclude important human health effects.
Finally, the rule also invites judicial review of EPA's compliance with its procedural requirements, in contrast to previous executive orders involving benefit-cost analysis that explicitly preclude judicial review. It’s not clear how the courts will respond to this invitation, but more frequent judicial reviews of agency benefit-cost analysis could become a significant hurdle to rulemaking.
In sum, this rule won’t significantly alter how a Biden EPA approaches benefit-cost analysis. But, unless the rule is repealed, it could permit future administrations to return to questionable applications of benefit-cost analysis.