01/12/2021 - EPA Mission Tracker

New Cost-Benefit Rule Hampers EPA’s Ability to Regulate Harmful Air Pollutants

by Hannah Perls

This analysis is a paraphrased excerpt from my article Deconstructing Environmental Deregulation under the Trump Administration, published in the Spring 2021 Vermont Law Review.

 

A crucial tool in the Trump administration’s deregulatory toolbox has been to diminish or ignore the value of co-benefits of environmental regulation. Just two days before Christmas, EPA finalized a rule that injects this philosophy into EPA’s rulemaking under the Clean Air Act (CAA). The rule—Increasing Consistency and Transparency in Considering Benefits and Costs in the Clean Air Act Rulemaking Process— complicates EPA’s task in issuing protective air pollution regulations by adding several extra-legal requirements at odds with the primacy of EPA’s CAA obligations.[1]

Rule Summary

The final rule requires EPA to conduct a cost-benefit analysis for all “significant” regulations issued under the CAA. In that analysis, EPA must disaggregate economic benefits “targeted by the relevant statutory provision” from other collateral or co-benefits.[2] However, as stated by a coalition of nonprofits and scientific associations in response to the rule, “distinguishing between benefits targeted by the statutory provision versus other welfare effects can be a complex, controversial, and ultimately fruitless endeavor.”[3] Even if it were possible to cleanly separate regulatory impacts between those that fall under the “statutory objective,” and those that do not, doing so minimizes key public health benefits of regulation. For example, under the final rule, EPA would have to separate out the benefits of reducing particulate matter or greenhouse gas emissions that occur when regulating mercury and other toxic pollutants, simply because the pollutants are regulated under different statutory provisions.[4] 

The final rule further limits the agency’s assessment of the range of human health benefits to only those benefits where there is “a clear causal or likely causal relationship between pollutant exposure and effect . . . based upon human data when available.”[5] This provision would have been especially limiting had the so-called “Secret Science” rule not been struck down by a federal court in February 2021. (The rule required EPA to give less weight to crucial epidemiological studies if the studies’ underlying data were not publicly available,[6] despite the fact that data from human subjects are often protected by confidentiality agreements). However,  the final CAA cost-benefit rule also imposes new restrictions on how health endpoints are selected and quantified, which will likely result in the exclusion or underestimation of both direct and co-benefits. Furthermore, the rule states that EPA’s future compliance with these new procedural requirements in CAA rulemaking is subject to judicial review, creating yet another rulemaking hurdle and a new source of legal vulnerability as prior executive orders addressing cost-benefit analysis explicitly precluded judicial review of that analysis.

Finally, the rule also requires EPA to provide a “clear description of the problem being addressed” and justify the rule by explaining “the compelling need for federal government intervention in the market to correct the problem.”[15] This requirement rests on the false assumption that economic markets voluntarily internalize externalities like air pollution, forcing regulators to justify air pollution regulations with a “compelling need,” notwithstanding the agency’s clear statutory mandates under the CAA. The requirement also flies in the face of basic economics. Market failures are most likely to exist in the environmental sector where there are consolidated or monopolized economic actors, such as utilities, power companies, and large-scale agriculture. These industries produce essential goods and services, as well as negative externalities (air and water pollution). Because current pricing mechanisms do not capture these externalities, these industries have no incentive to self-regulate absent additional regulation.[16] In the case of air pollution regulation under the CAA, the rule forces communities to serve as human pollutant detectors, bearing the brunt of pollution until there are sufficient data to demonstrate those pollutants are harmful to human health. Only then can agencies show a “compelling need” that merits governmental intervention.

Rule Defies Executive Order 12866 and EPA’s Own Guidelines 

Attenuating or minimizing the co-benefits of regulation in cost-benefit analyses breaks from decades of best practices mandated by executive order and the Office of Management and Budget (OMB). Executive Order 12866, signed in 1993 by President Clinton, makes no distinction between the direct and indirect effects of regulation. Rather, the order instructs agencies to “assess all costs and benefits of available regulatory alternatives,”[7] and specifically to assess the rule’s anticipated benefits to “health and safety, [and] the protection of the natural environment”[8] and “any adverse effects on . . . healthy, safety, and the natural environment.”[9] The order also expressly directs agencies to “select those approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity).”[10] OMB’s Circular A-4, which provides additional guidance to agencies on how to conduct cost-benefit analyses mandated by the executive order, tells agencies to analyze direct benefits and costs and ancillary benefits or side-effects together, defining ancillary benefits as “a favorable impact of the rule that is typically unrelated or secondary to the statutory purpose of the rulemaking.”[11] EPA provides a paltry justification for circumventing these requirements, arguing without evidence that “disaggregating benefits into those targeted and ancillary to the statutory objective of the regulation may cause EPA to explore whether there may be more efficient, lawful and defensible, or otherwise appropriate ways of obtaining ancillary benefits.”[12]

The rule is also inconsistent with EPA’s own Guidelines for Preparing Economic Analyses. The current guidelines require EPA, when assessing the economic impact of regulatory or policy options, to present “all identifiable costs and benefits” together, including “directly intended benefits and associated costs, as well as ancillary (or co-) benefits and costs.”[13] Even where benefits and costs cannot be monetized, the guidance states that those variables should still be quantified and presented, such as the “expected number of adverse health effects avoided” by a regulation.[14] The final cost-benefit rule thus goes far beyond EPA’s stated purpose of  “codify[ing] the practice of preparing [benefit cost analyses]” in developing CAA regulations. Rather, the rule both circumvents and distorts longstanding practices mandated by the CAA, executive order, and OMB to include co-benefits in agencies’ assessments of a proposed rule or policy’s net benefits to the general public.

 

 

 

 

[1] Increasing Consistency and Transparency in Considering Benefits and Costs in the Clean Air Act Rulemaking Process, 85 Fed. Reg. 84,130 (Dec. 23, 2020).

[2] Id. at 84,156.

[3] Comments on Notice of Proposed Rulemaking, Institute for Policy Integrity (Aug. 3, 2020), https://policyintegrity.org/documents/EPA_CBA_under_CAA_Joint_Comments_2020.08.03.pdf.

[4] Even when a pollutant is “targeted” under a statutory provision, however, the Trump EPA has failed to regulate consistent with its statutory mandate. For example, EPA’s argument for excluding the benefits of reducing PM in reversing the MATS rule was that the statutory scheme situated the regulation of PM under a different authority, i.e. the NAAQS. Yet only a few months after EPA’s reversal of the appropriate and necessary finding, EPA left the PM NAAQS unchanged notwithstanding the agency’s own report that failure to increase the primary PM NAAQS would result in “a substantial number” of premature deaths each year. Talk about playing Three Card Monte with air quality and public health. See National Ambient Air Quality Standards for PM and Ozone, EELP (July 15, 2020), https://eelp.law.harvard.edu/2020/07/national-ambient-air-quality-standards-for-pm-and-ozone/; Joe Goffman & Laura Bloomer, EPA’s Benefit-Cost Proposal in the Context of PM Pollution Regulation, EELP (July 14, 2020), https://eelp.law.harvard.edu/2020/07/epas-benefit-cost-proposal-in-the-context-of-pm-pollution-regulation/.

[5] Id. at 84,136.

[6] Strengthening Transparency in Pivotal Science Underlying Significant Regulatory Actions and Influential Scientific Information, 86 Fed. Reg. 469 (Jan. 6, 2021).

[7] Executive Order 12,866 § 1(a).

[8] Id. at § 6(a)(3)(C)(i).

[9] Id. at § 6(a)(3)(C)(ii).

[10] Id. at § 1(a) (emphasis added).

[11] See Office of Mgmt. & Budget, Exec. Office of the President, Circular A-4 (2003).

[12] 85 Fed. Reg. at 35,621.

[13] Guidelines for Preparing Economic Analyses, EPA 11-2 (Dec. 17, 2010), https://www.EPA.gov/sites/production/files/2017-08/documents/ee-0568-50.pdf.

[14] Id.

[15] 85 Fed. Reg. at 84,155.

[16] Id.