    [Senate Hearing 106-611]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 106-611

                      CLEAN AIR ACT: REVIEW AND OVERSIGHT

    =======================================================================

                                    HEARING

                                   BEFORE THE

                      SUBCOMMITTEE ON CLEAN AIR, WETLANDS,
                      PRIVATE PROPERTY, AND NUCLEAR SAFETY

                                  COMMITTEE ON
                          ENVIRONMENT AND PUBLIC WORKS
                              UNITED STATES SENATE

                           ONE HUNDRED SIXTH CONGRESS

                                 FIRST SESSION

                                   __________

                                OCTOBER 14, 1999

                                   __________

      Printed for the use of the Committee on Environment and Public Works

    _______________________________________________________________________
                For sale by the U.S. Government Printing Office
    Superintendent of Documents, Congressional Sales Office, Washington, DC
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    ?

                   COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS

                           ONE HUNDRED SIXTH CONGRESS

                     JOHN H. CHAFEE, Rhode Island, Chairman
    JOHN W. WARNER, Virginia             MAX BAUCUS, Montana
    ROBERT SMITH, New Hampshire          DANIEL PATRICK MOYNIHAN, New York
    JAMES M. INHOFE, Oklahoma            FRANK R. LAUTENBERG, New Jersey
    CRAIG THOMAS, Wyoming                HARRY REID, Nevada
    CHRISTOPHER S. BOND, Missouri        BOB GRAHAM, Florida
    GEORGE V. VOINOVICH, Ohio            JOSEPH I. LIEBERMAN, Connecticut
    MICHAEL D. CRAPO, Idaho              BARBARA BOXER, California
    ROBERT F. BENNETT, Utah              RON WYDEN, Oregon
    KAY BAILEY HUTCHISON, Texas
                         Jimmie Powell, Staff Director
                   J. Thomas Sliter, Minority Staff Director
                                     ------

      Subcommittee on Clean Air, Wetlands, Private Property, and Nuclear
                                     Safety

                      JAMES M. INHOFE, Oklahoma, Chairman
    GEORGE V. VOINOVICH, Ohio
    ROBERT F. BENNETT, Utah              BOB GRAHAM, Florida
    KAY BAILEY HUTCHISON, Texas          JOSEPH I. LIEBERMAN, Connecticut
                                         BARBARA BOXER, California

                                      (ii)

                                C O N T E N T S

                                  ----------
                                                                       Page

                                OCTOBER 14, 1999
                               OPENING STATEMENTS

    Baucus, Hon. Max, U.S. Senator from the State of Montana.........     5
    Boxer, Hon. Barbara, U.S. Senator from the State of California...    47
    Crapo, Hon. Michael, U.S. Senator from the State of Idaho........     2
    Graham, Hon. Bob, U.S. Senator from the State of Florida.........    46
    Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma...     1
    Lieberman, Hon. Joseph I., U.S. Senator from the State of
      Connecticut....................................................     7
    Moynihan, Hon. Daniel Patrick, U.S. Senator from the State of New
      York...........................................................    46
    Thomas, Hon. Craig, U.S. Senator from the State of Wyoming.......    45
    Voinovich, Hon. George V., U.S. Senator from the State of Ohio...     3

                                   WITNESSES

    Benoit, Michel R., executive director, Cement Kiln Recycling
      Coalition......................................................    37
        Draft, EPA rulemaking.......................................198-204
        Letters, MACT Rules.........................................170-197
        Prepared statement...........................................   156
        Statement, Cement Kiln Recycling Coalition...................   164
    Graham, John D., director, Center for Risk Analysis, Harvard
      School of Public Health, Boston, MA............................    23
        Prepared statement...........................................    85
        Responses to additional questions from Senator Baucus........    90
    Kerester, Alison, University of Texas School of Public Health,
      Mickey Leland National Urban Air Toxic Research Center,
      Houston, TX....................................................    21
        Prepared statement...........................................    76
        Responses to additional questions from:
            Senator Baucus...........................................    84
            Senator Moynihan.........................................    85
    Melewski, Bernard C., counsel and legislative director,
      Adirondack Council, Albany, NY.................................    33
        Brochure, Acid Rain, A Continuing National Tragedy...........   205
        Prepared statement...........................................   145
        Response to additional question from Senator Baucus..........   150
    Perciasepe, Robert, Assistant Administrator, Office of Air and
      Radiation, U.S. Environmental Protection Agency................     9
        Prepared statement...........................................    52
        Responses to additional questions from:
            Senator Graham...........................................    74
            Senator Lieberman........................................    64
            Senator Moynihan.........................................    63
            Senator Thomas...........................................    61
            Senator Baucus...........................................    68
    Revesz, Richard L., director, program on environmental
      regulation, New York University School of Law, New York, NY....    24
        Article, Environmental Regulation, Cost-Benefit Analysis, and
          the Discounting of Human Lives, Columbia Law Review.......100-145
        Prepared statement...........................................    94
        Responses to additional questions from:
            Senator Baucus...........................................    99
            Senator Lieberman........................................   100
    Tyndall, William F., vice president of environmental services,
      Cinergy Corporation, Cincinnati, OH, on behalf of Edison
      Electric Institute.............................................    35
        Prepared statement...........................................   151

                              ADDITIONAL MATERIAL

    Letter, Gov. George Pataki.......................................    48
    Statement, Gov. George Pataki....................................    49

                      CLEAN AIR ACT: REVIEW AND OVERSIGHT

                                  ----------

                           THURSDAY, OCTOBER 14, 1999

                                           U.S. Senate,
    Committee on Environment and Public Works, Subcommittee on
     Clean Air, Wetlands, Private Property, and Nuclear Safety,
                                                        Washington, DC.
        The subcommittee met, pursuant to notice, at 9:03 a.m., in
    room 406, Senate Dirksen Building, Hon. James Inhofe (chairman
    of the subcommittee) presiding.
        Present: Senators Inhofe, Crapo, Voinovich, Lieberman, and
    Baucus [ex officio].

              OPENING STATEMENT OF HON. JAMES M. INHOFE,
                U.S. SENATOR FROM THE STATE OF OKLAHOMA

        Senator Inhofe. The meeting will come to order.
        Today marks the first Clean Air Act reauthorization
    hearing. It is part of what I hope will be a 4-year process
    that we will be able to get through to reauthorize. Last time,
    I understand it took about 10 years, but we shouldn't have any
    problem doing it in a shorter period of time. I don't
    anticipate a complete rewrite, as we went through in 1990, but
    instead more of a fine tuning of the process.
        The Clean Air Act has had many successes, but it has had
    its share of failures, too. No law is perfect, and every law
    could benefit with some reforms and changes. Of course, the
    hard part is going to be agreeing on what those reforms will
    look like. As the Chairman of the Clean Air Subcommittee, I am
    not proposing a complete rewrite of the law; instead of using a
    club, we will use a surgical scalpel.
        What I would like to do at this point is highlight a few of
    the Clean Air Act's notable successes and failures.
        First, the air pollution is down. In almost every category,
    the amounts of pollutants have decreased substantially and, in
    general, people are breathing healthier air than they were 10
    or 20 years ago. But I am not sure that they realize that.
        Second, the 1990 amendments incorporating market-based
    approaches have worked. These approaches need to be expanded to
    other statutes and other sections of the Clean Air Act.
        Third, the 1990 amendments provided a framework for State
    decisionmaking ability. We need to make sure that this trend
    continues.
        In the area of failures:
        First, risk tradeoffs. The act of chasing after pennies of
    benefits for dollars in costs through its failure to identify
    the most cost-effective risks we face as a Nation.
        Second, sound science policy judgment calls have been
    confused with statements of fact regarding the science. As a
    result, the EPA has lost credibility. We need to find ways to
    involve outside panels of scientists, such as CASAC. During our
    ambient air efforts, we did not really utilize the Clean Air
    Science Advisory Committee as I think it was intended to be
    used, and I would like to see us expand the use of the talent
    that we have available to us.
        Third, exposure. Proving a chemical is toxic alone is not
    enough to justify a massive regulatory program. We have to
    understand what the human and environmental exposure routes are
    before we regulate, not just proving it is toxic.
        Fourth, we need to open up the decisionmaking process. Too
    many of the EPA's decisions have been negotiated behind closed
    doors and through settlements. The American public deserves to
    know more about this process. I think we know about the consent
    decrees and these are the things that we would like to address.
        These broad issues will be discussed during the second
    panel. The third panel will cover specific issues such as the
    MACT process, the acid rain program, and the effect of the
    multiple regulations addressing the same pollutant.
        These are just a few observations. I hope today's hearing
    will begin a public dialog on what the next version of the
    Clean Air Act will look like. I intend to followup this hearing
    with additional reauthorization hearings next year, with at
    least one hearing focusing on States and local governments.
        Senator Baucus?
        Senator Baucus. I'm not ready yet.
        Senator Inhofe. All right. Senator Crapo?

              OPENING STATEMENT OF HON. MICHAEL D. CRAPO,
                  U.S. SENATOR FROM THE STATE OF IDAHO

        Senator Crapo. Thank you very much, Mr. Chairman. I
    appreciate your allowing me to sit with the committee today.
    These hearings hold very important consequences for my State,
    as they do all States, and we have had a number of important
    issues in Idaho that directly involve the Clean Air Act and the
    implementation of the Act. I would like to welcome Mr.
    Perciasepe here today. He has been very helpful in working with
    me and our State in trying to help us get through some of the
    problems that we have faced in the implementation of the Act.
        I look forward to these hearings and hope to work very
    closely with you as we work to see if we can't get better risk
    assessment and cost-benefit analysis into the law in a way that
    will help to reach that balance between making sure that we
    protect the environment adequately yet make sure that the
    burden on industry and on the American public in other ways is
    not excessive. Thank you.
        Senator Inhofe. Thank you, Senator.
        Senator Voinovich?

            OPENING STATEMENT OF HON. GEORGE V. VOINOVICH,
                  U.S. SENATOR FROM THE STATE OF OHIO

        Senator Voinovich. Thank you, Mr. Chairman. First of all, I
    would like to thank you for conducting this very important
    hearing today on the Clean Air Act reauthorization.
        I would also like to extend a welcome to Bill Tyndall, vice
    president of environmental services at Cinergy Corporation in
    Cincinnati, Ohio. Cinergy is one of our most responsible
    citizens in the environmental area and I am pleased that Mr.
    Tyndall will join us today. In addition, I would like to
    welcome John Graham from the Harvard Center for Risk Analysis.
    John and I have worked together on efforts to pass regulatory
    reform legislation, and John was a guest speaker before the
    Natural Resources Committee when I was Chairman of the National
    Governors Association.
        Mr. Chairman, I know that you want us to keep our remarks
    short, and I was going to go into Ohio's great environmental
    record before my remarks. But in brief, I just want to say, as
    a former commissioner, mayor, Governor, Ohio has been very
    responsible in the environmental area. I am proud of the fact
    that while I was Governor we made up our mind that we were
    going to get all of our urban areas into attainment on our
    ozone standard, and by the time I left office, all of them were
    in attainment except one, Cincinnati, and they are now waiting
    for the EPA to approve them.
        I have been concerned a long time about the fact that the
    Environmental Protection Agency was not taking into
    consideration risks, costs, benefits, and sound science during
    their rulemaking process. And I was particularly concerned
    about their ozone and particulate standards and the NOx SIPP
    call.
        I spent over one hundred hours, in fact, trying to convince
    the Environmental Protection Agency, the Clinton
    Administration, and Members of Congress and members of this
    committee that the cost of the new standards in this country
    far outweigh the benefits to public health and the environment.
    In fact, according to EPA's own estimates, the costs for
    implementing the NAAQS standard for ozone exceeded the
    benefits. The President's own Council of Economic Advisers
    predicted that the benefits would be small while the cost of
    reaching full attainment could total some $60 billion.
        I would like to note that Senator Inhofe provided
    significant help to the States by amending TEA-21 to help
    provide more reasonable timelines to implement ozone and
    particulate matter requirements. We really appreciated that
    concern on your part, Senator.
        Federal agencies should not be in a position to force
    governments, businesses, and consumers to throw billions of
    dollars at a problem without knowing if they are hitting the
    right target. So often we forget that some of these regulations
    force governments to spend money that is badly needed for other
    areas of responsibility. I will never forget when Administrator
    Browner, prior to the final NAAQS standard, told me that her
    hands were tied, that statutorily she could not use risk
    assessment and cost-benefit analysis in her consideration for
    final regulation. I think it is time that we gave her that
    authority.
        I am going to introduce a bill soon that will require EPA
    to conduct an analysis of cost and benefits while providing the
    Agency with flexibility in making final regulatory decisions.
    In fact, the bill I am about to introduce mirrors the risk
    assessment and cost-benefit analysis provisions that are in the
    Safe Drinking Water Act, which had strong bipartisan support
    and was signed into law by President Clinton in 1996. I merely
    state the obvious. If that provision was good enough for the
    Safe Drinking Water Act, it ought to be good enough for the air
    that we breathe.
        I have no doubt that using risk assessment and cost-benefit
    analysis will help ensure that reasonable and cost-effective
    rules are being set. I also believe that these analyses will
    help ensure that the air regulations, ones that are based on
    sound science, will actually be implemented in a more timely
    manner because they won't be tied up in lawsuits. We could be
    so much further along if we had just used risk assessment and
    cost-benefit analysis.
        This is really about letting the public know how
    regulations are made. We need to make the Federal Government
    more accountable to the people it serves. When EPA is setting
    clean air standards, they should answer several simple, but
    vital, questions. What science is needed to help make good
    decisions? What is the nature of the risk being considered?
    What are the benefits of the proposed regulation? How much will
    it cost? Are there better, less burdensome ways to achieve the
    same goals? Thank you, Mr. Chairman.
        [The opening statement of Senator Voinovich follows:]
     Statement of Hon. George V. Voinovich, U.S. Senator from the State of
                                      Ohio
        Mr. Chairman, I want to thank you for conducting this very
    important hearing today on the subject of Clean Air Act
    Reauthorization.
        As a father and grandfather, I understand the importance of
    ensuring a clean environment for our future generations. Throughout my
    33 years of public service, I have demonstrated a commitment to
    preserving our environment and the health and well-being of all
    Ohioans. I sponsored legislation to create the Ohio Environmental
    Protection Agency when I served in the State legislature, and I fought
    to end oil and gas drilling in the Lake Erie bed. As Governor, I
    increased funding for environmental protection by over 60 percent.
    While in the Ohio House of Representatives, I was responsible for
    creating the Environment and Natural Resources Committee and was
    honored to serve as vice chairman of that committee.
        In addition, the State of Ohio realized significant improvements in
    air quality in recent years. When I first entered office as Governor in
    1991, most of Ohio's urban areas were not attaining the 1-hour ozone
    standard. By the time I left office in 1998, all cities had attained
    the standard, except one. However, Cincinnati is now meeting the
    standard an is awaiting action by the EPA.
        Overall, the ozone level in Ohio has gone down by 25 percent and in
    many urban areas, it has gone done by more than 50 percent in the past
    20 years. Ohio is doing its part to provide cleaner air. Nevertheless,
    over the years, I have become more and more concerned that just in
    order to comply with Federal laws and regulations, our citizens,
    businesses and State and local governments must pay costs that can be
    inordinately burdensome or totally unnecessary.
        In the 104th Congress, I worked closely with a coalition of State
    and local government officials and members of the House and Senate to
    pass effective safe drinking water reforms. The results of our efforts
    culminated in the Safe Drinking Water Act Amendments, legislation which
    was enacted with broad bipartisan support in 1996. In addition, the
    bill had the support of environmental organizations and I was pleased
    to attend the President's bill-signing ceremony when these reforms were
    signed into law. This cooperative effort is notable because it showed
    that a law could include common-sense reforms that make the government
    more accountable based on public awareness of risks, costs and
    benefits. I believe it set a key precedent for reform of environmental
    regulations.
        I specifically mention the drinking water program because it
    includes risk assessment and cost benefit analysis provisions that I
    strongly believe should be part of the Clean Air Act. In fact, I am
    about to introduce a bill that would do just that. Under my bill, the
    EPA would be required to conduct an analysis of incremental costs and
    benefits of alternative standards, while providing the agency with
    flexibility in making final regulatory decisions.
        My bill is a common-sense approach that merely addresses the
    obvious: if it's good enough to protect the water that we drink, then
    it should be good enough to protect the air that we breath. It will
    also help us avoid some of the legal and legislative wrangling that has
    occurred with respect to how we achieve clean air.
        When I was Governor of Ohio, I became more and more concerned that
    the EPA was not taking into consideration sound science, costs and
    benefits during the rulemaking process. I was particularly concerned
    about the standards for ozone and particulate matter and the NOx SIP
    call. In fact, I spent over 100 hours trying to convince the EPA, the
    Clinton Administration, Members of Congress and members of this
    committee that the costs to this country to implement the new National
    Ambient Air Quality Standards (NAAQS) far outweighed the benefits to
    public health and the environment.
        In fact, according to EPA's own estimates, the costs for
    implementing the NAAQS standard for ozone exceeded the benefits. The
    President's own Council of Economic Advisors predicted that the
    benefits would be small, while the costs of reaching full attainment
    could total $60 billion.
        Just this spring, a U.S. appeals court remanded EPA's ozone and
    PM2.5 standards, ruling that EPA did not justify its
    decision with sound scientific evidence. Ohio was a party to this
    lawsuit, which began when I was Governor. The court didn't say that EPA
    couldn't regulate at these levels, but that EPA didn't give
    justification for doing so.
        That has been my point all along. I have argued that the NAAQS
    standards and NOx SIP call were going to be costly and that we didn't
    even know if making those investments was going to make a difference.
        Federal agencies should not be in the position to force businesses
    and consumers to throw billions of dollars at a problem without knowing
    if they're hitting the right target. Yet, the EPA is asking all of
    America to pay for these new regulations simply because the EPA said it
    is the right thing to do. However, they have failed to adequately
    determine the effects of changing the ozone and particulate matter
    standards.
        In an effort to make my case with Administrator Browner regarding
    the new NAAQS standards, I told her the facts were inadequate to make
    the case for these standards. Instead of improving public health, they
    would divert resources from programs that make a real difference in
    protecting human health and the environment. However, she told me that
    her hands were tied, that statutorily she could not use risk assessment
    and cost-benefit analysis in her consideration of final regulations. At
    that point I realized it was essential to provide EPA the authority to
    take costs, benefits and risk into consideration during the rulemaking
    process. And it is important that the public know what information has
    been used in finalizing the rules that affect our air quality.
        I have no doubt that using risk assessment and cost-benefit
    analysis will help ensure that reasonable and cost-effective rules are
    being set, and which have the science to back them up.
        The challenge facing public officials today is determining how best
    to protect the health of our citizens and our environment with limited
    resources. We need to do a much better job ensuring that regulations'
    costs bear a reasonable relationship with their benefits, and we need
    to do a better job of setting priorities and spending our resources
    wisely.
        We need to make the Federal Government more accountable to the
    people it serves. When EPA is setting Clean Air standards, they should
    answer several simple, but vital questions:

        What science is needed to help us make good decisions?
        What is the nature of the risk being considered?
        What are the benefits of the proposed regulation?
        How much will it cost?
        And, are there better, less burdensome ways to achieve the same
    goals?

        Thank you Mr. Chairman, I look forward to hearing today's
    testimony.
        Senator Inhofe. Thank you, Senator Voinovich.
        Senator Baucus?

                 OPENING STATEMENT OF HON. MAX BAUCUS,
                 U.S. SENATOR FROM THE STATE OF MONTANA

        Senator Baucus. Thank you. Mr. Chairman, I very much
    appreciate your holding these hearings. The Clean Air Act has
    served this country very well, but it is always good to take
    stock and look to see where we are. This is a very important
    hearing. I understand you will be holding a series of them
    overseeing the Clean Air Act.
        Mr. Chairman, as you know, it takes a long time to make a
    good product; it just doesn't happen overnight. But overall, I
    think we did a pretty good job with the amendments of 1990. We
    worked hard, very hard, this committee did with the full Senate
    and the House. It is not perfect, but it is good. We can't let
    perfection be the enemy of the good, and that certainly applies
    to the Clean Air Act. It is a good Act. It has worked. There
    are some problems with it, but basically it worked.
        The air we all breathe today is considerably cleaner than
    it was prior to the Act. Total emissions of major pollutants
    have been cut by a third since 1970. At the same time, our
    economy has prospered. Gross Domestic Product has more than
    doubled. The population increased by nearly a third. We have
    proved that we can meet stringent air quality standards and
    have a vibrant, growing economy at the same time.
        One of the issues our witnesses will discuss is the use of
    cost-benefit analysis. I am not adverse to applying cost-
    benefit or risk-benefit analysis when it makes sense. We
    applied it, as has been mentioned, to the Safe Drinking Water
    Act standards-setting process in 1996. In that case, drinking
    water systems are clearly defined and costs, risks, and
    benefits are easier to calculate. But developing clean air
    standards does not lend itself easily to cost-benefit analysis.
    Calculating exposure and risk are significantly more
    complicated. Furthermore, I challenge anyone to put a dollars
    and cents value on a child's reduced IQ due to exposure to
    lead.
        The right way to go about setting clean air standards is to
    figure out what the scientists, what the doctors, what the
    experts say are the levels needed to protect public health.
    Then we can figure out how to cost-effectively implement them.
    That formula has been working well since 1970. I have not seen
    compelling evidence that we should break the success.
        There are many issues that need to be addressed in the next
    authorization. For example, how well does the Act facilitate
    regional cooperation in dealing with pollutants. We should also
    examine EPA's and the States' flexibility to fashion the most
    cost-effective programs to meet air quality standards. We could
    probably also do a better job of monitoring and determining
    exposure than we have in the past. There are plenty of other
    challenges that also need attention, not the least of which is
    that almost half the population lives in an ozone nonattainment
    area, breathing unhealthy air. And despite new controls, more
    than 8 million tons--8 million--of toxic air pollutants are
    still being emitted each year.
        I hope we will be able to pursue these and other issues in
    the coming hearings. I again thank you, Mr. Chairman, for
    holding this hearing. One other view about sound science. We
    all talk about sound science. Everybody wants sound science. Of
    course, we want sound science. But I must remind us that sound
    science is not the answer; it is only the beginning, because
    sound science will tell us what the level of certain
    contaminants might be, what the level of certain pollutants
    will be, but the final decision has to be made right here as to
    whether that is the acceptable level or not. The policy
    decision is what to do after we find out what sound science
    determines.
        So whenever we use the term ``sound science,'' I hope
    everyone realizes and remembers that it is passing the buck
    because it is not going to solve the question. The question is
    going to have to still be solved by Congress as to what to do
    after we get the data from sound science, what is the right
    public policy after we get the sound science. I just again
    remind us all that we set the policy standards. The scientists
    give us the data but we, again, set the standards.
        Senator Inhofe. Senator Baucus, I don't disagree with that.
    I think the statement that you make that the policy is made
    after we hear the sound science, I want to make sure that is
    plugged in someplace along the way.
        Senator Baucus. Oh, sure it is. As I said, Mr. Chairman, I
    think we should first listen to the scientists, listen to the
    doctors, listen to the experts as to what the health
    consequences will be, what the standards should be to protect
    public health, and then we figure out what the best cost-
    benefit analysis way is to finding a way to achieve that
    standard. I ask the question again, what dollars and cents
    values and with a cost-benefit are you going to put on a child
    who has reduced IQ due to lead exposure?
        Senator Inhofe. Senator Lieberman?

            OPENING STATEMENT OF HON. JOSEPH I. LIEBERMAN,
               U.S. SENATOR FROM THE STATE OF CONNECTICUT

        Senator Lieberman. Thanks, Mr. Chairman. I appreciate very
    much that this morning we are meeting for the first of what I
    understand will be a series of hearings leading up to the
    reauthorization of the Clean Air Act.
        Personally, passing the Clean Air Act Amendments of 1990
    was one of the most significant legislative efforts I have been
    involved in since I came to the Senate in 1989. I strongly
    supported those amendments and am very proud of the way we
    worked across party lines on this committee and with the Bush
    Administration to make changes, that is the George Bush,
    Senior, Administration, to make changes in the Act that
    improved the quality of our Nation's air. I think that we can
    all look back at the Clean Air Act Amendments of 1990 as one of
    this decade's biggest environmental success stories, and I
    believe, along with the Clean Water Act, one of the best things
    Government has done in the last three or four decades.
        Most places in America today have cleaner air than they did
    in 1990, including some of our cities, many of our cities.
    Concentrations of pollutants like lead, carbon monoxide, sulfur
    dioxide, and ozone have declined significantly. Clearly, there
    is much to be proud of and I applaud EPA for its work
    implementing the requirements of the Act. I would like to make
    particular mention of the Agency's effort to develop a regional
    smog strategy and to take Federal actions to enforce emissions
    controls for sources that contribute to regional pollution,
    which mean a lot to us in a State like Connecticut.
        But certainly there remains much more to be done. The fact
    is that 117 million Americans live in areas today where it
    continues to be unsafe to breathe the air because of ozone and
    smog pollution. Asthma rates among children are up by 75
    percent since 1990, that's a fact, making them significantly
    more vulnerable to smog pollution. Transported pollution still
    causes tremendous problems, in some instances it has been
    measured at levels that exceed the public health standard by 80
    percent.
        There are several areas of the Clean Air Act that I think
    warrant consideration as part of the reauthorization dialog
    that we are beginning this morning. For example, a series of
    requirements in the 1970 and 1977 amendments required that
    utility plants meet new source performance standards for
    pollutants, like nitrogen oxides and sulfur dioxides. These
    standards were only imposed on new plants since it was thought
    that the older plants would be retired in the near future. Yet,
    of the 1,000 power plants operating in our country today, 500
    were actually built before the regulations of the 1970's were
    enacted. So as we consider our responsibility in reauthorizing
    the Clean Air Act, it seems to me that it is essential that we
    close this loophole. Simply requiring the Nation's older power
    plants to meet the same standards that apply to new facilities
    would reduce utility emissions by 75 percent.
        Since the 1990 amendments, evidence of the impacts of
    global climate change has continued to mount. Greenhouse gas
    concentrations have continued to increase despite our
    international commitment to stabilize them at 1990 levels. As
    power plants and other major sources make changes to reduce
    nitrogen oxide, sulfur dioxide, and mercury, reduction of
    carbon dioxide emissions must also be considered as part of the
    equation so that the utilities can respond in the most cost-
    effective fashion.
        Regarding acid deposition, clearly identified now as an
    issue of national not only regional concern, which is was when
    we considered it in 1990. While we have made progress in
    reducing the emissions of sulfur dioxide, I look forward to
    hearing from today's witness from the Adirondack Council about
    where more may be required if we are to slow down the
    degradation of our Nation's environment and ecosystems.
        Continued action to reduce the sulfur content of fuels and
    reduce mobile sources of air pollution is certainly one way to
    address that issue. While average emissions per vehicle have
    declined, vehicle miles travelled have continued to rise
    significantly. In addition, as we all know, the size of the
    average car has increased in recent years. We didn't envision
    growth in this way when we looked at mobile sources of
    pollution in 1990. And I continue to believe that we need to
    examine additional emission controls on vehicles because they
    can be, and are, technologically feasible and certainly can be
    cost-effective.
        Finally, Mr. Chairman, I would like to offer, in some ways
    joining with my colleague from Montana, some words of caution
    on the issue of applying cost-benefit analysis to the Clean Air
    Act. All of us seek to apply the most cost-effective policies
    and technologies to address environmental problems. We would be
    irresponsible if we didn't do that. The challenge that we face,
    however, is full of uncertainty. Anticipating the innovations
    of tomorrow requires the kind of foresight that most of us
    don't have, particularly with the extraordinary pace of
    technological innovation and progress.
        Because of that uncertainty, expectation from the cost of
    meeting clean air objectives has, in fact, been way off the
    mark as we look back. For example, in 1990, the utility
    industry predicted that acid rain controls would cost $1,500
    per ton of clean up and the leading industry trade group
    estimated that the law would cost about $100 billion each year.
    In fact, acid rain is being cleaned up at prices 94 percent
    less than was anticipated for chlorofluorocarbons, CFCs. Cost
    of compliance fell by 30 percent despite an accelerated
    timetable that was imposed for phase-out of the chemical. Both
    technology development and market system innovations have,
    therefore, significantly reduced the costs of meeting these
    environmental challenges. It is another example of the
    extraordinary resourcefulness and resilience of the American
    people, and American industry particularly, when faced with a
    challenge.
        While it is one thing to identify a clean air goal based on
    a public health objective and to say that the cost-effective
    implementation requires a long timeframe, it is quite another
    to say to the public that we can't let them know whether the
    air is clean enough to breathe because the standard doesn't
    meet a cost-benefit test.
        So, Mr. Chairman, I thank the witnesses for coming here
    today. The challenge of reauthorizing the Clean Air Act takes
    us now along a path which will be long and it will have many
    turns, and the input from stakeholders, like those here today,
    will be an essential part of the journey we embark on. I thank
    you very much, Mr. Chairman, for beginning this effort today
    with this hearing.
        Senator Inhofe. Thank you, Senator Lieberman.
        Since we have three panels today and seven witnesses, we
    are going to adhere to the 5-minute rule on the opening
    statements with the exception of Mr. Perciasepe. Since he is
    the only witness from the Administration, we will give him 10
    minutes. But we will try to restrict our questioning time to 5
    minute rounds in order to accommodate our schedule in getting
    out.
        We are all familiar with Bob Perciasepe, the assistant
    administrator, Office of Air and Radiation, in the U.S.
    Environmental Protection Agency.
        Mr. Perciasepe?

    STATEMENT OF ROBERT PERCIASEPE, ASSISTANT ADMINISTRATOR, OFFICE
       OF AIR AND RADIATION, U.S. ENVIRONMENTAL PROTECTION AGENCY

        Mr. Perciasepe. Thank you, Mr. Chairman, Senators, it is a
    pleasure to be here today with you to talk about the Clean Air
    Act. I will try to do this within 10 minutes, but I appreciate
    the indulgence of the Chair.
        I think it has already been said several times but it
    stands repeating. The 1990 amendments passed with overwhelming
    support in both the Senate and the House of Representatives and
    were, of course, signed by President Bush, as was mentioned. It
    was strong bipartisan legislation and it was designed to
    achieve results. Air pollution at that time was damaging
    aquatic life with acid rain, smog exceeded health standards in
    98 cities, carbon monoxide was a problem in dozens of cities,
    and no progress was being made on hazardous air pollution, just
    to name a few issues that were facing the Congress in 1990.
        But we have made tremendous progress. You see on my chart
    here--I've given each one of you a copy too--that we have made
    a lot of progress. Some of these have been mentioned, but let
    me put a little point on some of these that are also in my
    written testimony.
        Reducing acid rain. We have already reduced 5 million tons,
    and we are on track to the 10 million ton goal that Congress
    had set. Acidity in precipitation has been cut in some areas by
    25 percent.
        Decreasing smog and soot. Back in 1990 we had 98 areas that
    were nonattainment for ozone, and 62 of those areas now have
    air quality meeting that standard. We had 41 areas in
    nonattainment for carbon monoxide, 35 of those areas have come
    into attainment. And for the course particle soot standard we
    had 85 areas in nonattainment, 71 of those areas have achieved
    air quality meeting the standards.
        On industrial air toxic emissions. Forty-three standards
    have been put out and 70 industrial categories are included.
    This will result in 1.5 million tons of toxic reductions and
    also VOC and particulate reductions.
        Often overlooked in our discussion of the Clean Air Act is
    that there was a strong commitment to protect the stratospheric
    ozone layer in that law, to phaseout things like
    chlorofluorocarbons. And since 1990, as you can see from this
    chart, the most damaging chemicals, including CFCs, have been
    phased out. Our projection is that this will reduce skin cancer
    occurrences over the next century by 295 million.
        Cleaning up cars, buses, trucks, and fuels was another
    important part of the Clean Air Act. The first tier tailpipe
    standards in the Act that went into effect in 1994 reduced
    emissions by 40 percent. A negotiated national low emission
    vehicle program that is taking effect this year in the
    Northeast and in the rest of the country in 2001 reduces NOx by
    50 percent. The reformulated gasoline program reduced VOC and
    toxics by 15 percent. In the RFG areas, we are measuring over a
    40 percent reduction of ambient benzene in the air.
        Let's take a look at some of the specific numbers again
    that have been mentioned several times. Lead down, this is
    going back to 1970, lead emissions down 98 percent, and you can
    see the numbers there and I won't go into them in detail. I
    will note that nitrogen oxides emissions have increased since
    1970, although in the last decade they have started to come
    down. And you have these charts. I am going fast here to try
    to----
        Senator Inhofe. We appreciate that. Thank you.
        Mr. Perciasepe. This hasn't happened without the strong
    support of a statute passed, as I mentioned, with strong
    bipartisan support, strong support in both the Senate and the
    House that was designed for success. I think, Mr. Chairman, you
    mentioned some of these innovative things that were spurred by
    the Act, the trading programs. The acid rain program for
    SO2 has been a big success and continues to be a
    success, although at the end of my remarks I will get to what
    more might need to be done there. In the Northeast we are
    working with the States on a nitrogen oxide trading program
    which is a unique partnership between the States and EPA. And
    there have been plenty of innovations at the local level with
    market mechanisms and trading, like the RECLAIM Program in
    California.
        We have had multiple stakeholder processes. I mentioned the
    National Low Emission Vehicle Program. This was a process with
    the States and with the automobile industry to look at
    delivering improved performance of motor vehicles on a national
    level, and all the participants in that stand to be
    congratulated because that is happening today. The Acid Rain
    Advisory Committee was set up early in the 1990's to work with
    all the stakeholders to set up the acid rain program. The Ozone
    Transport Assessment Group (OTAG) for 37 States in the Eastern
    part of the country was established to look at state-of-the-art
    modelling of nitrogen oxide across the entire Eastern part of
    the country.
        Also compliance assistance--we often lose sight of the work
    that has been going on in this area. In the 1990 amendments,
    small business technical assistance programs were established,
    an ombudsmen for small business for every State, just to give
    you an example. In 1997, there were 78,500 assistances provided
    to small businesses, 6,000 onsite consultations. These are
    examples of the kinds of things that are going on out there on
    a day-to-day basis. A Texas furniture company was able to
    invest $8,000 in a new coating technique for painting and
    coating furniture that dropped VOC emissions almost in half and
    saved tens of thousands of dollars on an annual basis. Also the
    Great Printers Program in the Midwest around the Great Lakes
    area and the printers association, strong work with them; metal
    finishers, strong work with the metal finishers. With the
    automobile industry, we have worked on a revised approach to
    compliance assurance called CAP 2000 which we just implemented
    that will save the automobile industry $55 million a year in
    compliance costs for all their certification programs.
        This next chart brings together some of the points I think
    that have been made in the opening comments and that I would
    like to concentrate on for just a moment. The green line at the
    bottom of the chart shows the aggregate emissions from 1970 to
    just a couple years ago, pretty much present time. I think it
    has already been mentioned the criteria pollutants have been
    reduced by 30 percent from a 1970 baseline. During that time,
    population has gone up, Gross Domestic Product has gone up, and
    another indicator of our activity in national economic
    activity, vehicle miles travelled, more people moving around,
    has gone up.
        While this has been happening, according to our
    retrospective study on public health, under section 812 of the
    Clean Air Act, is 184,000 premature mortalities have been
    avoided, 10 million IQ points have been preserved, 8 million
    acute bronchitis cases have been avoided, 39,000 heart failures
    have been avoided, 130 million instances of acute respiratory
    symptoms, and I could go on. That is just a summary of the
    health benefits that are accruing from our retrospective study.
        What this has not meant to the economy? Some of the
    predictions we have heard already. For example, it was
    predicted that the acid rain program would cost up to $7
    billion. Recent EPA and General Accounting Office estimates, $1
    to $2 billion. Reformulated gasoline--there was testimony that
    it would cost 16 cents a gallon. The true cost is 3 to 5 cents
    a gallon. The refrigeration industry said reducing CFCs was
    just not feasible. CFCs are gone, substitutes are there, a
    whole new industry has come up. The automobile company
    testified in 1980 ``We just don't have the technology to do
    this.'' Today, 10 years later, they are providing technology
    beyond what Congress was even contemplating 10 years ago.
        How did this happen? How did we have this economic growth
    and this reduction in pollution at the same time? We had it
    because we had a Clean Air Act that was designed for action,
    and we had it because of the innovation of American business.
    We continually underestimate their ability to innovate and
    achieve our goals in this country. That is one of the problems
    that I will get to in a moment when we talk about cost-benefit
    analysis, because we don't know what the cost is going to be
    because it is always cheaper than we estimate today when we
    actually do it tomorrow.
        This is the last chart. You see this is the summary chart.
        [Laughter.]
        Mr. Perciasepe. I try to be succinct. We still have, as you
    heard, 100 million people still living in areas that don't meet
    the air quality standards. Several opening statements talked
    about the new standards that we have issued. Congress required
    EPA to look every 5 years to update standards. We did that in
    1997. Implementation has been delayed by a court remand and we
    are appealing that.
        I want to point out a couple of things because I really do
    disagree respectfully with the comments that science was not
    used in setting those standards or that independent analysis
    was not provided. There has been no impartial body that has
    disputed the scientific basis of those standards. The courts'
    decisions were not based on the science. They were remanded for
    other reasons. We can probably get into this in the questions
    and answers because I know I am getting near the end of my
    time, but we need to move forward with implementing those
    standards. We will continue to work with the court and the
    judicial system to move forward on that. We will continue to do
    the reassessment of some of the science that we did commit to.
        But while that goes forward, there is some remaining
    unfinished business that we need to do. We still need regional
    nitrogen oxides reductions. The National Academy of Sciences
    told us that almost 10 years ago now and we are still fooling
    around with it. The next generation of tailpipe and gasoline
    standards, you saw that VMT chart I had up there before, there
    is no projection that it is going to go the other way. So, as a
    great philosopher once said, Will Rogers, even if you're on the
    right track for tailpipe emissions, he didn't have tailpipe
    emissions in there--you'll get run over if you just sit there.
    And that is what is going to happen with VMT. That is why we
    need to continually improve automobile and fuel technology.
    Heavy duty engines and diesel fuel, local measures for the 1-
    hour ozone standard in the severe and serious nonattainment
    area. Air toxics, we need to move that program into the risk-
    based part of it, and we need to facilitate more regional
    planning.
        Mr. Chairman, we are prepared to work with the committee on
    the process that you are initiating today to review the Clean
    Air Act. We want to work with you to evaluate whether
    reauthorization is needed or whether it will be disruptive. We
    think the process that you have in place to review different
    parts of it will be helpful to us and to you for making that
    decision. There are some ideas that I will throw out right here
    that are worth considering as we go through that process:
    Additional authority for multiple State cap and trade programs
    for any pollutant; indoor air quality is not included in the
    Clean Air Act; address all utility emissions including
    greenhouse gases; and a new generation of fuels, and more
    flexibility in our authority on oxygenates so that we can deal
    with that.
        So, in closing, I appreciate the opportunity to be before
    you today to talk about this. You can see that there have been
    successes, and you can see that it has been done in an
    innovative way, and you can see that there are still challenges
    before us. So I stand here ready to answer your questions.
        Senator Inhofe. Thank you, Mr. Perciasepe. I am sorry we
    had to be so hard on the time but it is necessary. I am going
    ask you a couple of questions and then I am going to excuse
    myself for just a few minutes because we have the Senate Armed
    Services Committee with Secretary Cohen. I know that Senator
    Lieberman has the same problem. I have to run down there just
    to get a couple of statements in and then I will come right
    back up.
        Mr. Perciasepe, did you read the testimony of Dr. Graham
    and Ms. Kerester? Did you have a chance to read that testimony
    they submitted?
        Mr. Perciasepe. I am afraid I haven't.
        Senator Inhofe. Let me read a couple of paragraphs here and
    just kind of get your reaction. This is from Dr. Graham. He
    said, ``Measuring success by the number of industries regulated
    is not very meaningful to public health. The big unknown in the
    toxics arena is whether the public health benefits of reduced
    human exposures to air toxics have been significant enough to
    justify the significant expenditures of Agency and industrial
    resources that has taken place.''
        And then Ms. Kerester states in her written testimony,
    which she will elaborate on in a few minutes, ``The Clean Air
    Act Amendments of 1990 rely solely on the assumption that
    outdoor levels are determinative of an individual's exposure,
    and hence risk. Merely reducing the ambient emissions level may
    not result in improved public health.''
        In your testimony, you downplay the need to renew this Act.
    I think you said ``Let me stress that once this review process
    is completed, we must assess whether reopening the Act would be
    more helpful or more disruptive on the whole.'' I guess you
    mean we should just continue on the same path, that's my
    interpretation anyway. And based on these two witnesses, I
    would question whether or not that is the right goal. Would you
    like to respond to that? Can you say that the current
    regulatory programs are the most cost-effective way to
    improving public health and what people are actually exposed
    to?
        Mr. Perciasepe. I think those comments that you just read
    to me from those other testimonies relate to a very specific
    part of the Clean Air Act related to stationary source toxic
    emissions, which were not dealt with very well, if at all,
    before the 1990 amendments. Congress envisioned a two-step
    process when they set that up. First, that in all these
    different industrial categories, people ought to perform on the
    toxic emissions profile to the best performers in that class.
    These maximum available control technology standards are
    designed to find the top performing percentage of the class,
    and then have everybody move into that performance level. Then
    after that, look to see if there is any residual risk. The
    second step gets into exactly what you're talking about and
    what I am assuming the testimony gets into, and that is: What
    are the remaining risks, if any, after you make those
    improvements.
        So Congress envisioned a two-step process. We are prepared
    to go to that second step to look at what residual risk is out
    there in the environment in the ambient air from toxics and
    attack only those risks that are meaningful from a public
    health perspective. I would agree that we need to move on to
    that level of analysis and work. We are moving to that point
    now at the Agency. It seems to me that is what the Act had set
    up the process to do.
        Senator Inhofe. Let me just read to you another statement
    from Dr. Graham. I know Dr. Graham and Ms. Kerester are here
    and we might ask them to listen to the response.
        Dr. Graham said that ``The EPA has not modernized its
    cancer risk assessment guidelines to account for advances in
    biological understanding of the mechanisms of cancer
    induction.'' And he goes on to discuss specific examples of
    where the EPA has been lax on science issues. I am very
    concerned that you are starting down a major regulatory
    program, the Air Toxins program, without first completing the
    necessary guidelines or paying attention to the most recent
    science. Dr. Graham asked Congress to pay attention to this
    issue, and I am. I would just like to get your response to
    that, and then my time has expired and I will have to excuse
    myself.
        Mr. Perciasepe. Well, I agree with the comment about the
    cancer guidelines. We are pushing hard in the Agency to get
    those cancer guidelines updated. We are ready to use the
    updated guidelines when we're finished with the process review.
    We are doing that now.
        Senator Inhofe. Thank you, Mr. Perciasepe.
        Senator Baucus?
        Senator Baucus. Thank you, Mr. Chairman.
        Mr. Perciasepe, as you kind of stand back a little bit and
    think about the Act, I wonder if you could just embellish a
    little bit on your presentation; namely, where has it really
    worked, where, as you're driving to and from work and think
    about all these things, do you think we should perhaps
    concentrate a little bit. But just your overall assessment of
    all of this, just standing back a little bit for maybe some
    perspective, and just flesh out a little more on what you just
    said.
        Mr. Perciasepe. Any of these environmental statutes--and,
    as you know, I have had some experience on the Safe Drinking
    Water Act and the Clean Water Act side as well--all of these
    work best when everybody works together toward a common goal.
    That was the hallmark of the enactment of the Clean Air Act
    early on in this decade. The Clean Air Act processes that
    attacked pollution by fostering emerging technology. For
    example, the Act addressed air pollution caused by the
    automobile by looking at fuels and cars as a system and by
    working with both the oil and automobile industries together.
    The Act has set up those processes. Another example is our
    working with the utilities on market approaches and putting a
    goal in place, a declining cap to allow market mechanisms----
        Senator Baucus. Where in the Act has working together
    worked best, and where in the Act, or maybe not in the Act, has
    there been not enough working together?
        Mr. Perciasepe. Well, I guess I would fall back on the
    examples I used, Senator. Clearly, working together on the acid
    rain program has worked. It is not just the natural resource
    managers who are concerned about acid precipitation, not just
    the utilities, not just EPA, not just the States, but also the
    commodities markets in Chicago who have been involved. So, it
    is a really broad-based involvement toward a common goal.
        I think we have an effective system there. It is time to
    evaluate whether or not the goal that Congress set of a 10
    million ton reduction is adequate to achieve the objectives
    that the Act set out for actually preserving the natural
    resources and the parks of the country that are severely
    impacted by acid rains. I think you will have some more
    testimony about that. But you can use existing mechanisms to
    allow that process to continue.
        Senator Baucus. You made a very good point that we always
    over-estimate the costs. Could you give us some examples of
    that and flesh out a little more as to why that happens. I
    think that is a very valid point, one I agree with. For
    example, I recall that years ago when Congress asked the auto
    industry to come up with a catalytic converter they said
    ``That's impossible. It can't be done.'' We told the industry
    to do it anyway. Well, guess what? They did it. Not only did
    they do it, they did it in a way in redesigning their emission
    systems so that it is much more cost-effective and they made
    money on the deal. But if you could just give us some examples
    of just where we really overshot the costs and how the
    innovation, ingenuity of America's business people have found
    through developments in new technologies lot cheaper ways of
    doing things.
        Mr. Perciasepe. I think the example you give is a very good
    one, the automobile. I want to say this right up front, that
    progress and improvement would not have happened without the
    tenacity of the automobile industry to do the engineering and
    the innovation that needed to take place. At first, there is
    often resistance to change, but once you're there, the
    innovation comes. And that is what we see every time.
    Reductions in automobile emissions are a classic example of
    this.
        I remember in the early 1990's when I was working in the
    State of Maryland trying to opt in to the California low
    emission standards. I needed lower emission vehicles in
    Maryland; they were being delivered in California and I wanted
    them too. This was an opportunity that the Congress provided in
    the Act. The debates I had were how many thousands of dollars
    this was going to cost per car. I testified in the Maryland
    General Assembly alongside my colleagues in the automobile
    industry, I'm saying hundreds of dollars, they're saying
    thousands of dollars, and we know what the true cost was. I
    have personal experience with such resistance.
        I don't want to make it sound like the industry doesn't
    step up to the plate. They do, and they did, and that is what
    makes some of this very difficult to deal with in terms of
    projecting into the future what these costs might be. It is not
    only achieving the goal at a cheaper cost, sometimes we find
    out we can do better on the goal at the same cost. So, both of
    those come into play when you look at the innovation that takes
    place.
        To the automobile industry's credit also, and the oil
    industry's credit, they have come forward and said we need to
    look at these two things more as a system and we can even get
    more forward. So we take that next step. We said how does this
    work together----
        Senator Baucus. My time has expired, but if you would
    indulge me just one followup question. Any advice you have as
    to how to get the players together earlier to better work
    together so we would have less problems trying to cross that
    threshold? I agree with you. Once the industry starts, they do
    a bang up job. They're great. But it's that point of realizing
    that we have got to go this next step. Any thoughts as to how
    we get the industries, the EPA, and folks together earlier on
    in the process to say, hey, yes, this is good for business,
    this is good for the environment, this is good for our company,
    let's figure out a way to do this?
        Mr. Perciasepe. Human nature is that when you are faced
    with a challenge you rise to the challenge. That has been what
    makes this country great. People do it. What end up tangling
    ourselves in these arguments over whether the cost worth it or
    not. That shouldn't be the argument. The argument should be how
    do we innovate to achieve it. One example of the difficulties
    associated with evaluating public health is using cost benefits
    to ozone. If you use a cost-benefit analysis between 0.09 parts
    per billion of ozone and 0.07 parts per billion, or 0.08 parts
    per billion, you will soon recognize the limits of the tool.
    With the tools we have, that is like using a sledgehammer to do
    a staple job.
        The tools we have on cost-benefit analysis cannot give you
    any information as a decisionmaker between 0.09 parts per
    billion and 0.08 parts per billion. The sensitivity does not
    exist. We don't know how much we will be able to reduce the
    costs in the future when innovation takes place. It is just a
    futile exercise in setting an air quality health standard. It
    is not a futile exercise to consider cost in determining how
    you would implement that goal. In implementing, we must look at
    costs, we must figure out how we distribute that in the
    economy, and what timeframes are provided to allow that
    innovation to take place.
        Senator Baucus. My time has expired. I want to thank you
    very much.
        Senator Voinovich [presiding]. Senator Lieberman?
        Senator Lieberman. Thanks, Mr. Chairman.
        Very briefly, some of the testimony today suggests that
    EPA's commitment to cost-benefit varies widely and that the
    Agency sometimes estimates regulatory costs but does not
    quantify benefits in health or economic terms. I wonder if you
    could describe briefly how EPA considers costs and benefits in
    setting standards, and how it considers costs and benefits in
    implementing them.
        Mr. Perciasepe. Some of that, as you say, does vary from
    statute to statute, and from parts of the statute to parts of
    the statute. When we look at setting health-based goals and
    standards, we want to use science to tell us the polluting
    level associated with the health effect from which we're trying
    to protect the general population, or for that matter,
    susceptible populations or concentrations of populations in
    urban areas. The cost-effectiveness kind of analysis you would
    do in considering, for instance, nitrogen oxide reductions from
    power plants, can be a much more refined cost and effective
    analysis. You can look at specific technologies that are in
    existence now, you can make some judgments about where those
    technologies might be in the near term, and you can do a good
    analysis.
        So, we have executive orders that tell us to calculate
    these costs and the benefits. We do the retrospective study in
    the Clean Air Act that Congress has requested under section
    812, and we are in the process of doing the prospective study
    which we hope to have out later this fall. So these tools are
    useful and they can help inform everybody of where we're going.
        But when looking at the health-based standards, we're
    telling the American public what the level of pollutants are in
    the air that are going to be healthy for them. If then you say,
    ``Unfortunately, our current ability to do cost-benefit
    analysis tells us that we're not going to make it at that
    level.''--I don't think that is what Congress had in mind.
        We have had 25 years of the Clean Air Act where we have set
    standards without doing that. We have had six different
    presidents, we have had 15 different Congresses, and we have
    never considered costs in trying to tell the American public--
    which I think was a covenant that Congress made with the
    American public when they enacted the Clean Air Act--that this
    is what healthy air is.
        When the science gives us more information about that, we
    reset the standard. The time limit to achieve the standard, to
    allow the innovation to take place, the diversity of methods,
    whether it be trading or technology-based standards, all of
    that needs to be looked at in how you can most optimally
    achieve those health standards. I am sorry I have gone on so
    long.
        Senator Lieberman. No. I agree. I enjoy your passion. Let
    me ask one more question just to delve a little bit more into
    perhaps the other side of the cost-benefit analysis, and it
    goes back to something I said in my opening statement. What are
    the current ways that the Agency tries to quantify and predict
    technological innovation and market trends when evaluating the
    costs of a given air quality objective?
        Mr. Perciasepe. We do it through a number of ways. First,
    and foremost, we are increasing our relationships with the
    business community that is out there doing the innovation. I
    could have put a chart up here, which I didn't, on the amount
    of the GDP that is related to pollution control work--the
    amount of innovation and business activity involved with
    innovating in pollution control and pollution prevention. I
    believe that product design is going on at a more robust level
    in the United States than I think it ever has in the past. The
    pollution control and preservation industry is out there for us
    to engage with and get their views on where they see some of
    the innovation going.
        We also do our own research and development. We have an
    Office of Research and Development that looks at technology for
    different areas, and their work helps inform us on the future.
    Many parts of the Clean Air Act and some of the other statutes,
    when we're looking at specific technology-based standards for a
    particular class of sources, require us to look at feasibility.
    In some cases, we actually will develop a prototype ourselves.
    In our Ann Arbor, MI, lab where we test all the motor vehicles,
    we actually will take a sport utility vehicle. We will work
    with catalyst manufacturers, engine control technology,
    software folks and we will develop an optimized emission
    control system on that vehicle to see if it is feasible to
    achieve certain pollution levels. So, sometimes we actually
    will do the research ourselves.
        Senator Lieberman. Do you think we are in a better position
    today than we were in 1990 to fit into our cost-benefit
    analysis the cost of technological innovation than we were
    then? I cited some of the estimates, and most of the estimates
    were over-stated, or a lot of them were.
        Mr. Perciasepe. Only on a near term. It is hard to get too
    far out. Again, just 9 years ago we were thinking some of the
    things we can do with automobiles now would be thousands of
    dollars per vehicle compared to hundreds of dollars per
    vehicle. On a coal-fire power plant, we thought getting the
    kind of nitrogen oxide reductions that are technologically
    feasible and cost-effective now were not even feasible or will
    in some infant level of discovery. Innovation is happening at a
    rapid pace. It is hard to predict. Oftentimes, once the air
    quality standards are in place, a lot of innovation occurs on
    how to achieve it more cheaply. Predictions for costs further
    out in the future become less certain.
        Senator Lieberman. Thanks, Mr. Perciasepe. And thank you,
    Mr. Chairman.
        Senator Voinovich. You're welcome.
        Mr. Perciasepe, first of all, I think that the record of
    achievement is very impressive. I would like to add, and I am
    glad you mentioned it, a great deal of it is attributable to
    the aggressiveness of many of the industries and political
    subdivisions in this country that are interested in having
    clean air. I know in our State, we have about 160 of our worst
    polluters agreeing to reduce their 17 worst toxics and have
    made some real progress there. Every year we honored
    individuals that had done a good job in the area of air
    pollution. It also showed that by doing it, it was not only
    good for the air, but good for business. So there is a lot of
    good things going on there.
        A couple of things I would just like to comment on and
    maybe get your reaction. As you know, I am particularly
    concerned about the NOx SIP call. You were saying that the
    Agency likes to involve people in the decisionmaking, a
    partnership. I just want to point out that the OTAG
    organization, when they were talking about complying with that
    SIP call, fundamentally said that they felt that the States
    should try to work out a reasonable way of complying with this.
    And, as you recall, it was 85 percent or 65 percent. Your
    Agency just ignored the OTAG recommendations and put an 85
    percent requirement on our utilities when the Midwest Governors
    and the Southern Governors had indicated that going to a
    smaller amount could get the job done, and, in some instances,
    would have gotten it done before the 85 percent requirement
    that your Agency put on them.
        I just wonder, you talk about cooperation and working with
    people, what is your reaction to that?
        Mr. Perciasepe. First of all, I appreciate those comments.
    There were some tough decisions that had to be made in that
    process. But let me address the things that we did agree on,
    and then I'll get to your point at the end.
        Senator Voinovich. And by the way, that was all meant to
    try and reach the new 8 hour ozone standard.
        Mr. Perciasepe. I'll mention that too at the end. The OTAG
    process was precipitated by many things. One of the things that
    precipitated it--and it was going on before the 8-hour
    standard--was the realization in the scientific community that
    for levels of nitrogen oxides, regional reductions are going to
    be almost as important as some of the local VOC reductions to
    meet the ground-level ozone standard. And so a lot of work was
    done on that in the early 1990's which then facilitated this
    37-State Ozone Transport Assessment Group to look at the most
    up-to-date modelling.
        I think it is important to note that I believe all 37
    States agreed that significant regional reductions in nitrogen
    oxide were appropriate for the benefit of all, and that they
    agreed on a range of what it ought to be. And you are right, we
    picked the more exemplary end of that range. And we all agreed
    that in implementing whatever that budget would be for each
    State, that the proper approach would be to give the State the
    flexibility on how to achieve the budget. So we set up a
    process where each State would have a budget, similar what we
    have tried to do in the acid rain program. We would have
    banking and trading, early credits, and all of the market
    mechanisms in place to reduce the cost of the rule. Then the
    State would have some flexibility in its own planning processes
    to figure out the best way to achieve the targets. We
    identified an approach we thought would be very cost-effective.
        One of the things that started to evolve there, Senator,
    was, again, these very different cost estimates; how much is
    this going to cost to achieve these reductions. We had a set of
    cost estimates for measures that we think are very cost-
    effective and there were others who had different cost
    estimates. This became a tug of war of the cost estimates.
        Senator Voinovich. I understand that. All I am saying is
    there was an agreement that we would have flexibility and we
    didn't have it. And that bothers me.
        The other thing is that you talk about good science and
    that that is taken into consideration and how you measure that.
    The fact is, when you went with the new PM standards, from 10
    to 2.5, you still don't know the real impact of what 2.5 means
    as compared to 10 in terms of public health. When you proposed
    that new rule, at the same time you proposed it the Agency
    asked for I think $37 million from Congress to do research work
    on the PM standard. Last year, it was some $60 million, and I
    think you are asking for more this year.
        The question I have is, instead of moving forward with that
    new standard in PM, and by the way, that is being held up in
    court today, why didn't the Agency first do their homework and
    get the science before they went forward with that new
    standard?
        Another example is we were one of the States that really
    took on the emissions testing program. And I, you have heard me
    say this before, I caught all kinds of hell from my people as a
    result of doing that. People said it doesn't do any good, and I
    said yes, it does do good, and we are given credit for it and
    it is helping us meet the required ambient air standards so we
    can come into compliance with the standard. But when I went
    back to the Agency to ask them can you tell us just how these
    emissions testings help clean up the air, we could not get an
    authoritative answer from you. As a matter of fact, we had to
    go to Congress. Dave Hobson I think asked for $350,000 to do a
    study in terms of whether or not this emission testing was,
    indeed, making any difference in terms of reducing the
    pollutants. I don't know where that study is today, maybe you
    do. Where are we on that?
        Mr. Perciasepe. Let me do the PM first. We went through a
    vigorous scientific process with our Clean Air Act Scientific
    Advisory Committee to look at fine particles. I know of no
    scientific disagreement that the smaller particles are more
    important for public health protection than we had thought in
    the past and that regulating a smaller-sized particle is
    appropriate.
        Senator Voinovich. The fact of the matter is that smaller
    is better. In terms of real impacts on public health or impacts
    on the costs to comply with the standard, which are
    significant, it was just said, ``Well, it is going to make
    things better. How much better we don't know; we know it is
    going to make it better, although some scientists have some
    questions about that.'' It just seems that when it comes time
    for decisionmaking in the Agency, instead of using what I call
    common sense, it always falls on the side of: ``Let's go ahead
    and do it, we're not really sure about it, but, sure, it's
    going to be better.''
        Mr. Chairman, just one last thing. I'll never forget this
    as long as I live. Lorain, Ohio, this is before the Clinton
    Administration, Lorain, Ohio, U.S.S. Colby wants to put on a
    brand new blast furnace and shut down an old blast furnace. The
    Environmental Protection Agency said they couldn't do it
    because the new standard that they had set--and, by the way,
    the new standard they had set for the ambient air standards in
    Lorain had been set when that steel plant was almost out of
    business. So now they're coming back, they want to put on a new
    blast furnace, take down another one, clean up the air, and the
    Agency says you can't do it. I had to go to Dan Quayle, who I
    think was head of the Cabinet Council or something like that,
    to finally get that thing worked out.
        What I am saying is that it is the common sense, it is the
    balance that just doesn't seem to be present. I think, and this
    is just a recommendation in terms of using risk assessment in
    the air standard that basically is in the Safe Drinking Water
    Act, that kind of thing is necessary in order for the Agency to
    function in a reasonable fashion and encourage people to spend
    money where it is going to make a difference and not get them
    involved in things where they are going to spend money and not
    get a return on their investment and don't make a difference in
    terms of a public health.
        Mr. Perciasepe. I will just say something generally.
        Chairman Inhofe [reclaiming the chair]. And make it fairly
    brief because we are going to have to move on to the next
    panel.
        Mr. Perciasepe. I just want to say for the record that with
    all the possible respect I can muster up here, which is a lot
    for both of you, I disagree with your characterization of how
    the Agency makes decisions. I strongly disagree with them. The
    Agency went through a very deliberative process. We didn't just
    sit there and say, ``Well, what the hell, it will be better if
    the particle size is smaller.'' That is just disingenuous. We
    thoroughly reviewed the available science. It went on for
    years. We have committed to reverifying the standard before it
    gets implemented and that reverification process is underway.
    We committed to have a very robust monitoring program in place,
    which is why we are asking for the funding.
        Senator Voinovich. But you put the standard out and you are
    going to say to the communities that you haven't met the new
    ozone standards, you haven't met the new particulate standard,
    and you place this designation on an area. You have no idea of
    the impact that has in terms of keeping businesses in the area
    and getting them to expand and of businesses coming to the
    area. One of the reasons why I wanted to obtain ambient air
    standards in Ohio was to get that negative off communities,
    because businesses around the country told me that if they
    aren't reaching their ambient air standards, we are not going
    there, we're going someplace else because we don't want the
    headaches. A couple of businesses were talking about leaving
    the Toledo area, Cooper Tire was one, because of the fact they
    had not reached the ambient air standards and they were told if
    you don't reach it is going to cost you a whole lot more money
    if you're going to expand.
        So when you start giving these designations in communities
    around the country, those designations have tremendous impact
    on the economic vitality of those communities. So I think it is
    important that we're careful about going forward with some of
    that.
        Senator Inhofe. I am going to have to exercise the
    prerogative of the chair and regain control.
        [Laughter.]
        Mr. Perciasepe. We can continue after the hearing.
        Senator Inhofe. We thank you very much, Mr. Perciasepe. I
    am sure you will want to answer some things for the record, and
    you certainly may do that. So we will excuse you now.
        Senator Inhofe. We would ask for our next panel to come
    forward. We have Professor John Graham, Harvard Center of Risk
    Analysis; Professor Richard Revesz, New York University School
    of Law; and Ms. Alison Kerester, University of Texas School of
    Public Health, Mickey Leland National Urban Air Toxic Research
    Center. We welcome you all to this committee. We will ask that
    you watch our little stop/change/go lights and comply with that
    since we are under some time constraints here.
        Let's go ahead and start with you, Ms. Kerester.

      STATEMENT OF ALISON KERESTER, UNIVERSITY OF TEXAS SCHOOL OF
    PUBLIC HEALTH, MICKEY LELAND NATIONAL URBAN AIR TOXICS RESEARCH
                          CENTER, HOUSTON, TX

        Ms. Kerester. Thank you very much. Good morning. I am
    Alison Kerester. I am the executive director of the Mickey
    Leland National Urban Air Toxics Research Center. The Leland
    Center was established by Congress under Section 112 of the
    Clean Air Act as a public/private partnership to sponsor
    research on the public health impacts of air toxics. Congress
    created the Leland Center to generate the critical information
    needed to make air toxics health risk assessments more
    realistic.
        In keeping with our congressional mandate, the Center
    identified two critical information gaps: One, personal
    exposure to air toxics, and two, the non-cancer effects of
    these exposures. The Center chose to focus its initial efforts
    on personal exposure, and that is what I am going to talk about
    this morning.
        Exposure is defined as the contact of a chemical,
    biological, or physical agent with the boundary of the body
    over a period of time. People may be exposed through inhaling a
    chemical, through ingesting it through food or water, or having
    it absorbed on the skin. For air pollutants, inhalation is the
    primary route of exposure.
        What people are exposed to is a function of where they
    spend their time, how much time they spend there, and the
    activities they engage in. People move through a series of
    locations or microenvironments during the course of the day.
    This room is a microenvironment, my time in the plane last
    night is a microenvironment. Studies have now shown that
    Americans spend the majority of their time inside, and in some
    cities, such as Houston, that amounts to almost 90 percent
    because of climatic conditions.
        Scientific research has demonstrated that indoor sources
    may often be the dominant source of air toxics exposures to
    people. While outside sources can penetrate inside through
    ventilation systems and open windows, air toxics may be emitted
    directly from sources in the home or building through
    carpeting, building materials, consumer products such as room
    deodorizers. In addition, the simple activity of cooking or
    even taking a shower may generate air toxics. In some
    instances, outdoor air sources may be the primary source. For
    example, carbon tetrachloride has been banned from consumer
    use; however, it still exists in the ambient air. Thus, the
    source of exposure to this chemical would be an outside source.
        In addition, some emissions in a person's breathing zone
    may contribute significantly to personal exposure while
    contributing a minimal amount to ambient levels. Smoking is an
    example of this. Smoking accounts for the largest percentage of
    a personal exposure to benzene, yet that activity contributes a
    minimal amount to ambient levels. Thus, it is important to take
    into account all sources of potential exposure and to
    understand the relationship among outdoor, indoor, and personal
    exposures. There are a number of scientific studies underway
    investigating this relationship.
        Exposure assessment is the science of measuring people's
    exposure. It can be done by a variety of methods. The more
    accurate the method means it is closer to the body. So breath
    samples, and the use of a personal monitor, which is being used
    in several studies, attached to the lapel, picks up chemicals
    within a person's breathing zone. Exposure assessments are used
    in epidemiological studies, they are used in risk assessments,
    in trends analysis, and in risk management decisions.
        The protection of public health under the Clean Air Act is
    at the core of the Act. However, the traditional approach under
    the Act is to equate ambient air concentrations with adverse
    health effects. However, it is actual exposure, and not air
    concentrations, that is the critical factor in determining
    potential adverse health effects. Exposure is the link between
    ambient concentrations and human health impacts. If we focus on
    exposure rather than just on ambient numbers, we will gain a
    much greater and more accurate picture of public health
    impacts. Continued reliance solely on ambient numbers may not
    produce a corresponding benefit to public health.
        So we believe it is important to continue our exposure
    research, and the Leland Center will continue to pursue this
    area. Thank you.
        Senator Inhofe. Thank you, Ms. Kerester. I think you all
    understand that your entire statement will be made a part of
    the record.
        Ms. Kerester. Yes.
        Senator Inhofe. Dr. Graham.

        STATEMENT OF JOHN D. GRAHAM, DIRECTOR, CENTER FOR RISK
         ANALYSIS, HARVARD SCHOOL OF PUBLIC HEALTH, BOSTON, MA

        Mr. Graham. Thank you, Mr. Chairman. It was about 10 years
    ago that I first testified before this committee on President
    Bush's proposal to amend the Clean Air Act, a proposal that was
    expanded into what we now call the 1990 amendments to the Clean
    Air Act. We have learned a great deal during that process. You
    have heard some of the good news.
        First, the total benefits of the 1990 amendments appear to
    be greater than the total costs. But it is important to
    remember that virtually all those benefits are packed into just
    two of the provisions of the Act, the sulfur trading program,
    and the chlorofluorocarbons parts of the Act. A lot of the rest
    of the Act flunks a cost-benefit test by the kinds of numbers
    that the Agency is producing.
        Second, that grand experiment with incentive-based
    programs, the sulfur trading, that explains why a lot of the
    cost estimates that were originally made were so far off,
    because we have given strong incentives in the market economy
    for people to trade and find the least-cost ways of achieving
    these results. It is very important to keep that in mind
    because a lot of people were opposed to those market-based
    instruments, said they would never work, would never clean up
    the air, and those incentive-based programs have, in fact, been
    quite effective.
        I would like to focus my testimony on five problem areas in
    the Act that I want to encourage the committee to investigate
    further during this process of reauthorization.
        Problem 1. Some provisions of the Clean Air Act are
    unworkable because they do not require or permit EPA to weigh
    risk, costs, and benefits. A concrete example, as Senator
    Voinovich has given, is the primary ambient air quality
    standards. The basic idea was to set this level of pollution in
    the air so that it would protect public health with an adequate
    margin of safety.
        The problem is scientific information alone cannot identify
    such a level for many of these pollutants. Indeed, the only
    safe level of exposure to many of these pollutants, fine
    particulates and lead, given current science, would really be
    zero. As a result, the only logical conclusion would be to set
    the standards at zero. However, obviously, it is not realistic
    or feasible to set them at zero. So EPA, therefore, is forced
    to construct imaginative, spurious explanations for what
    numbers they come up with to define the safe level of
    concentration in the air. This dishonest process contributes to
    an atmosphere of arbitrariness, mistrust, and litigation that
    we have already discussed this morning.
        It seems to me Congress could make a constructive step in
    this process by either authorizing or requiring EPA to consider
    whether the incremental costs of an air quality standard are
    grossly disproportionate to the anticipated benefits of the
    proposed standard.
        Problem 2. Although Clean Air regulations are intended to
    reduce risk to public health, they sometimes cause unintended
    dangers to public health because the risks of the regulation
    are not analyzed carefully by Congress and EPA when policies
    are made. A good example that we're all aware of right now is
    the requirement in the 1990 amendments to increase the
    oxygenated content of gasoline. It was done without preparing a
    careful risk-benefit analysis. I am not talking about the cost
    side; I am talking about the human health and ecological
    implications of this requirement. The most important chemical
    used to comply, MTBE, is now showing up in surface and ground
    water, and questions are being raised about whether it was such
    a good idea in the first place after all.
        This is a good example of where Congress should insist that
    both itself and EPA take the hippocratic oath that physicians
    take. We should make sure that we have enough science behind a
    decision to, in fact, be assured that we are doing more good
    than harm with a clean air regulation.
        Problem 3. Congress and EPA sometimes pursue clean air
    goals without taking account of national objectives, such as
    energy policy. In my written testimony, I give you the example
    of the diesel engine which is being encouraged in Europe today
    and discouraged in the United States, with difference
    consequences for global warming.
        Finally, I make detailed comments, that several Senators
    have also quoted, on the lack of public health science behind a
    variety of these regulations. And I look forward to the
    comments and questions.
        Senator Inhofe. Thank you, Dr. Graham.
        Professor Revesz?

         STATEMENT OF RICHARD L. REVESZ, DIRECTOR, PROGRAM ON
     ENVIRONMENTAL REGULATION, NEW YORK UNIVERSITY SCHOOL OF LAW,
                              NEW YORK, NY

        Mr. Revesz. Thank you, Mr. Chairman. I would like to
    discuss a number of issues concerning the possible use of cost-
    benefit analysis under the Clean Air Act.
        As you know, the primary benefit of many environmental
    statutes is the number of human lives that are saved as a
    result of environmental regulation. There is general agreement
    that the starting point for obtaining a value for life for
    cost-benefit purposes is by reference to the wage premiums that
    workers obtain in jobs that entail a risk of instantaneous
    death in industrial accidents. Though the value of life figures
    that are obtained in this manner need to be adjusted upward to
    obtain a meaningful valuation of the benefit to environmental
    regulation, for several reasons.
        The first reason is that the risk assumed by individuals
    who subject themselves to possible industrial accidents is a
    risk that is assumed voluntarily. In contrast, the risk of
    exposure to environmental contaminants like air pollutants is
    assumed involuntarily. There is an extensive literature showing
    that individuals assign greater value to avoiding risks that
    are thrust upon them involuntarily than to risks that they
    incur voluntarily.
        On a related matter, valuations derived from the study of
    risky jobs are the valuations of a relative small subgroup of
    the population with a disproportionate tolerance for risk,
    because these are the people who fill the jobs at the smallest
    wage differentials. But for environmental policy, what matters
    is the valuation of the median individual and not the valuation
    of an individual with a disproportionate tolerance for risk.
        A second set of upward adjustments is necessary is because
    individuals who take risky jobs generally have lower than
    average income. And there is also consensus among economists
    that the valuation for life that derives from these techniques
    is essentially a function of income. Given the median incomes
    of workers in risky occupations and the population as a whole,
    an upward adjustment in the value of life is necessary if one
    makes regulation for the population as a whole.
        A third point is that with respect to some contaminants,
    like carcinogens regulated under section 112, an upward
    adjustment needs to account for the dreaded nature of the harm
    as opposed to the case of simple instantaneous death, because
    in addition to the loss of life itself, one needs to value two
    other components: the very painful and often extended period of
    morbidity that precedes the death, and the dread aspects of
    cancer itself.
        Some policy analysts have suggested a downward adjustment
    to the value of life obtained in workplace studies must be
    performed in certain instances to account for the fact that the
    beneficiaries of certain environmental programs are older
    individuals who have shorter life expectancies and that these
    individuals sometimes are not in good health. These analysts
    argue that the remaining life expectancy of older individuals
    should be multiplied by a value for a life year, and they
    obtain a value for life years by assuming that workers who take
    risky jobs and are relatively young value each of the remaining
    years the same amount.
        This methodology assumes that the value of a life year is
    the same regardless of one's remaining life expectancy. Thus,
    it overlooks a critical aspect that scarcity plays in
    determining economic value, which implies that individuals will
    value life years more highly when they have fewer life years
    left.
        The use of values for quality-adjusted life years is also
    generally inappropriate. The measure of benefits in cost-
    benefit analysis is derived from the aggregation of the
    willingness to pay of all of the individuals affected by a
    policy. The QALY technique, the quality-adjusted life year
    technique, in contrast, relies heavily on the assessment of
    third parties, sometimes health individuals and medical
    professionals, of how undesirable a life in poor physical
    condition is relative to a healthy life. As a result, the QALY
    rankings generally have no connection to individual willingness
    to pay and, therefore, cannot properly be incorporated into
    cost-benefit analyses.
        For many environmental contaminants the harm does not occur
    contemporaneously with the exposure. And for such latent harms,
    it has been the policy of the Office of Management and Budget,
    in its review of Agency regulations under Executive Order
    12866, to apply a discount rate to reflect the fact that the
    benefit of regulation does not accrue until the future.
        OMB currently uses a discount rate of 7 percent. As
    explained in more detail in my written testimony, there is a
    general consensus among economists that this rate is too high
    and that an appropriate rate is somewhere in the 2 to 3 percent
    range. In fact, the 2 to 3 percent rate is the rate used by
    both the General Accounting Office and the Congressional Budget
    Office in running their projections. The OMB approach leads to
    substantial undervaluation of the benefits of human life. So
    environmental benefits that OMB determines to be $100 million,
    if they involve a harm that has a latency period of 20 years,
    should, in fact, be $236 million. They are off by more than a
    factor of two.
        And last, let me mention that in the past, and in OMB's
    administration of cost-benefit analysis, this technique has
    been coupled with procedural devices that have often turned
    into an anti-regulatory tool or threatened to turn into an
    anti-regulatory tool as opposed to a tool designed to make
    regulation more rational. I will just list four devices.
        First, cost-benefit analysis is typically invoked only to
    justify the adoption of regulations, not to justify the repeal
    of regulations or to justify the failure to adopt more
    stringent regulations. Second, in OMB's administration of this
    technique, there is often limited disclosure of communications
    between the public and OMB. Third, some of the cost-benefit
    bills that have been introduced in Congress since 1985 contain
    judicial review provisions that provide for review prior to the
    promulgation of regulations, which would have been, I believe,
    a recipe for paralysis in the regulatory process. And fourth,
    some of these bills contained a petition process coupled with
    judicial review under which previously enacted regulations
    could be challenged. And this also, if it is not done
    carefully, will be a recipe for regulatory paralysis. Thank you
    very much.
        Senator Inhofe. Thank you, Professor. Let me just pursue
    that a little bit. You raise some interesting points regarding
    the calculating of benefits based on what people are willing to
    pay. An example you used in your written testimony is radon gas
    versus pesticides, not really the best example when you think
    that it's an invisible gas as opposed to something that people
    eat.
        I think there are additional limitations that you don't
    mention. First, people say that they will pay more to protect
    the environment, and yet when given the choices after extensive
    advertising campaigns on using premium gas for environmental
    purposes, they always opt out to buy regular unleaded almost
    every time. Second, when people feel removed from the costs of
    these things, they assume that somehow big business is paying
    for this, not realizing that is passed on to the ultimate
    consumers. I think that these new standards probably would have
    had the effect in Oklahoma, we calculated on the ozone and PM
    standards, to raise the utility rates in Oklahoma by about one-
    third. Since we don't have unlimited resources, wouldn't it
    make more sense to prioritize our regulatory decisions basing
    them more on exposure than a risk-risk analysis?
        Mr. Revesz. Well, my suggestions went to how cost-benefit
    analysis should be conducted appropriately. I was not here to
    advocate the cost-benefit analysis be conducted or to oppose
    that. It seems to me that the unit for cost-benefit analysis is
    an individual willingness to pay. Unfortunately, we can't
    measure directly what we would like to know. So we have to deal
    with proxies, and we generally agree that the proxy to start
    with is by reference to the wage premiums individuals take in
    these risky jobs. Then the question is, how do you adjust that
    to make it relevant for what we are trying to regulate?
        Now, I certainly agree with you that contingent valuation
    studies where individuals are asked how much would you be
    willing to pay to do this or that are not ideal, and that is
    why economists generally prefer to do revealed preference
    studies where they actually look at what people do in the
    marketplace. For example, what wage do you demand to take these
    risky jobs, and then from that derive an implicit valuation.
        But, unfortunately, there are some areas in which
    contingent valuations are the only way to go because there is
    no other way to measure what we want to measure. I think, like
    everything else, there are better contingent valuation studies
    and there are worse contingent valuation studies. And,
    obviously, if we are going to base a regulatory program on
    these sorts of valuations, we have to do the better ones.
        A number of years ago NOAA empaneled a blue ribbon panel of
    economists, chaired by Kenneth Arrow, who is a Nobel Prize
    winner, to help NOAA decide whether contingent valuation
    studies could be used in the context of natural resource
    damages. The panel was somewhat skeptical, but, in the end,
    gave contingent valuation a cautious endorsement, saying it was
    the best we could do at this point, and we should do it as well
    as possible. And it had some blue prints for how to do it
    better. That is what I believe we should be doing.
        Senator Inhofe. All right. Thank you.
        Ms. Kerester, when Senator Lieberman was making his opening
    statement, he was talking about the asthma rates are up due to
    smog. Now you referred to the indoor air. During the
    PM2.5 debate, the effective indoor air was raised by
    scientists but it seems to me it was ignored by the EPA. When
    you state that indoor exposures are important, are you just
    referring to chemical exposures, or particles as well? I think
    they were talking about dust and cockroach droppings and a
    number of other things, too. What is your feeling about that?
        Ms. Kerester. Well, both indoor and outdoor sources are
    important for both air toxics and for----
        Senator Inhofe. I mean, what percentage of time does the
    average person spend indoors as opposed to outdoors?
        Ms. Kerester. Almost 90 percent in many cases. People spend
    the majority of their time in the inside locations.
        Senator Inhofe. Did you agree with my statement that it
    appears to me, from going through this thing, that the EPA was
    almost entirely concerned with outdoor as opposed to indoor?
        Ms. Kerester. That is my understanding, yes.
        Senator Inhofe. And real quickly, Dr. Graham, you heard the
    responses to some of the quotes that I hope I was accurately
    quoting you from your written testimony. Do you have any
    comments to make about that?
        Mr. Graham. Yes. First, I was pleased to hear the agreement
    with the concern that was raised about where the Agency is in
    updating the scientific content of its cancer guidelines. This
    was a process that began in 1988 and there are repeated
    assurances that we're working on it, we're continuing to look
    into it. But it is a process that has been I think very
    unfortunate, because it sent a signal in the scientific
    community that the Agency isn't necessarily that interested in
    modernizing their scientific cancer risk assessment guidelines.
        A concrete example of that is occurring right now with the
    chemical chloroform, where though this chemical causes tumors
    in animals at very high doses, there is good biological science
    suggesting that at very low doses of human exposure those
    tumors would not occur. EPA scientists recommended this science
    be used, but then that was overturned, and it now looks like we
    are, in fact, not going to have that biological information
    included in EPA's process.
        So I think it is very important for this committee to put
    heat on the Agency to make sure they incorporate science into
    their risk assessment processes.
        Senator Inhofe. You heard Senator Baucus when he talking
    about that, and I agree with that. I do want to see that there
    is a place for science. One of the things that I have wanted to
    do, and I have talked to Senator Voinovich and others about
    this, we have in place in our statutes CASAC, the Clean Air
    Science Advisory Committee, and then we have others dealing
    with things other than air, and I would like to see them more
    involved in the initial process, prior to the time that a rule
    comes out, so that we have the benefit at that very early point
    of the science that is involved in the suggested rules. What
    are your thoughts about that? Any of you.
        Mr. Graham. I certainly agree with the general principle
    that you want to get scientific peer review involved early in
    the process of an agency's deliberations. One of the points
    Professor Revesz made, which I think is a good one, is that
    having an agency like OMB very late in the game trying to do
    review, oftentimes with only economic expertise and with no
    biological or chemistry expertise, you are not setting up a
    very effective peer review process for agency risk assessment
    and for agency decisionmaking. So more peer review by the
    scientific community, and scientists with different
    disciplines, early in the process I think is much more likely
    to produce sensible regulation than counting on OMB to pull
    fixes at the last minute.
        Senator Inhofe. Any other comments?
        [No response.]
        Senator Inhofe. Senator Voinovich.
        Senator Voinovich. Ms. Kerester, I testified before this
    committee when they were considering the ozone and particulate
    standards, and there was a mayor of a Texas city that was there
    and she was asthmatic and talking about the fact that the stuff
    inside of her house had more of an impact on her asthma than
    the air outside. Is there any way that you think, if we said
    the reason why we have these goals and these standards is to
    protect public health, that you could work in some provision
    that says that if we conclude that the problem is more internal
    than external, and of course we have more control over the
    external because we can do that on a national level, but of
    making recommendations to local political subdivisions. For
    example, and I am not being facetious, but we concluded that we
    might be able to do more about asthma in some of our inner-
    cities by strict code enforcement, and even some suggested
    buying air conditions, than we could going to new standards
    that would require enormous expenditure by businesses and
    political subdivisions.
        Ms. Kerester. There may be some just relatively minor steps
    or recommendations that EPA could make to the public. For
    example, airing out clothes that you bring home from the dry
    cleaner, letting those air outside before you bring them into
    the home; venting out the home, opening the windows and
    bringing in some fresh air. Those are kinds of relatively minor
    examples. For children with asthma, it may be using a
    particular kind of vacuum cleaner or altering the products that
    are used in the home.
        Senator Voinovich. It seems to be that part of it is being
    ignored and it seems that perhaps that ought to be taken into
    consideration when they are dealing with a problem that is of
    concern to all of us, to make some rather practical
    recommendations that might do a whole lot more to help
    asthmatic people than their proposed ozone and particulate
    standards.
        Dr. Graham, critics of risk assessment and cost-benefit
    analysis contend that such analysis would elevate cost in a way
    that would value dollars over lives and the health of citizens.
    I would like you to respond to that. We keep hearing that those
    of us that are interested in good science and risk assessment
    are less concerned about human life than those that aren't.
        Mr. Graham. Senator Voinovich, I think it is a good issue
    to raise. The first point I think we should keep in mind is
    that the economic welfare of a family, the income of that
    family and its wealth position, the employment status of the
    mother and father in that family, they have a powerful impact
    on the human health of both the parents and children in that
    family. We should not underestimate the importance of the
    material well-being of the household in influencing their
    health.
        The examples that you gave in the State of Ohio, when a
    region of a State is declared to be in nonattainment and
    businesses don't expand or come into that community, that is
    not only an economic issue, that is a public health issue for
    the parents and children in those families. So I think we
    should not draw this sharp separation that public health is
    over here and economics is over here. The two are, in fact,
    very intimately tied. So I think we do have to bring some
    discussion of the economics into the Clean Air Act.
        Senator Voinovich. I will never forget running into a woman
    in Steubenville, Ohio, she was an immigrant, and she said I
    remember when the air was dirty and I put the clothes out and
    they got soot on them. And she said now the air is cleaner and
    nobody has a job. Some of those considerations, that is an
    extreme example, but the fact is that if your economic
    condition is lessened in a community and people are unable to
    have a job and are not able to buy health insurance, for
    example, or they don't have a job that provides health
    insurance, that has I would think a more substantial impact on
    their well-being than does the standards for ozone and safer
    particulate matter.
        Mr. Graham. Senator Voinovich, I think the example you are
    giving is not just hypothetical or anecdotal. In my written
    testimony, I describe one of the examples of the regulations
    under the Clean Air Act that deals with a part of the steel
    industry called coke production. The basic idea in the 1990
    amendments was that we were going to force innovative
    technology on this industry so they would clean up all of their
    pollution. In fact, what my testimony indicates is that in a
    number of cases what steelmakers have done is simply shut down
    their cokemaking operations and are now importing coke from
    Eastern Europe, and from China. I think any careful
    environmental analysis of what is going on in that industry
    would indicate that we are having less economic productivity in
    this country and we are having more air pollution in other
    countries.
        Senator Voinovich. I will just finish up with this. We have
    heard criticism of risk assessment and cost-benefit. They say
    it will slow down the rulemaking process. I recall in testimony
    before the Governmental Affairs Committee, and you testified
    regarding Senators Levin and Thompson's Regulatory Improvement
    Act, we heard testimony that risk assessment and cost benefit
    analysis may actually speed up the process on implementing
    sound scientific regulations because it allows everyone to know
    up front what information was used during the decisionmaking
    process. I would like you to comment on that.
        Mr. Graham. Yes. I think a good example of this is the
    primary ambient air quality standards, where the law says you
    shall not consider the cost of these standards. But everybody
    in this town knows that you have got lobbyists running all
    around talking about costs all the time, you have got
    administrators who are making public statements about cost, yet
    supposedly we are not considering costs at all.
        I think a far better idea would be to allow costs to be
    talked about explicitly and let the claims about costs be
    scrutinized. In many cases, those claims will be scrutinized
    and shown to be exaggerated, which will result in more
    consensus about in fact what the policy should be. So by
    driving the whole cost-benefit discussion underground and by
    making it secret, we don't make the process any more
    trustworthy, and we don't make the process any quicker.
        Senator Inhofe. Yes, I think that is significant. I was
    just discussing it with Andrew here, that back during the
    ambient air debate, EPA was saying the cost of the change in
    those standards would be approximately $6 billion, then the
    President's Economic Advisory Council came out with about $60
    billion, and then of course the group that was out in
    California came up with $120 billion. I think your idea of
    scrutinizing these variances is very good and very significant
    because they are going to talk about costs and they are going
    to talk about it in a very emotional way that is not being
    scrutinized and evaluated. When you have a variance from $6
    billion to $120 billion a year, you need to talk about it.
        Mr. Graham. Right. And you need scientific peer review of
    the economic projections, the technological and engineering
    projections that underlie those types of cost estimates.
        We heard this morning from the gentleman from the
    Environmental Protection Agency that they don't consider costs
    when they do primary ambient air quality standards, yet the
    White House was, the Council of Economic Advisors was, the
    Treasury Department was. EPA was probably the only place in
    town that was saying publicly we don't consider costs, yet even
    they issued a cost-benefit analysis of that regulation.
        So one has to have a certain cynicism about this process
    where we say we are setting this number just to protect the
    public health without regard to cost and everybody is doing
    cost analyses. I think we ought to bring it out in the open,
    make it more rigorous, and build it systematically into the
    process.
        I think one of the points that was made by Senator
    Lieberman and Senator Baucus, which I think is a good one, is
    the nature of the cost-benefit test at the stage of an air
    quality standard should be different than the nature of a cost-
    benefit test at the final source or emissions standard. I think
    you have to be much more lenient and flexible in the cost-
    benefit test because you are asking the Agency to forecast
    costs to the entire industrial economy. When you have a
    specific source standard or emission standard, I think you can
    be more strict in the kind of cost-benefit test you insist
    upon.
        Senator Voinovich. Mr. Chairman, may I?
        Senator Inhofe. Yes. Take all the time that you want.
        Senator Voinovich. I was thinking, and you I recall
    testifying when I was with the National Governors Association,
    we had a hearing on the question of where do you invest your
    dollars. So often the public's perception of what an
    environmental problem is is not connected with the real
    problem. In other words, because an issue comes up and people
    get excited about it and the Agency starts to deal with it, if
    you sit back and you look at what are the real problems,
    something else may be even a much more severe threat to public
    health than, say, some other problem.
        I wonder if there were some way, and I would be interested
    in your reaction, as part of the amendments to the Act, to get
    the Agency, and maybe they have done this, but to sit down and
    really do an analysis of what are the real severe problems that
    are confronting the country and what have the largest impact on
    public health and direct their attention to those, rather than
    to go off maybe in some other direction where they get people
    to spend a lot of money and where we could be utilizing the
    dollars that are available in a much more effective way. There
    is X number of dollars available at the local level, political
    subdivisions, State government, business. The issue is how do
    you get them to use the dollars that are available, in terms of
    environmental, in the most cost-effective way to get a real
    return on your investment. Is there some way that could be
    done?
        Mr. Graham. Senator Voinovich, I think that there is, in
    fact, a strong usefulness of cost-effectiveness methodology to
    identify where we can save the most lives, do the most for
    public health for a given amount of expenditure. You heard
    already good testimony from Ms. Kerester about indoor air
    pollution. I think any fair analysis is going to show that
    additional investments are likely to give big gains in indoor
    air pollution control compared to outdoor air pollution
    control. I think they will also show that investments in
    outdoor particulate control are going to give you more benefits
    than investments in more air toxics control. The problem is the
    Clean Air Act was broken up into these pieces and nobody has
    responsibility for identifying where we can save the most lives
    with our clean air dollars.
        Senator Voinovich. That might be a good idea.
        Senator Inhofe. Well, I only have one last thing. We are
    taking a little longer here because we are down to two
    Senators. Maybe that will encourage better attendance.
        I heard Mr. Perciasepe say right before I had to excuse
    myself and testify at the Senate Armed Services Committee that
    when the D.C. Circuit Court made their decision they did not
    consider science. Yet, in their remanding statement, they did
    refer to the negative UV effects on people. Now, isn't that
    science? Do you have any comments about that particular
    decision?
        Mr. Revesz. Let me address that, Senator.
        Senator Inhofe. Yes.
        Mr. Revesz. There were references to scientific issues in
    the decision, but the rationale for sending the standards back
    to the Agency was that the court felt that the statute had not
    appropriately constrained the discretion of the Agency in
    setting the standards, and that the Agency itself had not
    appropriately constrained its own discretion and had not
    appropriately explained why it had gone down to where it had
    gone down and not had gone down further, because, after all,
    going down further, as Professor Graham explained, would have
    saved more lives, done more good. As I read that case, I think
    that was the primary rationale of the D.C. Circuit and they
    sent the regulation back to the Agency for the Agency to try to
    articulate some standards that were going to guide it in the
    future I guess in promulgating National Ambient Air Quality
    Standards for these pollutants.
        So it was not primarily a scientific decision. It was an
    invocation of the nondelegation doctrine that primarily made
    these standards go back to EPA.
        Mr. Graham. Mr. Chairman, my understanding was they ruled
    as a unanimous part of that court's opinion that dealt with the
    smog and the ozone standards, and they did indicate that the
    Agency had not in any way considered the scientific evidence
    that ultraviolet radiation can cause skin cancer, cataracts,
    and that should be balanced against the ozone control benefits
    in the standard. That's the kind of hippocratic oath provision
    that the court is trying to bring into the law that I think
    Congress should just cut short and put it right into the
    statute itself.
        Senator Inhofe. I see. That is a very good point.
        Do you have anything else, Senator Voinovich?
        Senator Voinovich. No, I haven't.
        Senator Inhofe. Thank you very much. And by the way, all of
    the members are represented by staff here. You will be
    receiving questions for the record. So there are more people
    here than you are looking at right now. We appreciate it very
    much.
        Senator Inhofe. I would hope, while the next panel is
    coming up, if we can get science introduced into this at an
    earlier stage, that we will have less emotional approaches. I
    can remember, Senator Voinovich, the very first hearing we had
    on the proposed changes in the ambient air standards on ozone
    and PM. They brought in all these kids with white masks from
    some hospital. It makes great for TV and all that, but it
    really does not help in getting to the truth and what we are
    trying to accomplish here. In fact, I can remember asking those
    kids how many of them use CFCs in their inhalers, and they all
    said they did, and I asked if they were aware that it was my
    understanding that the EPA and the FDA were working on programs
    to ban CFCs from their inhalers. So that kind of changed their
    attitude toward this thing.
        We now have the third panel, which includes Mr. Michel
    Benoit, executive director of the Cement Kiln Recycling
    Coalition; Mr. Bernard Melewski, counsel of the Adirondack
    Council; and Mr. Bill Tyndall, who has been here before, vice
    president of the environmental services, Cinergy Corporation,
    on behalf of Edison Electric Institute.
        It is nice to have you back again, Bill. Why don't we just
    go ahead and start with you since you are the experienced one
    at this table.
        Mr. Tyndall. I believe Mr. Melewski was there the same day,
    so we are sort of tied.
        Senator Inhofe. Oh. Well, let's start with Mr. Melewski
    then. You're on.
        [Laughter.]
        Mr. Melewski. All right. That was neatly done.

       STATEMENT OF BERNARD C. MELEWSKI, COUNSEL AND LEGISLATIVE
                DIRECTOR, ADIRONDACK COUNCIL, ALBANY, NY

        Mr. Melewski. With respect to the long involvement of the
    Adirondack Council, a not-for-profit organization formed 25
    years ago to protect the Adirondack Park in New York--the
    largest park of any kind in the lower 48 States, a six million
    acre park of public and private land--our involvement in the
    protection of the park and acid rain is very well documented in
    our written testimony. I want to go directly to a couple of
    main points.
        One of the features that we have found useful, informative,
    and wise on the part of Congress in the 1990 Clean Air Act
    Amendments was the requirement that EPA, and then NAPAP, the
    National Acid Precipitation Assessment Program, which is
    comprised of multiple agencies in the administration, should
    report to Congress progress of the Clean Air Act Amendments,
    particularly the sulfur cap and trade program. Congress can
    make an assessment of the success or problems of that program.
    There have been two reports: one by EPA in 1995, and just
    recently a report was made available by NAPAP. I would like to
    address the two major conclusions which we think are fair to
    make from those two reports.
        First of all, the market-based mechanism--the cap and trade
    mechanism--is an overwhelming success. The Adirondack Council
    has been hawking this process. In fact, we took the Agency to
    court and I am happy to report that was resolved only just 2
    weeks ago. We agree that the mechanism is an overwhelming
    success. It is extremely cost-effective. There is 100 percent
    participation, which is outstanding and almost a minor miracle.
    And it is accomplishing its primary task, which is to reach a
    particular cap in tonnage of SO2, probably in
    advance of the schedule set by Congress.
        Unfortunately, the second finding of these two reports is
    that the primary goal of the 1990 Clean Air Act Amendments,
    Title IV, which was to solve the acid rain problem and protect
    sensitive resource areas, is not being accomplished. In New
    York, it is particularly hard to accept that these report find
    that without additional reductions, we will lose over half the
    lakes of the Adirondack Park. And we have seen extensive damage
    in the Adirondacks, not just limited to the impacts of acid
    rain directly to the forests and the fish and wildlife of the
    park, but also it is extensively documented now that there is a
    public health impact. The document that I have included in our
    testimony discusses these issues.
        For example, in the last year and a half, the Public Health
    Department of New York has issued fish consumption warnings for
    15 lakes in the Adirondack Park and for three of the high
    elevation reservoirs for the New York City water supply because
    of mercury contamination via bioaccumulation in the fish. And
    the source is acid rain, both directly and indirectly.
        The other major conclusion of these reports is that the
    problem is not just isolated to the Adirondack Park. It is an
    extensive problem that reaches from Maine to Georgia. In fact,
    all high elevation areas throughout the country, including
    Colorado and California, are now seeing the impacts of nitrogen
    saturation and soil acidification. Also our coastal estuaries,
    from Narragansett Bay to Long Island Sound to Chesapeake Bay
    and Tampa Bay, are seeing impacts from nitrogen loading.
        So the problem is not limited just to New York; the problem
    is most severe in New York and we are in danger of losing the
    resources of our park. We were very pleased to have our
    organization, which is a small regional organization, joined by
    many organizations in an open letter to the public just
    recently, which I have up there, called ``Your Best Chance to
    Stop Acid Rain Once and Forever,'' alarmed by the findings of
    the NAPAP report, and joining in the consensus that something
    more has to be done. The impacts of acid rain are felt here in
    the Capital as well. What is perhaps forgotten about acid rain,
    it has a severe impact on our monuments throughout the Capital
    and, in fact, our Civil War cemeteries in Gettysburg and
    Vicksburg. It is, unfortunately, very well documented by a
    publication of the U.S. Department of the Interior called
    ``Acid Rain on our Nation's Capital: A Guide to Effects on
    Buildings and Monuments.'' It is actually a walking tour, that
    I urge you to take, demonstrating the damage to monuments such
    as the Lincoln Memorial, the Jefferson Memorial, and the
    Capitol Building itself.
        We make two recommendations, quite briefly, and that is
    that we go back to the 1990 Amendments and Title IV and we make
    further reductions in sulfur, along the lines recommended in
    the reports; and that you also consider a national cap and
    trade program for nitrogen, because the reports also indicate
    that nitrogen is a big factor in acid rain. We know in New York
    that as the snow pack builds in winter, and nitrogen and the
    acidity of the snow pack builds, and an acid shock occurs to
    lakes and streams with the melt in the spring.
        In conclusion, I would like to advise you that just in a
    matter of hours the Republican Governor of New York, George
    Pataki, will announce that he is directing his commissioner to
    develop regulations along the lines recommended by these two
    reports to make cuts in both sulfur and nitrogen to address
    acid rain in the next several years. Thank you.
        Senator Inhofe. Thank you. I am glad you clarified that. I
    thought you were going to say he was going to announce for
    president.
        [Laughter.]
        Senator Inhofe. Mr. Tyndall.

          STATEMENT OF WILLIAM F. TYNDALL, VICE PRESIDENT OF
    ENVIRONMENTAL SERVICES, CINERGY CORPORATION, CINCINNATI, OHIO,
                 ON BEHALF OF EDISON ELECTRIC INSTITUTE

        Mr. Tyndall. Thank you, Mr. Chairman. My name is Bill
    Tyndall. Since August 1998, I have served as the vice president
    of environmental services for Cinergy Corporation, an electric
    utility based in Cincinnati, Ohio that provides 1.4 million
    electricity customers and 470,000 gas customers with service in
    Ohio, Indiana, and Kentucky.
        Prior to joining Cinergy, I served Congressman Dingell as a
    minority counsel to the House Commerce Committee where I worked
    on Clean Air Act issues. I also worked on the Safe Drinking
    Water bill and represented Mr. Dingell and the Commerce
    Committee Democrats on that bill from subcommittee markup to
    signing by the President. I am very familiar with the
    standards-setting provisions and think there is a lot of
    overlap between the two bills and the cost-benefit provisions
    that were unanimously agreed to in that bill.
        Still earlier, I was at EPA where I served as a policy
    advisor in the office of Air and Radiation. And I also was in
    the General Counsel's office, where, I should add, I was in the
    early 1990's peacefully minding my own business when I received
    a phone call regarding a situation in Lorain, Ohio and an
    expansion by Colby Steel of a facility there, and I actually
    came in and helped negotiate a settlement of that issue that I
    think resolved both EPA's concerns and allowed the project to
    go forward and lifted the stop work order.
        But, in short, I am speaking to you as someone who has
    spent nearly 10 years addressing air policy issues from a
    variety of perspectives. I am today, as was said, appearing on
    behalf of Edison Electric Institute.
        I would like to start by echoing what other witnesses have
    said. The Clean Air Act is working. We are seeing reductions.
    There have been dramatic reductions across the board from
    industrial categories. From the utility industry we have seen
    reductions in all the major pollutants. With full
    implementation of the acid rain program, for instance, which we
    are just in Phase I of, Phase II will start and will drive
    reductions in the next 10 years, we will see a total 7.5
    million tons being removed from the air. We have had a
    particulate emission decline of 1.8 million tons, almost an
    order of magnitude since 1970. And has also been pointed out by
    other witnesses, these reductions have occurred in the electric
    utility industry against a background of growth that has
    matched the line that EPA put up on the board of the GNP.
        Utility growth in terms of sales has increased between 1970
    and 1996 120 percent, or some 13 billion kilowatt hours. So
    against a background of steady increase over 30 years, there
    has been steady declining of emissions. Of course, these
    emission reductions have had a price. Based on data filed by
    utilities, over $32 billion has been spent on controls alone.
        As we look to the challenges of the next 10 years, to talk
    a little bit about what the committee is interested in in
    looking at the Clean Air Act and the structure of the Clean Air
    Act, it is obvious to anyone such as myself who must plan for
    additional compliance that powerplants are facing a myriad of
    uncoordinated, overlapping, and inconsistent regulatory
    requirements. In large part, the structure of the Act itself is
    responsible for this. The multiple programs under the Act all
    are driven by separate statutory requirements which, in fact,
    are aimed at the same pollutants from the same sources.
        I have put up here for the committee two charts that show
    for NOx controls and then for SO2 controls all the
    various programs that are coming at us along with a guesstimate
    of when they might hit. Of course, as you sit there and try to
    do planning, I have to both guess as to when it is going to hit
    and what the level of reductions will be. There also are a lot
    of different questions about the stringency or the flexibility
    of the program. To give one example that Mr. Melewski's
    testimony brings up, if you look at NOx controls from the point
    of view of the NOx SIPP call, it asked us to do seasonal NOx
    reductions. Seasonal NOx reductions means during the ozone
    season, during the summer we are going to make reductions in
    NOx. That is a hundred day period. The technology that may be
    most cost-effective, depending on your plant, may be SNCR,
    which is an injection into your boiler which doesn't require
    high capital costs up front but has very high overhead and
    maintenance costs. But if you turn around and tell me 3 years
    later that I am going to have to do year round controls, then I
    have just made the wrong decision because for year round
    controls the SCR technology, where we essentially hang a filter
    20 stories up on a plant and filter the emissions coming out of
    the boiler, is the better technology because while the initial
    capital costs are higher, the O&M is lower. So if I have to run
    it year round, that becomes a better technology.
        EPA, of course, is putting us on this mad rush for 2003 to
    meet the 0.15 for the seasonal reductions and is setting up a
    compliance requirement that is basically going to then put us
    in a position where, if we are asked to make year round
    reductions, we have made some wrong decisions about compliance.
    So then we will either have wasted money and have go back and
    make changes, or there will be a lot of companies that will say
    wait a second, forget it, we already invested, we put on these
    controls and we are not doing anything more. And the issues
    that he legitimately brings forward will face that kind of
    opposition that it didn't need to if you can line up the
    requirements.
        So I would close with the following observation. I think
    the utility industry is unique in facing this level of
    regulatory complexity because of the various programs. In that
    sense, it may be, and it is certainly Cinergy's view, that
    there may need to be a comprehensive approach for utilities
    that establish us with long lead times, with flexibility, with
    phase-ins, with early reduction credits, the kinds of things we
    know reduce costs, but sets up requirements so that we can do
    planning and understand what we are going to be required to
    meet. And with that, I think you can have a situation where
    both of us can come in and testify in favor of the same
    provision. And with that, I will conclude.
        Senator Inhofe. Thank you.
        Mr. Benoit?

    STATEMENT OF MICHEL R. BENOIT, EXECUTIVE DIRECTOR, CEMENT KILN
                          RECYCLING COALITION

        Mr. Benoit. Thank you, Mr. Chairman, Senator Voinovich.
    Good morning. Thank you for inviting me to testify today. I am
    the executive director of the Cement Kiln Recycling Coalition.
    CKRC represents cement producers that recover energy from
    hazardous waste and their kilns. In the United States there are
    118 cement plants located in 37 States; 17 of those recover
    energy from over one million tons per year of regulated
    hazardous waste which they use as a one-for-one substitute for
    coal. That's enough energy to provide the power needs of the
    city of Tulsa for about 8 months. And if I could suggest only
    one change to the Clean Air Act, it is that we believe it
    should accommodate and encourage energy recovery technologies
    that reduce pollution.
        I would like to offer a little bit of background first.
    This is a diagram of a cement kiln. Perhaps you have seen them.
    Cement kilns are very, very large industrial furnaces. They
    produce portland cement. They can be up to or over five hundred
    feet long, they can be over 20 feet in diameter. In other
    words, big enough to drive a tractor trailer through them. They
    are very hot. This is a picture of the inside of a cement kiln,
    an operating kiln. They operate at temperatures over 3,000
    degrees fahrenheit, and they are among the largest industrial
    users of energy. What you see in that picture at the top is a
    coal burner, you see a burner feeding hazardous waste fuel, you
    see the product discharging at the bottom left.
        Since the late 1970's, cement kilns have safely used
    hazardous waste as fuel. These are wastes like paint solvents,
    cleaning solvents, adhesives, printing inks; the kinds of
    materials that need to be managed properly, the kind of
    materials, frankly, that we do not want to see wind up in our
    environment. The critical point to keep in mind here is that
    EPA regulations mandate that these types of waste cannot be
    land disposed. They must be burned in either industrial
    furnaces, boilers, or incinerators, and there is no alternative
    treatment for these types of energy-bearing wastes. Recovering
    energy in cement kilns yields many environmental benefits--
    fossil fuel energy resources are conserved, air pollution is
    significantly decreased, greenhouse gas emissions are reduced,
    and the waste materials are put to a productive use.
        EPA has very recently promulgated the Hazardous Waste
    Combustors MACT rule under the Clean Air Act. Since 1994, CKRC
    has been working very closely with EPA on the development of
    this rule. And as you know, section 112 of the Clean Air Act
    instructs EPA to evaluate the emissions control performance of
    industrial sources of hazardous air pollutants. Section 112
    requires EPA to assess the various control technologies and set
    emissions standards at a level of performance of the best 12
    percent. This is known as the MACT floor level.
        Unfortunately, the final Hazardous Waste Combustor MACT
    rule reflects a misuse of the Clean Air Act regulatory process,
    and we do not believe it is consistent with the intent of
    Congress. I have examples that I think bear this out in three
    areas; in the area of economic impact, risk reduction, and the
    use of science and technology.
        In the area of economic impact, the Clean Air Act
    authorizes EPA to set MACT standards that are more stringent
    than the floor level that I mentioned. Section 112 instructs
    the administrator, however, to consider cost and other factors
    before setting such standards. In EPA's past MACT rules, the
    Agency has generally found acceptable cost-effectiveness levels
    for its decisions in the range of about $5,000 to $14,000 per
    ton of pollutant removed, an average of about $8,500 per ton of
    pollutant removed. In the Hazardous Waste Combustor MACT rule,
    EPA accepted a cost-effectiveness level of $500,000 per ton of
    pollutant removed, 60 times higher than the average in all
    previous MACT rules.
        Now, you would expect that at that at high cost levels
    there would be some environmental or public health benefit
    gained. However, in letters to Senators Graham and Hutchison
    responding to some oversight inquiries, EPA addressed the risk
    reduction in the Hazardous Waste Combustor rule and said, ``We
    do not project a reduction in numbers of children with blood
    levels that exceed the Centers for Disease Control intervention
    level.'' Specifically, in the final rule, EPA says that the
    benefit to children's health is a decrease in an incidence of
    elevated blood lead levels of 0.4, four-tenths of a case per
    year out of the entire U.S. population of over 250 million
    people, and we are not sure really how they measured that.
        Third, in the area of science and technology, as you know,
    Congress intended the Clean Air Act in section 112 to be
    technology-forcing. However, in setting the standards for metal
    emissions in the Hazardous Waste Combustor rule, EPA said that
    reducing the amount of waste burned in hazardous waste
    combustors is a control technology. So even though EPA has said
    in other regulations that these wastes have to be burned, there
    are no alternative technologies, EPA concluded in the
    rulemaking that the way to control emissions from these wastes
    is not to burn them at all, or not to burn them in the first
    place.
        The practical effect of this is to force cement kilns to
    burn less waste, to reduce their level of energy recovery, and
    to burn more coal. We don't think that makes sense. In fact, if
    this type of logic is fully extended to a manufacturing
    process, such as an oil refinery, for example, it means that
    the best performing oil refinery will be the one that feeds no
    crude oil to the process.
        Now there are several ways to fix these problems. One, of
    course, is through litigation. CKRC will be filing a petition
    for review on this rule in the D.C. Circuit. Another way, which
    we are here to talk about today, is for Congress to reauthorize
    and amend the Clean Air Act. Our recent experience with the
    MACT program indicates that Congress should be concerned about
    three important points. First, Congress should specify the
    findings necessary to go beyond the MACT floor in setting
    emission standards. Second, Congress should make clear that
    reducing feed to a process is not a control technology.
    Finally, Congress should ensure that the Clean Air Act
    accommodates and encourages energy recovery technologies that
    reduce air pollution. Thank you, and I look forward to
    answering any questions you may have.
        Senator Inhofe. Thank you, Mr. Benoit. The last of your
    statement answered the major question I had to ask you.
        Senator Voinovich?
        Senator Voinovich. I was interested in Mr. Melewski's
    comments. I would be very interested to have the utilities that
    are represented here respond to what you think is a solution to
    the problem. I just want to make two comments about it. One is,
    I am glad you promoted the allowances and credits early on
    because they were used. But you are probably not aware of the
    fact that the Government did everything in their power not to
    allow us to use the allowances. When they initiated the
    process, they went to a cue and it was going to be triggered by
    telephone calls to I guess one of the departments, the
    Department of Energy, EPA.
        When I came in as Governor, Mr. Chairman, we got all the
    utilities together in the United States that were interested in
    going after the credits and allowances and got them all in a
    room, it took a lot of work, and got them all to agree that
    they would share the credits and that it wasn't going to be a
    first come, first serve situation. Because the way it was set
    up was that the first ones would have gotten the credits and
    the rest of them wouldn't have gotten anything. So there was a
    real attempt at that time, I will never forget it, to really
    preclude us from sharing these allowances and allowing
    utilities more time to do some of the things that were
    necessary for them to continue to burn, in some cases, high
    sulfur coal or make other alternatives.
        Second, I followed the acid rain provisions from the
    beginning and was down here as a mayor. One of the things that
    always puzzled me was President Reagan undertook a big study,
    that everybody applauded in the beginning, and, as you may
    recall, the result was they said that the acid rain coming from
    the utilities perhaps wasn't as serious a problem as what
    people made it out to be, but, in the end, those
    recommendations were ignored and they went ahead with those
    provisions. There were very few Senators that voted against
    that legislation. Senator Glenn from Ohio was one of those that
    did because he was concerned about that.
        The question I am asking you is, are you really sure that
    the problems that you are experiencing in terms of the lakes
    and the soil and the fish are caused by the emissions from
    these utilities?
        Mr. Melewski. We are absolutely certain. The report that
    you were referring to in the 1980's was the start of this
    scientific inquiry that has now culminated in not only the
    reports back to Congress, which I said were wise to require,
    but also numerous other studies, including some that have just
    come out last week that continue to verify this correlation
    between the transport of pollution and the subsequent problems.
        Keep in mind also, and I too hope the utilities will react,
    and very favorably. What we are recommending is not changing
    the mechanism, which is working very, very well, especially to
    keep costs down. It provides any particular utility the
    flexibility to come into compliance in the most cost-effective
    manner, and over a long time span that is conducive to business
    planning. The reports do clarify very well that there is a
    direct correlation between the reductions and the deposition in
    sulfur.
        So we know we are doing the right thing to get at the right
    pollutant. The results, the monitoring on the ground which have
    been going on in the Adirondacks since the 1970's on a
    continuous, daily basis of at least 52 lakes in the park,
    document these changes quite well, as well as other studies
    throughout the Northeast. So I think we are on absolutely the
    right track. If you will, what we are proposing is not to
    change policy, but to reaffirm the policy and commitment that
    the Nation made in 1990, which was to adopt a market-based
    program that would solve the problem.
        Senator Voinovich. I am going to be anxious to read that
    report. I will be interested to see what the reaction is to it.
        One last comment, and that is, Mr. Tyndall, you are
    involved in the issue I talked to Mr. Perciasepe about, and
    that was the NOx standards, the call that they have put out in
    terms of reducing 85 percent of your emissions. Do you want to
    comment on that in terms of your moving forward with trying to
    be a responsible corporate citizen and cleaning up the air, and
    dealing with some of the problems they have particularly in
    Pennsylvania and a little bit in the other Eastern States?
        Mr. Tyndall. There are several things to say about it. One
    is I would second what you observed earlier, that there was a
    real attempt to put something substantial on the table by
    Midwest and Southern States that was well within the range of
    reductions that the OTAG, the technical group, said was
    necessary. That was essentially rejected, nor were there even
    any attempts to try and see if there could be an accommodation
    between the views of the Northeast and the views of the Midwest
    and the South. We still continue with the war going on between
    the two regions, which I don't think is productive for anybody
    and I don't think it is productive for cleaning the air.
        Of course, that leaves us trying to guess at what our
    responsibilities are going to be. The State of Ohio, first
    under your leadership and under your successor's leadership, is
    moving ahead on putting the kinds of reductions on the table
    that they said they would. I think the modelling that the State
    of Ohio has, the modelling the State of Indiana has shows that
    level of reductions, the level represented by a 0.25 reduction,
    should resolve issues. But there is also continued working and
    trying to find a compromise that is acceptable, and the State
    of Ohio has been very active on that.
        The other part of it, however, is that we have NOx that is
    in front of us right now, but there are any number of issues,
    including the issue being raised today, where what we do on NOx
    could be totally inconsistent with what another part of EPA is
    pushing us to do. Yet, under the statute, under the way the Act
    is being implemented, there is no attempt to try and coordinate
    these or look at these. So we are going to make investment
    decisions and, if we make investment decisions that make it
    difficult for us to move to annual emissions, we will certainly
    bring that out.
        We have tried to talk to the Agency about this, we have
    said to the Agency why don't you try and coordinate all these
    things. And while they won't directly say this because it is
    their view they don't want to reopen the Clean Air Act, the
    truth of the matter is they can't. There are independent
    statutory provisions that drive forward requirements that give
    us that long list and that have reduction programs or reduction
    targets under consideration that are inconsistent, that have
    more or less flexibility, that are unit by unit, that are
    system, all sorts of different mixes and matches that makes it
    difficult for Cinergy to set a course and say over the next 10
    years here is what we will do for NOx, here is what we will do
    for SO2, here is--there are other issues on the
    table. It makes time to draw that roadmap impossible.
        And so I do think there is a better way of doing it. I do
    think, however, that it is going to lay the problem in the
    committee's collective lap, that it is not going to be done by
    the Agency or the Administration.
        Senator Voinovich. I would just like to comment that we are
    talking about responsible amendments to the Clean Air Act. The
    Chairman is going to be having hearings. We certainly would
    welcome recommendations from the environmental and from the
    business community and from State and local governments about
    how we can do a better job of utilizing our resources.
        I think what you are suggesting is that the left hand ought
    to know what the right hand is doing; that there ought to be
    some place where people come together and say these are the
    goals that we would like to set dealing with the Adirondacks,
    with this goal, with that goal, how do you put a plan together
    that you will commit to over a long period of time that says to
    you that if you make these investments, that next year someone
    won't come back and say I'm sorry, it is not enough and you
    have to go beyond, or I'm sorry, what you are doing is causing
    other problems and you are going to have to deal with that
    problem. It just is not the way to get things done. I don't
    think it helps the environment and I don't think it really
    helps our competitiveness in terms of our businesses in this
    country.
        Mr. Chairman, that is one of the other sides of this thing
    that nobody is concerned about, and that is that we are in an
    international marketplace. Our environmental policies not only
    have to do with the environment, but they also have to do with
    our competitive position in that global marketplace. We need to
    be darn careful about the investments to make sure that we are
    getting a return on those investments in terms of our air and
    water.
        Mr. Melewski. If I could, I would comment on Mr. Tyndall's
    point about the need for Congress to take a look at these
    programs, just from a slightly different perspective. He was
    concerned about the conflict between perhaps summer ozone
    controls and year round controls. The announcement that
    Governor Pataki is making today that New York is going to
    unilaterally do these severe reductions in SO2 and
    in NOx year round in New York gives New York clean hands, so to
    speak, and will provide us some health benefits, but it is
    really just giving us some extra time in the Adirondacks and
    perhaps the Catskills before we lose those parks. New York
    cannot unilaterally solve its problem, and it certainly cannot
    unilaterally get consensus to do year round controls. The
    change in the SO2 program and the possibility of
    year round controls in NOx will have to come back here.
        Senator Voinovich. Well, I want to say that I congratulate
    Governor Pataki, and I say finally, because Governor Pataki and
    I have had differences of opinion on this issue for a long
    time. I have said to him ``You're asking us to solve your
    problem. What are you doing in your State to be a good
    citizen.'' And I think this is a positive step on his part. And
    you're right, I think it puts him in a much better position in
    terms of when he is at the table with some of us who have said
    it's your problem and not ours, and have said you're not doing
    anything in your own State. I will be anxious to read about
    what he is doing and how it is going to be worked out. Thank
    you.
        Senator Inhofe. Thank you, Senator Voinovich.
        I think almost everything I was going to ask has been
    discussed. I would think though, Mr. Tyndall, and I don't mean
    to make this sound unkind or unfair to the Administration, but
    I have often said that one of the things a lot of them have in
    common is they have never had a job in the real world and,
    consequently, have an insensitivity to the impositions that are
    imposed on people. I say that because I am somewhat prejudiced
    since I spent 35 years on your side of the table instead of on
    this side.
        When you have these changes that take place and you are
    expected to reach certain levels and then next year they change
    and they change the rules, there is a tremendous cost in
    corporate planning to prepare for these things. We have talked
    around this, but it would be interesting to try to quantify
    these costs. Let us say we made a decision today that would
    take care of the next 5 years as opposed to doing it today and
    then coming back next year, it would be a very difficult thing
    to do but it would be helpful to us to know, as Senator
    Voinovich brought out, there is a global component to this,
    what the cost is compared to doing the same thing in another
    country.
        Mr. Tyndall. I think it is possible to get some idea of the
    cost-savings involved both in coordinating and in making sure
    that things are done with adequate lead times and with
    flexibility. I know internally that we looked at the NOx SIP
    call, the 0.15 pound per million BTU, and our own economic
    forecasters, the same people we use to predict the price of
    electricity, so the people we rely on for financial decisions
    looked at this and they basically noted that you take the same
    requirement, instead of having this mad rush to comply over,
    from our point of view, essentially seven seasons of when we
    can have outages to install the controls, instead of having
    this mad rush to comply, if you allowed a phase-in, if you
    allowed the accumulation of early reduction credits, the same
    sorts of things that are used in the SO2 program,
    you could end up at the same point for half the amount of
    expenditures.
        When I joined Cinergy they brought me the budget for trying
    to comply with the 0.15 and it was, and this is a number we
    have made public so I can say it, it was over $700 million,
    which was, by the way, twice what EPA estimated our compliance
    would cost. And I did say, because I know from being outside
    that industry tends to exaggerate these costs, right, so what
    is the real number. But, no, this is what the engineers and the
    consultants and everyone who is putting this together said.
    There's the construction crews, the cranes, the sheet metal
    workers, and all the stuff that goes into putting in place the
    huge number of controls required under EPA SIPP call. We were
    doing projects at every single plant. When we looked at that,
    we ended up at a number double what EPA said we were going to
    do.
        And I, of course, am friends with the person who does a lot
    of the EPA modelling, and I called him up and said ``Our
    numbers are double, we have the double the SCR you are
    predicting.'' And he said, ``Well, you are clearly wrong.'' And
    I said, ``Well, this is our business. We are writing
    contracts.'' Their refusal to say--we have programmed that
    those are the numbers, sorry. In fact, for the NOx SIPP call it
    is a very different price than the SO2 system
    because they did not build in the flexibilities that they built
    into the SO2 compliance.
        Senator Inhofe. I think you have answered that question.
        Mr. Melewski, I think during the debate in 1990, you
    originally did not support the acid rain trading system and now
    you do; is that accurate?
        Mr. Melewski. I think we were very skeptical about the
    trading system at that time. We certainly preferred an overall
    mandatory reduction. And some of our concerns have been borne
    out. We were very concerned about target level. Those have been
    borne out, that's why we are here today. But we were also
    concerned about the compliance record and whether trading would
    allow concentration of allowances in certain regions and how
    that would play out. And we have looked at alternatives to that
    system, at the time a regional trading system, regional
    controls. But it is quite clear now that the system is working
    very effectively. The kinks have been ironed out over the last
    few years.
        Senator Inhofe. In your opening statement, I think at the
    very last you even suggested expanding that the pollutant of
    NOx. There are problems here. Around the country, the cost of a
    ton of NOx reduction varies so widely from one part to another
    part, same as the benefits. That would be very difficult to
    address, but I am sure you have thought that through. Do you
    have any comments about that?
        Mr. Melewski. I think that the mechanism that is in place
    for the SO2 allowances provides that kind of
    flexibility. You can buy allowances, you can install controls,
    you can tailor make your own strategy to come into compliance.
    The reason we are advocating for a national cap and trade
    program for nitrogen is also the economic benefits. The areas
    outside those 22 States are going to see benefits from the
    reductions in nitrogen, and in a bigger market costs will go
    down.
        Senator Inhofe. Any reaction to that or comments?
        Mr. Tyndall. We do agree that if you have a broader market
    and more participants, and if you have a control level that
    allows over control, which, again, is a problem with the NOx
    level, that you then will have an active market and it will
    allow the market to even out control costs. But you have to
    have a system that allows the development of that market, you
    have to have a control level that allows the generation of
    allowances, and all of those things, and not to pick on the NOx
    SIPP call, but all of those things were reasons why we had
    serious concerns about whether the NOx allowance market would
    have functioned the way EPA wanted it to function. It doesn't
    mean that one can't be designed that would provide the same
    equalization of compliance costs as occurs with SO2.
        Senator Inhofe. All right. First of all, let me thank all
    of you, and not just this panel but previous panels, for being
    in attendance today. This is very significant to have this as
    the first hearing. We appreciate your time very much.
        Is there any last comment that you are just dying to say
    that you didn't get an opportunity to say, Mr. Benoit, Mr.
    Tyndall, or Mr. Melewski?
        Mr. Melewski. Well, I will take a shot at that. I think
    that Governor Pataki's actions today reflect the knowledge of
    the mercury contamination in New York, the stories of lead
    poisoning as a result of acid rain that are contained in our
    documents, that New Yorkers are extremely concerned about this
    issue. I think we all should be concerned about the prospective
    loss of one of our greatest parks. While I respect the need for
    due diligence and deliberate speed in Congress, I think that
    prompt attention to Title IV would be appropriate, and the
    sooner the better.
        Senator Inhofe. All right.
        Mr. Tyndall?
        Mr. Tyndall. I would just add one thing. Having worked for
    4 years with someone who I think still swears that he will
    never stand for the Clean Air Act to be reauthorized, my former
    boss, Mr. Dingell, I think it may be that one thing the
    committee should consider is whether it makes sense to take
    some issues that everyone knows need to be addressed and
    address them in a more individual series of bills, such as you
    did with your amendment to the transportation bill, in which we
    accomplish something but with not trying to take on every issue
    in the Clean Air Act. I think trying to move individual bills
    as opposed to putting them all together in an omnibus Clean Air
    Act reauthorization, no one is going to have a personal life
    for a year, bill is maybe a better approach. I don't want to be
    a Monday morning quarterback, because you have excellent staff,
    but just some advice.
        [Laughter.]
        Senator Inhofe. All right.
        Mr. Benoit?
        Mr. Benoit. If I could make one final point, Mr. Chairman.
    We heard a fair amount today about the importance of cost and
    benefits, risk reduction, the use of sound science. And I was
    struck by Mr. Perciasepe's remarks about the ability of U.S.
    industry to innovate in response to statutory, and regulatory
    objectives. I would like to point out that I think a fine
    example of industry innovating is the ability of existing
    industries to use waste materials, put them to work to reduce
    the use of fossil fuels, reduce the use of virgin materials,
    and in almost all instances doing that in a way that reduces
    emissions and reduces pollution. I truly hope that the Clean
    Air Act can be tailored to specifically accommodate and
    encourage that type of activity.
        Senator Inhofe. Sometimes a compliment on the innovation
    and the abilities of industry to respond is another way of
    saying we are going to make the decisions, you figure out how
    to make them work.
        [Laughter.]
        Senator Inhofe. Thank you very much. I appreciate all of
    you being here.
        The hearing is adjourned.
        [Whereupon, at 11:37 a.m., the subcommittee was adjourned,
    to reconvene at the call of the Chair.]
        [Additional statements submitted for the record follow:]
     Statement of Hon. Craig Thomas, U.S. Senator from the State of Wyoming
        Thank you, Mr. Chairman, for holding this hearing today to lay the
    groundwork for eventual reauthorization of the Clean Air Act. This
    issue is of great importance to the entire nation, but particularly to
    the West and my State of Wyoming where we have some of the nation's
    cleanest air and world class reserves of coal and natural gas, as well
    as wind resources. I am especially interested in the issue of cost/
    benefit analysis and look forward to the discussion in today's hearing.
    Far too often, environmental regulations adversely impact the economy
    while offering minimal environmental benefits. We must move carefully
    and thoughtfully as we think about reopening the Clean Air Act.
        Since enactmentment of the 1990 Clean Air Act amendments, the
    Clinton Administration has tried various ways to implement even
    stricter standards. I, along with many others including State and local
    governments, and many of the nation's Governors--vocalized our
    opposition to the EPA's rule on Particulate Matter (PM) and Ozone. One
    of the most troubling aspects of the process is EPA's rush to implement
    standards without sound scientific data. In May, the U.S. Court of
    Appeals for the DC Circuit held that EPA had overstepped its authority
    in proposing the revision of the ozone standard. Yet despite this
    action, EPA continues to move forward with a new NOx regulation.
        It is paramount that principles of sound science be applied. I
    remember clearly the debate we had several years ago over EPA's rule
    for Particulate Matter and Ozone. Here in this committee, Dr. George
    Wolff, the Chairman of EPAs's Clean Air Scientific Advisory Committee
    at that time, stated that the court ordered deadline did not allow
    enough time for its members to adequately examine that complex issue.
    Ultimately, there was no scientific consensus. And despite the
    ambiguity and lack of scientific data which was documented by the
    experts who testified, EPA went on to set new standards for PM and
    ozone--an action based on a judgment call rather than sound scientific
    evidence. We need to be careful about going down any regulatory road
    before we have good science to support any measure.
        My point Mr. Chairman, is this: what we are seeing from this
    Administration is one extreme proposition after another. American
    businesses and industries have made great strides to improve air
    quality. America's air is much cleaner than it was 25 years ago.
    Nevertheless, the EPA continues to add layer upon layer of regulatory
    requirements on the backs of States and industry. It's critical that we
    keep the issues of cost benefit analysis and sound science in the
    forefront as we begin the discussions to reauthorize the Clean Air Act.
        Thank you and I look forward to hearing from our distinguished
    panel of witnesses.
                                   __________
    Statement of Hon. Daniel Patrick Moynihan, U.S. Senator from the State
                                  of New York
        Good morning, Mr. Chairman. Thank you for holding this hearing on
    the reauthorization of the Clean Air Act. It is clear that the Clean
    Air Act and the 1990 amendments to the bill have resulted in a
    significant improvement in air quality, and a better understanding of
    the science of monitoring, measuring and controlling air pollution. The
    regulatory flexibility of a ``cap and trade'' program, exemplified by
    the S02 Allowance Program, has been successful because of the
    flexibility it allows affected utilities. It promotes innovation and
    competition in emissions reduction technologies and has produced
    tremendous cost savings. Since 1990, studies have estimated that the
    cost savings due to emissions trading, compared to the traditional
    command-and-control approach, have been between $230 million and $600
    million per year. These successes are encouraging but our work is not
    yet done.
        I testified before this committee last year about the pioneering
    scientists at Cornell University, Carl Schofield, Eugene Likens, and
    Charles Driscoll who were among the scientists responsible for
    establishing a strong link between acid deposition--primarily caused by
    upwind utilities--and the diminished ability of lakes to sustain
    healthy fish populations. We have made tremendous progress in
    understanding the causes and effects of acid deposition and ways to
    control it, but we still have a long way to go to mitigate these
    problems. We have learned, for instance, that the S02 emissions
    reductions required under the Clean Air Act Amendments of 1990 are
    insufficient to prevent the continued acidification of many lakes and
    further damage to sensitive ecosystems.
        Perhaps most importantly, since the 1990 Amendments were enacted,
    we have learned that nitrogen oxides, which were largely ignored 8
    years ago, play a significant roll in acid deposition. And we have
    learned that acid deposition does not cause environmental degradation
    just in remote, high-elevation forests and lakes in the Adirondacks and
    northern New England. Rather, it poses a continuing and significant
    threat to the environmental quality of lakes, streams, forests, bays,
    and estuaries throughout the country. The Southern Appalachians, the
    Front Range of Colorado, and the San Bernardino Mountains in California
    are greatly affected by acidification and nitrogen saturation.
    Eutrophication is adversely affecting coastal waters throughout the
    eastern seaboard, including the Chesapeake Bay, Long Island Sound, and
    the Gulf of Mexico.
        Achieving cleaner air has a twofold solution: identify and control
    both mobile and stationary sources of pollution. The transportation
    sector accounts for nearly half of national NOx emissions. A large
    portion of these emissions are in the form of tailpipe exhaust from our
    national vehicle fleet. In recent years, advances in vehicle technology
    have produced Low Emission Vehicles (LEVs)--vehicles designed to reduce
    vehicle emissions by 90 percent. These vehicles were first sold in New
    York beginning with the 1998 model year. Unfortunately, New York can
    not see the full air quality benefits of these vehicles because New
    Yorkers do not have access to the low sulfur gasoline these vehicles
    have been designed to use. The problem is not limited to LEVs, although
    these vehicles are especially sensitive to gasoline sulfur. All
    vehicles in the national fleet with catalytic converters--virtually all
    vehicles--produce higher levels of emissions because of the high levels
    of sulfur in the gasoline they burn. Once the catalytic converter is
    damaged, it permanently loses its ability to filter pollutants.
        In conclusion, I want to say that the success of the 1990 Clean Air
    Act Amendments cannot be questioned. The S02 Allowance Program
    established by that legislation has achieved extraordinary benefits at
    program compliance costs less than half of initial projections. The
    efficacy of the approach is proven. The current science indicates,
    however, that we did not go far enough in 1990 in setting our emissions
    reduction targets. We must buildupon our accomplishments thus far, and
    to begin the work which remains to be done. Thank you.
                                   __________
      Statement of Hon. Bob Graham, U.S. Senator from the State of Florida
        Thank you Mr. Chairman, for the opportunity to speak at this
    important hearing. I want to thank all of the distinguished witnesses
    who are here to testify today.
        The Clean Air Act has been a resounding success. A recent
    Congressional Research Service report notes that `` the Clean Air Act
    and its 1990 amendments appear to have contributed to a marked
    improvement in air quality nationwide.'' Since passage of the 1990
    amendments, more than one-half of the areas not meeting air quality
    standards for ozone in 1990 now meet those standards. 33 of 42 areas
    not in attainment for carbon monoxide in 1990 now meet the standard.
        At the present time, my State can boast attainment of all national
    ambient air quality standards. Unfortunately, this status will change
    with the new millennium. As we enter a new century and a new
    millennium, beautiful Tampa Bay and Pensacola, with its sugar-white
    sand beaches, will both be redesignated as non-attainment areas for
    ozone.
        I asked the Florida Department of Environmental Quality the
    following question: What measures would provide the most improvement in
    air quality for Florida? The answer was 1) the Tier II automobile
    emissions standards, including the low sulfur standard, and 2) phasing
    out the so-called ``grandfathered facilities.'' These facilities are
    the older fossil-fuel fired power plants that were not required to meet
    the New Source Performance Standards (NSPS) in the Clean Air Act.
        I would like to briefly discuss both of these measures, and get
    feedback from today's witnesses, especially as they pertain to Florida.
    As we are all aware, sulfur in gasoline interferes with the performance
    of cars' emission control equipment. Some have advocated regional
    standards for sulfur, based on regional air quality. I disagree.
    Florida attracts 45 million tourists per year to our beautiful shores
    and attractions. Many of these vacationers bring their cars. As you
    drive down I-95 or I-75 in Florida, you can spot license plates from
    just about every State. These cars travel through and across many
    regions to reach our shores and attractions. Differing regional sulfur
    standards would significantly reduce the efficacy of the emissions
    control equipment.
        In those regions of Florida that will be in non-attainment in 2000,
    specifically Pensacola and Tampa Bay, power plant emissions are the
    major contributing factor. When the Clean Air Act was crafted, older
    power plants were not required to meet the new source performance
    standards because it was thought that the remaining lifetime of the
    plants would be short. Requiring costly upgrades to plants that would
    not have time to amortize these capital expenses seemed unfair. As it
    turned out, most of these older plants continue to operate today,
    emitting far more than their fair share of pollutants. In a
    restructured electricity market, it has been estimated that allowing
    these older plants to continue to operate without complying to the new
    source performance standards amounts to approximately a 2 cents/kWh
    subsidy.
        I am very interested in examining steps that could be taken to
    bring these older plants into compliance with the new source
    performance standards in a way that is fair to all involved. These
    steps would provide a significant benefit of the environment as well as
    a way to level the playing field in electricity competition. Thank you.
                                   __________
        Statement of Hon. Barbara Boxer, U.S. Senator from the State of
                                   California
        Good morning, Mr. Chairman. Thank you for holding this hearing
    today to consider the progress we have made toward bringing Americans
    cleaner, healthier air under the Clean Air Act.
        I believe that the considerable progress we have made toward
    achieving cleaner air is owed in large measure to one basic principle
    embodied in that law. That principle is that when it comes to setting
    the standards designed to protect the air our children breathe, we
    should consider only how to best protect public health.
        What kind of progress have we made under the law since it was
    amended in 1990?
        Since that time, we have reduced ground-level ozone, particulate
    matter and carbon monoxide pollution, we have reduced the levels of
    acid rain producing sulfur emissions, we have reduced the levels of
    stratospheric ozone depleting chemicals, and we have reduced the amount
    of toxics in our air.
        In California, we have also made great progress on these fronts--
    reducing the levels of soot and smog that lead to health problems
    ranging from asthma to decreased lung function.
        Between 1980 and 1997, for example, statewide ozone levels have
    decreased 49 percent. Statewide levels of particulate matter (PM10)
    have decreased 31 percent between 1987 and 1997. At the same time,
    California's population and motor vehicle miles traveled increased 16
    and 26 percent, respectively.
        It is well worth noting that the advances brought by the Clean Air
    Act have been achieved at much lower costs than predicted by critics of
    the law. For example, a study prepared by critics in 1989 predicted
    that the acid rain program would cost between $4.1 billion and $7.4
    billion. Other industry estimates were much higher. The General
    Accounting Office's most recent cost estimate for this program is
    approximately $2 billion; independent economists place the cost at only
    $1 billion.
        Another industry study prepared in 1993 predicted that the law's
    reformulated gasoline program would add 16 cents to the price of each
    gallon of reformulated gas made. Actual costs of the program, however,
    are today estimated at between 3 to 5 cents per gallon.
        While these and other doomsday cost predictions have not been borne
    out by experience, we have witnessed the law spur the development of
    new, innovative technologies.
        Since the early 1970 amendments to the law, vehicle emission
    control technologies have been developed that reduce emissions from
    cars by 99 percent. Control technologies for stationary sources have
    also been revolutionized. For example, Selective Catalytic Reduction
    technology can reduce the emissions of nitrogen oxides from utilities,
    refineries, and manufacturing by up to 90 percent.
        Would we have seen these technological advances without a tough law
    on the books? I don't think so.
        But much more remains to be done.
        California still suffers from some of the most serious air quality
    problems in the nation. Approximately 30 million Californian's live in
    counties that don't meet the law's health-based air standards.
        Although air quality in the Los Angeles area has shown improvement
    for the first time this year, it still has among the worst air quality
    in the nation. We know that the smog and soot that plagues the L.A.
    area may have serious health consequences for the approximately 15
    million people that live there.
        A recent study, for example, found that air pollution in that
    region may impair children's long-term breathing capacity, leaving them
    vulnerable to respiratory disease and underdeveloped lungs. Asthma,
    which is exacerbated by air pollution, is also on the rise.
        In 1997, EPA finalized rules that would have helped us reduce those
    health risks. Unfortunately, those new rules were thrown into doubt by
    a May 14, 1999 Federal appeals court ruling. In the case, the court
    resurrected a discredited 1950's legal doctrine to call those rules
    into question. Even very conservative legal scholars find the court's
    ruling puzzling.
        So, while EPA and the Department of Justice appeal that ruling, the
    cleaner air that American's deserve is on hold.
        The ruling, however, offers this committee guidance in what it did
    not find.
        The court did not find that EPA relied upon bad science in
    establishing those new clean air rules. The court did not find that EPA
    acted beyond its authority in excluding a consideration of costs in
    setting those new standards.
        The last thing we need to do in this committee is to buy into the
    argument that the science used by the EPA in its air program is flawed,
    or that costs should be considered in setting our air standards.
        I look forward to hearing the testimony of the witnesses here
    today.
        Thank you, Mr. Chairman.
                                   __________
                     Office of the Governor, State of New York,
                                                       October 27, 1999

    Hon. James Inhofe, Chairman,
    Subcommittee on Clean Air, Wetlands, Private Property, and Nuclear
            Safety,
    United States Senate,
    Washington, DC 20510

    Dear Chairman Inhofe: Thank you for providing me with the opportunity
    to submit to you my testimony on New York State's important new acid
    rain reduction initiative. I believe this innovative proposal not only
    demonstrates my strong commitment to protecting the quality of New
    York's air resources, but also provides the U.S. Congress and other
    States with compelling documentation of the need for and application of
    stringent reductions in air pollutants with respect to costs and
    environmental and public health benefits.
        The reductions that will be made to New York State's electric
    generation facilities will have real and perceivable benefits upon the
    areas of the State that are most sensitive to acid rain Moreover, the
    actions we have repeatedly requested, and will continue to request from
    other States, are no greater than the demands that we place upon our
    own facilities.
        I urge you to give the enclosed comments careful consideration as
    you review the Clean Air Act and consider amendments to it. In
    particular, T urge your strong support for S. 172, Senator Moynihan's
    insightful legislation, which if enacted, would greatly assist the
    environmental quality of New York State and many other areas of our
    Nation that are sensitive to acid rain. This bipartisan legislation has
    also been introduced in the House of Representatives by New York
    Representatives Boehlert and Sweeney.
        Thank you for your consideration of our initiative. I look forward
    to discussions with you and your colleagues as you debate the future of
    the Clean Air Act.
                Very truly yours,
                                                 George Pataki,
                                                    Governor, New York.
                                   __________
            Statement of Hon. George E. Pataki, Governor of New York
        Mr. Chairman, I want to thank you and the other members of the
    Senate Environment and Public Works Subcommittee on Clean Air,
    Wetlands, Private Property and Nuclear Safety, for providing me with
    this opportunity to share with you the details of an historic
    initiative by the State of New York, one which I believe will further
    demonstrate our commitment in the fight to protect and preserve New
    York's water bodies, natural resources, and citizens from the
    devastation of acid rain and smog.
        New Yorkers care deeply about the quality of their environment. As
    the Governor of New York State, my Administration consistently has
    recognized and responded to this high priority of our citizens. I have
    repeatedly taken actions to preserve, protect and improve the quality
    of the State's environment and natural resource base for now and
    generations to come.
        These actions have taken form, through full funding for the State's
    Environmental Protection Fund, and through the approval by the voters
    of New York State of the $1.75 billion Clean Water/Clean Air Bond Act
    of 1996. We are preserving the quality of drinking water for nine
    million New Yorkers, thanks to an historic 1997 agreement to protect
    New York City's Watershed. We have developed, and are implementing,
    management plans for critical water bodies throughout New York State,
    including Lake Champlain, Onondaga Lake, Long Island Sound and the
    Hudson River. And we have preserved over 250,000 acres of open space--
    the shoreline of Lake Erie; the Whitney and Champion properties in the
    Adirondack Park; Sterling Forest in Hudson Valley; the Albany Pine
    Bush; Mount Loretto in New York City; and the fragile Pine Barrens of
    Long Island.
        Under my direction, we also are meeting State recycling goals,
    closing the Fresh Kills Landfill, and cleaning up brownfields which
    would otherwise remain as abandoned and unusable. But some of my
    greatest concerns continue to be over the need to improve air quality
    for all New Yorkers.
        On October 14, 1999, I announced a significant new clean air
    initiative that will have important environmental and public health
    benefits, and that will reaffirm New York's leadership in the fight
    against air pollution. This announcement complements the many efforts
    which New York State has taken to demonstrate our national leadership
    in the fight for reductions in the emissions of air pollutants that
    cause acid rain and ozone (also known as smog) both inside and outside
    of our borders.
        Let me briefly explain to you the history of the acid rain issue,
    as it impacts New York State, and why this recent Clean Air initiative
    is so important to us.
        The State of New York created the Adirondack Park, and the people
    of the State invested it with special, ``forever wild'' constitutional
    protections, more than a century ago. Measuring about six million
    acres--about equal to the size of the State of Vermont--it is the
    largest park of its kind in the United States, covering one fifth of
    the land area of the State and containing the largest assemblage of Old
    Growth forest east of the Mississippi. It is a glorious, perpetual and
    pristine wilderness.
        During the early 1980's, there were projections and evidence of
    widespread destruction of lakes in the Adirondack area as a result of
    acid precipitation. Although the New York State Department of
    Environmental Conservation (NYSDEC) had been gathering data since 1977
    on lakes believed to be sensitive to acidification, a review of the
    chemistry and biology of these waters presented an incomplete picture
    of past and existing conditions. As a result, it was apparent that a
    more standardized, detailed and comprehensive survey was needed to
    determine the extent and magnitude of acidification of waters in New
    York State. In order to gather the information that would serve as a
    baseline for evaluating future environmental changes, and to provide a
    basis for decisions relating to reductions in pollutants, the
    Adirondack Lakes Survey Corporation (ALSC), a not-for-profit
    corporation, was formed.
        From 1984 to 1987, field investigators focused on the collection of
    detailed chemical, physical and biological data from 1,469 Adirondack
    lakes and ponds. These data showed that 352 water bodies had pH values
    of 5.0 or less, and fish were not captured in 346 of the waters
    surveyed. Fishless waters were characterized as having low pH, limited
    ability to neutralize acid, low calcium concentrations, and high
    aluminum values.
        Since 1984, nearly $13 million in research projects have been
    completed or are ongoing under the auspices of the ALSC. The ALSC
    continues to be a cornerstone for cooperative scientific investigation
    with the U.S. Environmental Protection Agency (EPA), universities,
    NYSDEC, the Adirondack Park Agency, and other State and local
    organizations. Its careful studies have documented the continuing loss
    of Adirondack lakes to acid rain, and the need to address this problem
    at its source--the facilities where the emissions occur.
        The many studies of the ALSC have demonstrated their worth. In
    1990, when Congress approved the Clean Air Act Amendments (CAAA), the
    documentation that we provided to Senator Moynihan and others who were
    instrumental in the development of this legislation, provided the
    justification to statutorily protect the Adirondacks, the Hudson
    Highlands, Long Island Sound and other sensitive receptor areas--
    regions which are sensitive to acid rain--through Title IV of the 1990
    Act.
        Through this Congressional action, an innovative ``cap and trade''
    program was created as a free market based approach to reduce the
    emissions of acid rain precursors. This program provided utilities with
    the flexibility to make compliance strategies part of their long-term
    business planning.
        After court challenges and many debates, this program is now at
    work, making cost-effective air pollution controls a reality.
        In crafting the CAAA of 1990, Congress also wisely called for
    studies to demonstrate the effectiveness of Title IV on protecting
    sensitive receptor areas. These recently published reports, EPA's
    Report to Congress, the Acid Deposition Standard Feasibility Study
    (1999) and the National Acid Deposition Precipitation Assessment
    Program's (NAPAP) Biennial Report to Congress An Integrated Assessment
    (1998), came to the unfortunate conclusion that the current and future
    emission reductions required by the CAAA are insufficient to protect
    sensitive water bodies in the Adirondacks from acidic deposition, or
    acid rain.
        By U.S. EPA's own admission, the CAAA have been unable to
    satisfactorily resolve New York's great concerns with acid deposition.
    Given the growing body of evidence--resulting from the studies required
    by this Act--that the impacts of acid rain on New York's sensitive
    receptor areas become more devastating every day, I decided to take
    strong actions, ones that go well beyond the air pollution restrictions
    already imposed on New York State by the Clean Air Act.
        The studies that I mentioned earlier--EPA's Report to Congress and
    the NAPAP study--provide all the evidence necessary for the Federal
    Government to act aggressively to curb the emissions of these
    pollutants far more than had been envisioned by previous regulatory
    actions. I am dismayed at the Federal inertia which, even with this
    tremendous documentation that our lakes are dead or dying at an
    alarmingly fast rate, continues to allow us to be ravaged by these
    pollutants.
        Chairman Inhofe, I believe you share my philosophy that Federal
    intervention in the activities of the States should be limited to only
    those areas where the States, on their own, cannot fully address a
    specific issue. The interstate transport of air pollutants is one of
    those issues where the Federal Government must be a partner with the
    States to reduce pollution and to establish a level playing field.
        The evidence of the reports required by the CAAA show as well that
    some electric generation facilities in New York State are responsible
    for a portion of the air pollution which damages our lakes, ecosystems,
    buildings, and public health. Although the pollutants emitted by New
    York utilities are limited--only about 20 percent of the total harmful
    emissions of air pollutants that result in acid rain in New York
    State--I was determined to act upon this information.
        Since Federal action to significantly decrease air pollution in all
    the States which have facilities responsible for interstate transport
    has not been forthcoming, here in New York we will take the lead. That
    is why I have directed NYSDEC Commissioner Cahill to promulgate
    regulations that will require fossil-fueled electric generators in New
    York to further reduce their acid rain-causing emissions. In doing so,
    I am requiring utilities in New York State to reduce sulfur dioxide
    emissions an additional 50 percent below Federal CAAA standards, and to
    extend summertime nitrogen oxide controls to year round controls.
        My proposal is a regulatory initiative. It will reduce airborne
    emissions that result in acid rain from New York's electric generators.
    It will require reductions in emissions of sulfur dioxide by 50 percent
    beyond what will be required by Phase II of Title IV of the Federal
    CAAA. These additional reductions will be phased in between 2003 and
    2007.
        Furthermore, in addition to the tremendous natural and structural
    losses from acid rain, millions of our residents are harmed by levels
    of ozone--smog--that impair human health. There are too many summer
    days when we have to warn our most sensitive residents--the young, the
    elderly, the infirm--that they shouldn't go outside and breathe the
    air, or that they should limit their activities. Our asthma rates, to
    which ozone contributes, are among the highest in the nation. Clearly
    this situation is unacceptable. For this reason, New York already has
    agreed to reduce emissions of nitrogen oxides from electric generators
    to 0.15 pounds of nitrogen oxides per million BTU heat input during the
    summer months (May through September). New York's new proposal will
    require this emission rate to be achieved year round.
        We envision allowing statewide emissions averaging, which will
    encourage regulated entities to trade among themselves to achieve
    compliance. My proposal also will supplement the sulfur dioxide
    reduction program required by Federal law.
        The percentages of reductions described above will translate to
    additional sulfur dioxide reductions of 130,000 tons per year, while
    the additional nitrogen oxide reductions will total 20,000 tons per
    year.
        New York State will encourage and assist other States across the
    Nation to follow our lead on these innovative programs to generate
    additional reductions. I expect that other States will begin to follow
    New York's example very soon.
        The annualization of the nitrogen oxide emissions rate will begin
    in 2003. Reductions in sulfur dioxide will begin in 2003 and will be
    fully implemented by January 1, 2007. Regulations must be drafted and
    promulgated for both pollutants. This process, which will include full
    involvement by the public, is expected to take at least a year.
        In taking this unprecedented step, I am joined by environmental
    organizations across the State--including several national
    environmental groups--in sending a strong message to the Clinton
    Administration and other States: In New York, we will do all we can to
    clean up our air while we continue to fight for stronger clean air
    requirements on the national level. The League of Conservation Voters,
    the Natural Resources Defense Council, the National Audubon Society,
    the Adirondack Council, the Environmental Defense Fund, and Scenic
    Hudson all have endorsed this initiative.
        New York's citizens deserve no less.
        This is not the first time that New York's early initiative on acid
    rain has led the way for Federal action. In 1984, New York enacted the
    Acid Deposition Control Act, the first acid rain law in the country to
    require emission reductions. This State law identified both sulfur
    dioxide and nitrogen oxide as precursors to acid rain; sought limits on
    total emissions from utilities sited within the State; and proposed the
    innovative trading mechanism, mentioned earlier, which Congress would
    later adopt nationwide in the Clean Air Act Amendments of 1990.
        The initiative which I announced earlier this month is embodied in
    legislation which is before your Subcommittee for review. S. 172,
    introduced in the Senate by Senator Moynihan, and in the House of
    Representatives by Representatives Boehlert and Sweeney, is intelligent
    and effective legislation that would require national reductions in
    acid rain-causing emissions. The commitment made by New York State,
    which I describe above, will have the same effect in our State as the
    Moynihan-Boehlert-Sweeney bill would have on the Nation.
        I would like to point out that our entire New York Delegation is
    being joined by Members of Congress from other States in support for
    the Moynihan-Boehlert-Sweeney bill. As a result of the EPA and NAPAP
    studies, these other members of the Senate and House have recognized
    that the interstate transport of air pollutants damages the
    environmental quality and public health of their States as well. The
    tragedy that we already have seen in New York is simply the harbinger
    for other sensitive receptor areas across this Nation--such as
    Chesapeake Bay, Narrangansett Bay and Tampa Bay.
        Just as the citizens of New York deserve no less than the best
    possible protection from acid rain, through strict emissions limits, I
    believe that the citizens of our Nation deserve no less. Acid rain is
    not just a New York problem--it is a national problem which deserves a
    national solution.
        Experience in complying with the acid rain provisions of the CAAA
    has demonstrated that these reductions can be achieved far less
    expensively than previously thought. Modern control technology has
    dramatically reduced the cost of compliance. For instance, the drafters
    of the 1990 CAAA estimated that it would cost approximately $1,500 to
    reduce one ton of sulfur dioxide. Today, that cost is actually less
    than $200 a ton.
        Chairman Inhofe, I cannot emphasize to you enough the urgency of
    this proposal to New Yorkers. The sources and impacts of acid rain on
    New York's sensitive ecosystems have been well documented. Without
    serious action such as this initiative, on both the State and national
    level, we in New York realistically fear the loss of some of our most
    precious national resources. We hope, by implementing these dramatic
    reductions in sulfur dioxide and nitrogen oxide emissions, to
    demonstrate to the Administration and Congress the importance of
    approving the Moynihan-Boehlert-Sweeney legislation. Through our
    actions, we know that we have made New York the leader in the fight
    against acid rain and the devastation that it causes. We hope that we
    also are making New York an example of how cost effective and
    beneficial reductions in sulfur dioxide and nitrogen oxides can be.
                                   __________
    Statement of Robert Perciasepe, Assistant Administrator, Office of Air
                 and Radiation, Environmental Protection Agency
        Mr. Chairman and Members of the Subcommittee, I welcome the
    opportunity today to testify on our nation's progress under the Clean
    Air Act (the Act) toward achieving clean, healthy air for all
    Americans. My remarks reflect the perspective I have gained during my
    time at the U.S. Environmental Protection Agency (EPA), and also my
    experience as the Secretary of the Environment in Maryland, and as the
    first State chair of the Ozone Transport Commission.
        It is important to remember that the Clean Air Act Amendments of
    1990 (the 1990 Amendments) passed with overwhelming support in both the
    House and Senate and set ambitious air pollution reduction goals. This
    bipartisan legislation was designed to achieve real results--and it has
    done so. I am pleased to report that this nation has substantially cut
    air pollution over the past 9 years. We have made great strides in
    combating urban air pollution, toxic air pollution, depletion of the
    stratospheric ozone layer, and acid rain. But we still have a long way
    to reach our goal: clean air for every American.
        I will start today by describing the substantial progress we've
    made since 1990 in reducing air pollution. I will then reflect on what
    we've learned about effective and efficient ways to achieve our goals--
    including the benefits of stakeholder involvement, market-based
    policies, flexible, common-sense implementation, and the value of
    publicly available information. We also have learned that many
    predictions of high costs and infeasibility have not come to pass. In
    fact, for many air pollution problems, reductions have been made faster
    and at less cost than we ever expected. Finally, I want to bring you up
    to date on some of our key current efforts and talk briefly about
    whether the Clean Air Act should be reopened at this time.
                           progress toward clean air
        To appreciate how far we have come in reducing air pollution, it is
    instructive to remember where we were before the 1990 amendments. There
    was growing concern about the increasing damage to the stratospheric
    ozone layer, which, among other things, protects us from skin cancer
    and cataracts. Acid rain essentially was unchecked, causing damage to
    aquatic life, forests, buildings and monuments, as well as visibility
    degradation and health risks from sulfate and nitrate particles. In
    1990, photochemical smog, which can impair lung function, cause chest
    pain and cough, and worsen respiratory diseases and asthma, exceeded
    healthy levels in 98 metropolitan areas. Many cities did not meet the
    national air quality standards for the pollutant carbon monoxide, which
    can aggravate angina (heart pain), and also for particulate matter,
    which is linked to premature death, aggravation of pre-existing
    respiratory ailments, and reductions in lung capacity. The millions of
    tons of hazardous air pollutants emitted annually in the United States
    were largely unregulated at the Federal level. Many of these pollutants
    have the potential to cause cancer or other serious health effects such
    as nervous system damage, miscarriages or birth defects.
        Since then, the 1990 Amendments enabled us to substantially reduce
    each of the major air pollution problems that faced the United States:

        Annual sulfur dioxide emissions, which react to form acid rain,
    have been cut by more than 5 million tons, and rainfall in the eastern
    United States is as much as 25 percent less acidic.
        Production of the most harmful ozone-depleting chemicals has ceased
    in the United States and--provided the United States and the world
    community maintain the commitment to planned protection efforts--the
    stratospheric ozone layer is projected to recover by the mid 21st
    century.
        Ground-level ozone pollution, particulate matter, and carbon
    monoxide pollution have all been reduced significantly, producing
    dramatic decreases since 1991 in the number of areas in nonattainment.
        Rules issued since 1990 are expected to reduce toxic emissions from
    industry by 1.5 million tons a year--eight times the reductions
    achieved in the previous 20 years.
        These results have been achieved through a combination of rules,
    voluntary measures, market mechanisms, State partnerships, and
    stakeholder negotiations. Between 1990 and 1997, we reduced annual
    emissions of all criteria pollutants by 10 million tons. By 2010, rules
    already in place will have reduced these annual emissions by more than
    30 million tons from the 1990 level.
                               reducing acid rain
        To combat acid rain, the 1990 Amendments called for a 10 million
    ton reduction in sulfur emissions, relative to a 1980 baseline. Much of
    that was to be achieved from utility power plants through an innovative
    market-based pollution allowance trading system. The results have been
    dramatic. So far, national sulfur dioxide emissions have been cut by
    more than 5 million tons, mostly through this program--and at lower
    cost than predicted. As a result, rainfall in the eastern United States
    is up to 25 percent less acidic, and some ecosystems in New England are
    showing signs of recovery. Separate requirements for nitrogen oxides
    controls for utilities already have begun reducing those emissions, and
    will achieve a 2-million ton NOx reduction beginning next year.
        Annual costs of the sulfur emissions program are now estimated to
    be less than half of what we projected in 1990 ($4 billion in 1990, $1
    to $2 billion now). Trading has allowed the utility industry to
    minimize compliance costs, and has spurred competition in other sectors
    of the economy such as freight, coal, and scrubbers--all of which has
    resulted in lower costs. The rest of the 10 million ton reduction in
    SO2 will be achieved by 2010 through the second phase of the
    acid rain program. Recent research indicates that further reductions in
    SO2 and NOx emissions beyond those required by the acid rain
    program would be necessary for full recovery of the most sensitive
    ecosystems. The controls to achieve such reductions also would provide
    significant health benefits by reducing fine particulates.
                    protecting the stratospheric ozone layer
        The global phase-out of chlorofluorocarbons (CFCs) and other ozone-
    depleting chemicals is an unparalleled triumph of the soundest science,
    economics, and diplomacy. It rests on an overwhelming consensus within
    the world science community. One hundred and sixty-eight nations have
    become parties to the Montreal Protocol, the treaty through which the
    phase-out policy is being implemented worldwide. The United States and
    the world have made significant progress to date in addressing the
    erosion of the earth's protective ozone layer by eliminating many
    manmade ozone-depleting chemicals. Production of the fire-extinguishing
    halons was virtually eliminated by the world's developed countries in
    1994 and at the beginning of 1996, developed country production of
    CFCs, methyl chloroform, and carbon tetrachloride ended, thus avoiding
    emissions of 400,000 metric tons of ozone-depleting substances. As a
    consequence of these prudent international actions, the rate of
    increase of atmospheric concentrations of ozone-depleting chemicals has
    slowed, and in some cases, declined. In 1998, more than 100 scientists
    worldwide collaborated in a scientific assessment of the state of the
    ozone layer. These scientists concluded that the Montreal Protocol is
    working. Reductions in concentrations of ozone-depleting compounds
    already have been measured in the atmosphere, and scientists predict
    the gradual recovery of the ozone layer by the mid-21st century.
        This unprecedented international success story also will contribute
    substantially to the health of all Americans. EPA estimated in 1992
    that the phase-out would reduce U.S. incidences of non-melanoma skin
    cancer by 295 million during the period 1989 through 2075, as well as
    protect people from eye damage leading to cataracts, and immune system
    suppression .
        The phase-out used a market trading approach developed by EPA that
    has served as a model for programs in other countries. Because of
    strong partnerships with industry and the flexible market approach, the
    phase-out was much less expensive than was predicted at the time the
    1990 Clean Air Act Amendments were passed. In 1988, EPA estimated that
    a 50 percent reduction of CFCs by 1998 would cost $3.55 per kilogram.
    In 1993 the cost for a 100 percent phase-out by 1996 was down to $2.45
    per kilogram.
                          healthier air in more cities
        The air in our nation's cities is substantially cleaner than in
    1990. Nationally, the 1997 average air quality levels were the best on
    record for all six common pollutants (lead, NO2,
    SO2, PM10, CO and ozone) subject to air quality
    standards. The 1998 levels were as good or better for all pollutants
    except ozone. These improvements have occurred along with growing
    population, strong economic growth and continued growth in vehicle
    miles traveled. From 1970 to 1997, U.S. Gross Domestic Product has
    grown by 114 percent, the U.S. population has grown by 31 percent, and
    the number of miles traveled by on-road vehicles (VMT) has increased by
    127 percent.
        Since 1993, an unprecedented number of cities have met the health-
    based national ambient air quality standards. For example, of the 42
    carbon monoxide areas designated as nonattainment in 1991, only 6 areas
    continue to experience unhealthy levels of CO (based on 1996 -1998
    data). Much of the progress on CO can be attributed to the Clean Air
    Act's wintertime oxygenated fuels program, which began in 1992 in 30
    cities.
        Although we continue to experience unhealthy levels of ozone and
    particulate matter, we have made substantial progress even with those
    pollutants. The 1996 to 1998 data for particulates indicates that 71 of
    the original 85 nonattainment areas have air quality meeting the
    PM10 standard. Average particulate levels (PM10)
    dropped 25 percent from 1989 to 1998. Because we now believe that the
    finer particles pose the greatest health concern, we are working with
    States to get monitoring systems in place for fine particulate matter
    (PM2.5). In the case of ground-level ozone, based on 1996 to
    1998 data, 62 of the original 98 ozone nonattainment areas have air
    quality levels meeting the 1-hour ozone standard.
        For the other three criteria pollutants, few areas remain in
    nonattainment. The remaining lead and sulfur dioxide nonattainment
    areas in the country are the result of localized point sources for
    which action on an individual basis is being taken. The nitrogen
    dioxide standard is now met nationwide. The last nitrogen dioxide
    nonattainment area, Los Angeles, met the standard in 1992 (and was
    redesignated to attainment in 1998).
                          cleaner cars, cleaner fuels
        A key reason for the air quality improvements we are seeing is that
    the 1990 Amendments called for cleaner motor vehicles and cleaner
    fuels, in recognition of the important role that motor vehicle
    emissions play in affecting air quality.
        Today, the average new car (meeting Tier I standards in the 1990
    Amendments) is 40 percent cleaner than the average new car was in model
    year 1990. Cars now have onboard canisters to control refueling vapors,
    and onboard diagnostic computers to identify emission control problems.
        In 1997, EPA mediated an agreement among the States, U.S. auto
    companies, and other stakeholders that calls for automakers to produce
    cars 50 percent cleaner than today's Tier I cars, which began in eight
    Northeastern States in model year 1999. In addition to covering
    passenger cars, the agreement covers the majority of sport utility
    vehicles, minivans, and light-duty trucks, which have higher emissions
    than cars. Automakers voluntarily agreed to meet the tighter standards
    on an enforceable basis. The agreement benefits car companies by
    avoiding a potential patchwork of differing State emissions
    requirements. It benefits States and the public by delivering cleaner
    cars 5 years sooner than EPA could otherwise have required. These
    vehicles will be available nationwide in model year 2001.
        While requiring cleaner cars, the 1990 Amendments also required
    cleaner gasoline. To reduce smog-forming VOCs and toxics, the 1990
    Amendments required cleaner, reformulated gasoline in the worst ozone
    areas, and allowed additional areas to join the program. Today, 30
    percent of the country's gasoline consumption, in 18 States, consists
    of reformulated gasoline, or RFG. Overall, refiners have gone beyond
    the 15 percent reduction in VOCs and toxics required by the Act
    beginning in 1995. Refiners' data now tell us that VOC reductions are 8
    percent greater than required on average, and toxic reductions almost
    twice the required amount. In those RFG areas where we measured, levels
    of benzene in the air were down 43 percent from 1994 to 1995. This is
    exciting progress since benzene is a known human carcinogen that has
    been linked to leukemia. One of the attractive features of this program
    is that reductions of pollutants are immediate because cleaner fuels
    can be used in any car on the road today. Phase II of the RFG Program
    will begin in January 2000.
        Buses and trucks also are getting cleaner. Diesel-powered urban
    transit buses being built today release almost 90 percent fewer
    particulate emissions than buses built in 1990. As a result of EPA
    emissions standards for new buses, smoke-belching buses will disappear
    as old buses are retired from service. Emissions control will be
    required for older urban buses that have their engines replaced or
    rebuilt. Under rules issued in 1997, NOx emissions from heavy-duty
    diesel engines used in trucks and buses will be cut in half by 2004,
    assisting with efforts to reduce smog and particulates. In addition,
    substantial emissions reductions are being achieved for the first time
    through a set of standards for a variety of engines not used in highway
    vehicles--including locomotives, bulldozers, commercial and
    recreational marine vessels and lawn and garden equipment.
        In addition to the very substantial reductions in ozone precursors,
    all of the programs put in place since 1990 to control emissions from
    motor vehicles will reduce total vehicular air toxics emissions by
    approximately 40 percent.
                         cutting industrial air toxics
        Since 1992, EPA has issued 43 pollution standards affecting 70
    industrial categories such as chemical plants, dry cleaners, coke
    ovens, and petroleum refineries. When fully implemented, these
    standards will eliminate over 1.5 million tons of air toxics and over
    2.5 million tons of particulate matter and smog-causing volatile
    organic compounds.
        By contrast, in the preceding 20 years only seven hazardous air
    pollutant standards, eliminating 125,000 tons of toxics, had been put
    in place. One of the main reasons was that the toxics provisions of the
    1970 Act triggered contentious debates and litigation over risk
    assessments and ``how safe is safe.'' Congress resolved this in 1990 by
    directing EPA to issue technology- and performance-based standards on a
    source category basis to ensure that major sources of air toxics are
    well controlled. These standards create a level playing field by
    requiring all major sources, in essence, to achieve the level of
    control already being achieved by the better performing sources in each
    category.
        The result is that we are reducing the large quantities of toxic
    air pollutants released into our air, in the aggregate and around
    industrial sources in populated areas. We will achieve additional
    reductions as we complete standards for more categories of major
    pollution sources. We are now in the early stages of implementing the
    second phase of the air toxics program outlined by the 1990 Amendments,
    targeting particular problems such as elevated risks in urban areas,
    deposition of air toxics into the Great Lakes, mercury emissions, and
    residual risks from already controlled sources.
        improving visibility in our national parks and wilderness areas
        In July, EPA published a new rule calling for long-term protection
    of and improvement in visibility in 156 national parks and wilderness
    areas across the country. These areas include many of our best known
    and most treasured natural areas, such as the Grand Canyon, Yosemite,
    Yellowstone, Mount Rainier, Shenandoah, the Great Smokies, Acadia, and
    the Everglades. Regional haze, created by fine particles and other
    pollutants, degrades vistas in these parks and regionally across the
    nation. For example, on some days air pollution reduces visibility to
    less than 10 miles in our eastern parks.
        The regional haze program is designed to improve air quality in the
    parks, particularly on these poor visibility days. Because haze is a
    regional problem, EPA is encouraging States to work together in multi-
    State planning organizations to develop potential regional strategies
    for the future. EPA will be working closely with these multi-State
    organizations, to provide guidance during this process, just as it did
    with the many States and Tribes involved in the Grand Canyon Visibility
    Transport Commission.
        During the period 2003-2008, States are required to establish goals
    for improving visibility in each of these 156 areas and adopt emission
    reduction strategies for the period extending to 2018. States have
    flexibility to set these goals based upon certain factors, but as part
    of the process, they must consider the rate of progress needed to reach
    natural visibility conditions in 60 years. To assist in evaluating
    regional strategies and tracking progress over time, we are working
    with the States and Federal land managers to expand our visibility and
    fine particle monitoring network to 110 of these areas over the next
    several months.
     what we've learned: innovative strategies and stakeholder involvement
        These impressive results have come about through involving
    stakeholders from the outset, using innovative and flexible
    environmental protection strategies, and adjusting when programs need
    improvement.
        Since 1990, the Agency has dramatically expanded its interaction
    with stakeholders. Consensus is not always attainable, of course. But
    the time and effort we put into communication and consensus-building
    pays off in better rules, and often in smoother implementation.
        One of the first examples of stakeholder involvement was the Acid
    Rain Advisory Committee, an intensive 7-month effort with stakeholders
    immediately after the 1990 Amendments that helped shape the rules for
    the successful acid rain program. This positive experience led to
    establishment of the Clean Air Act Advisory Committee, a standing group
    of several dozen experts from industry, the environmental community,
    States, academia and elsewhere. We seek the advisory committee's
    insights frequently.
        Two large stakeholder involvement efforts were the Ozone Transport
    Assessment Group (OTAG) process and the National Ambient Air quality
    Standards (NAAQS) implementation advisory committee process. OTAG,
    which involved 37 States, EPA, and many stakeholders, conducted state-
    of-the-art modeling to improve understanding of the interstate ozone
    transport problem in the East, and laid the groundwork for our ongoing
    efforts to institute regional controls on NOx emissions. EPA supported
    OTAG, which was led by the Environmental Council of States, with
    significant technical and financial assistance. The NAAQS Federal
    Advisory Committee Act (FACA) process, convened by EPA, provided us
    with insights on ways to implement the 1997 ozone and PM NAAQS even
    before those standards were promulgated.
        Since 1990, we typically have involved stakeholders earlier in
    rulemaking efforts than we did before that time. In the case of air
    toxics standards, for example, we realized that working with
    stakeholders early in the process would be a necessity if we were to
    meet the Act's requirement to produce standards for the long list of
    industrial source categories. We developed a ``MACT partnering''
    process that allows EPA, State and local air quality agencies to work
    cooperatively with industry and local organizations to collect
    information on emissions and controls, and to develop a draft
    determination of the level of control. Similarly, we have engaged
    stakeholders in substantive discussions prior to developing proposed
    mobile source rules--for example, in developing rules to control
    emissions from heavy-duty trucks and buses. The National Low Emission
    Vehicle Program is another example of what can be achieved through
    consensus building with stakeholders when incentives for agreement
    exist.
        Since 1990 we have emphasized using new approaches to achieve more
    environmental protection at less cost. We have made increasing use of
    market-based approaches to cut compliance costs, promote technology
    development and achieve extra environmental benefits. We also have
    looked for other ways to provide flexibility on the means of achieving
    emissions reductions, while ensuring accountability. We are making use
    of new information technologies to improve public information on air
    quality, and are providing compliance assistance to small businesses.
        Emissions averaging and trading are frequently used as standard
    tools of the air program. Beyond the stratospheric ozone and acid rain
    programs, we have provided trading opportunities in many national air
    rules for vehicle manufacturers and fuel refiners. The most recent
    example is the proposed Tier II/gasoline sulfur rule, which would allow
    averaging, banking and trading to provide additional flexibility to
    vehicle manufacturers and fuel providers. Emissions averaging is
    permitted by national air toxics emissions standards for refineries,
    chemical plants, aluminum production, wood furniture and other sectors
    that use coatings. We also have used other methods, including multiple
    compliance options, to help provide flexibility in air toxics rules.
        In addition to providing flexibility in national rules through
    trading and other means, EPA is working with States to promote market-
    based approaches to help achieve national air quality standards for
    smog, particulates and other criteria pollutants. EPA has issued
    guidance to assist States in designing trading and other economic
    incentive programs to reduce criteria pollutants, and will soon update
    that guidance. EPA also has assisted States in setting up trading
    programs, such as California's RECLAIM program for reducing sulfur
    dioxide and nitrogen oxide emissions and the Ozone Transport
    Commission's program for controlling nitrogen oxide emissions among
    States in the Northeast. Through a unique State-EPA partnership, we are
    jointly implementing this NOx budget system for the Northeast.
        In issuing NOx budgets for 22 States and the District of Columbia
    to reduce the problem of transported ozone pollution in the East, we
    provided a model cap-and-trade rule for utilities and large industrial
    sources. The experiences of the acid rain program and the OTC effort
    show that this approach holds the potential to achieve regional NOx
    reductions in an efficient and highly cost-effective manner.
        The air program is striving to provide flexibility and create
    incentives for reducing emissions in a variety of ways. A number of air
    toxics rules--including those addressing polymers and resins, primary
    aluminum, and pharmaceuticals manufacturing--provide companies the
    opportunity to reduce reporting requirements if they achieve consistent
    good performance. We have issued guidance to allow States to count
    voluntary measures to reduce emissions from transportation sources--
    such as ridesharing programs and ozone action days--toward their State
    planning requirements under the Act.
        This is the information age, and we are finding ways to use the new
    information technologies to provide citizens with environmental
    information they can use. Here are three examples:
          The Ozone Mapping Project, or AIRNOW, provides the public
    for the first time with real-time information about smog levels in
    their communities via color-coded maps and animations. These maps are
    made available on an Internet website and for local TV weather reports.
          E-GRID, the Emissions & Generation Resource Integrated
    Data base, is a right-to-know tool for anyone interested in emissions
    or fuel mix of any portion of the nation's electric power grid. It
    combines in one data base information from EPA and the Energy
    Information Administration on power generation, fuel information and
    measured emissions.
          The EPA funded SUNWISE Schools Program is building a
    national UV monitoring and education network within U.S. elementary
    schools. Using the Internet, students report the UV Index, a daily
    forecast of UV radiation levels people might experience, and
    recommended UV-protective behaviors. This innovative approach to
    sharing real-time environmental information with the public is a
    helpful tool in protecting the health of our children from overexposure
    to UV radiation while the ozone layer recovers.
        Another information-related development during the 1990's is the
    establishment of Clean Air Act small business technical assistance
    programs and small business ombudsmen in every State. These programs
    help small businesses comply with the Clean Air Act by providing free
    technical assistance. In 1997, State programs directly assisted over
    78,500 businesses and conducted almost 6,000 onsite consultations for a
    wide variety of industry sectors. To cite one success story: One Texas
    furniture company, after consulting with the State, invested $8,000 in
    more efficient, high-volume, low-pressure spray guns and related
    equipment and trained employees in their proper use. These guns spray
    more of the paint onto the product and less onto the floor and into the
    air. As a result, the firm's smog-forming VOC emissions dropped from
    just under 25 tons in 1996 to 16 tons in 1998, while its annual
    spending on paint and coatings fell from $69,000 to $35,000.
        In addition to these efforts, we have worked to continually refine
    and improve our implementation programs. The following examples show
    our willingness to make adjustments when programs need improvement.
        We recently overhauled our long-established process for evaluating
    whether new cars and light-duty trucks meet emissions standards. The
    revised rules will save auto manufacturers an estimated $55 million
    annually, while providing better information on whether cars on the
    road are continuing to meet the standards. The vehicle emission
    Compliance Assurance Program, or CAP 2000, redirects the focus of EPA
    and automakers from pre-production laboratory demonstrations to
    verification of actual in-use performance. This reduces paperwork by 50
    percent, as well as saving valuable pre-production time. In exchange,
    industry will conduct extensive emissions testing of vehicles ``in
    use'' on a broader scale than the government could conduct. This will
    give automakers substantial incentives to ensure that their vehicles
    meet the standards in actual use.
        We are moving forward in our efforts to improve the new source
    review permitting program. This program ensures that pollution from the
    addition of major new and modified sources does not significantly
    degrade the air quality in clean air areas, and that the national
    ambient air quality standards in non-attainment areas can be achieved.
    A key objective of our efforts is to streamline permitting without
    sacrificing environmental and other benefits of the current program.
    The new source review reform package will provide options for sources
    and States to adopt more flexible approaches to meet new source review
    requirements so that companies can plan and implement anticipated
    changes at their facilities with a greater degree of regulatory
    certainty. Concurrently, some of the reform measures will enhance
    environmental protection in some of the nation's most sensitive Class I
    areas, which include many of our national parks. We are nearing
    completion of an intensive set of stakeholder meetings that we expect
    will be very helpful when finalizing the reform package. Our schedule
    for finalizing the rule has been reset for spring 2000 to allow us to
    evaluate what we have learned from recent interactions with
    stakeholders.
        To address concerns raised about the Title V operating permits
    program, we issued two guidance documents that streamlined and
    simplified permit applications and helped with the large job of issuing
    initial permits to all covered facilities. We also continue to work
    toward finalizing a proposed permit revisions rule, where we are
    working closely with stakeholders to avoid unnecessary permit revision
    delays for industry while addressing citizens' interest in public
    review of significant changes.
        We continue to develop and test innovative ways to allow companies
    to adjust quickly to market demands without experiencing permitting
    delays. To date, we have worked with companies and States on
    approximately a dozen permits designed to provide operational
    flexibility and promote pollution prevention. Three permits have been
    issued to date and eight more are in progress.
        For example, working in conjunction with EPA and other
    stakeholders, the Intel Corporation was able to develop a flexible
    permit that allowed the company to receive advance approval for several
    types of operational changes at its facility in Oregon. As a result,
    Intel was able to avoid permitting delays and significant staff time.
    Additionally, Intel cut its air emissions in half while doubling
    production onsite. We are also planning to document the lessons learned
    from these permits so that successful flexible permitting approaches
    can be replicated throughout the country.
          what we've learned: predictions about infeasibility and cost
        Throughout the history of the Act, some critics have made dire
    predictions about the infeasibility of proposed controls or the
    negative impact that the Clean Air Act would have on industries, jobs
    and the U.S. economy. Nearly 9 years after the 1990 amendments, we have
    achieved progress in cleaning the air without the severe dislocations
    predicted by some critics. Experience shows that progress toward clean
    air and economic growth can go hand in hand. For example, data from the
    Bureau of Economic Analysis shows that between 1990 and 1995, there was
    a net gain of 2.2 million jobs in ozone nonattainment areas (a few were
    excluded due to data constraints).
                              reviewing the record
        Costs of the 1990 Amendments are proving to be far less than
    initial industry estimates. For example:

          The Clean Air Working Group, a key industry lobbying
    group during the 1990 reauthorization effort, estimated in August 1990
    that compliance costs would total $51 billion to $91 billion annually.
    Today, with the benefit of the added information from several years of
    implementation, EPA estimates the annual cost at $26.8 billion upon
    full implementation of the law in 2010.
          An industry study in 1989 predicted the cost of fully
    implementing an acid rain program at $4.1 billion to $7.4 billion. More
    recent estimates by EPA and the U.S. General Accounting Office were
    approximately $2 billion, and estimates from independent economists and
    industry researchers range as low as $1 billion.
          In 1993, industry estimated that meeting the Act's
    requirements for reformulated gasoline would add 16 cents to the price
    of a gallon of gas. In 1995, the year the program took effect, an
    Energy Information Administration survey found the actual cost was 3
    cents to 5 cents per gallon.

        Another concern of industry representatives during the 1990
    reauthorization was that it would be technologically infeasible to
    comply with some requirements. For example, a chemical company
    spokesman testified that accelerating the phase-out of ozone-depleting
    CFCs to January 1996 would cause severe economic and social disruption.
    At the same hearing, a refrigeration industry representative testified,
    ``We will see shutdowns of refrigeration equipment in supermarkets. . .
    .We will see shutdowns of chiller machines, which cool our large office
    buildings, our hotels, and hospitals.'' In fact, the phase-out of CFC
    production was accomplished without such disruptions. Chemical
    companies helped make this possible by rapidly developing alternatives
    to CFCs.
        Similarly, a major American auto company representative in 1989
    testified that ``we just do not have the technology to comply'' with
    the initial Tier I tightening of tailpipe standards that became part of
    the 1990 amendments. Nonetheless, the auto industry was able to begin
    producing vehicles meeting the standards in 1993. More recently, as
    previously mentioned, the auto industry entered into a voluntary
    agreement with EPA and States to produce even cleaner, low emission
    vehicles that are already being sold in some areas.
        As these examples begin to illustrate, Clean Air Act requirements
    have created market opportunities and pressures for technology
    breakthroughs and performance improvements. Over and over again,
    industry has responded with great success, producing breakthroughs such
    as alternatives to ozone-depleting chemicals and new super-performing
    catalysts for automobile emissions. The result has been affordable
    improvements in air quality across the country, in conjunction with
    continued economic and population growth. There are many examples of
    technologies that were not commercially available 10 years ago, but
    that now are important parts of pollution control programs. Some of
    these include reformulated gasoline, selective catalytic reduction for
    NOx emissions from power plants, and cleaner-burning wood stoves. This
    pattern of technological progress is continuing today. EPA has
    identified a number of emerging technologies--ranging from fuel cells
    to ozone-destroying catalysts to new coating technologies--that may
    hold promise for achieving additional cost effective reductions of VOC,
    NOx and particulate matter.
                               benefits v. costs
        Some have charged that the costs of the Act exceed its benefits.
    But the most exhaustive study of this issue to date, an EPA study
    required by Congress, finds otherwise.
        Under section 812 of the 1990 amendments, we are required to assess
    the costs and benefits of the Act, first retrospectively and then with
    an ongoing series of prospective studies. The retrospective study,
    published in October 1997, included estimates of the number of
    incidences of health effects avoided in 1 year--1990--due to Clean Air
    Act pollution reductions. Here are estimates for a partial list of the
    avoided health effects:

          184,000 incidences of premature mortality and 8,700,000
    incidences of acute bronchitis related to particulates;
          10,400,000 lost IQ points and 12,600,000 incidences of
    hypertension related to lead;
          68,000,000 incidence-days of shortness of breath, 850,000
    incidences of asthma attacks, and 130,000,000 incidences of 19 acute
    respiratory-related symptoms related to particulates and ozone;
          39,000 incidences of congestive heart failure related to
    particulates and carbon monoxide; and
          22,600,000 lost work days related to particulates, and
    125,000,000 days with restricted activity due to particulates and
    ozone.

        The section 812 retrospective study found that the 1970 and 1977
    Clean Air Acts yielded human health, welfare and environmental benefits
    that exceeded costs by more than 40 to 1 ($22.2 trillion versus $523
    billion). Even at the low end of our range of estimates, monetized
    benefits exceeded costs by a margin of 11 to 1. EPA is now nearing
    completion of the first prospective study examining the incremental
    value of the 1990 amendments. Separately, EPA completed a cost/benefit
    assessment of the acid rain program in 1995, and found the health
    benefits alone far exceeded annual costs.
        It is important to note that the section 812 and acid rain studies
    determined that monetized benefits substantially exceeded costs even
    though many benefits could not be translated into dollars. Even with
    continuing progress in scientific and economic research, more than half
    of the known adverse effects of air pollution still cannot be expressed
    in economic terms. For ozone, some of the examples cited in the 812
    study include lung inflammation, chronic respiratory diseases, immune
    system changes, forest and ecological effects, and materials damage.
    Given this problem, it is important not to judge the value of
    additional environmental and public health protections solely on the
    basis of monetized costs and benefits.
        This is one reason for EPA's consistent position that cost-benefit
    analysis should not be the basis for our air quality standards. We
    continue to believe that our national air quality standards represent
    important health-based goals for the nation, and a benchmark for
    citizens interested in whether their air is safe to breathe. Although
    air quality standards are set solely on the basis of protecting health,
    we of course agree that cost is important to consider in devising
    environmental protection strategies. Costs are taken into account in
    implementation of the standards, as States and EPA make decisions on
    how to reach the goal.
                   where we stand today: unfinished business
        As you know, we received an adverse Federal court decision in May
    that has stalled implementation of the new, more protective health
    standards EPA established in 1997 for ozone and fine particulate
    matter. A three-judge panel of the U.S. Court of Appeals for the
    District of Columbia Circuit remanded EPA's action on the two
    standards, challenging EPA's legal rationale as well as EPA's authority
    to enforce any new ozone standard under the 1990 amendments. The court
    did not challenge the underlying science. In light of the executive
    branch's strong disagreement with the ruling, the Department of Justice
    filed a petition for rehearing by the full court on June 28, 1999. We
    await the court's decision on whether to rehear the case. We continue
    to believe these standards are essential for protection of public
    health, and ultimately will be implemented. We recognize, however, that
    it will take some time for the legal issues to play out.
        In the meantime, the Administrator and I are determined to keep
    emission reduction efforts on track and to reduce health threats from
    smog and particulate matter. We are concerned that progress on the smog
    problem appears to have slowed or stopped in a number of areas in the
    last couple of years--and in some areas, we are in danger of
    backsliding. The national average ozone level increased 5 percent in
    1998. Also, in recent summers we have seen increases in the number of
    times air quality exceeded national standards in certain cities and
    national parks, particularly in the East. Partly because of this
    concern, this Administration, in partnership with States, is taking
    several actions to ensure that we continue making progress.
    Specifically:
        Tier II/Gasoline Sulfur. We are on track to issue more stringent
    Tier II emissions standards for cars and light-duty trucks along with
    rules to cut levels of sulfur in gasoline. Many metropolitan areas need
    the emissions reductions from these rules to achieve healthy air. These
    rules will cut emissions that contribute to ground-level ozone
    pollution and particulate matter, acid rain, crop damage and reduced
    visibility.
        Regional NOx Reductions. We will soon take final action on
    petitions from eight northeastern States calling upon EPA to impose NOx
    controls on power plants and large industrial combustion sources in 12
    upwind States. This action would reduce long-range transport of NOx and
    ozone pollution that is contributing to nonattainment problems
    downwind, as well as reducing pollution in States where the sources are
    located. EPA also will propose action on four petitions it has recently
    received from Delaware, Maryland, New Jersey and the District of
    Columbia.
        Last October, EPA issued the NOx State Implementation Plan (SIP)
    call rule requiring 22 eastern States and the District of Columbia to
    cut NOx emissions to reduce transported ozone pollution that is
    contributing to nonattainment problems throughout that region. States
    have relied on those reductions in devising their attainment plans for
    serious and severe ozone areas. However, shortly after issuing its
    NAAQS opinion, the court of appeals for the D.C. Circuit stayed the
    deadline for States to submit plans for complying with the NOx SIP call
    pending further order of the court. Oral arguments in the litigation
    are set for November 9.
        Ozone Attainment SIPs. For 10 serious and severe ozone
    nonattainment areas, EPA currently is assessing State plans for
    demonstrating attainment of the 1-hour ozone standard. It appears that
    many of these areas will need to commit to additional emissions control
    measures and/or make other improvements in their plans before these
    plans are approvable. EPA tentatively plans to propose action on these
    plans in late November.
        Heavy Trucks and Buses/Diesel Sulfur. Just last week Administrator
    Carol Browner announced a strategy to reduce by more than 90 percent
    harmful levels of smog-causing NOx and particulate matter, or soot,
    from heavy duty trucks and the very largest sport utility vehicles. The
    strategy includes a plan to produce cleaner diesel fuel.
        In addition, we are seriously considering reinstating the old 1-
    hour ozone standard nationwide. Since issuing the more protective 8-
    hour ozone standard, EPA has revoked the 1-hour standard in much of the
    country (wherever ozone levels met the old standard). But the court
    opinion now leaves much of the Nation without an adequately enforceable
    standard for ground-level ozone pollution to guard against
    deterioration in air quality. We are concerned about that possibility
    in light of recent air quality data.
        Looking more broadly to the future, we see implementing the 1997
    fine particulate standard as an integrating strategy that is key to
    making progress on multiple pollution problems. From a health
    standpoint, particulate matter is a priority because of its serious
    health effects. But there are other benefits to controlling pollutants
    that react in the atmosphere to form particulate matter--specifically,
    sulfur dioxide and nitrogen oxides. These measures also will reduce
    ozone pollution, air toxics, acid rain, regional haze and visibility
    impairment in our national parks, and nitrogen eutrophication of
    coastal waters. In contrast to other pollutant trends, NOx emissions
    are higher than in 1970. Given the important contribution NOx makes to
    multiple environmental problems, we need to bring these emissions down.
        In the air toxics arena, we are looking ahead to working with
    States and localities to implement the new Integrated Urban Air Toxics
    Strategy, issued in July. This strategy provides a framework for
    addressing the multiple sources of air toxics that together emit a
    combination of pollutants into our urban air. As you know, EPA has and
    will continue to develop national standards for stationary and mobile
    sources that improve air quality in both urban and rural areas. This
    new component of the national air toxics program includes plans for
    further reductions in toxic air emissions in urban areas, targeting 33
    pollutants that pose the greatest health threat in those areas. Also
    included are assessment activities to improve our understanding of the
    health and environmental risks posed by toxics in urban areas.
        Regarding the question whether it is time to re-open the Clean Air
    Act, it is important to ask if the law is still on target given today's
    air quality needs. We believe the law is still on target. Because the
    1990 Amendments were so forward-thinking and comprehensive in scope, it
    established this country's air pollution agenda for well into the next
    century.
        Because the Act is still relevant for today's needs, and because we
    are at a critical stage in implementation on a number of issues, we
    should carefully consider the implications of reopening the Act at this
    time. History shows that reauthorization of the Clean Air Act is a long
    and difficult task. The last time around, reauthorization efforts first
    began in 1981, and did not culminate until 1990. This reflects the fact
    that many parts of our society have a strong stake in the Act, and it
    can take intensive efforts to find common ground on a large number of
    issues. There is no guarantee that a reauthorization effort could be
    limited to a few issues. Many groups would promote proposals they
    believe should be a high priority. Although the Subcommittee would be
    pressed by some interests to pare back the requirements of the Act to
    cut costs, we can also be sure there there will be efforts to
    strengthen the Act and broaden its authorities, to ensure that we
    deliver on the promise of clean air for every American.
        We are prepared to work with the Subcommittee on a process of
    reviewing the Clean Air Act to consider where it might benefit from
    improvements. An example of an issue that this process could examine is
    whether the Act should provide EPA with direct authority to establish
    multi-State cap-and-trade programs and other incentive-based programs
    to address regional problems for any pollutant. This would avoid the
    need for each State separately to enact compatible trading programs.
    Let me stress that once this review process is completed, we must
    assess whether reopening the Act would be more helpful or more
    disruptive on the whole.
        It is imperative to continue the work that already is in motion.
    The best way to do that is to stay focused on the goal and work with
    everyone affected by the Act. This has and will continue to
    dramatically improve our ability to find sensible, cost-effective
    solutions to implementation hurdles and minimize the need for statutory
    changes. This approach takes time and patience, and sometimes the
    process is frustrating, but it has proven to pay off with sensible
    policies and environmental results.
        Thank you. I would be happy to answer any questions that you may
    have.
                                     ______

      Responses by Robert Perciasepe to Additional Questions from Senator
                                     Thomas
        Question 1. The Clean Air Act Amendments of 1990 created the Title
    V Operating Permit Program. The Operating Permit Program purportedly
    was not to establish any new requirements. However, in Wyoming, this
    new program has added significantly to the amount of time it takes to
    get a permit. The first step is to obtain a State-issued construction
    permit, which requires public notice and comment. The permittee must
    then request a modification of the Title V Operating Permit, and once
    again go through public notice (for the exact same thing!) Once that
    step is taken, EPA then has 45 days to review and have the opportunity
    to veto the permit. It appears that this process is being overseen by
    the Department of Redundancy Department. What are the opportunities for
    streamlining the process, while maintaining State primacy for the
    review and issuance of the permits (i.e., EPA doesn't take over the
    whole process)?
        Response. Your question references two separate State permitting
    programs required by the Clean Air Act--preconstruction permit
    programs, also known as ``new source review'' (NSR) programs, and
    operating permit programs under Title V.
        EPA believes it is possible for States to merge the required EPA
    and public review periods (for sources subject to both programs), as
    long as the merged review is adequate to meet the goals of both NSR and
    Title V. The EPA has encouraged States to do so, and has approved
    merged programs under the current title V regulations. However in
    keeping with principles of State primacy, the EPA does not require
    States to merge review. In practice, some States have merged programs
    while others have not. We would welcome working with Wyoming on such a
    merger.
        Preconstruction permit programs and Title V operating permit
    programs have different purposes. An NSR preconstruction permit
    establishes control requirements for a source that is being built or
    modified. A Title V operating permit consolidates in one place all of
    the air pollution requirements (including NSR requirements) that apply
    to a large facility, and specifies how compliance will be demonstrated.
    This clarifies for the regulated facility and the public the air
    pollution requirements that apply to the facility, encouraging improved
    compliance.

        Question 2A. There are a number of routine repair and replacement
    upgrades that utilities can undertake to improve their efficiency
    thereby resulting in lower NOx emissions per unit of electricity
    generated and substantially reducing global warming gases like
    CO2. Unfortunately, it is my understanding that EPA's
    interpretations of its current regulations, and the EPA's failure to
    finalize its position on these issues for its new regulations on new
    source review, are discouraging utilities from undertaking these
    improvements that are good for the economics of the utility and the
    environment. It seems counterproductive to discourage these efficiency
    improvements while the EPA is working through its rulemaking process.
    Does EPA believe that utilities must replace parts with the exact
    original technology that was installed in a turbine or boiler at the
    time that the unit was manufactured or are these plants allowed to use
    the advancements in technology that every industry has seen over the
    past several years?
        Response. Projects that involve routine repair and replacements are
    exempt from major new source review (NSR). This has been a longstanding
    provision of the NSR rules, and there are no proposals to change this
    exemption. In addition, under the current major NSR regulations, a
    utility may make any type of change to an existing unit, including new
    technology that improves efficiency, to the extent that the change does
    not increase actual tons-per-year emissions by a significant amount
    over the baseline period established in the regulations. Finally, the
    utility may still make the improvement and increase emissions, as long
    as it installs the best currently available pollution control
    technology at the time.
        The Clean Air Act recognizes that if a unit is undergoing
    modifications that will generate more air pollution, then that is the
    best time to install new pollution control equipment.
        The Clean Air Act Amendments of 1977 did not require updated
    pollution controls for many aging utility facilities. Many of these old
    boilers have not been retired. So while other sources reduced air
    emissions over the past 20 years, some utilities continued to operate
    using pollution control equipment from the 1950's and 1960's.
        In the more than two decades of the NSR program, the EPA has worked
    with the States and industry to reduce air pollution from existing
    facilities at the time it is most cost-effective to do so when a
    modification that will increase emissions is occurring. EPA, States,
    and other groups are available to answer questions or clarify
    regulations if a source is uncertain about whether a specific project
    would fall under the NSR program.

        Question 2B. What do you plan to do to solve this problem under the
    current regulations and how will your new regulations address these
    much-needed efficiency improvements?
        Response. As noted above, the current regulations already allow
    utilities to upgrade their equipment without review, including making
    efficiency improvements, as long as the upgrade does not significantly
    increase actual tons-per-year emissions.

        Question 2C. If you cannot solve this problem through your
    regulations, do you think that legislative action would be appropriate
    to provide EPA with flexibility to address these concerns?
        Response. The EPA does not believe that legislative action is
    needed at this time to address concerns about efficiency improvements.
    The current regulations do not prevent a utility from making efficiency
    improvements . They simply ensure that where any type of change
    significantly increases actual tons-per-year emissions, appropriate
    control technology is applied.

        Question 3. What is EPA's schedule for acting on the section 126
    petition targeting NOx sources? Isn't it true that the factual basis
    for EPA's NOx SIP call and for the section 126 petitions that EPA has
    received targeting specific sources of NOx are essentially the same?
    Why then does EPA not await judicial review of the SIP call prior to
    acting on the section 126 petitions?
        Response. EPA generally granted the petitions from Connecticut,
    Massachusetts, New York, and Pennsylvania on December 17, 1999, and
    established control requirements for certain NOx sources in upwind
    States. In that final rule, EPA made section 126 findings based on the
    1-hour ozone standard and stayed the portion of the rule based on the
    8-hour ozone standard.
        The EPA denied petitions for the 1-hour ozone standard filed by
    Maine, New Hampshire, Rhode Island and Vermont in April 1999 because
    these States no longer had areas that were not attaining the 1-hour
    standard. The EPA is reviewing section 126 petitions submitted in 1999
    by New Jersey, Delaware, the District of Columbia, and Maryland. When
    the review is complete, the Agency intends to issue a proposed response
    to these petitions.
        On March 3, 2000, the U.S. Court of Appeals for the District Of
    Columbia Circuit issued a decision largely upholding the NOx SIP call.
    EPA is analyzing the effects of that decision.
        The EPA did not await a judicial decision on the NOx SIP call
    because, under section 126 of the Clean Air Act, the petitioning States
    had the right to a decision from EPA. Thus, regardless of pending
    litigation on the NOx SIP call, EPA had a statutory obligation to take
    timely action on the section 126 petitions and the Agency has acted
    accordingly. Also note that on October 29, 1999, the D.C. Circuit Court
    of Appeals denied a motion for a stay of the section 126 rule pending
    resolution of the NOx SIP call litigation. EPA discussed the
    relationship between the NOx SIP call and the section 126 rule in
    detail in the December 17, 1999 final rule and response to comments
    document.

        Question 4A. What is your rulemaking schedule regarding the NSR
    modification rule?
        Response. Over the last year, we have been holding extensive
    meetings with various stakeholder groups working on NSR reform.
    Additional meetings with these groups are scheduled. We will evaluate
    all of the input and make a decision on whether we should proceed to
    issue final decisions on some parts of NSR Reform and potentially to
    propose for comment other changes to NSR. If we decide to proceed this
    way, the earliest that these final and proposed decisions would be
    published would be in Spring 2000.

        Question 4B. Where do you stand in the stakeholder consultation
    process?
        Response. Consultation with stakeholders is ongoing. In addition to
    the public comment period and public hearing associated with the NSR
    Reform proposal, EPA has had ongoing meetings with stakeholders. For
    example, a large meeting was held in February 1999 to discuss new ideas
    from stakeholders, and followup meetings have been occurring regularly
    since then. Most recently, over the last 3 months, EPA has been having,
    on average, three or four meetings each month with stakeholder groups,
    including State agencies, environmental groups, and several different
    industry groups. Additional meetings are scheduled.
        EPA has conducted a longstanding dialog with external stakeholders
    on the new source review program. Under the auspices of a Clean Air Act
    Advisory Committee (CAAAC) subcommittee dedicated to this subject, as
    well as through less formal means, there have been dozens of
    opportunities for exchanges of views. These discussions have been
    productive in helping the Agency develop approaches that can provide
    additional flexibility for affected industries while continuing to
    protect the environment.

        Question 4C. Do you plan to make any revisions to the proposed rule
    based on those consultations?
        Response. The EPA continues to evaluate the issues raised by the
    NSR Reform proposal, and intends to consider all comments made during
    stakeholder meetings and during the public comment period. We expect
    the final NSR Reform rule to differ from the proposal based on comments
    received, but have not yet finalized our decisions on all the issues
    raised.

        Question 4D. Do you believe that any project that improves
    productivity requires an NSR permit?
        Response. Whether or not projects require NSR permits depends on
    whether they are non-exempt changes that increase total emissions on a
    tons per year basis. A project intended to improve productivity will
    not necessarily increase emissions. However, the ones that do result in
    significant emissions increases are subject to review.
                                     ______

      Responses by Robert Perciasepe to Additional Questions from Senator
                                    Moynihan
        Question 1. Please comment on the current sulfur dioxide cap and
    trade program and whether you believe it could serve as a template for
    a program targeted at nitrogen oxides.
        Response. The current Acid Rain sulfur dioxide cap and trade
    program has been highly successful. The economic incentives created to
    encourage emission reductions have resulted in significant, low cost,
    early reductions resulting in benefits to health and the environment.
        For the first time under the Clean Air Act, in 1994, EPA began
    collecting actual hourly emissions data (SO2, NOx,
    CO2) from large power generating sources through Continuous
    Emissions Monitoring systems (CEMs). There has been 100 percent
    compliance with the SO2 emissions reduction requirements for
    this section of the Clean Air Act. Beginning in 1995, there have been
    significant, cost-effective SO2 reductions. Utility
    SO2 emissions have dropped by over 4 million tons annually
    relative to the 1980 baseline. The first 4 years of the program have
    produced SO2 reductions beyond the legal limit in almost
    every affected State, with major reductions in the highest emitting
    areas (Midwest). Full implementation will achieve a 10 million ton
    reduction from utility and industrial sources, approximately 40 percent
    below 1980 levels.
        During Phase I of the SO2 allowance trading program
    (1995-1999), allowance market activity steadily increased both between
    and within private organizations. The annual cost of complying with the
    Acid Rain Program, originally estimated by EPA at more than $4 billion,
    is now estimated at approximately $2 billion upon full implementation
    (EPA's Section 812 study of Clean Air Act costs and benefits, published
    in November 1999). The estimate has changed because more utilities than
    expected have utilized coal switching, because both coal switching and
    SO2 scrubbing have proved less expensive than expected for
    multiple reasons, and because the trading system has proven to be
    efficient and accepted by the utility industry.
        Such impressive results achieved under this program have resulted
    in expressed interest in cap and trade as a successful model for
    implementing other pollutant reduction programs. A similar, ongoing
    program modeled on the SO2 program already provides a
    template for a program targeted at nitrogen oxides. The Ozone Transport
    Commission (OTC), composed of 12 Northeastern States and the District
    of Columbia, is implementing a cap and trade program to reduce
    summertime nitrogen oxide (NOx) emissions during the ozone season. EPA
    has accepted the request of the OTC to administer the NOx cap and trade
    program, using the SO2 cap and trade program as a model.
    Preliminary results from 1999 (the first summer of operation) indicate
    that the NOx Budget Program is achieving its goal of reducing ozone
    season NOx emissions. There has been a 55 percent reduction since 1990
    by the eight States currently participating in the program. When the
    program is fully implemented in 2003, summertime NOx emissions in the
    Northeast will be reduced by 70 percent (from 1990 levels), which is
    expected to result in lower ozone levels and improved health for
    Northeast residents.
        The OTC NOx Program demonstrates that emissions cap and trading
    mechanisms can achieve significant NOx emission reductions and improve
    air quality in the United States at a lower cost than traditional
    command and control approaches. Emissions were reduced 20 percent below
    required levels and NOx allowance costs are well below early estimates.
        In fact, the acid rain and OTC programs have proven so successful
    that we developed a cap and trade program to implement the regional NOx
    reductions called for under the 22-State NOx SIP call rule and the
    section 126 regional NOx rule.

        Question 2. On October 14, New York Governor George Pataki
    announced a plan to significantly reduce emissions of sulfur dioxide
    and nitrogen oxides from utilities in New York State. What effect will
    this proposal have in New York? Do you think it will have any
    implications in other States? Do you think it will have any effect on
    initiatives to mitigate interstate air pollution?
        Response. New York State's proposed emissions restrictions will
    lead to lower emissions and will likely improve air and environmental
    quality in New York and in areas downwind of New York , the
    implications of which depend on the approach taken by New York. If New
    York develops a cap and trade program, the additional reductions likely
    will be achieved more cost effectively than through a command and
    control approach. The smaller trading market of sources in New York
    only will likely lead to fewer trading and cost saving opportunities
    for New York utilities. However, if the health and environmental
    benefits can be achieved cost-effectively, other States may consider
    implementing similar programs to reduce pollution in their States, as
    well as to mitigate interstate air pollution.
                                     ______

      Responses by Robert Perciasepe to Additional Questions from Senator
                                   Lieberman
        Question 1. Could you describe briefly how EPA considers costs and
    benefits in setting and implementing air quality standards?
        Response. For three decades through 6 different Administrations and
    15 Congresses this nation has adhered to the principle that air quality
    standards should protect public health, including the health of
    sensitive populations like asthmatics, the elderly, and people with
    heart and lung disease. We continue to believe that our national air
    quality standards represent the goals we are striving to achieve, and a
    benchmark for citizens interested in whether their air is safe to
    breathe. Under the Clean Air Act, costs are not considered in setting
    these health-based standards. (See response to question 6 from Senator
    Baucus for a fuller discussion of this point.)
        However, costs are--and should be--a central consideration as State
    and local air agencies, EPA and Congress determine control strategies
    and the length of time areas have to meet air quality standards. The
    Clean Air Act generally provides more time for highly polluted areas to
    attain air quality standards, and less time for less polluted areas to
    attain. For example, Los Angeles--which has generally had the worst
    ground-level ozone problem in the country--is provided with more time
    to achieve the standards than areas with less severe ozone problems.
    This provides time to develop less costly technologies and strategies
    to reduce air pollution, and to implement them. States consider costs
    in deciding the control requirements to include in State Implementation
    Plans. EPA considers costs in developing emissions control rules and
    guidance at the Federal level. For example, in developing guidelines
    for States on ``reasonably available control technology''--required by
    the act for certain sources in nonattainment areas--EPA considers costs
    in determining what is ``reasonably available.'' (See response to
    question #2.B. from Senator Lieberman for more on consideration of
    costs.)

        Question 2. In order to clarify the extent to which the scientific
    peer review is incorporated into the agency's rulemaking and standard-
    setting procedures, it would be helpful to use an example of
    rulemaking, such as the revision of the NAAQS or the Tier II tailpipe
    standards, to illustrate the process.
        A. Please provide a chart detailing the extent and timing of
    scientific input, dialog, and peer review for setting air quality
    standards.
        Response. The attached chart lays out the process for EPA's review
    of the NAAQS, beginning with the publication of scientific studies in
    peer-reviewed journals through the public comment period and concluding
    with EPA's publication of its final decision. All studies on which EPA
    relies are first published in peer-reviewed journals. (E.g., EPA
    reviewed thousands of peer-reviewed studies when revising the ozone
    standard.)
        EPA then prepares a ``criteria document'' that identifies and
    synthesizes the relevant studies. Each draft chapter of the document
    undergoes further external peer review--it is reviewed by
    representatives of the scientific community, industry, public interest
    groups, and the public as well as the Clean Air Scientific Advisory
    Committee (CASAC), a Congressionally mandated group of independent
    scientific and technical experts.
        EPA revises the criteria document in light of the comments received
    and, as appropriate, seeks further CASAC and public review to assure
    that the document represents a comprehensive and accurate summary of
    the most recent available science.
        EPA also prepares a ``staff paper'' that makes policy
    recommendations about the standards based on the criteria document. The
    staff paper is then subjected to a similar round of public and CASAC
    scientific peer review.
        EPA then goes through an extensive public notice and comment
    process before making any decisions to retain or revise an ambient air
    quality standard and provides CASAC an opportunity to review EPA's
    proposed decisions before making final decisions. During the last
    revision of the NAAQS, CASAC held a series of public meetings over 3
    years.
        It should be noted that one additional opportunity for scientific
    review not shown on this chart is provided at the time EPA publishes
    its proposed decision in the Federal Register, when the Clean Air
    Scientific Advisory Committee is provided with a copy of EPA's proposal
    for review. In past reviews, CASAC has typically declined the
    opportunity to conduct a formal review at this stage.

        Question 2B. Please provide the same type of chart detailing how
    cost considerations are brought into agency considerations of
    implementation of a regulation, whether through the SBREFA process,
    industry consultation, or other agency analysis.
        Response. Cost is a key consideration as States, EPA and Congress
    consider strategies for achieving national ambient air quality
    standards (NAAQS). This factor helps determine which pollution sources
    should reduce emissions, by how much, and on what timetable.
        This question focuses on how EPA considers cost in Federal rules
    requiring pollution sources to reduce emissions, which complement State
    strategies for attaining air quality standards. Attached is a chart
    providing a general overview of the cost analysis process for EPA
    rules. These cost analyses range from general assessments of cost
    effectiveness and impacts of a draft rule, to more specific analyses of
    whether rules would create unfunded mandates for State and local
    governments, or have substantial small business impacts.
        The Agency consults with stakeholders to develop rules that reduce
    air pollution at reasonable cost. EPA spends extensive time and effort
    to involve various stakeholders through its Clean Air Act Advisory
    Committee, public meetings, regulatory negotiations, stakeholder groups
    under the Regulatory Flexibility Act (as amended by the Small Business
    Regulatory Enforcement Fairness Act or SBREFA), and informal meetings
    and discussions. EPA often voluntarily conducts outreach to small
    business and other industry groups on cost and other rulemaking issues.
        In the case of the Tier 2 rule requiring cleaner vehicles and low
    sulfur in gasoline to enable effective vehicle emission controls, EPA
    conducted the cost analyses referenced in the attached chart--and also
    conducted a special statutorily required study prior to the rulemaking
    on several issues including cost. The Clean Air Act required EPA to
    study ``whether or not further reductions in emissions from light-duty
    vehicles and light-duty trucks should be required'' beginning between
    the 2004 and 2006 model years. Specifically, the study and subsequent
    rulemaking examined:

          the need for further reductions in emissions in order to
    attain or maintain the national ambient air quality standards
          the availability of technology to meet more stringent
    standards, taking cost, lead time, safety, and energy impacts into
    consideration the need for, and cost effectiveness of, such standards,
    including consideration of alternative methods of attaining or
    maintaining the national ambient air quality standards.

        Throughout the assessment of the Tier 2 program, extensive cost
    analyses were conducted and provided to the public for review and
    comment. For the vehicle program, for example, EPA developed
    information based on discussions with automakers, emission control
    manufacturers, in-house testing and research, and the California Air
    Resources Board. That information was utilized to develop detailed
    manufacturer costs for each vehicle class, including: increases in
    emission control hardware costs (detailed sub-analyses); assembly
    costs; research and development; tooling; certification; markup
    (overhead/profit); and projected short- and long-term cost trends.
        EPA promulgated the Tier 2 standards on December 21, 1999, based on
    criteria laid out in the Act. Cost analyses for the final rule showed,
    for example, that:

          the annual benefits of the program when fully phased-in
    far exceed the costs
          the Tier 2 vehicle standards and low sulfur gasoline is a
    cost effective program

        Based on consultation with stakeholders, EPA included flexible
    compliance provisions in the rule that will reduce the overall cost of
    compliance to regulated parties. These provisions include averaging,
    banking and trading; phase-in of vehicle standards; regional phase-in
    of low sulfur gasoline; and, hardship provisions for qualifying
    refiners, including a phase-in of the standards for small refiners
    based on information developed during the SBREFA process.
        It is important to note that States have principal responsibility
    under the Clean Air Act for developing strategies to achieve the
    national ambient air quality standards (NAAQS). The Act provides
    substantial flexibility in the States' development of implementation
    plans to consider costs and mitigate potential impacts on businesses.
    The Act requires that cost considerations be included in determining
    levels of control required by the Act such as ``reasonably available
    control technology'' (RACT) and ``best available control technology''
    (BACT), and this is reflected in EPA guidance to States. Additional
    opportunities for mitigating impacts on businesses include phase-in of
    controls on existing sources, use of regional control strategies, and
    use of flexible strategies such as emissions trading and other economic
    incentives. The Act and EPA guidance provide for use of trading and
    economic incentive strategies.
        The Act allows significant time to identify and implement cost
    effective strategies for attaining the NAAQS. For certain NAAQS,
    Congress in the 1990 amendments categorized areas according to the
    severity of pollution, and provided the more polluted areas with more
    time to attain. For other NAAQS, the Act can provide up to 12 years for
    areas designated nonattainment to attain. Since at least 2 years
    generally elapse before areas are designated nonattainment and longer
    in the case of the 1997 ozone and PM NAAQS revisions due to the need to
    gather than analyze air quality data the Act provides States with
    substantial time for development of cost effective attainment
    strategies.
        In developing guidance for States on implementation of air quality
    standards, EPA has consulted heavily with representatives of private
    industry, the environmental community and State, local and other
    Federal agencies For example, in the case of the 1997 ozone and
    particulate matter NAAQS, EPA convened an advisory committee under the
    provisions of the Federal Advisory Committee Act which advised EPA over
    a 2-year period. EPA also consulted with small business representatives
    to obtain recommendations on how States could mitigate adverse impacts
    on small businesses as they develop and implement their State
    Implementation Plans.

        Question 3. Some confusion emerged during the hearing regarding my
    statement that the dramatic increases in asthma cases among children
    has made them more vulnerable to smog pollution. Am I correct in
    understanding that while the cause of asthma is not attributed to a
    single pollutant, smog and soot can exacerbate their health problems?
        Response. You are correct. Available scientific information does
    not currently demonstrate that air pollution actually causes asthma,
    but numerous scientific and medical studies have shown an association
    between high pollution levels and increased hospital admissions for
    treatment of asthma and other respiratory illnesses. There is concern
    that repeated exposures and responses to air pollution adversely
    affects people with asthma and respiratory illnesses, requiring
    increased use of medication, medical treatment, and/or emergency room
    visits and hospitalization. This is of special concern in light of the
    growing number of people with asthma, particularly children.

        Question 4. Some suggested that we should look more closely at the
    problem of indoor air pollution as a cause of asthma and other health
    problems. What current statutory authority does EPA have to regulate
    indoor air? Would the agency be willing to provide recommendations to
    Congress on how to establish authority to reduce pollution from indoor
    sources?
        Response. EPA does not currently have statutory authority to
    regulate indoor air. Under Title IV of the Superfund Amendments and
    Reauthorization Act of 1986, the ``Radon Gas and Indoor Air Quality
    Research Act of 1986,'' EPA is authorized to establish a research
    program with respect to indoor air quality, demonstrate methods for
    reducing or eliminating indoor air pollution, and disseminate
    information to assure the public availability of any findings.
        The Agency is willing to work with the committee to review the
    Clean Air Act and indoor air issues. As we go through the hearing
    process with the Committee, we will have a better feel for whether
    reopening the Act would be more beneficial or disruptive on the whole.
    One topic that would be worth evaluating as part of the hearing process
    is whether EPA should be given additional authority to encourage States
    and industry to take actions that reduce risks from indoor air
    pollution.

        Question 5. Numerous allegations about the relationship between job
    loss in nonattainment areas were made during the hearings. Is it true
    that the number of jobs in nonattainment areas is declining?
        Response. In fact, the number of jobs in non-attainment areas has
    been increasing. There were 294 counties in non-attainment status in
    1997. From 1990 to 1997, the number of jobs in these counties increased
    by more than 5.8 million, from 66.8 million to 72.6 million. Data are
    from the Regional Economic Information System produced by the Bureau of
    Economic Analysis, U.S. Department of Commerce.

        Question 6. Are there reasons that cost considerations should be
    treated differently in setting and implementing standards under the
    Clean Air Act than under the Safe Drinking Water Act?
        Response. There are important similarities in the way that costs
    are considered under the Safe Drinking Water Act (SDWA) and the Clean
    Air Act. First, both laws establish health-based goals . Second, under
    both Acts, costs are considered at the implementation stage, when
    control requirements for an industry are being established .
        As your question indicates, there are differences as well as
    similarities in standard-setting under the two statutes. Under the
    Clean Air Act, EPA develops national ambient air quality standards to
    protect public health, without consideration of costs. Costs and
    benefits are considered (by States, EPA, and in some cases, Congress)
    in determining which pollution sources should reduce emissions, and how
    quickly the reductions must be achieved.
        Under the drinking water act, EPA establishes health protection
    goals for drinking water quality without regard to cost, and then sets
    regulatory standards for public water systems, considering costs and
    technological availability. The 1996 SDWA amendments expanded the
    existing authority to consider costs in setting these regulatory
    standards by requiring EPA to develop a health risk reduction and cost
    analysis and by giving EPA conditional discretion, based on the
    analysis, to set a regulatory standard that maximizes health risk
    reduction benefits at a cost that is justified by the benefits.
        Differences in the two laws stem from differences in the tasks of
    reducing air pollution and cleaning up drinking water:
        A drinking water standard establishes the requirements for a
    particular industry (public water systems). By contrast, under the
    Clean Air Act, requirements for particular industries or sources are
    established after the air quality standard is set, providing
    considerable opportunity to consider costs at this second stage.
        Setting an air quality standard triggers an implementation process
    in which choices must be made concerning which types of pollution
    sources should reduce emissions, in which areas, to what degree, by
    what deadline. This process includes, for example, development of
    enforceable State Implementation Plans and national rules such as motor
    vehicle standards. Costs are a central factor in determining reasonable
    emission reduction requirements.
        Estimates of the cost of achieving a national ambient air quality
    standard are subject to much more uncertainty than estimates of the
    cost of meeting a drinking water standard, for several reasons.
        Standards for drinking water quality constitute specific,
    technology-based requirements for one industry--public water systems.
    There are identified types of facilities and corresponding technologies
    that serve as benchmarks that engineers use to calculate costs of those
    requirements. So cost estimates are based on a known set of
    requirements for one industry.
        By contrast, when EPA sets a National Ambient Air Quality Standard,
    it is unclear at that time which sources will be regulated and/or to
    what degree they may be regulated, and over what geographic area. There
    is a large universe of pollution sources and potential emission
    reduction strategies. So although cost estimates for NAAQS can be
    developed, they are subject to additional categories of uncertainty not
    involved with cost estimates for drinking water standards: (1)
    uncertainties regarding which types of pollution sources will be
    regulated, in which geographic areas, (2) uncertainties regarding the
    nature and stringency of requirements to be set for those sources, (3)
    the additional uncertainty resulting from conducting cost estimates for
    numerous industries, rather than for one industry, (4) uncertainty
    arising from the modeling of complex atmospheric chemistry and
    meteorology to estimate effects of precursor emission reductions on
    ambient levels of a NAAQS pollutant. As a result, uncertainties
    regarding the cost of achieving a NAAQS typically are much greater than
    those regarding the cost of meeting a drinking water standard.
        In addition, most drinking water standards are required to be
    achieved within a relatively short time period, typically from three to
    5 years. By contrast, Congress has provided longer time periods (in the
    case of the 1-hour ozone standard, up to 20 years, depending on the
    severity of an area's pollution) for the Nation as a whole to attain
    air quality standards. As a result, technology advances can reduce
    costs and make it possible to achieve reductions that were once thought
    infeasible. The history of the Clean Air Act provides many examples of
    this phenomenon (see response to question #2 from Senator Baucus). This
    technology innovation factor further adds to the uncertainty of
    estimating the cost of achieving a NAAQS.
        To recap, both laws establish health-based goals, and then consider
    costs at the implementation stage, when control requirements for an
    industry are being established.
                                     ______

      Responses by Robert Perciasepe to Additional Questions submitted by
                                 Senator Baucus
        Question 1. Did EPA or other Federal agencies cutoff the
    distribution or allocation of acid rain allowances prematurely or
    provide them on a first come/first served basis? Please comment on the
    distribution process.
        Response. All of the SO2 allowances were distributed by
    EPA as authorized by the Clean Air Act. The vast majority (about 90
    percent) of the Phase I allowances either were distributed to the
    sources listed in Table A of section 404 of the Act or were allocated
    according to the formulas provided in section 404. The rest were
    distributed through an auction authorized by section 416 of the Act.
    Except for the auction, Phase II allowances were allocated to all
    eligible units according to the formulas provided in section 405 of the
    Act and then, as required by the Act, were decreased (approximately 10
    percent) to achieve the 8.95 million ton emissions cap.
        Your question concerning ``premature'' or ``first-come, first
    served'' allowance allocations seems to refer to the allocation of
    allowances in the Phase I Extension Reserve. This reserve, which
    represented a small portion (about 10 percent) of total Phase I
    allowance allocations was distributed on a first-come, first-served
    basis, again according to the statute. Section 404 of the Act provided
    that designated representatives who commit to install technologies
    achieving 90 percent reduction of units' SO2 emissions could
    request a 2-year extension of the deadline for meeting Phase I emission
    reduction requirements by applying for additional allowances from a
    special allowance reserve. Section 404 required EPA to process
    extension requests ``in order of receipt''. Since the reserve might be
    oversubscribed, EPA determined, after taking public comment, that
    distributing the Phase I extension allowances using a lottery system
    was consistent with the statutory language and the least burdensome and
    most expeditious method for ranking Phase I extension applications. The
    full amount of reserve allowances was distributed, according to a
    lottery system, to the eligible units. However, some utilities
    preferred a pro rata method of distribution because they were concerned
    that they might not be awarded any allowances in the lottery. These
    utilities entered into and implemented a private agreement under which
    the allowances awarded through the lottery were re-distributed to all
    eligible units on a pro rata basis.
        The Clean Air Act provided for some other special reserves of
    allowances, e.g., for conservation and renewable energy and for small
    diesel refiners. These reserves contained enough allowances for all
    eligible participants to receive the full amount of allowances to which
    they were entitled under the Act.

        Question 2. How does EPA estimate the ability of the regulated
    community to innovate and thereby meet more stringent standards?
        Response. EPA works closely with regulated communities to obtain
    information on currently available technologies and their estimated
    costs, and on emerging technologies. Nonetheless, as is the case for
    technology generally, air pollution control technology is developing so
    rapidly that it is difficult to predict very far into the future. Over
    short time horizons for a particular industry, however, it is possible
    to make some educated judgments regarding feasibility and likely cost
    of emerging technologies.
        Regarding air quality standards, we know based on experience that
    technological advances over the longer term will provide substantial
    help in meeting our clean air goals. But it is inherently difficult to
    estimate the amount of emissions reductions and cost savings that will
    be provided five, 10 or 15 years from now by technological advances in
    numerous industries--including advances that are entirely unforeseen
    today.
        Our experience over the past 30 years, and the promise of cleaner
    technologies emerging today, strongly suggest that technological
    innovation will continue to produce new, cleaner processes and
    performance improvements that reduce air pollution at reasonable cost.
    The Clean Air Act has helped lead to technology innovation and
    performance improvements. Over and over again, innovative companies
    have responded to the challenges of the Act with great success,
    producing breakthroughs such as alternatives to ozone-depleting
    chemicals and new super-performing catalysts for automobile emissions.
        Technological innovation has enabled the regulated community to
    achieve emissions reductions some critics had thought simply
    infeasible, and to reduce anticipated compliance costs. Two examples of
    this phenomenon are the Tier I tailpipe standards for cars and light-
    duty trucks, and the phaseout of CFCs. (See written testimony by
    Assistant Administrator Bob Perciasepe.) Another example in which
    technological advances have reduced costs is sulfur dioxide scrubbers
    for power plant emissions. Scrubber efficiency has improved from
    average reductions of around 80 percent in the early 1980's to over 90
    percent reduction in the 1990's while capital costs decreased
    substantially.
        There are many examples of technologies that were not commercially
    available in the United States a dozen years ago, but that now are
    important parts of pollution control programs. These include:

          Selective Catalytic Reduction (SCR) for NOx emissions
    from coal-fired power plants;
          Fuel lean or advanced gas reburn technology for NOx;
          Scrubbers which achieve 95 percent SO2 control
    on utility boilers (available but not achieved by utilities in the
    United States a dozen years ago);
          Sophisticated new valve seals and detection equipment to
    control leaks;
          Water and powder-based coatings to replace petroleum-
    based formulations;
          Reformulated gasoline;
          LEVs (Low-Emitting Vehicles) that are far cleaner than
    had been believed possible in the late 1980's (an additional 95 percent
    reduction over the 1975 controls);
          Reformulated lower VOC paints and consumer products;
          Safer, cleaner burning, wood stoves;
          Dry cleaning equipment which recycles perchlorethylene;
    and
          CFC-free air conditioners, refrigerators and solvents.

        This pattern of technological progress is continuing today. In the
    regulatory impact statement for the 1997 ozone and PM NAAQS, EPA
    identified a number of emerging technologies--ranging from fuel cells
    to ozone-destroying catalysts to new coating technologies--that may
    hold promise for achieving additional cost effective reductions of VOC,
    NOx and particulate matter. Similarly, the University of California-
    Riverside's Center for Environmental Research & Technology has
    identified a long list of new and emerging technologies that may help
    achieve cleaner air in the 21st century (see attached document).
        Based on this, EPA believes it is clear that technological advances
    will continue to help us make progress toward healthful air. We can
    continue to promote innovation by maintaining air quality standards
    stringent enough to protect health, thereby challenging the Nation to
    continue to develop new cleaner technologies. In addition, we can
    promote emission reduction strategies that provide flexibility on the
    means of reducing emissions (e.g., market-based strategies) to allow
    use of innovative emission reduction methods.

        Question 3. Please provide some more examples, relative to The
    Clean Air Act Amendments of 1990, of the costs of compliance estimated
    by the regulated community prior to passage of that Act versus the
    actual costs experienced today.
        Response. My written testimony provided five examples in which the
    regulated community (1) over-estimated costs of the 1990 amendments, or
    (2) incorrectly predicted that proposed requirements were simply
    infeasible. The cost examples involved the overall cost of the 1990
    amendments, the cost of the acid rain program, and the price of
    reformulated gasoline. The feasibility examples involved the CFC
    phaseout and the Tier I auto tailpipe standards.
        EPA anticipates being able to provide you with more examples in the
    near future.

        Question 4. A utility witness suggested that EPA is in a ``mad
    rush'' to have NOx SIP Call controls in place by 2003. How long has it
    been recognized that regional NOx reductions would be necessary to
    address ozone transport problems? How long has EPA been discussing
    regional NOx controls with States and the utility industry?
        Response. Since the late 1980's it has been recognized that
    regional NOx reductions are necessary to address ozone transport
    problems. EPA and States have been working for years to determine how
    best to reduce smog-causing emissions from power plants and other
    sources, and have been discussing regional NOx controls with utilities
    for nearly a decade, beginning in the northeastern States.
        The provision in the 1990 Clean Air Act Amendments establishing the
    Ozone Transport Commission explicitly recognizes the issue of ozone
    transport. Furthermore, in 1991, the National Academy of Sciences
    issued a report (``Rethinking the Ozone Problem in Urban and Regional
    Areas'') that stated that in many parts of the country controlling NOx
    emissions would be necessary to reduce ozone. Since 1993, States have
    been expressing concern to EPA that emissions from ``upwind'' areas
    need to be addressed so that the States can meet the Clean Air Act's
    requirements for demonstrating attainment. After lengthy analysis and
    discussions, the 12 Northeast States and the District of Columbia,
    which participate in the Ozone Transport Commission, signed an
    agreement in 1994 that established a phased program leading to
    substantial NOx controls on major sources in that region.
        In May 1995, EPA, the 37 States in the eastern half of the United
    States, and other stakeholders, including utility and environmental
    representatives, convened the Ozone Transport Assessment Group (OTAG)
    to analyze regional ozone transport in the East. This group modeled and
    analyzed ozone pollution in the East for 2 years. In June, 1997, OTAG
    concluded that ozone is transported and that regional NOx reductions
    are effective in producing ozone benefits. OTAG recommended a range of
    utility and non-utility NOx control levels to address the ozone
    transport phenomenon. EPA proposed the NOx SIP call for regional NOx
    reductions in October 1997 , and continued to discuss regional NOx
    controls with States and the utility industry throughout the rulemaking
    process and following issuance of the final rule in September 1998.
        EPA's NOx SIP Call allowed almost 5 years from the 1998 date for
    compliance with emission reduction requirements. The NOx SIP requires
    compliance by May 1, 2003, providing 55 months between finalizing the
    rule and the compliance deadline. EPA evaluated the technical and
    economic feasibility of installing sufficient pollution controls to
    achieve the emissions reductions required by the NOx SIP call and
    concluded that even with multiple installations of SCR and SNCR at the
    same plant, the longest it would take to install all needed controls
    would be 34 months. Even if States took the full 12 months allowed to
    complete their SIPs, sources would have 43 months to comply.
        EPA also examined the impact on power plant availability and thus
    electric reliability. The Agency concluded that outages would be of
    short duration and could take place during the Spring and Fall seasons
    when electric demand is lower, and that these outages would not cause
    reliability problems. In addition, recent experience installing SCR has
    suggested shorter installation times than EPA used in its analysis and,
    therefore, the Agency believes that the analysis upon which the rule
    was based is conservative.
        EPA also provided a ``compliance supplement pool'' of NOx emission
    reduction credits that States could allocate to sources who, in good
    faith, needed more time to achieve compliance with the control
    requirements. This pool of credits would enable the industry to delay
    up to one-third of the control technology installations if unforeseen
    problems should occur in obtaining and installing control equipment.
        On March 3, 2000, the U.S. Court of Appeals for the District Of
    Columbia Circuit issued a decision largely upholding the NOx SIP call.
    EPA is analyzing the effects of that decision.

        Question 5. Although strong enforcement is one component of making
    sure we achieve our air quality goals, there are a lot of good
    corporate citizens that want to comply with their environmental
    obligations, but can't always determine what they are supposed to do.
    Please describe EPA's efforts to help small businesses and others
    comply with the Act.
        Response.

    Office of Air and Radiation Activities
        The CAA required States to develop a Small Business Stationary
    Source Technical and Environmental Compliance Assistance Program to aid
    small businesses impacted by air regulations. This program:

          Is funded by permit fees;
          Directly reaches more than 1,000,000 small businesses a
    year through: toll-free hotlines; fact sheets; brochures; seminars and
    meetings; websites; and
          Has resulted in more than 14,000 onsite consultations
    conducted each year.

        The EPA provides information and support to the State Small
    Business Assistance Programs to assist in their compliance assistance
    activities; small businesses can also access this information directly
    through:

          the EPA Small Business Assistance Program website, which
    includes: State and EPA contact listings; Small business materials and
    programs developed by States and EPA; Links to other EPA and State
    sites; ``Plain-English'' guidance materials to explain new air
    regulations, such as guidebooks on the standards for architectural
    coatings and wood furniture manufacturing.
          Satellite downlink seminars to educate small businesses
    on new air regulations (five industry-specific seminars have been held
    since 1994 reaching an average of approximately 2,000 participants
    each).

    Office of Enforcement and Compliance Assurance (OECA) Activities

        EPA reorganized its enforcement and compliance programs in June
    1994. This reorganization was based on the principle that EPA needed to
    complement its enforcement program with innovative new tools to better
    protect public health and the environment by improving compliance with
    environmental laws. OECA continues to develop new approaches to
    compliance assistance and incentives policies.
        EPA is committed to broadening its compliance assistance programs
    as a result of a recent mid-course review of our program. As stated in
    its recently released ``Action Plan for Innovation,'' EPA is committed
    to expanding the use of integrated strategies that combine compliance
    assistance, compliance incentives, compliance monitoring, and
    enforcement activities. EPA's experience has shown that this approach
    can be very effective in addressing significant environmental risks.

    Compliance Assistance

        EPA's compliance assistance program--a complement to EPA's strong
    base enforcement program--is directed toward the special needs of small
    businesses, small communities, and local governments. In fiscal year
    1999, compliance assistance activities and tools--seminars, onsite
    assistance, mailings, and handouts--reached approximately 330,000
    entities.
        Compliance Assistance Centers--Four new ``on line'' National
    Compliance Assistance Centers were opened for the paints and coatings,
    transportation, and small and medium sized chemical manufacturing
    sectors, and local governments, bringing the total number to nine
    centers in operation by the end of fiscal year 1999. These Internet-
    based centers provide compliance information and pollution prevention
    techniques for certain industry sectors, such as paints and coatings,
    metal finishers, and automotive. Currently the centers are being
    visited over 700 times a day.
        Preliminary results from a survey of users of OECA's GreenLink
    Compliance Assistance Center, a web-based center for auto shops, show
    that compliance improves when facilities are given assistance. The
    results show that over a 2-year period, the number of facilities in
    substantial compliance jumped from 25 percent to 51 percent.
        Sector Notebooks--EPA to date has developed 30 sector notebooks for
    major industries. These sector notebooks provide information on the
    regulatory requirements and pollution prevention approaches needed to
    maintain and enhance compliance. To date over 450,000 notebooks have
    been distributed, and they remain one of OECA's most popular products.
        Regional Compliance Assistance Activities--All regions have
    compliance assistance activities and identified national priority
    areas. In addition, EPA's regions work with States to identify other
    regional or State-specific compliance assistance priorities.
        Region I Compliance Assistance for Printers: In Region One,
    printing continued to be a compliance assistance priority. A Fit To
    Print guide was sent to over 1400 printers throughout the Region. Of
    those who responded to an evaluation of the guide, 70 percent said that
    they had undertaken ``improved environmental practices'' such as
    equipment changes/modifications, material substitution, recycling,
    training, institution of environmental management policies or
    procedures, and improved disposal methods as a result of compliance
    assistance efforts. These facilities also said that they took action to
    apply for appropriate permits or identification numbers, or file
    reports as necessary to comply with Federal, State or local
    environmental regulations.
        Region Two Outreach Efforts to Dry Cleaners: EPA's Region II
    office, in coordination with New York State agencies, has focused
    compliance assistance efforts on dry cleaners in New York and New
    Jersey. Their outreach efforts included onsite visits and the
    distribution of easy-to-understand guides to Clean Air Act
    requirements. In addition, the Region developed a web site for
    compliance assistance information and held 8 seminars on equipment
    maintenance and new technologies for approximately 500 owners/
    operators. This effort has resulted in a reduction of 11.9 tons of PCE
    from urban air.

    Compliance Incentives

        Recognizing that effective incentives promote compliance, EPA has
    worked with State and local partners and small business groups over the
    past several years to develop policies with real incentives for
    industry and others to voluntarily identify and correct their own
    environmental violations. The Agency relies on a wide array of
    traditional and innovative compliance incentives tools, such as EPA's
    Audit Policy, to encourage companies that want to do the right thing by
    discovering and disclosing their violations.
        Self-Disclosure (Audit) Policy--EPA's Audit Policy establishes a
    system under which companies who discover environmental violations
    through a self-auditing system can receive reduced penalties if certain
    conditions are met. Since inception of the policy in 1996,
    approximately 670 companies have disclosed potential violations at over
    2700 facilities; approximately 270 companies have been granted penalty
    relief and corrected violations at over 1300 facilities.
        In fiscal year 1999, a record 260 companies had disclosed
    violations at close to 1000 facilities. EPA settled with 106 companies
    at 624 facilities, a significant increase over previous years.
        A major audit settlement with American Airlines (AMR Corporation)
    is expected to eliminate nearly 700 tons of air pollutants annually. A
    settlement with GTE, which involved 600 violations at over 300
    facilities, led to ten other telecommunications companies voluntarily
    disclosing and correcting 1,300 environmental violations at more than
    400 facilities.
        Seventy-six small businesses disclosed and corrected violations
    under the provisions of the small business self-disclosure policy, a
    sevenfold increase from the previous year.
        Compliance Audit Programs (CAP)--CAP programs are voluntary
    compliance programs, focused on a specific industry sector, which
    provide incentives to facilities to conduct environmental audits.
    Facilities which conduct an audit, and promptly disclose and correct
    any violations found, have the opportunity for waived, reduced or
    capped penalties.

        Question 6. In testimony, Professor Graham suggested taking a two-
    tiered approach to Clean Air Act standards. First, a lenient and
    flexible cost-benefit analysis, one that does not require high degrees
    of precision, would be used to set the actual ambient standard. Second,
    a more stringent cost-benefit analysis would be performed to determine
    whether or not to apply controls to specific sources. What views, if
    any, do you have on such an approach?
        Response. EPA opposes the two-tier approach suggested by Professor
    Graham. This approach calls for setting air quality standards based on
    cost-benefit analysis, rather than on protection of public health. For
    three decades through 6 different Administrations and 15 Congresses
    this nation has adhered to the principle that national air quality
    standards should protect public health, including the health of
    sensitive populations like asthmatics, the elderly, and people with
    heart and lung diseases. This approach recognizes that all Americans
    deserve to breathe clean air. EPA continues to support this equitable
    goal.
        EPA of course agrees that costs are relevant in considering
    environmental policy. But costs are not--and should not--be considered
    in setting public health standards for air quality. Rather, costs are--
    and should be considered in the implementation of air quality
    standards, as decisions are made concerning how to reach the health-
    based goal (E.g., the relative pollution reduction contributions of
    different sources, in different geographic areas). There is substantial
    opportunity to consider costs as States, EPA and Congress decide which
    pollution sources should reduce emissions, by how much, and on what
    timetable. Moreover, the Act provides impetus for our nation to
    identify economically acceptable ways to attain clean air, through
    ingenuity and technology advances. (See responses to Senator Baucus
    questions #8 and #2.)
        Using this approach, the Clean Air Act over the past 30 years has
    been successful in achieving substantial improvements in air quality
    while the Nation also enjoyed strong economic growth and enhanced
    productivity.

        Question 7. During the hearing, the utility industry witness
    indicated that EPA has not been interested in holding a dialog with
    that industry on coordinating the regulatory requirements facing that
    industry because independent statutory provisions drive these
    requirements and EPA cannot coordinate them without a change in law.
    Please comment.
        Response. It would be inaccurate to characterize EPA as being
    reluctant to hold a dialog with industry on coordinating regulatory
    requirements with the utility industry. Indeed, EPA initiated and
    encouraged the industry and others to participate in such discussions 5
    years ago. Following consultation with industry and other stakeholders,
    EPA undertook the development of the Clean Air Power Initiative (CAPI)
    in 1995. The goal of CAPI was to develop an integrated strategy for
    achieving the goals of the Clean Air Act with respect to the power
    generating industry. EPA recognized that there are numerous CAA
    requirements that affect the power generating industry, and that they
    involve complex, costly and sometimes uncertain regulatory processes.
    EPA also recognized the economic uncertainty created by restructuring
    within the power generation industry. CAPI highlighted the multiple
    public health and environmental concerns associated with emissions from
    power generation, including ozone, fine particles, toxics,
    acidification, eutrophication, visibility/regional haze, and materials
    damage. CAPI outlined an approach that would translate health and
    environmental goals into emissions targets, employ a market-based cap
    and trade mechanism, provide more regulatory certainty, flexibility and
    cost savings, and serve to coordinate the number of regulatory
    requirements affecting the industry. At the request of industry
    participants, analyses undertaken for CAPI focused on SO2
    and NOx and did not include mercury and carbon dioxide. Several
    implementation paths were considered, such as the current path using
    separate programs and requirements to address each pollutant and
    problem, the use of cap-and-trade mechanisms, and the establishment of
    voluntary incentive programs including early reductions. Industry
    positions varied among companies, and no common position or consensus
    was reached.
        Recently, in 1998, the EPA was invited by industry representatives
    to discussions related to an integrated strategy, specifically aimed at
    integrating new source review (NSR) with other regulatory requirements.
    EPA and industry shared views of future potential regulatory scenarios
    and possibilities for integration. The discussions were constructive,
    and EPA intends to consider these discussions as it evaluates future
    changes to the NSR program.

        Question 8. At the hearing, Professor Graham stated, ``I think any
    careful environmental analysis of what is going on here would indicate
    that we are having less economic productivity in this country and we
    are having more air pollution in other countries.'' Please comment.
        Response. We would make two points:
        First, EPA believes that economic growth and a clean environment
    can go hand in hand. From 1970 to 1997, the U.S. Gross Domestic Product
    (GDP) grew by 114 percent, and population grew 31 percent. Between 1973
    and 1995, productivity (nonfarm business sector) grew at an annual rate
    of 1.4 percent. From 1995 through 1999, productivity grew at a much
    more robust 2.9 percent per year. This economic growth and enhanced
    productivity occurred while the Nation also enjoyed substantial
    improvements in air quality. In 1997, national average air quality
    levels were the best on record for the six air pollutants for which EPA
    has established national ambient air quality standards (lead,
    NO2, SO2, PM10, CO, and ozone).
        While having strong environmental protection programs, the United
    States is one of the most economically productive countries in the
    world. A list of the manufacturing output per hour for 14 countries
    from the Bureau of Labor Statistics compares the economic productivity
    of the United States relative to other developed countries. The data
    show that the average output per hour in manufacturing for the United
    States over the years 1990 to 1998 was 109.8 units of output. The
    United States was surpassed only by Sweden whose average was 114.5
    units of output and the Netherlands with 113.6 units of output. The
    average annual growth rates of productivity between 1990 and 1998 were
    also calculated for the 14 countries using the Bureau of Labor
    Statistics data and they show that U.S. productivity has grown at an
    average annual rate of 3.34 percent between 1990 and 1998. Sweden,
    France, and the Netherlands were the only three countries with higher
    average annual productivity rates for the same time period. Their
    average annual growth rates were 4.67 percent, 3.98 percent, and 3.85
    percent, respectively.
        Another commonly relied upon measure of economic growth and
    productivity is per capita gross domestic product (GDP). A list of the
    1997 per capita GDP for 204 countries from the Statistics Division of
    the United Nations Secretariat and International Labor Office compares
    the value of goods and services produced by United Statesand other
    countries. The data show that the United States had the eight highest
    per capita GDP measure in 1997 at $28,789. Only Luxembourg, Bermuda,
    Switzerland, Liechtenstein, Norway, Japan, and Denmark had higher 1997
    per capita GDP measures.
        Second, many countries like the United States have made significant
    efforts to improve their air quality to protect public health and the
    environment. For example, a number of European countries between 1980
    and 1997 saw large percentage decreases in emissions of sulfur and
    nitrogen oxides. Of course, it is also true that many countries such as
    China, India, Thailand, Russia, and Mexico have far worse air quality
    than the United States. The fact that these countries have these issues
    is not a reason to have more pollution in the United States; it is a
    call for us to work with those countries both in terms of their
    economic well being and their environmental health.
                                     ______

      Responses by Robert Perciasepe to Additional Questions from Senator
                                     Graham
        Question 1. According to your testimony, air emissions of nitrogen
    oxides have been increasing. What is causing this trend? What do you
    believe would be the most effective steps the Federal Government could
    take to reverse this trend?
        Response. Air emissions of nitrogen oxides have increased since
    1970 due primarily to 1) increases in emissions from coal-fired power
    plants and 2) increases in emissions from certain mobile sources,
    including on-road and non-road diesel engines and light-duty trucks.
    From 1970 to 1997, U.S. Gross Domestic Product grew by 114 percent, the
    U. S. population grew by 31 percent, the number of miles traveled by
    on-road vehicles (VMT) increased by 127 percent, and from 1970 to 1998,
    electricity production increased by 136 percent. Despite these
    increases, the Nation recorded decreases in emissions of certain
    pollutants due to programs implemented under the Clean Air Act. For
    example, emissions of sulfur dioxides from coal-fired power plants
    dropped over this time period, as did emissions of volatile organic
    compounds and nitrogen oxides from passenger vehicles and many other
    sources. However, the same cannot be said for emissions of nitrogen
    oxides from power plants, diesel engines and other sources. Awareness
    of the need to control NOx from power plants and some of these other
    sources has grown over the past several years.
        Emissions of NOx result primarily from fuel combustion at high
    temperature. Fuel and biomass combustion in mobile and stationary
    sources accounts for about 95 percent of NOx emissions. As noted below,
    EPA, in partnership with State and local agencies and other
    stakeholders, have a number of programs in place as well as new
    initiatives in progress to decrease NOx emissions. Successful
    implementation of these Federal activities, together with local, State
    and regional efforts including measures in local nonattainment plans
    (e.g. vehicle inspection and maintenance programs), and strategies to
    reduce regional levels of NOx are cost-effective steps that will lead
    to important decreases in NOx emissions across the country.
    Mobile Sources
        Since the 1970's EPA has required motor vehicle manufacturers to
    decrease significantly emissions of NOx from light duty on-road
    vehicles. New Tier 1 light duty vehicle requirements were phased-in
    over the 1994-96 model years. The EPA has continued to work with State
    officials, auto manufacturers, oil industry and others to develop even
    cleaner cars, including the National Low Emission Vehicles program and
    the recently announced Tier 2/sulfur program. Vehicle miles traveled
    increased 25 percent nationally during the past 10 years. Despite the
    increase in vehicle miles traveled, total on-road vehicle emissions
    have been decreasing and will continue to decline through 2020 as new,
    Tier 2 cars and light trucks replace older, more polluting cars.
        Reduction in NOx emission levels from heavy-duty vehicles is
    expected from lower tailpipe standards for engines produced after 1991
    and further reductions are expected as 1998 and 2004 model year engines
    meeting tighter emission standards are phased into use. In addition,
    the Agency will soon propose more stringent emission standards for
    diesel engines used in large trucks and buses, as well as requirements
    for low-sulfur diesel fuel. The EPA is also working to implement
    several non-road programs to decrease NOx emissions from large marine,
    aircraft, locomotive, and engines used in agriculture, construction,
    and general industrial equipment.
    Stationary Sources
        To help control acid deposition, the Clean Air Act established a
    two phased program to reduce emissions of NOx from coal-fired electric
    utility generation units. Electric utility NOx emissions are expected
    to decline as the Phase II acid deposition NOx emission rate limits
    become effective.
        Further reducing utility NOx emissions using a cap-and-trade system
    is a highly cost effective way to reduce regional NOx emissions. To
    help cut ground-level ozone levels across the Eastern United States,
    EPA worked with the States to develop the NOx SIP call rule to further
    reduce NOx emissions from power plants and/or other sources in 22
    eastern States and the District of Columbia. Similar reductions are
    required in 12 States and the District of Columbia as a result of EPA's
    recent grant of petitions from eastern States under section 126 of the
    Clean Air Act.
        Continuing to implement these cost-effective programs will reverse
    the long-term trend of increases in NOx emissions; more NOx was emitted
    into the air in 1997 than in 1970. To sustain those reductions over
    time, it may be important to consider programs like those that place a
    cap or limit on total emissions.

        Question 2. Can you elaborate on the changes that you believe
    should be made to the Clean Air Act?
        Response. We are committed to working with Congress to provide a
    targeted legislative solution that maintains our air quality gains and
    allows for the reduction of MTBE, while preserving the important role
    of renewable fuels like ethanol.
        On the broader question of reauthorization of the Clean Air Act, we
    are not currently advocating changes to the Act. I am willing to work
    with the committee to review the Act and consider where it might
    benefit from improvements, as I stated during the hearing. As we go
    through this hearing process together, we will have a better feel for
    whether reopening the act would be more beneficial or disruptive on the
    whole.
        The following are some ideas that have been raised and would be
    worth examining during the hearing process, which we understand is to
    take place over the next couple of years:
        Providing clearer authority for EPA to develop and directly
    implement multi-State solutions, such as cap-and-trade programs, for
    regional air pollution problems caused by any pollutant.
        Providing additional authority for EPA to encourage States and
    industry to take actions that reduce risks from indoor air pollution.
    (See response to Sen. Lieberman question #4.)

        Question 3. Some have argued that those older fossil fuel power
    plants that are not required to meet the new source performance
    standards will continue to operate indefinitely because the exemption
    in effect, has created an economic advantage. Do you believe emissions
    of nitrogen oxide would be more effectively and efficiently reduced by
    phasing out this loophole or by allowing a cap and trade program?
        Response. We are willing to discuss approaches to eliminating this
    ``grandfathering'' approach with a more effective solution to cap
    emissions and allow trading. A cap and trade program allows companies
    to make cost-effective choices on operating their units and installing
    controls while still complying with the emission reduction requirement.
        The cap would ensure that the desired environmental result would be
    achieved, and trading would allow each facility to pursue the lowest
    cost approach for its system. When designed and implemented properly,
    cap and trade programs offer many advantages over traditional command
    and control counterparts (such as a requirement that all power plants
    meet a specific performance standard) including (1) reduced cost of
    compliance, (2) creation of incentives for early reductions, (3)
    creation of incentives for emissions reductions beyond those required
    by regulations, (4) promotion of innovation, and (5) increased
    flexibility. A market system that employs a fixed tonnage limitation
    for a group of sources provides great certainty that a specified level
    of emissions will be attained and maintained since a predetermined
    level of reductions is ensured. A cap and trade program is a highly
    effective approach for ensuring that industry has the flexibility to
    grow while still managing the emissions impact of growth. With respect
    to transport of pollution, an emissions cap also provides the greatest
    assurance to downwind States that emissions from upwind States will be
    effectively managed over time.
                                   __________
    Statement of Allison Kerester, Mickey Leland National Urban Air Toxics
                                Research Center
    Introduction
        The Mickey Leland National Urban Air Toxics Research Center (Leland
    Center) was established by Congress under Title III, Section 301(p) of
    the 1990 Clean Air Act Amendments. Congress created the Leland Center
    as a non-profit, public/private research organization to sponsor
    research on the potential human health impacts of the 188 listed air
    toxics. The Leland Center is governed by a nine-member Board of
    Directors, appointed by Congress and the President. A thirteen-member
    Scientific Advisory Panel, composed of nationally recognized scientists
    and physicians, establishes the Leland Center's peer-reviewed research
    program. The Leland Center's mission is to contribute meaningful and
    relevant data to the scientific literature on the potential human
    health effects of air toxics. We view this contribution as a
    fundamental component in the national effort to develop cost-effective
    and balanced regulations to protect the public health from the
    potential risks of air toxics.
        After exploring the most critical public health aspects of air
    toxics risks, the Leland Center's Board of Directors identified two
    fundamental research data gaps: (1) the determination of the actual
    human exposures to air toxics in urban environments, and (2) the non-
    cancer health effects of such exposures. The Leland Center chose to
    pursue personal exposure research. We were the first research
    institution to develop a research program on personal exposures to air
    toxics in urban populations.
    Exposure
        Traditionally, ambient air concentrations of air toxics have been
    equated with adverse health effects. Under this approach, the larger
    the airborne concentration, the larger the potential human health risk.
    However, it is actual exposure, and not air concentrations, that is the
    critical component needed to determine potential adverse health effects
    from a pollutant emission into the environment. High airborne
    concentrations of air pollutants in an area without people means there
    is no exposure. Without exposure there is no human health risk.
        In its March 1998 report Research Priorities for Airborne
    Particulate Matter-Volume I, the National Research Council states that
    the relationship among outdoor, indoor, and personal exposure is a
    fundamental factor in determining potential human health effects.
    Exposure is one of the two major elements (the other being the
    determination of the most biologically active constituents (of a
    pollutant or particle) on which other research, such as epidemiological
    studies, should be based. The National Research Council named exposure
    research as one of the 10 most critical research areas. Only with
    exposure information can the potential public health impacts be
    calculated.
    Exposure Defined
        Exposure is the contact of a chemical, biological or physical agent
    at the boundary of the body over a specified time period. People are
    exposed to chemicals through inhalation, ingested through food or
    absorbed through the skin. People are exposed to air pollutants
    primarily through inhalation. However, deposition onto soil, food, and
    water, can result in other exposure routes. Actual human exposure is a
    function of outdoor sources, indoor sources, and human activity
    patterns. (NRC, 1998). Thus, what people are actually exposed to is a
    result of where they spend their time and what air pollutants are
    present in those areas. People do not spend their time in just one
    location, but rather move through a series of locations (or
    microenvironments) such as the home, car, office, outside, throughout
    the day.
    Exposure Assessment
        Exposure assessment is the science of determining what people are
    exposed to and how they come into contact with various contaminants.
    Exposures can be estimated by a number of methods. See Attachment 1.
    The most accurate measurements are obtained by measuring people
    directly, such as through the use of personal monitors, breath, urine,
    and blood samples. Exposure assessments are used in epidemiology
    studies, risk assessments, analysis of trends, and risk management
    decisions.
    Exposure Sources
        Most individuals in the United States spend the majority of their
    time indoors. See Attachment 2. In some cities, such as Houston, people
    spend approximately 90 percent of their time indoors. Outdoor
    pollutants may be brought inside through open windows, ventilation
    systems, food, water, tracked-in soil, and consumer products. These
    pollutants may even undergo chemical reactions once inside a building
    or home producing yet other pollutants. While ambient air toxics can
    penetrate into homes, offices, and cars, many chemicals, classified as
    air toxics under the Clean Air Act, are also emitted directly into the
    indoor air from consumer and cleaning products and building materials.
    Carpet, paint, and air deodorizers may all release chemicals into the
    indoor environment. Even taking a hot shower, washing dishes or clothes
    in hot water, may release chemicals, such as chloroform. (Wallace et
    al., 1993).
        In addition, some emissions near a person's face can contribute
    significant concentrations to personal exposure, while contributing a
    negligible amount to ambient concentrations. Wearing recently dry-
    cleaned clothing is an example. (Wallace et al., 1993). Smoking is
    another example. Smoking accounts for the largest percentage of
    personal exposure to benzene, yet the activity of smoking releases
    little benzene into the surrounding air.
        Thus, when the contribution of outdoor sources is minimal compared
    to indoor sources or the air immediately surrounding an individual,
    ambient air emissions are not a good indicator of personal exposure. It
    is therefore important to determine indoor air concentrations, the
    sources of those concentrations and the relative contribution from
    outdoor, indoor and personal sources in determining what people are
    really exposed to in their daily lives.
    Personal Exposure Studies
        Several studies have been carried out to assess the relationship
    among outdoor, indoor, and personal air to determine the sources of the
    exposure to air toxics. The most comprehensive U.S. study to date has
    been the Total Exposure Assessment Methodology (TEAM) study. This study
    was conducted in phases from 1980-1987 (e.g., Wallace et al., 1987,
    1988). In addition, Phase I of the National Human Exposure Assessment
    Survey (NHEXAS), conducted from 1995-1997 (Pellizzari et al., 1995,
    Sexton et al., 1995) also examined this relationship. The major purpose
    of the TEAM study was to measure the personal exposures to select
    chemicals in urban populations in several U.S. cities. One phase of the
    TEAM study examined personal exposures of 600 people to a number of
    toxic or carcinogenic chemicals in the air and drinking water. One
    central hypothesis of the TEAM study was that emissions from major
    industrial sources in urban areas would be the primary source of the
    personal exposures to volatile organic compounds of study participants
    who lived in these areas. In addition, it was further surmised that
    these industrial sources would be the major source of indoor air
    pollutant concentrations.
        However, one of the primary findings of the TEAM study was that for
    air toxics, indoor sources were the primary contributor to indoor air
    concentrations and to personal exposures for the majority of air toxics
    measured. See Attachment 3. Researchers determined that in many
    instances, the contribution of outdoor air toxics concentrations to
    personal exposure was negligible. The TEAM study concluded that it was
    sources other than outdoor air, that were controlling indoor and
    personal air concentrations.
        The NHEXAS study was designed to determine population-base
    exposures to select air toxics, PM2.5 and pesticides in
    urban, suburban and rural settings. NHEXAS pilot study results were
    similar to that of the TEAM Study. (The full NHEXAS study has not yet
    been initiated.)
        There are instances where outdoor sources may be primary source. If
    compounds have minimal or no indoor sources, then penetration from
    outside source contaminants can be the dominant source. For example,
    carbon tetrachloride has been banned from use in consumer products, but
    has a long residence time in the ambient air. Thus, outdoor air is the
    source for the indoor air levels and personal exposure to this
    compound. (Baek, 1997).
        Outdoor sources may be a significant contributor to indoor and
    personal exposures in homes immediately adjacent to ambient sources,
    such as factories, parking garages, heavily trafficked streets or dry
    cleaners. One current study, The Relationship Among Indoor, Outdoor,
    and Personal Air (RIOPA) Study, being conducted by the Environmental
    and Occupational Health Sciences Institute, is evaluating this
    hypothesis. The RIOPA study is examining this relationship in 100 homes
    in three urban areas (Houston, Texas; Los Angeles, California; and
    Elizabeth, New Jersey). All of these homes are near major outdoor
    sources of air pollutants or in heavily trafficked areas. In these
    homes, researchers are placing monitors outside and inside the home to
    measure concentrations of select compounds. In addition, participants
    will wear a personal monitor for 48 hours and keep a diary of their
    activities during this time period. The RIOPA study is measuring select
    VOC, aldehydes, and PM2.5 in a 3-year study. Some of the
    pilot study results are attached as Attachment 4. This study will
    provide specific information on the impact of outdoor sources of air
    toxics to personal exposures for residents living close to ambient
    source concentrations.
    Future Research Directions
        Only by understanding the relationship among outdoor, indoor and
    personal exposures can public health impacts be assessed. Additional
    research on indoor air, including indoor air chemistry (what happens to
    air pollutants in a home or building) and the sources of such
    concentrations needs to be examined. Additional research on the
    relationship among outdoor, indoor and personal exposure needs to be
    conducted. While an exposure research program exists for particulate
    matter, there is no such overall integrated program for the 188 air
    toxics listed in Section 112 of the Act.
        Exposure is the link between ambient air concentrations and public
    health impacts. A dialog is needed about the role of ambient air toxics
    monitoring in exposure research along with the role of monitoring
    microenvironments and ``hot spots'' and their relationship to personal
    exposure.
    Conclusion
        It is personal exposure to air pollutants, and not air
    concentration that is the critical component in assessing the public
    health impacts from air pollutants. Science has now established that
    indoor air pollutants can be a major contributor to a person's overall
    exposure to air pollutants. In addition, the findings from these
    studies indicate that the same air pollutants subject to regulation
    under the Clean Air Act are often found at much higher levels indoors.
    The Clean Air Act Amendments of 1990 rely solely on the assumption that
    outdoor levels are determinative of an individual's exposure and hence
    risk. The Act does not address the contribution of indoor sources of
    air pollution or the differences between indoor and outdoor quality.
        Absent information about personal exposures, the real public health
    risk of air toxics cannot be accurately assessed. Merely reducing the
    ambient emission levels may not result in improved public health. By
    focusing on exposure, we can determine where the greatest risk to
    public health lie and tailor the solution to correct the problem. The
    Leland Center will continue to focus our research on addressing the
    critical area of exposure, thus allowing for a more cost-effective
    approach to protecting public health under the Clean Air Act.
                                  Attachments

                                   references
        Baek, S-O, Kim, Y-S, Perry, R (1997). Indoor air quality in homes,
    offices and restaurants in Korean urban areas-indoor/outdoor
    relationships. Atmospheric Environment 31:529-544.
        National Research Council (1998). Research priorities for airborne
    particulate matter volume I-immediate priorities and a long-range
    research portfolio. National Academy Press. March 1998
        Ott, W.R., Roberts J.W. (1998). Everyday exposure to toxic
    pollutants. Scientific American. February 1998
        Pellizzari, E, Lioy, P, Quackenboss, J, Whitmore, R, Clayton, A,
    Freeman, N, Waldman, J, Thomas, C, Rodes, C, Wilcosky, T (1995).
    Population-based exposure measurements in EPA region 5: A Phase I field
    study in support of the National Human Exposure Assessment Survey.
    Journal of Exposure Analysis and Environmental Epidemiology 5:327-358.
        Sexton, K, Kleffman, DE, Callahan, MA (1995). An introduction to
    the National Human Exposure Assessment Survey (NHEXAS) and related
    Phase I field studies. Journal of Exposure Analysis and Environmental
    Epidemiology 5:229-232.
        Wallace, L (1991). Comparison of risks from outdoor and indoor
    exposure to toxic chemicals. Environmental Health Perspectives 95:7-13.
        Wallace, L (1996). Indoor particles: A view. Journal of Air & Waste
    Management Association 46:98-126.
        Wallace, LA, Pellizarri, ED, Hartwell, TD, R, W, Zelon, H, Peritt,
    R, Sheldon, L (1988). The California TEAM study: breath concentrations
    and personal exposure to 26 volatile compounds in air and drinking
    water of 188 residents of Los Angeles, Antioch, and Pittsburgh, CA.
    Atmospheric Environment 22:2141-2163.
        Wallace, LA, Pellizzari, ED, Hartwell, TD, Sparacino, C, Whitmore,
    R, Sheldon, L, Zelo, H, Perritt, R (1987). The TEAM study: Personal
    exposures to toxic substances in air, drinking water and breath of 400
    residents of New Jersey, North Carolina, and North Dakota.
    Environmental Research 43:290-307.
        Weisel, C. The influence of ambient air sources on exposure to air
    toxics: results from the RIOPA pilot. Prepared for the Air Toxics
    Session of the 1999 American Bar Association Meeting.
                                     ______

      Responses by Allison Kerester to Additional Questions from Senator
                                     Baucus
        Question 1. How would the CAA need to be adjusted, if at all, to
    ensure that regulatory actions are based on exposure? Please provide
    any specific recommendations and comment on the data collection and
    information management system and resources that would be necessary to
    more comprehensively incorporate exposure considerations in regulation
    development.
        Response. Regulatory actions are based on risk. Risk is a function
    of both exposure and hazard. Exposure is the link between ambient
    concentrations and public health impacts. In considering exposure, the
    relationship among outdoor, indoor and personal exposures needs to be
    assessed, along with the sources of those exposures. Models that equate
    ambient levels of air toxics with exposure may not accurately
    characterize exposures to these substances and thus, may not result in
    regulatory decisions that would produce real health benefits.
    Consideration of personal exposure and the role of indoor air tonics in
    developing criteria documents, exposure models, in EPA's,
    implementation of the Agency's Integrated Urban Air Toxics Strategy and
    Residual Risk program, and in the design of ambient monitoring networks
    would help ensure that the potential health risks of air pollutants are
    more adequately characterized.

        Question 2. You indicated that it might be possible to reduce
    indoor air pollution exposure by changing the products or systems used
    in the home. What do you consider to be the products or systems in
    homes of the highest concern relative to conducting more research on
    their human health effects? What role, if any, would be appropriate for
    the Federal Government in addressing indoor air exposure?
        Response. Only by understanding the relationship among outdoor,
    indoor, and personal exposures can the public health impacts of air
    pollutants be assessed. Additional research on indoor air, including
    indoor air chemistry, and the sources of such air pollutants is needed.
    In addition, continued research on the relationship among outdoor,
    indoor, and personal exposures, the sources of those exposures, and
    whether those exposures actually result in adverse health effects needs
    to be conducted before such recommendations could be made as to
    changing products or systems used in the home. The Federal Government
    can foster this needed research.

        Question 3. You mentioned that studies show that Americans spend a
    majority of their time indoors. Is there evidence that certain
    populations--children, construction workers, athletes--spend
    considerable more time outdoors that the ``average'' American? Is there
    evidence of socioeconomic differences in time spend (sic) outdoors?
        Response. The study indicating that the Americans spend the
    majority of their time inside is the ``National Activity Pattern
    Survey'' conducted by the Environmental Protection Agency. EPA/600/R-
    96/148. This study broke out the activity pattern by age, starting with
    the 12-17 years old category. Children younger than 12 were not
    included. In addition, the California Air Resources Board (CARB) funded
    a similar study, with comparable results (``Measurement of Breathing
    Rate and Volume in Routinely Performed Daily Activities'',
        Contract No. AO33-205, June 1993). CARB also conducted a separate
    activity pattern study of children under 12. (``Study of Children's
    Activity Patterns'' Final Report, Contract No. A733-149, September
    1991) However, CARB has not conducted much analysis by occupation,
    because of the sample size limitations. Other studies have examined
    construction workers and athletes, more from an activity level
    perspective. Some papers by Samoo et al has been published on
    construction workers .
        Question 4. You criticize the CAA for equating air concentrations
    with adverse health effects, suggesting that EPA does not consider
    exposure. In addition to epidemiological information, toxicological
    information is critically important to relating concentrations with
    adverse effects. And, inhalation studies are already a basic component
    of EPA's scientific assessment of air pollution impacts. Please
    comment.
        Response. Traditionally, the extent to which the general population
    is exposed to air tonics has been determined by monitoring programs
    that utilized concentrations of the pollutant as determined by a fixed
    site ambient air quality monitor. Epidemiological studies have used
    this information to assess the potential health risks from air toxics
    exposures to the general population. However, a number of studies
    involving measurements of personal exposures to air tonics have
    suggested that the correlation between outdoor concentrations and
    personal exposures to these pollutants may not be adequately determined
    by centrally located fixed site ambient monitors. EPA's current
    exposure models are based on ambient concentration levels, not on
    personal exposure data. In addition, these models have not addressed
    the relationship among outdoor and indoor air quality in contributing
    to personal exposures to air toxics. Thus, although EPA considers
    ``exposure'' in determining risk, the Agency's current approach may not
    accurately characterize the real risk of air toxics and other air
    pollutants to urban populations.

        Question 4. Do you agree with Dr. Graham's testimony that the issue
    of whether breathing air pollution is harmful is a ``spurious''
    technical debate, which is unlikely to be resolved conclusively at the
    low levels of air pollution now found in the USA due to the limitations
    of modern scientific methods of toxicology and epidemiology?
        Response. The issue of whether breathing air pollution is a
    ``spurious'' technical debate is best answered by Congress itself and
    EPA. Science cannot always resolve issues with 100 percent certainty.
    However, research continues to indicate a link between air pollution
    and adverse health effects. Ongoing research, such as the personal
    exposure research, will help provide useful data about the exact air
    toxics urban populations are exposed to and the sources of those
    exposures. This information, will in turn, provide a basis for a more
    accurate assessment of the potential health effects of such exposures.
    Decisions makers must determine what is the necessary level of
    scientific certainty on which to base regulatory actions.
                                     ______

       Response by Allison Kerester to Additional Question from Senator
                                    Moynihan
        Question: You state, on average, 90 percent of a person's time is
    spent indoors. I agree that we need to improve the quality of indoor
    air and that this statistic is compelling evidence of the urgency of
    this issue. Do you also agree that since the air that we breathe--
    indoor and outdoor--originates outside, efforts to improve ambient air
    quality are also critical to improving human health?
        Response. Yes, I agree that efforts should be made to improve
    ambient air quality. While several scientific studies suggest that the
    primary source of hazardous air pollutants (the 188 substances listed
    in Section 112 of the Clean Air Act Amendments of 1990), may be from
    indoor sources, the primary source for other air pollutants, such as
    ozone and particulate matter, appears to be the ambient air. Thus' it
    is important to understand the relationship among outdoor, indoor, and
    personal exposures to air pollutants and the sources of the exposures.
    Such information will help produce more accurate air pollutant risk
    assessments.
                                   __________
       Statement of John D. Graham, Director, Center for Risk Analysis,
                        Harvard School of Public Health
        My name is John Graham. I am Professor of Policy and Decision
    Sciences at the Harvard School of Public Health where I teach graduate
    courses on risk assessment, risk communication, and cost-benefit
    analysis. I am also the founding Director of the Harvard Center for
    Risk Analysis, a mission-oriented Center dedicated to promoting a more
    reasoned public response to health safety, and environmental hazards.
    Our Center applies formal analytic tools to the following four issues:
    environmental health, automotive safety, medical technology, and food
    safety. I am the author or co-author of seven books and over 100
    articles published in peer-reviewed scientific journals. In 1995-96 I
    served as elected President of the intonational Society for Risk
    Analysis, a membership organization of 2,500 scientists and engineers
    dedicated to applying formal analytic tools to the resolution of risk
    issues. I am offering personal testimony today and thus my remarks do
    not necessarily represent the viewpoints of the University or the
    Society for Risk Analysis.
        It was about 10 years ago that I first testified before this
    Committee on President Bush's proposal to amend the Clean Air Act, a
    proposal that Congress expanded into what became the 1990 amendments to
    the Clean Air Act. We have learned a great deal during the past decade.
    The Clean Air Act has produced more regulations, more public health and
    economic benefits, and more costs to American businesses and households
    than any other Federal program of environmental regulation. Thus, the
    stakes in the reauthorization debate are large.
        Let me begin with some good news.
        First, the total estimated benefits of the 1990 amendments appear
    to be greater than the total estimated costs of the amendments (EPA,
    1999), at least if we are to believe EPA estimates of benefits and
    costs (see cautionary remarks below). But some parts of the 1990
    Amendments are better ``buys'' than others (Smith and Ross, 1999).
    There are a significant number of clean air regulations that were
    adopted without a careful analysis of their risks, costs, and benefits
    (e.g., some of the MACT standards under Title III of the 1990
    amendments). In many cases EPA estimates regulatory costs but does not
    attempt to quantify benefits in public health or economic terms (see,
    for examples EPA's regulatory impact analyses (RIAs) of the rules
    governing medical waste incineration and vehicle inspection and
    maintenance). Moreover, one study of 25 clean air rules adopted from
    1990 to 1995 found that only ten of these rules would pass a strict
    cost-benefit test (Hahn, 1995). Thus, EPA's commitment to cost-benefit
    analysis varies enormously from rule to rule and the influence of cost-
    benefit analysis on EPA decisionmaking is uneven (Morgenstern, 1997,
    Hahn, 1999).
        Second, the ``grand experiment'' with incentive-based programs
    under the Act, particularly the sulphur-trading programs enacted to
    address acid rain, appear to have been a qualified success (Staving,
    1998). Evaluations suggest that this program has been successful
    (compared to conventional ``command-and-control'' regulation) both
    economically and environmentally. A case is now being made to expand
    this approach to trading of nitrogen oxides as well as sulphur oxides.
        Third, as predicted (Graham 1985), EPA has made greater progress in
    regulation of air toxics through a technology-based approach that
    targets industry sectors (``source categories'') rather than by
    determining acceptable risk on a pollutant-by-pollutant basis. Yet
    measuring success by the number of industries regulated is not very
    meaningful to public health. The big unknown in the toxics arena is
    whether the public health benefits of reduced human exposures to air
    toxics have been significant enough to justify the significant
    expenditure of agency and industrial resources that has taken place.
        In my testimony today, I will focus on the role of risk analysis
    and cost-benefit analysis under the Clean Air Act. I will identify five
    problem areas that I believe are worthy of future Committee
    investigation as you develop legislation to reauthorize the Clean Air
    Act. In some cases I have only been able to identify a problem while in
    other cases I go further and recommend some possible solutions for your
    consideration.
        Problem 1: Some provisions of the clean air act are dysfunctional
    because they do not require or permit EPA to weigh the risks, costs,
    and benefits of alternative policies.
        When multi-billion dollar rulemaking decisions are made, it is
    inevitable that regulators will consider the consequences of their
    actions as well as the reasonableness of the relationship between
    risks, benefits and costs. Yet some provisions of the Clean Air Act
    erect a legal fiction that regulators may not consider risk, cost and
    benefit when devising regulations. This legal fiction is dysfunctional
    because it (1) reduces political accountability for value judgments and
    political choices, (2) hides from public scrutiny claims that are made
    about risks, benefits and costs (since such claims are driven
    ``underground'' in the course of regulatory deliberations), (3)
    undermines EPA's credibility in the regulated community and the public
    because the agency is portrayed as being disinterested in science and
    economics, and (4) shifts public debate from risk-benefit and cost-
    benefit issues (which is where the debate should be) to spurious
    technical debates about whether breathing air pollution has been proven
    to be harmful (the ``causation'' issue, which is unlikely to be
    resolved conclusively at the low levels of air pollution now found in
    the USA due to the limitations of modern scientific methods of
    toxicology and epidemiology). Let me provide a concrete example of how
    legal restrictions in the Clean Air Act create a perverse public debate
    about clean air policy.
        The primary ambient air quality standards for ubiquitous
    (``criteria'') air pollutants are to be set at levels that are safe in
    the sense that such levels protect the public health with an adequate
    margin of safety. Yet such scientific information (alone) does not
    typically provide an intelligible basis for He setting of safe (yet
    non-zero) amounts of air pollution. Human and animal studies often find
    no discernible threshold in the dose-response function, particularly as
    more susceptible subpopulations are identified and more subtle health
    effects are considered to be ``adverse'' within the meaning of the
    Clean Air Act. The only concentration of some air pollutants (e.g. fine
    particles and lead) that is really safe to breathe appears to be zero,
    yet it is not economically realistic or appropriate for EPA to set air
    pollution standards at zero. Thus, EPA is forced to manufacture
    spurious rationales for non-zero air quality a form of dishonest
    behavior that contributes to the atmosphere of arbitrariness, mistrust,
    and adversarialism (including litigation) that has characterized public
    debates about air quality standards.
        The solution to this predicament is not necessarily to apply a
    strict cost-benefit test to any new or modified primary air quality
    standard. Cost-benefit analysis of primary air quality standards is
    particularly speculative because air quality standards, which need to
    be based primarily on public health data, are devised before the agency
    has had the opportunity to study the industrial economy and collect the
    kinds of engineering and cost information that identify cost-effective
    ways to prevent or control pollution. When EPA or the States propose
    emissions rules for specific industries or sources, it is feasible to
    gather more precise cost and effectiveness information, thereby
    supporting a more rigorous analysis of risks, benefits and costs.
        Although it is feasible for EPA to make crude estimates of risk,
    benefit, and cost when a new or modified primary air quality standard
    is proposed, the cost-benefit test for decisionmaking at this stage
    should be a more lenient one than is applied to Federal or State
    emission standards that apply to particular technologies or industries.
    For example, Congress might permit or require EPA to consider whether
    the incremental costs of a tighter air quality standard are grossly
    disproportionate to the anticipated benefits of the proposed standard.
    Under this rather lenient cost-benefit test, EPA's recent fine particle
    standard would have been quite defensible, though the proposed
    modification to the ozone (smog) standard would have been vulnerable to
    legal challenge.
        Problem 2: Although clean air regulations are intended to reduce
    risks to public health, they sometimes cause unintended dangers to
    public health because the risks of regulation were not analyzed
    carefully by Congress and EPA when policies were made.
        Risk-tradeoff analysis (sometimes called risk-risk analysis or
    risk-benefit analysis) is often easier than cost-benefit analysis
    because the units of measurement in the analysis are physical rather
    than monetary quantities. For example, the units used in risk-tradeoff
    analysis might include the net number of lives saved, life years saved,
    quality-adjusted life years saved, or even the net change in the amount
    of pollution emitted into the environment, with the mass emissions of
    each pollutant Freighted by their relative toxicity and/or exposure
    potential. In risk-tradeoff analysis, the public health benefits and
    risks of a new regulation do not have to be expressed in dollar units,
    one of the more complicated and controversial steps in economic
    evaluation. In order to avoid perverse situations where a well-intended
    clean air regulation kills more people than it saves, Congress should
    consider an amendment to the Clean Air Act Cat compels a risk-tradeoff
    analysis of future regulations (Graham and Wiener, 1995).
        Experience the 1990 amendments illustrates trait Congress and EPA
    have not been as vigilant in conducting risk-benefit analysis as
    perhaps they should have been. Here are two examples:
        First, EPA's new air quality standards were overturned by a divided
    appeals court that employed some novel constitutional arguments. Yet
    less attention has been devoted to the fact that EPA's revised smog
    standard was overturned by a unanimous court because EPA did not
    perforce a risk-benefit analysis of the proposal (computing the health
    benefits of smog reduction to the health risks of greater ultraviolet
    radiation exposure that would result from diminished smog
    concentrations in the atmosphere). Public exposure to ultraviolet
    radiation is a serious public health concern since such exposures are
    associated with skin cancer, cataracts, and other adverse health
    effects. EPA contests whether the health risks caused by regulations
    are legally relevant under the language of the Clean Air Act but
    Congress should take a broad view of public health protection and
    require EPA to do ``More good than harm.'' to public health in each
    regulation (Warren and Marchant, 1993).
        Second, Congress and EPA mandated an increase in the oxygenated
    content of gasoline without performing a careful risk-benefit analysis
    of the most important chemical, MTBE, that has been used to comply with
    the provisions in the Clean Air Act More oxygen content in gasoline did
    promise air quality benefits: less carbon monoxide and toxic air
    pollution. Yet the risks of the rule were not considered carefully. Now
    that MTBE, a rather persistent chemical with low acute toxicity, has
    been discovered in both surface and groundwater (e.g., near leaking
    underground storage tanks), questions have been raised about whether
    MTBE exposures pose a risk to public health. A recent EPA stakeholder
    panel chaired by Mr. Dan Greenbaum of the Health Effects Institute
    recommended that EPA repeal or modify the mandate of oxygenated fuels,
    yet a careful risk-benefit analysis of the issue has still not been
    conducted by EPA.
        Asking Congress and EPA to perform risk-benefit analysis is
    equivalent to asking for adherence to the Hippocratic oath in medicine:
    We should be vigilant about informing the public of the health risks
    and health benefits of clean air regulations, even in cases where some
    degree of risk is judged to be acceptable in light of the benefits.
        Problem 3: Congress and EPA sometimes pursue clean air goals
    without taking account of other national objectives such as energy
    policy and international trade policy.
        Although the public health objectives of the Clean Air Act are
    compelling, they do need to be pursued with sensitivity to other
    national policy objectives such as energy policy and international
    trade policy. Two recent examples of policy conflict have caught my
    attention. .
        First, a recent trip to Europe, I discovered an interesting
    difference between European and American policies. I was surprised to
    learn that a large and growing fraction of passenger vehicles (cars and
    light Uncles as well as heavy trucks and buses) in Europe are powered
    by diesel engines. European vehicle manufacturers are also making major
    investments in advanced diesel engine technology that will reduce
    emissions of pollutants such as particulate matter and nitrogen
    dioxide. Yet the European Union regulations for nitrogen dioxide
    emissions may prove to be less stringent than California and USEPA
    regulations for an interesting reason. Europe is developing the diesel
    engine as an important element in the strategy to conserve energy and
    reduce carbon dioxide emissions, as required by the Kyoto treaty on
    global climate protection. Modern diesel engines are significantly more
    fuel efficient than gasoline-powered engines and therefore offer
    significant promise as a strategy to control carbon dioxide pollution.
    Vehicle fuel efficiency in Europe also offers significant economic
    benefits to consumers, since fuel prices in Europe are $3 to $5 per
    gallon and diesel fuel is priced louver than conventional gasoline.
        In the United States, domestic vehicle manufacturers are also under
    political pressure to improve the energy efficiency of engines, but
    here we have very low fuel prices and consumers have shown a remarkable
    degree of interest in sport-utility vehicles (large and small), jeeps,
    and light trucks. There has been some interest in the use of diesel
    engine technology to power large sport-utility vehicles (in order to
    increase fuel efficiency) but the strict posture clean air regulators
    in the California and USEPA are discouraging use of the diesel in favor
    of less energy-efficient alternatives such as compressed natural gas
    and conventional gasoline. I have recently persuaded one of my doctoral
    students to conduct a risk-benefit analysis of the modern diesel engine
    because European and American policies toward this technology arc
    currently so divergent.
        Second. EPA's toxic air pollution star cards applied to the coke
    production industry (so-called MACT and LAER standards) were designed
    to be ``technology forcing'' but have appeared to have had some
    unintended consequences in international trade. Coke is vital
    ingredient in the steelmaking process. Making coke from coal is a dirty
    process, though the industry has made significant progress in reducing
    pollution from coke batteries. The 1990 amendments to the Clean Air Act
    were designed to make greater progress by requiring 0 percent door
    emissions from any new coke plants built with conventional byproduct
    recovery technology. The theory was that this de facto prohibition on
    the traditional method of making coke would stimulate development of
    new and cleaner methods of making coke in the USA.
        Preliminary experience with the 1990 amendments suggests that coke
    and steel makers have not always responded to the Act by making major
    new investments in clean coke-making technology (Graham and Hartwell,
    1997). Although a few domestic firms have made major investments in
    different coke-making technologies, a number of integrated steel makers
    are instead phasing out their coke-making facilities and purchasing
    coke on the open market. Some steelmakers are making arrangements to
    import coke from a variety of countries in Eastern Europe and Asia
    (e.g. China), where more coke plants are being built with conventional
    technology and where batteries are operated with greater air emissions
    gases end particles than is typical of facilities in the United States.
    I recommend that the Committee follow the dynamics of this industry to
    determine whether the 1990 amendments are producing the consequences
    for clean air and international trade that were anticipated when the
    legislative compromise was negotiated in 1990.
        Problem 4: The risk analyses used by EPA to make public health
    determinations are not always clear, objective, open to public
    scrutiny, and rooted in the best available science.
        The problems the agency faces in using public health science in
    risk assessment are important to sound implementation of He Clean Air
    Act but these same problems affect EPA's implementation of other
    environmental laws, such as the Safe Drinking Water Act and the
    Resource Conservation and Recovery Act. Here I shall cite several
    examples to illustrate the general point that Congress needs to take
    greater interest in the scientific integrity of EPA's public health
    determinations and the technical processes of risk assessment that
    support these determinations.
        First, cancer-risk determinations will play a critical role in
    EPA's implementation of the residual-risk provisions of CAAA-90, yet
    EPA has still not modernized it's cancer risk assessment guidelines to
    account for advances in biological understanding of the mechanisms of
    cancer induction. These advances can have a critical impact on which
    chemicals are classified as ``carcinogens'' for regulatory purposes and
    what dose-response relationships are assumed in quantitative modeling
    of cancer risk. EPA has proposed reforms but is moving at a slow pace
    to adopt them. The agency's recent decision to ignore mechanistic
    science regarding chloroform has sent a signal in the scientific
    community of the agency's weakened commitment to modernize methods of
    cancer risk assessment (Chloroform is a chemical shown to cause cancer
    in animals at high doses that mechanistic science suggests is unlikely
    to cause human cancer at low doses).
        Several years ago I served on a Science Advisory Board (SAB)
    Committee charged with assisting EPA in performing its reassessment of
    dioxin, a chemical of clear regulatory significance that has been the
    subject of extensive scientific study. EPA prepared a lengthy draft
    risk assessment but, despite several years of ``talk'', has never
    attempted to respond to the written comments of the SAB Committee and
    has not issued a final risk assessment of dioxin. When EPA falls years
    behind its published schedule to make progress in risk assessment, it
    undermines the credibility of the agency as well as the agency's risk
    assessment process. The Congress should look into what is happening to
    cancer risk assessment at EPA.
        Second, a mayor National Research Council Report (1994), Science
    and Judgment in Risk Assessment, made numerous recommendations aimed at
    enhancing the quality and transparency of EPA's risk assessment
    process. With the exceptions of some notable improvements in human
    exposure assessment, the bulk of the NRC recommendations have not yet
    been implemented by EPA. EPA's recent report to Congress on plans to
    implement the residual risk provisions of the Clean Air Act makes very
    little use of the NRC report or of a subsequent report by the
    Commission on Risk Assessment and Management appointed by Congress and
    the President As Congress considers reauthorization of the air toxics
    provisions of the Clean Air Act, they should examine why EPA has given
    relatively little priority to improving the agency's risk assessment
    and management processes.
        Third, the controversy over EPA's effort to establish a new primary
    air quality standard for particles illustrated how EPA may seek to use
    scientific studies whose original data are not available for public
    scrutiny. Two important studies of the chronic health impacts of
    breathing fine particulate matter (Dockery et al, 1993; Pope et al
    1995) were cited by USEPA in support of the new particle standard but
    the agency has not succeeded in making the original data from these
    studies available for public scrutiny. The Health Effects Institute has
    played a constructive role in reviewing and reanalyzing these original
    data but the goal of providing public access to original date
    supporting regulatory determinations has not yet been accomplished
    under the Clean Air Act. The Office of Management and Budget is
    currently working on implementation of a congressional requirement to
    solve this problem for future rulemakings; the success of OMB's effort
    should be followed closely by the Congress.
        Finally, EPA continues to publish benefit estimates for the Clean
    Air Act that are based on a dubious ``value-of-statistical life'' (VSL)
    method. As employed by EPA the same VSL is applied in all situations,
    regardless of whether a citizen: loses 1 year of life expectancy or 40
    years of life expectancy from air pollution. The VSL method also
    ignores the functional quality of the life years that are lost. Better
    methods are available in the field of health economics but EPA does not
    yet use them.
        Problem 5. Congress and EPA continue to be preoccupied with outdoor
    air pollution, even though a substantial body of scientific information
    suggests that indoor air pollution is a more serious public health
    problem.
        The legislation we are discussing today would more appropriately be
    entitled the ``OUTDOOR Clean Air Act'' because the provisions of the
    law and the resulting compliance expenditures made by industry and
    households are devoted primarily to reducing exposure to outdoor air
    pollution from outdoor sources. Controlling outdoor sources of air
    pollution will have secondary benefits inside homes and offices because
    outdoor air pollution is a significant cause of indoor air pollution.
    Yet Tic major sources of indoor air pollution are not regulated by the
    Clean Air Act (c.g., environmental tobacco smoke, naturally occurring
    radon gas, and a variety of building materials, consumer products, and
    cooking practices). As a country, we have made so much progress in
    reducing outdoor sources of air pollution that leading scientists
    believe that indoor sources of air pollution are of equal or greater
    public health concern compared to the residual amounts of outdoor air
    pollution (Cross, 1990; National Research Council, 1991; Samet and
    Spengler (eds), 1991).
        A recent conference stimulated by EPA and OSHA scientists arose out
    of recognition that efforts to control outdoor air pollution could
    inadvertently exacerbate levels of air pollution indoors (e.g., if the
    MACT regulations governing air toxics cause factories to reduce
    ventilation rates in buildings and concentrate pollutants indoors where
    workers will be placed at greater risk). Yet we have only scratched the
    surface ? public discussions of the indoor air quality issue because
    Congress has given the greatest priority to further regulation of
    outdoor sources of air pollution. The first reauthorization hearing of
    the Clean Air Act is a good the to consider whether some of the
    priority assigned to cleaner outdoor air could be better expended ?
    efforts to enhance the quality of indoor air.
        Thank you very much for the opportunity to provide this testimony.
    I am certainly willing and eager to provide any additional information
    that could assist the Committee's reauthorization efforts.
                                   references
        Cross FB, Legal Responses to Indoor Air Pollution, Quorum Books,
    NY, NY, 1990
        Dockery DW, Pope CA, Xu X, Spengler Jay, Ware JH, Fay ME, Ferris
    E3C;, Speizer FE, ``An Association Between Air Pollution and Mortality
    in Six Cities,'' New England Journal of Medicine, vol. 329, December 9,
    1993, pp. 1753-1759.
        Environmental Protection Agency, ``The Benefits and Costs of the
    Clean Air Act, 1990 to 2010,'' Washington, DC, September 1999 (draft).
        Graham ID, ``Regulation of Airborne Carcinogens Under Section 112
    of the Clean Air Act, 77 Duke Law Journal., 1985, pp.100-150.
        Graham ID, Wiener JW (eds), Risk Versus Risk: Tradeoffs in
    Protecting Health and the Environment, Harvard University Press, 1995.
        Graham JD, Hartwell JK (eds), The Greening of Industry: A Risk
    Management Approach, Harvard University Press, Cambridge, MA, 1991.
        Hahn RW (ed), Risks, Costs, and Lives Saved: Getting Better
    :Results from Regulation, Oxford University Press, NY, 1995.
        Hahn RW, ``Regulatory Reform: Assessing the Government's Numbers,''
    Working Paper 99-6, AEI-Brookings Joint Center for Regulatory Studies,
    Washington, DC, July 1999.
        Morgenstern R (ed), Economic Analyses at EPA: Assessing Regulators
    Impact, Resources for the Future, Washington, DC, 1991.
        National Research Council, Human Exposure Assessment for Airborne
    Pollutants: Advances and Opportunities, National Academy Press,
    Washington, DC, 1991.
        National Research Council, Science and Judgement in Risk
    Assessment, National Academy Press, Washington, DC, 1994.
        Pope CA, Thun MJ, Namboodiri I, Dockery DW, Evans JS, Speizer FE,
    Heath CW, ``Particulate Air Pollution as a Predictor of Mortality in a
    Prospective Study of US Adults,'' Am J Respir Crit Care Medicine, vol.
    151, 1995, pp. 669-674.
        Samet JM, Spengler JD (eds), Indoor Air Pollution: A Health
    Perspective, Johns Hopkins University Press, Baltimore, MD, 1991.
        Smith AE, Ross MT, ``Benefit-Cost Ratios of the CAAA by Title,''
    Charles River Associates, Washington, DC, October 1, 1999 (draft).
        Stavins RN, ``What Can We Learn from the Grand Policy Experiment?
    Lessons from S02 Allowance Trading,'' Journal of Economic Perspectives,
    vol. 12, No 3, Summer 1998, pp. 69-82.
        Warren E, Marchant G. ``More Good than Harm: A Hippocratic Oath for
    Environmental Agencies and Courts,'' Ecology Law Quarterly, vol. 70,
    1993, pp 379-440.
                                     ______

      Responses by John Graham to Additional Questions from Senator Baucus
        Question 1. In 1981, the National Commission on Air Quality stated:
    In the [Clean Air Act], Congress recognized that while the levels of
    air pollution at which public health is affected generally do not vary
    among different locations, the costs of meeting a specific standard can
    vary substantially from area to area, depending on the severity of the
    pollution. Thus, if a national air quality standard were based in part
    on the costs of complying with it, the high costs of meeting the
    standard in a few heavily polluted areas could result in the standards
    being set at a less protective level than is achievable in a
    reasonable, economic fashion in other areas.
        Similarly, a few costly technologies or heavily impacted industrial
    sectors could skew the cost assessment of a national air quality
    standard. Please discuss this issue in light of your suggestion that
    cost-benefit analysis be incorporated into derivation of national air
    quality standards.
        Response. There is a fundamental problem with applying the same air
    quality standard to all States and localities, regardless of their
    degree of motorization or industrialization. Under current law, we
    maintain this fiction only by granting continued exemptions or waivers
    to regions of the country (e.g., Los Angeles) that are consistently out
    of compliance with primary ambient air quality standards. If a State or
    locality is willing to accept somewhat greater pollution levels in
    their community in exchange for economic benefits (e.g., industrial
    employment or greater use of automobiles), that is not necessarily an
    irrational judgment. Decades ago, there was fear that allowing some
    States to have weaker environmental standards than others would cause a
    ``race to the bottom'', with all States allowing more pollution to
    attract industry. Recent research by Professor Richard Revesz of New
    York University Law School has demonstrated that this ``race to the
    bottom'' theory is unfounded. It turns out that Governors and Mayors
    (as well as Senators) tend to care about air quality as well as
    economic prosperity. Even if a uniform national standard is maintained,
    it would be advisable to apply a cost-benefit test to each Federal rule
    or State Implementation Plan that is proposed to implement the national
    standard. Under this scheme, a strict national standard could be
    maintained even though inefficient rules aimed at particular industries
    or regions of the country could be rejected on cost-benefit grounds.

        Question 2. Your testimony suggests that EPA does not always use
    credible science (or ``sound science,'' as it is often referred to in
    Congress) in implementing the Clean Air Act. How would you define
    ``sound science?'' How should Congress determine what is ``sound
    science'' when legislating or conducting oversight? Is there a test of
    ``sound science'' that EPA should apply in the practice of developing
    air quality standards?
        Response. There is no universal definition of credible or sound
    science. However, there are some important features of scientific
    information that make it more likely to be sound and credible. Such
    features of sound science include well-specified, a priori hypotheses,
    unbiased research designs, high quality methods of data collection,
    appropriate methods of data analysis, peer review, replication of key
    findings by independent investigators, public availability of original
    data for reanalysis (subject to reasonable confidentiality
    protections), and plausibility of results in light of other scientific
    knowledge (e.g., weight-of-evidence determinations). In applying these
    principles to specific scientific issues, there is certainly room for
    reasonable differences in scientific opinion. For a discussion of US
    organizations that have played a strong role in promoting sound science
    in regulatory policy, see S. Jasanoff, The Fifth Branch: Science
    Advisors as Policy Makers, Harvard University Press, Cambridge, MA,
    1990; J. Graham (ed), Harnessing Science for Environmental Regulation,
    Praeger, Wesport, CN, 1991; M. Powell, Science at EPA: Information in
    the Regulatory Process, Resources for the Future, Washington, DC, 1999.

        Question 3. In the peer review of EPA's 1997 proposal on very fine
    particulate matter (PM2.5), 19 of the 21 Clean Air
    Scientific Advisory Committee members voted to recommend that
    PM2.5 be regulated. However, the panel could not reach a
    consensus on the level at which PM2.5 should be regulated;
    four panelists supported specific ranges of standards at the lower end
    of EPA's recommendations, seven supported specific ranges at the upper
    end, two did not think that a PM2.5 standard was warranted
    at all, and the remaining eight supported the concept of a standard but
    declined to select a specific range or level. Generally speaking, how
    should Congress ``read'' a scientific peer review outcome such as this?
    How should EPA respond to such an outcome? Is there a general ``rule''
    that Congress and EPA could use to judge when a regulatory body should
    act or not act in response to a mixed peer review?
        Response. I have no opinion on how EPA or Congress should have
    reacted to the splintered peer review panel on particulate matter.

        Question 4. Some argue that issues--such as principles of
    precaution, equity, environmental justice, and individual rights--need
    to be considered in the development of environmental standards.
    However, considerations of these issues do not fit neatly into either
    risk assessment or cost-benefit ``tests.'' How and at what point should
    these issues be integrated into the standard setting process?
        Response. Cost-benefit analysis, in its strictest form, addresses
    only quantifiable matters of economic efficiency. . Yet more practical
    formulations of the cost-benefit test allow for consideration of
    factors such as precaution, equity, environmental justice, and
    individual rights. See, for example, the cost-benefit test crafted by
    Senators Fred Thompson and Carl Levin in S. 746 (The Regulatory
    Improvement Act). This test, which was judged to be acceptable by the
    Clinton-Gore Administration, authorizes decisionmakers to depart from
    strict cost-benefit reasoning in circumstances where the decisionmaker
    has compelling equity or other considerations. The Clinton
    Administration's Executive Order on Regulatory Planning also employs a
    practical cost-benefit test that allows consideration of values other
    than economic efficiency. flaw in the Clean Air Act is that, in various
    sections, it can be read to prohibit any consideration of economic
    efficiency (in effect allowing these other values to completely
    ``trump'' economic efficiency). .

        Question 5. Your testimony suggests that the Clean Air Act's
    current standard-setting breaks down when it is confronted with
    determining ``safe'' levels for pollutants for which no threshold for
    adverse effects is discernible. However, carcinogens are commonly
    regulated, but they are typically treated as non-threshold pollutants
    and their ``safe'' levels are established based on health policy
    conventions related to acceptable risk. Similarly, the regulatory
    ``safe'' level (e.g., reference dose) for many threshold non-
    carcinogens is often not discernible and must be determined using
    safety factors based on health policy conventions. Does the failure of
    scientific data alone to define a clear ``safe'' level necessarily lead
    to ``spurious rationales'' for non-zero standards? Since the
    ``science'' is rarely certain, should the Agency and Congress make
    health-based policy judgments to estimate ``safe'' levels for
    environmental pollutants?
        Response. For non-threshold pollutants, you are correct that
    ``safe'' levels of pollution are sometimes defined by reference to
    ``health policy conventions'' that define acceptable or negligible
    risk. Unfortunately, these conventions have no logical foundation (in
    philosophy or science) and thus it should not be surprising that the
    conventions are applied inconsistently in various arenas of
    environmental policy. The same level of cancer risk from involuntary
    exposure to pollution, for example, may be judged acceptable in one
    context or unacceptable in another context, with no mitigating factors
    providing an explanation for the difference. For a comprehensive review
    of these health-policy conventions, including their lack of
    philosophical and scientific foundation, see A. Rosenthal, G. Gray,
    I.D. Graham, ``Legislating Acceptable Cancer Risk from Exposure to
    Toxic Chemicals,'' Ecology Law Quarterly, vol. 19, 1992, pp. 269-362.
    Health policy judgments should be based on a practical cost-benefit
    test rather than on mythology about what risks are ``acceptable''.

        Question 6. Your testimony proposes that EPA use a ``lenient''
    cost-benefit analysis to determine whether the incremental costs of a
    proposed national air quality standard are ``grossly disproportionate''
    to anticipated benefits. Please define ``grossly disproportionate'' and
    elaborate on why you believe the fine particulate standard would pass
    this test, but the ozone standard would not.
        Response. ``Grossly disproportionate'' is proposed as a more
    ``lenient'' standard than the ``benefits must exceed costs'' test that
    informs strict cost-benefit determinations. A careful reading of the
    EPA's Regulatory Impact Analysis on ozone and particulates reveals that
    the ozone standard might be vulnerable to judicial challenge because
    the quantifiable benefits are less than the costs, substantially so
    under several reasonable scenarios. The reverse is the case for the
    particulate standard, which has estimated benefits well in excess of
    costs. The only factor that might ``save'' the ozone standard is the
    long list of qualitative (non-quantifiable) benefits. However, there
    were also some categories of cost that EPA was unable to quantify.

        Question 7. At the same time you propose a cost-benefit analysis be
    used to test a new or modified primary air quality standard, you state
    that the harms associated with air pollution are ``unlikely to be
    resolved conclusively at low levels of air pollution now found in the
    USA due to the limitations of modern scientific methods of toxicology
    and epidemiology.'' Please explain how a cost-benefit analysis can
    effectively characterize the benefits of an air pollution standard when
    faced with the difficulty presented by this ``causation'' issue.
        Response. The discipline of risk assessment was developed for
    circumstances where risks at low doses of pollution cannot be directly
    measured by epidemiology and toxicology. See Center for Risk Analysis,
    A Historical Perspective on Risk Assessment in the Federal Government,
    Harvard School of Public Health, Boston, MA, March 1994. Cost-benefit
    analyses commonly employ the results of risk assessments, which
    extrapolate the risks observed at high doses to low doses using various
    dose-response models. These estimates of risk can have large
    uncertainties, which is why it is critical for the cost-benefit analyst
    to be informed of these uncertainties in a quantitative manner. See
    National Research Council, Science and Judgement in Risk Assessment,
    National Academy Press, Washington, DC, 1994, Richard Morgenstern (ed),
    Economic Analyses at EPA: Assessing Regulatory Impact, Resources for
    the Future, Washington, DC, 1997.

        Question 8. Some have asserted that cost-benefit analysis of
    environmental and occupational safety regulations puts the benefit side
    of the equation at an inherent disadvantage. This is because estimates
    of compliance costs (e.g., dollar cost of installing new technologies
    at affected industries) are typically easier to produce and ostensibly
    ``harder numbers'' than estimates of benefits (e.g., dollar value of
    increased visibility or averted health harms at low levels of air
    pollution). The result, as asserted, is that an uneven, ``apples and
    oranges'' dynamic is created, leaving the benefit side of a cost-
    benefit in an inherently weaker position in the context of regulatory,
    political, and legal proceedings. Please comment on this issue.
        Response. This concern has been expressed since I entered the field
    in 1980 and the concern is still expressed today. However, the concerns
    expressed today often do not recognize the dramatic scientific progress
    that has been made in quantifying and monetizing the benefits of
    health, safety, and environmental regulation. For a review of this
    progress, see G. Tolley, D. Kenkel, R. Fabian, Valuing Health for
    Policy: An Economic Approach, University of Chicago Press, Chicago,
    Illinois, 1994; R. Kopp, W.W. Pommerehne, N. Schwarz, Determining the
    Value of Non-Marketed Goods, Kluwer Academic Publishers, Boston, MA,
    1997.

        Question 9. Considerable concern has been expressed about the
    ability of cost-benefit analysis to properly address such issues as
    monetizing or quantifying positive benefits, scoping all relevant
    benefit categories, and calculating discount rates for future benefits.
    Cost-benefit analysis has been called a primitive art and its use is
    often said to be complicated, expensive, and controversial. This
    concern suggests that adding a ``particularly speculative'' cost-
    benefit analysis to the standard-setting process would not necessarily
    diminish, and may even add a new dimension to the atmosphere of
    arbitrariness, mistrust, and adversarialism that your proposal seeks to
    address. Please comment on this concern.
        Response. Cost-benefit considerations are already a major part of
    the regulatory process, sometimes implicitly through the information
    supplied by stakeholders and sometimes explicitly through analyses
    prepared by agencies (e.g., under mandate of Presidential Executive
    Order). What creates mistrust and adversarialism is making decisions on
    two sets of books: one for stakeholders (which clearly does account for
    costs and benefits, however imperfectly and mysteriously) and one for
    journalists and the lay public (which exhibits a sneaky attitude that
    ``costs were not a factor''). This overt dishonesty undercuts the
    credibility of the regulatory process and diminishes trust in
    government. (By the way, cost-benefit analysis was a primitive art in
    1980 but is considerably more advanced today. It can certainly be
    improved in the future.)
        Question 10. Are you aware of any studies on the accuracy of direct
    cost estimates related to individual Federal regulations? Do these
    studies suggest that these estimates tend to under- or over-estimate
    the direct costs of regulation?
        Response. I believe that Richard Morgenstern of Resources for the
    Future has prepared a study on the validity of regulatory cost
    estimates. My recollection is that both types of errors were found but
    that errors of overestimation were more frequent than errors of
    underestimation.

        Question 11. You indicated that, except for the acid rain and CFCs
    Titles, the CAA Amendments of 1990 largely flunk the cost-benefit test.
    By what margin? and what assumptions and methodology do you use to
    arrive at such a statement?
        Response. My conclusions are based on EPA's own retrospective cost-
    benefit analysis of the 1990 Amendments to the Clean Air Act, analyses
    that were mandated in the Act at the insistence of Senator Moynihan and
    others. There is also a new analysis prepared by Charles River
    Associates that reaches a similar conclusion.

        Question 12. In your testimony, you suggested that the oxygen
    content requirement for reformulated gasoline in the Clean Air Act
    Amendments of 1990 should have gone through a more careful risk-benefit
    analysis before being adopted by Congress. Most data suggest that that
    requirement has resulted in significant overcompliance with the air
    toxics emissions reductions goals, and provided carbon monoxide
    emissions improvements and overall improved air quality. The
    requirement did not dictate the use of MTBE. How should Congress have
    acted differently before establishing this requirement to assure that
    no less than the same environmental benefits would have accrued in the
    same time period?
        Response. Before mandating oxygenation of fuels, Congress, EPA, and
    the Bush White House should have looked more carefully at the risks
    that might be created by the chemicals used to oxygenate fuels.
    Although Congress did not mandate MTBE per se, it was well known at the
    time that MTBE was likely to have an economic advantage over other
    oxygenates in several regions of the country. It was also known that
    MTBE is a highly persistent chemical and that there were leaks in many
    underground gasoline storage tanks throughout the country. (I do have
    some sympathy with the claim that the MTBE is a blessing that has
    exposed these leaks, though the full cost of plugging all these leaks
    needs to be calculated). Your expression of confidence in the
    environmental benefits of oxygenation is not fully supported by the
    findings of a recent report by the National Research Council, the
    operating arm of the National Academy of Sciences. Indeed, the original
    determination that the benefits of oxygenation would exceed costs and
    risks was never established by a careful, peer-reviewed analysis. You
    may also be interested in reading some of the analyses of MTBE that are
    now under review in the State of California, some commissioned by
    private parties and some commissioned by the State of California. Based
    on reading these draft analyses, I am not convinced that the oxygenates
    requirement is a reasonable policy.

        Question 13. Section 109 of the Clean Air Act requires the
    establishment of ``. . . ambient air quality standards the attainment
    and maintenance of which in the judgment of the Administrator, based on
    such criteria and allowing an adequate margin of safety, are requisite
    to protect the public health.'' This section seems to embody a
    regulatory philosophy much closer to the Hippocratic oath (``I will
    follow that system of regimen which, according to my ability and
    judgment, I consider for the benefit of my patients, and abstain from
    whatever is deleterious and mischievous'') than your testimony suggests
    you support. You suggested that a clean air regulation should go
    forward so long as ``we are doing [incrementally] more good than harm.
    `` That position seems to contradict a common interpretation of the
    Hippocratic oath, which is ``first, do no harm,'' not ``do more good
    than harm.'' Please comment.
        Response. The Hippocratic oath, as practiced in modern medicine,
    clearly gives credence to concerns about the side effects of treatment
    as well as the effectiveness of treatment. See J. Graham, J. Wiener,
    Risk Versus Risk: Tradeoffs in Protecting Health and the Environment,
    Harvard University Press, Cambridge, MA, 1995.

        Question 14. At the hearing, you stated, ``I think any careful
    environmental analysis of what is going on here would indicate that we
    are having less economic productivity in this country and we are having
    more air pollution in other countries.'' Please provide the Committee
    with references to any analyses in scholarly publications supporting
    this conclusion.
        Response. The example I cited is the regulation of air taxies from
    the coke production industry under the 1990 Amendments of the Clean Air
    Act. This regulation has provided competitive economic advantage to
    importers of coke who are not subject to such stringent emission
    requirements and prohibitions on construction of new byproduct recovery
    batteries (through zero percent door-leak limitations). See J. Graham,
    J. Hartwell (ed), The Greening of Industry: A Risk Management Approach,
    Harvard University Press, Cambridge, MA, 1997, pp. 137-168. In his
    remarks, Senator Voinovich referred to related developments in his
    State of Ohio, which he observed (and tried to prevent) as Governor.

        Question 15. Conducting the comprehensive cost-benefit analyses
    which you advocate as part of the regulatory process would seem to be
    significantly more resource intensive than the current system. Given
    that Federal discretionary funds are likely to continue to decline in
    the near future, it seems logical that the bulk of the new bureaucracy
    necessary to conduct these analyses would be funded through fees placed
    on those seeking permits to pollute or on those desiring to expose the
    public and the environment to new and potentially harmful substances.
    Please comment.
        Response. I have no objection to taxing pollution as a means to
    fund more and higher quality analyses at agencies such as EPA. I want
    to emphasize that I would support taxing pollution, not economic
    production. The latter mistake was made by Congress when it designed
    finances for the Superfund Program, which taxes petrochemical companies
    without regard to the extent of their prior or current pollution.
                                   __________
    Statement of Richard L. Revesz, Professor of Law; Director, Program on
          Environmental Regulation, New York University School of Law
        Mr. Chairman and Members of the Subcommittee: Thank you for
    inviting me to testify before you today. I would like to discuss a
    number of issues concerning the possible use of cost-benefit analysis
    under the Clean Air Act.
        First, I will briefly explain the technique for valuing human lives
    that is generally employed as the starting point for the determination
    of the benefits of environmental regulation. This technique involves
    ascertaining the wage premiums demanded by workers employed in risky
    occupations who face a probability of death from industrial accidents.
    Second, I will explain why valuations based on such wage premiums need
    to be adjusted upward before they can be properly used in the context
    of environmental regulation. Third, I will show why certain downward
    adjustments of the value of life that have been advocated in certain
    academic and public policy circles are in fact inconsistent with the
    technique of cost-benefit analysis and should not be performed. Fourth,
    I will explain why the discount rate used by the Office of Management
    and Budget (OMB) in its administration of Executive Order 12,866 is a
    great deal higher than rates supported by economic theory, and show
    that, as a result, certain environmental benefits are severely
    undervalued. Fifth, I will discuss how the Executive Order and various
    legislative proposals couple cost-benefit analysis with procedural
    devices designed to thwart regulation, rather than to make regulation
    more rational.
        The issues discussed in Parts I, II, and IV of this testimony are
    discussed in more detail in an article that I recently published, which
    is attached as Appendix I.
                i. valuations of human life in workplace context
        The primary benefit of many important environmental statutes is the
    human lives that are saved. Thus, properly valuing human lives must be
    an important part of any cost-benefit inquiry.
        Since the 1970's, willingness-to-pay studies have become the
    standard economic technique for placing a value on human life. By far
    the most common method for performing such valuations focuses on the
    choices that workers make in accepting risky jobs. The approach begins
    by defining sets of jobs that require comparable skills and offer
    comparable non-monetary amenities, except that one exposes the worker
    to a higher risk than the other. Presumably, a rational worker would
    not accept the riskier job unless she obtained sufficient compensation
    for the additional risk. The wage differential between the riskier and
    the less risky jobs is the compensation that the worker therefore is
    assumed to demand for the additional probability of death that she
    faces as a result of having taken the riskier job. The wage
    differential divided by the additional probability of death is then
    considered to be the value of life.
                ii. why certain upward adjustments are necessary
        The value of life figures obtained from studies of risky
    occupations need to be adjusted upward to obtain a meaningful valuation
    of the benefits of environmental regulation. These adjustments must
    account for the generally involuntary nature of most environmental
    harms, for the differences between the median income of the workers who
    are the subjects of these studies and of the population as a whole, and
    for the dreaded nature of certain environmental contaminants
    (principally carcinogens). Not performing these necessary adjustment
    can result in an undervaluation of life by as much as a factor of six
    (or even more in certain contexts).
    A. Involuntary Nature of the Harm
                1. Valuations of Voluntary Versus Involuntary Risks
        There is an extensive literature suggesting that individuals assign
    greater value to avoiding risks that are thrust upon them involuntarily
    than to risks that they incur voluntarily. The risk assumed by
    individuals who subject themselves to possible of industrial accidents
    is generally thought of as a risk assumed voluntarily. In contrast, the
    risk of exposure to environmental contaminants like air pollutants, is
    generally thought of as involuntary. As a result, if one takes the
    willingness-to-pay to avoid voluntary harms and imports that figure
    into the context of environmental regulation, there will be a
    systematic undervaluation of the benefits of regulation.
        Determining the extent of the undervaluation, however, is
    complicated. In general, the economics profession favors ``revealed
    preference'' valuations, under which the value assigned to a good can
    be observed through a market transaction. Willingness-to-pay studies of
    wage differentials individuals demand to accept a risk of death are a
    prominent example of a revealed preference technique. In contrast,
    because involuntary risks are by definition not based upon informed
    market transactions, revealed preference techniques are not available
    to assess the value of involuntary harms.
        Thus, in order to estimate how the valuations of involuntary and
    voluntary risks differ, one has to ask individuals directly the
    relative value that they attach to avoiding the two types of harms. The
    most comprehensive study of this type conducted a nationwide telephone
    survey of 1,000 households, asking interviewees to compare, among other
    pairs of risks, radon control in homes and a pesticide ban on fruits.
    The respondents also were asked to assess, on a ten point scale, the
    ease with which the respective risks could be avoided.
        The respondents' answers revealed that they considered the radon
    risk more voluntary in that it could be avoided with greater ease. When
    the respondents were told that the two programs would save the same
    number of lives and cost the same, 72 percent chose the pesticide ban
    and only 28 percent opted for the radon control. The median respondent
    viewed saving 100 lives by means of the pesticide ban as equivalent to
    saving 213 lives through radon control. Thus, the median respondent
    implicitly found the involuntary risk to be twice as harmful.
                2. Unrepresentativeness of the Population Exposed to
                        Workplace Risks
        Valuations of life in workplace settings are inaccurate as a
    measure of the value of life for environmental programs for a second
    reason. In a competitive marketplace, individuals who take relatively
    risky jobs by definition have the lowest willingness-to-pay to avoid
    the risk. Other things being equal, employers will pay the least
    possible amount to fill the jobs, so individuals with higher valuations
    will not be hired.
        As a result, the willingness-to-pay valuations derived from the
    study of risky jobs are the valuations of a relatively small subgroup
    of the population with a disproportionate tolerance for risk. In
    contrast, most environmental risks affect a far broader sector of
    society. Thus, the valuations of the individual with the median
    valuation of risk (not an individual with an unusually low valuation)
    would be the appropriate metric to use in the valuation of life for
    cost-benefit analysis of environmental regulation. As a result, an
    appropriate correction needs to be made when extrapolating from the
    workplace to the environmental arena. Unfortunately, at this time there
    is no empirical literature that sheds light on the magnitude of such a
    correction. But if cost-benefit analysis becomes part of the
    decisionmaking process under the Clean Air Act, careful attention will
    need to be paid to this issue.
    B. Impact of Income on the Valuations of Life
        It is generally recognized that willingness-to-pay valuations of
    life, such as those obtained in the workplace setting, are a function
    of the income of the subjects of the study. Economists have estimated,
    for example, that a 10 percent increase in income leads to a 10 percent
    increase in the value of life. As a result, there are at least two
    problems with using the valuations from workplace studies for cost-
    benefit analyses of environmental regulation.
                1. Distribution of Income Across Occupations
        First, individuals who take risky jobs generally have lower-than-
    average income. Thus, there is a problem in extrapolating from the
    willingness-to-pay studies conducted in high-risk occupations to the
    broader population affected by environmental carcinogens.
        The U.S. Census provides median and mean earnings for all workers
    and for various occupational categories. The category including
    operators, fabricators, and laborers is probably the best proxy for
    workers in risky occupations who are the subjects of empirical studies
    concerning the value of life. In 1996, the median and mean earnings for
    this category of workers were $16,883 and $19,981, respectively. In
    contrast, the corresponding figures for the population as a whole were
    $20,716 and $27,366, respectively. Thus, the median earnings of the
    population as a whole are 22.7 percent higher than the median for
    workers in risky occupations, and the mean earnings of the population
    as a whole are 37.0 percent higher. Adjustments of this magnitude
    therefore need to be performed to the valuations of life from the
    workplace setting.
                2. Increases in Income Over Time
        A second problem arises in connection with environmental risks that
    have a latency period, so that the death will not occur immediately but
    only after the passage of some time. Empirical studies show that
    individuals value their lives as a function of their current income,
    and not on the basis of projections of future income. But for latent
    harms, the valuation that individuals would have at the time of their
    death is what matters.
        Over the last several decades, median and mean incomes in constant
    dollars have been rising at a compound rate of about 1 percent per
    year. Thus, for contaminants with a 20 year latency period (as is the
    case with some carcinogens regulated under section 112 of the Clean Air
    Act) an upward adjustment of about 22 percent would have to be made to
    the valuation of life from the workplace setting to make the figure
    appropriate for environmental regulation.
    C. Nature of Carcinogenic Deaths
        Particularly with respect to carcinogens regulated under section
    112, an upward adjustment of the value of life to account for the
    dreaded nature of the harm also needs to be performed. Indeed, there is
    an important difference in the nature of deaths resulting from
    industrial accidents on the one hand and from environmental exposures
    to carcinogens on the other. The former occur instantaneously and
    without warning. The latter often occur following a long and agonizing
    ordeal.
        In addition to the loss of the life itself, two other components
    need to be valued in the case of carcinogenic harms: the very painful
    and often extended period of morbidity that precedes the death and the
    dread aspects of carcinogenic deaths. The leading empirical study in
    this area found that the valuation of life in the case of carcinogenic
    exposure is about twice as high as the corresponding valuation in the
    case of an instantaneous death from an unforeseen accident.
             iii. why certain downward adjustment are inappropriate
        Some policy analysts have suggested that downward adjustments of
    the value of life obtained in workplace studies must be performed to
    account for the fact that the beneficiaries of certain environmental
    programs are older individuals, and that these individuals are often
    not in good health. The question of how cost-benefit analysis should
    account for the particular features of the population benefited by
    environmental regulation is very complex. In any event, however, the
    particular downward adjustments that have been advocated are
    inconsistent with a proper understanding of economic theory.
    A. Treatment of Older Individuals
        One important pitfall to be avoided concerns the manner in which
    cost-benefit analysis deals with programs designed to benefit older
    individuals, particularly individuals in their seventies and above.
    Some academics and policy analysts argue that, in computing the benefit
    of an environmental program designed to save the lives of such
    individuals, their remaining life expectancy should be multiplied by
    the value of a life year. In turn, they assert that values of life
    years should be computed by assuming that workers who take risky jobs
    (whose median age is about 40) value each of their remaining years the
    same amount, and that their valuation of life can therefore be broken
    down into a value for life years. So, for example, making just a minor
    simplification, if the value of life derived from a worker with a 40-
    year life expectancy is $6,000,000 (and the value of a life year is
    therefore $150,000) the value of the life of an elderly individual with
    only a 4-year life expectancy would be only $600,000.
        This methodology is seriously flawed. It assumes that the value of
    a life year is independent of the number of life years an individual
    has left to live. But this approach overlooks the critical role that
    scarcity plays in determining economic value. Just as individuals value
    diamonds more than water (because diamonds are scarcer), so too they
    are likely to value life years more highly when they have fewer life
    years left. Thus, there is no principled basis for taking the valuation
    of life year given by a forty-year old and assuming that a seventy-year
    old would have the same valuation. Instead, the latter's valuation
    should be expected to be considerably higher.
    B. Quality Adjustments
        Another inappropriate approach consists in using an approach
    generally referred to as quality-adjusted life years (QALYs) in
    performing cost-benefit analyses. The idea behind QALYs is that the
    lives of sick individuals--asthmatics for example--should be assigned a
    lower value than the lives of healthy individuals (for comparable life
    expectancies). For example, the life of an asthmatic might be assigned
    only half the value of the life of a healthy individual. In the case of
    the individuals with a 4-year life expectancy discussed above, the
    value would then be reduced to $300,000--one twentieth the value of the
    life of a healthy individual with a 40-year life expectancy.
        The QALY technique, as generally employed, is incompatible with
    cost-benefit analysis. Indeed, the measure of benefits in cost-benefit
    analysis is derived from the aggregation of the individual preferences
    of all the individuals affected by a policy. Specifically, each
    individual has a willingness-to-pay to avoid being subjected to some
    risk, and it is the aggregation of the individual willingnesses to pay
    that determines what the benefit of the policy would be.
        The QALY technique, in contrast, does not seek to determine what
    individuals in poor health would be willing to pay to avoid a premature
    death. Instead, it relies heavily on the assessment of third parties,
    sometimes healthy individuals and medical professionals, of how
    undesirable a life in poor physical condition is relative to a healthy
    life.
        Such an inquiry suffers from two fundamental flaws. First, it does
    not construct the valuation by reference to the views of the affected
    individuals themselves, when it is the preferences of the affected
    individuals that form the fundamental units on which cost-benefit
    analysis is based. Second, how much more miserable one might be in one
    State rather than another is not responsive to the question of how
    one's willingness to pay to avoid a premature death varies in the two
    circumstances. Thus, the rankings provided by the QALY technique
    typically have no connection to willingnesses to pay, and therefore
    cannot properly be incorporated into cost-benefit analyses.
                          iv. choice of discount rate
        For many environmental contaminants, such as carcinogens regulated
    under section 112 of the Clean Air Act, the harm does not occur
    contemporaneously with the exposure: there is instead a period of
    latency. It has been the practice of the Office of Management and
    Budget (OMB), in its review of agency regulations under Executive Order
    12,866, to apply a discount rate in the case of latent harms to reflect
    the fact that the benefit of regulation would not accrue until the
    future.
        OMB currently uses a discount rate of 7 percent. There is a strong
    consensus in the economics profession that this rate is too high, and
    that an appropriate rate would be between 2 and 3 percent. The 7
    percent rate used by OMB is set by reference to the pre-tax rate of
    return on private investments. This rate would be the appropriate one
    to use if the United States had a closed economy, so that investments
    for pollution control displaced investments in other activities and, as
    a result, the government lost tax revenues.
        Increasing globalization, however, has led to the integration of
    capital markets and to the opening of the U.S. economy to foreign
    investment. In an open economy, the level of taxable investments is
    unaffected by environmental regulation because no capital projects are
    displaced; the government therefore does not lose the corresponding tax
    revenues. Under these conditions, the consumption rate of interest is
    the appropriate discount rate. This rate is generally taken to be the
    after-tax rate of return, adjusted for inflation, on relatively risk-
    free financial instruments such as government bonds--a rate that
    currently stands in the 2-3 percent range.
        The flawed OMB approach leads to a substantial undervaluation of
    the benefits of environmental regulation. Consider the difference
    caused by using a 7 percent discount rate as opposed to a 2.5 percent
    discount rate (the mid-point of the plausible range). For contaminants
    with a 20 year latency period, the OMB approach undervalues the
    environmental benefits by a factor of 2.36 (the environmental benefits
    are 136 percent higher than OMB calculates them to be, so that a
    benefit that OMB determines to be $100,000,000 is in fact
    $236,000,000). For a 30-year latency period OMB's approach leads to an
    undervaluation by a factor of 3.63 (the environmental benefits are 263
    percent higher than OMB calculates them to be, so that a benefit that
    OMB determines to be $100,000,000 is in fact $363,000,000).
        If cost-benefit analysis were to become more prevalent as a result
    of congressional action, this longstanding problem should be corrected.
    It is noteworthy, moreover, that both the General Accounting Office
    (GAO) and the Congressional Budget Office (CBO) correctly employ the 2-
    3 percent rate range rather than the flawed 7 percent rate used by OMB.
                              v. procedural issues
        Over the last two decades, cost-benefit analysis has acquired an
    understandably bad reputation. In its administration of Executive Order
    12,866 (and its predecessor, Executive Order 12,291), OMB has attached
    to the use of cost-benefit analysis procedures that, at least in part,
    have turned it into an anti-regulatory tool, rather than into a tool to
    make regulation more rational. Similarly, several of the regulatory
    reform bills that have been introduced since 1995 contained procedural
    mechanisms designed to thwart rather than to improve regulation. Let me
    draw your attention to these pitfalls so that the mistakes of the past
    (and of the present) can be avoided.
        First, the OMB mechanism and the various regulatory reform bills
    use cost-benefit analysis only in the context of the adoption of a new
    regulation. In contrast, satisfying a cost-benefit test is not required
    for the repeal of an existing regulation, the failure to adopt a new
    regulation, or the failure to make an existing regulation more
    stringent. The concern for the maximization of social welfare that is
    implicit in cost-benefit analysis would call for the use of the
    technique in each of these contexts. The possible losses in social
    welfare flowing from the repeal of a regulation, the failure to adopt a
    regulation, or the failure to make a regulation more stringent can be
    as detrimental--in fact, even more detrimental--than the social welfare
    losses caused by the adoption of regulations that do not pass a cost-
    benefit test. There is simply no plausible justification in economic
    theory (or for that matter in logic) for caring about social welfare
    losses in one context but not in others.
        Second, at times there has been no disclosure (and at other times
    only limited disclosure) of the communications between interested
    parties and OMB concerning the cost-benefit analyses of environmental
    regulations. It is a core requirement of administrative law, embodied
    in section 4 of the Administrative Procedure Act, that any submissions
    to an agency in connection with the promulgation of regulations must be
    made part of the public record and available for public inspection. The
    obvious purpose of this requirement is to foster openness and to make
    judicial review more effective. These goals are seriously compromised
    when communications concerning cost-benefit are either wholly or
    partially shielded from the public, as has been the case until now in
    connection with OMB's administration of Executive Orders 12,866 and
    12,291.
        Third, some regulatory reform bills allowed for judicial review of
    the cost-benefit analysis prior to the promulgation of the regulation.
    This type of challenge runs counter to another well entrenched
    principle of administrative law--limiting judicial review to ``final
    agency action.'' This principle, which is codified in section 10(c) of
    the Administrative Procedure Act, bars piecemeal challenges. The
    approach of those bills would lead to piecemeal challenges with respect
    to a single regulation, seriously impairing the efficient use of
    judicial resources. More importantly, such an approach would paralyze
    the regulatory process during the pendency of any challenge to a cost-
    benefit analysis and would have the clear effect of delaying regulation
    that passes the cost-benefit test and therefore improves social
    welfare.
        Fourth, some regulatory reform bills contained a petition process
    under which any individual or firm could ask the agency to repeal a
    regulation that did not satisfy the cost-benefit test. The agency, in
    turn, was required to respond promptly to such petitions and a denial
    of the request was reviewable by the courts. Administering a petition
    process of this sort would have the effect of paralyzing the
    Environmental Protection Agency and would seriously undermine the goal
    of rationalizing the regulatory process.
    Conclusion
        If cost-benefit analysis were to play a larger role under the Clean
    Air Act, great care must be taken to ensure that it is used fairly, as
    a tool to make regulation more rational, and not as a tool that is
    biased against regulation. On the substantive front, it is important to
    ensure that human lives are not undervalued as a result of the use of
    various techniques that appear to have currency in some academic
    sectors. On the procedural front, cost-benefit analysis must be woven
    into the existing structure of administrative law, without either
    hiding it from public scrutiny nor subjecting it to legal challenges
    under rules that are different from those generally provided in the
    Administrative Procedure Act.
        Once again, I am grateful for the invitation to testify at this
    hearing. I am pleased to answer any questions that you might have.
                                     ______

    Responses by Richard Revesz to Additional Questions from Senator Baucus
        Question 1. In testimony, Professor Graham suggested taking a two-
    tiered approach to Clean Air Act standards. First, a lenient and
    flexible cost-benefit analysis, one that does not require high degrees
    of precision, would be used to set the actual ambient standard. Second,
    a more stringent cost-benefit analysis would be performed to determine
    whether or not to apply controls to sources. What views, if any, do you
    have on such an approach?
        Response. That approach is a sensible one. At the level of setting
    ambient standards, the information on costs and benefits is more
    speculative. For example, when evaluating an ambient standard, often it
    will not be clear how the resulting pollution control burden will be
    allocated among the various sources of pollution. As a result, the
    estimates on the costs of pollution abatement will have to be based on
    assumptions about what mix of emission standards will subsequently be
    adopted to ensure that the ambient standard is met. Given the resulting
    uncertainties, a flexible approach to cost-benefit analysis that does
    not require undue precision is probably desirable.

        Question 2. Some argue that issues--such as principles of
    precaution, equity, environmental justice, and individual rights--need
    to be considered in the development of environmental standards.
    However, considerations of these issues do not fit neatly into either
    risk assessment or cost-benefit ``tests.'' How and at what point should
    these issues be integrated into the standard setting process?
        Response. Public policy ought to pay attention to distributional
    issues, including questions of equity and environmental justice. A
    cost-benefit analysis that aggregates individual willingnesses to pay
    can be used to rank various environmental projects. Other social
    objectives, including distributional concerns, could be used to
    generate alternative rankings. A tradeoff between the two objectives
    can generate the preferred social policy. Alternatively, the cost-
    benefit inquiry itself can take account of distributional concerns.
        With respect to individual rights, the policy prescriptions that
    emerge from cost-benefit analysis must be constrained by the need to
    avoid the violation of any constitutional rights, whatever their
    nature. Finally, because the precautionary principle is poorly
    specified, the relationship between this principle and cost-benefit
    analysis is not clear. It is not necessarily the case, however, that
    the precautionary principle would yield more stringent environmental
    regulation than cost-benefit analysis.

        Question 3. Some have asserted that cost-benefit analysis of
    environmental and occupational safety regulations puts the benefit side
    of the equation at an inherent disadvantage. This is because estimates
    of compliance costs (e.g., dollar cost of installing new technologies
    at affected industries) are typically easier to produce and ostensibly
    ``harder numbers'' than estimates of benefits (e.g., dollar value of
    increased visibility or averted health harms at low levels of air
    pollution). The result, as asserted, is that an uneven, ``apples and
    oranges'' dynamic is created, leaving the benefit side of a cost-
    benefit in an inherently weaker position in the context of regulatory,
    political, and legal proceedings. Please comment further on this issue.
        Response. There is an academic literature suggesting that the costs
    of pollution control tend to get overestimated in cost-benefit
    analyses. For example, cost-benefit analyses often assume that
    regulated firms will need to purchase pollution control equipment in
    order to meet the environmental standards. Over time, however, these
    firms choose instead to change their production processes, and as a
    result are able to meet the standards more cheaply. Properly conducted
    cost-benefit analyses should pay attention to such sources of
    systematic bias.
                                     ______

       Responses by Richard Revesz to Additional Questions from Senator
                                   Lieberman
        Question 1. What if the costs of controlling emissions from a
    particular industry would exceed the monetized benefits, but a group of
    low-income people near these facilities have higher cancer risks
    compared with those elsewhere. Do you think we should control those
    sources? If so, how would a cost-benefit test include these kinds of
    social considerations?
        Response. Distributional issues, including environmental justice
    concerns, ought to be relevant to environmental policy. Under cost-
    benefit analysis, projects are undertaken based on the aggregate
    willingness to pay of the beneficiaries. Because the government
    undertakes large numbers of projects and regulatory initiatives, the
    losers with respect to one governmental intervention may well become
    winners with respect to another. But if government regulation produce
    persistent losers, as may be the case in some environmental justice
    contexts, redistribution measures should be undertaken.
                                     ______

                    [From the Columbia Law Review, May 1999]
    Environmental Regulation, Cost-Benefit Analysis, and the Discounting of
                                  Human Lives
    (By Richard L. Revesz, Professor of Law, New York University School of
                                      Law)
    Introduction
        The use of cost-benefit analysis has become commonplace in
    environmental and other health-and-safety regulation. Such analysis is
    now mandated by Executive Order 12,866 for all major regulations, \1\
    and may eventually be required by statute if Congress passes one of the
    various regulatory reform bills that have been pending for some time.
    \2\ The primary benefit of many important environmental statutes, as
    determined by the dollar value assigned by cost-benefit analysis, is
    the human lives that are saved. \3\ Thus, in determining whether a
    particular regulation can be justified on cost-benefit grounds, the
    central questions revolve around the value assigned to the lives that
    would be saved by the program. Probably the most vexing problem
    concerning these valuations has been whether to discount the value of a
    life saved to account for the fact that the loss does not occur
    contemporaneously with the exposure to certain contaminants.
        With respect to this issue, two opposing camps have developed among
    regulators, judges, and academics. A similar controversy has arisen in
    connection with other regulatory programs, \4\ as well as with the
    provision of medical services. \5\ Supporters of discounting argue that
    the value of human life must be treated in the same manner as the value
    of any other benefit or cost: because other benefits and costs are
    normally discounted to present value when they occur in the future, the
    value of life should be discounted as well. \6\ In contrast, opponents
    of discounting claim, generally by appeals to notions of ethics and
    morality, \7\ that lives saved in the future are no less valuable than
    lives saved in the present. As a result, they argue that discounting is
    inappropriate. \8\
        The debate, which is not confined to the United States, \9\ has
    taken on a relatively high profile, including discussion in the popular
    press \10\ For example, the issue played a role in the Senate's
    scrutiny of the unsuccessful nomination of Judge Douglas Ginsburg to
    the Supreme Court of the United States in 1987, \11\ and attracted the
    attention of Vice President Albert Gore during the 1992 Presidential
    campaign. \12\
        The discussion of the propriety of discounting human lives often
    conflates two different sets of problems. \13\ In the first, the
    benefits will not accrue until the future because the harm has a
    latency period. For example, an individual exposed to a carcinogen
    faces an increased probability of dying at some point in the future,
    perhaps 20 or 30 years later. In the second, the benefits of controls
    accrue primarily to future generations. Climate change caused by the
    presence of anthropogenic gases in the atmosphere is a prominent
    example of this phenomenon.
        The question of how to value lives threatened by latent harms was
    starkly posed in a regulatory proceeding that took place in the late
    1980's in connection with a partial ban on the use of asbestos
    promulgated by the Environmental Protection Agency (EPA). \14\ The
    Office of Management and Budget (OMB), which is responsible for
    reviewing regulations to ensure their consistency with cost-benefit
    principles, \15\ strongly urged discounting the value of human lives
    over the period of latency of the harm; under its then-existing policy
    of discounting environmental benefits at a 10 percent discount rate,
    the value of saving a life would have been reduced to only about
    $22,000. \16\ EPA withstood OMB's pressure and published final
    regulations that essentially rejected the concept of discounting. The
    EPA's regulation was invalidated by the Fifth Circuit, partly for this
    reason. \17\
        A recent article by Lisa Heinzerling shows how much rides on
    whether the value of human lives is discounted over a latency period.
    \18\ She shows that many environmental and health-and-safety
    regulations promulgated since the 1970's have acceptable cost-benefit
    ratios if the value of lives is not discounted, but fail cost-benefit
    analysis if those values are discounted. \19\
        Discounting issues play an even more critical role in connection
    with harms to future generations, particularly with respect to the
    effects of climate change. Because of the long lag until many of the
    harmful effects of excessive anthropogenic gases in the atmosphere are
    felt, how much our society is willing to spend on measures to prevent
    climate change may well depend on how the question of discounting is
    resolved. \20\
        Opponents of discounting adduce vivid statistics to illustrate what
    is at stake. For example, Derek Parfit notes: ``At a discount rate of
    five per cent, one death next year counts for more than a billion
    deaths in 500 years.'' \21\ Even economists who do not oppose
    discounting acknowledge its striking effects: ``When time horizons are
    very long, all benefits are discounted to zero using any positive
    discount rate, so that a death prevented in the distant future is worth
    nothing at the present time.'' \22\
        This Article seeks to shed light on what has become a shrill and
    unproductive debate. The polar positions on both the latency and future
    generations issues are analytically unsound and overlook important
    components of both problems. Moreover, the latent harm and future
    generation situations are analytically distinct: what one concludes
    with respect to discounting in one context says little about the
    appropriate treatment of discounting in the other.
        Part I addresses the problem of latent harms. Because there are
    essentially no empirical studies of the value of lives threatened by
    latent harms, regulatory analyses must adapt valuations derived from
    threats of instantaneous death in workplace settings. This Article
    argues that it is necessary to discount this value, to reflect that the
    years lost occur later in a person's lifetime. It also argues, however,
    that such discounting must be accompanied by countervailing upward
    adjustments, to account for the involuntary nature of exposure to
    environmental carcinogens, the dread such exposure causes, and the
    higher income levels of the victims. By not performing these
    adjustments, OMB may be undervaluing lives by as much as a factor of
    six, or even more for particularly long latency periods. Correcting
    this undervaluation, as this Article urges, could have an important
    impact on the regulatory process by allowing more stringent regulations
    to satisfy the requirements of cost-benefit analysis.
        Part II deals with harms to future generations. It shows that the
    use of discounting in that case is ethically unjustified. As a result,
    it argues that discounting approaches should not replace the principle
    of sustainable development, which is used in the major international
    environmental law agreements to measure our obligations to future
    generations. The discussion shows, however, that the principle of
    sustainable development is also problematic, and sets forth the
    principal elements of an attractive theory of intergenerational
    obligations. The practical implications can be enormous: the rejection
    of discounting may lead to a far more stringent response to
    environmental problems, such as climate change, that have long time
    horizons.
        The Article underscores the extent to which discounting raises
    analytically distinct issues in the cases of latent harms and harms to
    future generations, even though these two scenarios have generally been
    treated as manifestations of the same problem. \23\ In the case of
    latent harms, one needs to make intra-personal, intertemporal
    comparisons of utility, whereas in the case of harms to future
    generations one needs to define a metric against which to compare the
    utilities of individuals living in different generations. The case of
    latent harms gives rise to a problem that is primarily technocratic:
    determining how an individual trades off the utility derived from
    consuming resources at different times in her life. In contrast, the
    case of harms to future generations raise a difficult ethical problem.
    It is therefore not surprising that the appropriateness of discounting
    would be resolved differently in the two contexts.
        The Article does not address the role that cost-benefit analysis
    should play in environmental regulation--a subject that has spawned a
    large academic literature. \24\ Rather, its goal is more targeted. It
    assumes, consistent with current practice, \25\ that an important set
    of environmental and health-and-safety regulations will be evaluated
    under principles of cost-benefit analysis, and that human lives will be
    valued as part of this analysis. Given these practices, it seeks to
    determine the best way to account for the fact that certain losses do
    not occur contemporaneously with the exposure to a contaminant.
        A central goal of this Article is to move the regulatory process to
    wards a more thoughtful valuation of human lives threatened by environ
    mental carcinogens, and away from OMB's deeply flawed technique of
    taking valuations from the workplace setting and reducing them by an
    inflated discount rate. \26\ The Article also seeks to move the
    discussion of how to treat future generations beyond a focus on
    discounting, which is unlikely to provide an ethically defensible
    account of our obligations to future generations.
                                i. latent harms
        The discussion begins in Section A by reviewing the central role
    that the debate over discounting played in the Corrosion Proof Fittings
    case and the extent to which, despite the court's resolution in that
    case, the issue remains unsettled in the public policy arena. Section B
    explains that the valuations of human life in the economics literature
    have been conducted almost exclusively in the context of industrial
    accidents, where workers face a probability of instantaneous death. In
    contrast, as a result of understandable methodological complications,
    there have been essentially no valuations of risks to life with a long
    latency period, such as those posed by environmental carcinogens. Thus,
    it is necessary to construct a second-best valuation of a life
    threatened by a contaminant with a latency period, using as a starting
    point the valuations from the existing empirical studies on
    instantaneous deaths.
        Section C begins the task of constructing a second-best valuation,
    relying on temporal models that describe the value of life by reference
    to a stream of utilities that individuals receive if they are alive in
    particular time periods. When an individual faces a threat to life that
    manifests it self only after a latency period, she loses fewer life-
    years than when the threat is instantaneous. Moreover, on average, the
    loss of life-years occurs further into the future. Downward adjustments
    to account for these two factors are therefore appropriate.
        Section D examines the plausibility of the assumptions underlying
    the temporal models explored in Section C. It also shows that the
    discounting of future utilities is conceptually different from the
    discounting of money flows.
        Section E turns its attention to three important upward adjustments
    that need to be made when extrapolating from the case of instantaneous
    deaths to that of carcinogenic harms. These adjustments are necessary
    as a result of the relationship between an individual's income and the
    value that she places on life, the involuntary nature of exposure to
    environmental carcinogens, and the dread people suffer from
    carcinogenic risk.
        Section F focuses on the choice of an appropriate discount rate. It
    shows that the emerging consensus in the economics literature calls for
    the use of a rate of 3 percent or less and takes issue with OMB's
    policy of prescribing a 7 percent rate.
        Section G estimates the undervaluation of life that results from
    OMB's approach of taking valuations from the workplace setting and,
    without further adjustment, mechanically reducing them by an inflated
    discount rate. Over a 20 year latency period, the OMB approach can lead
    to an underestimation by a factor of about six, with a factor of about
    two being attributable to the choice of discount rate.
        Section H argues that discounting the value of life in the context
    of latent harms does not pose significant moral or ethical dilemmas
    that are distinct from those raised by cost-benefit analysis in general
    and the valuation of human life in particular. It is simply one
    defensible adjustment in the process of constructing a second-best
    valuation, using workplace valuations as a starting point. Discounting,
    however, cannot be the only such adjustment.
        Before proceeding further, it is useful to underscore that Part I
    focuses on harms that an individual suffers as a result of an earlier
    exposure to an environmental contaminant. \27\ The term ``latent''
    could be used to describe other phenomena as well: for example one
    might think that an environmental exposure producing a harm to future
    generations gives rise to a latent harm as well. As used throughout
    this Article, however, the term ``latent'' is used to describe only
    situations in which the exposure and the harm accrue to the same
    individual.
    A. The Debate Over Discounting
        The appropriateness of discounting the value of human lives first
    received sustained attention in the regulatory proceeding that led to
    EPA's partial ban on the manufacture, importation, and processing of
    asbestos under the Toxic Substances Control Act (TSCA), and the
    challenge to this regulation in Corrosion Proof Fittings v. EPA. \28\
    The question was highly controversial even before EPA's publication of
    the notice of proposed rulemaking in 1986. \29\ As required by
    Executive Order 12,291 (the Reagan Administration's predecessor of
    Executive Order 12,866), \30\ EPA submitted the draft rule to OMB for
    review before its publication in the Federal Register. In a March 1985
    letter to A. James Barnes, EPA's acting Deputy Administrator, OMB
    raised questions about whether the benefits of the rule exceeded its
    costs. \31\ In performing a cost-benefit analysis, OMB used a value per
    cancer case avoided of $1 million and discounted this amount at a rate
    of 4 percent for the length of the latency period. \32\(At the time, an
    OMB guidance document provided for discounting of costs and benefits at
    a rate of 10 percent, \33\ but OMB instead used the rate contained in
    EPA's guidance document on cost-benefit analysis.) \34\
        The following month, the propriety of discounting the value of
    human lives became an issue in connection with Barnes's Senate
    confirmation hearings:
        I have a great deal of ethical difficulty with a concept of
    applying a discount factor to human life. The lives of my three
    children are worth every bit as much to me 10 years from now as they
    are now. I personally reject that notion. I have talked to [EPA
    Administrator] Lee Thomas about it; I know that it is not one that
    finds favor with him. \35\
        In October 1985, a subcommittee of the U.S. House of
    Representatives chastised OMB for its insistence on discounting the
    value of human lives. \36\ It noted that discounting at OMB's 10
    percent discount rate over a 40 year latency period would reduce the $1
    million value per life saved to just over $22,000. \37\ Thus, on cost-
    benefit terms, one could not justify a current expenditure of over
    $22,000 to save a life 40 years in the future. Even at a 4 percent
    discount rate, the $1 million value of life would be reduced to about
    $208,000. \38\
        The subcommittee referred to the testimony of Don Clay, Director of
    EPA's Office of Toxic Substances, that EPA ``never had used discounting
    over the latency period of a chronic hazard,'' and that, by reducing
    the value of benefits to such an extent, OMB's approach would prevent
    EPA from regulating any carcinogen with a long latency period. \39\ The
    subcommittee further reported that Clay ``personally opposed the
    discounting of lives in the asbestos case on ethical grounds.'' \40\ It
    concluded that OMB's position with respect to the discounting of the
    value of life was ``simply an outrage'' and urged EPA to ``reject the
    use of discounting over the latency period of diseases caused by
    chronic hazards.'' \41\
        EPA published the proposed rule on the asbestos ban in January
    1986. \42\ The proposal did not quantify the value of life or undertake
    any discounting of this value over the length of the latency period.
    \43\ EPA took a different approach, however, when it promulgated the
    final rule in July 1989. \44\ It assigned a value to human lives, but
    discounted it at a rate of 3 percent from the time of the promulgation
    of the regulation until the time of the exposure to the carcinogen.
    \45\
        The use of asbestos products does not necessarily result in
    immediate exposure; instead, exposure occurs when the product
    containing the asbestos begins to disintegrate. For example, some
    exposures occur when asbestos fibers are released into the air from the
    weathering of air conditioning products. \46\ Exposure is the first
    step of a process that might later lead to the incidence of cancer and
    subsequently to a death from cancer. EPA did not discount the value of
    human life from the time of exposure until the carcinogenic death, as
    OMB had urged, or even until the first manifestation of cancer.
        In its response to comments accompanying the final rule, EPA at
    tempted to defend this decision. EPA noted that comments had been
    written on both sides of the discounting issue:
        Some commenters argued that EPA, in the proposal, improperly failed
    to discount benefits to be derived from the rule, and in support of
    documents for a final rule, only discounted benefits until the time of
    the exposure that results in the cancer rather than until the
    occurrence of the disease. Other commenters argued that EPA should not
    discount benefits, stating that discounting the benefit of saving human
    life is inappropriate methodology for this rulemaking. \47\
        EPA's response revealed a degree of ambiguity on this question and
    provided at best a lukewarm defense of its course of action. It stated:
        Arguments can be made that estimating benefits without discounting
    is preferable in cases like this one where the primary benefits derived
    is [sic] the avoidance of human cancer cases. However, arguments also
    can be articulated supporting the discounting of benefits. \48\
        EPA was more categorical in defending its view that if discounting
    was appropriate at all, it was appropriate only until the time of
    exposure:
        Since the benefit of a regulation to control a hazardous substance
    occurs at the time of the reduced exposure, EPA has concluded that the
    appropriate period over which to discount is until the time of exposure
    reduction. This approach was used in this case after extensive review
    of applicable literature and an examination of the inherent biases and
    features of other approaches. \49\
        This position has an important corollary for environmental problems
    in which the regulation leads to an immediate decrease in the exposure
    of individuals as is the case, for example, with airborne air
    pollutants. For such pollutants, no discounting of the benefits of the
    regulation would be performed under EPA's approach, except perhaps for
    discounting from the time of the preparation of the cost-benefit
    analysis to the implementation of the regulation.
        Though EPA's explanation is not a model of clarity, one can surmise
    that its approach was not to discount for the period between the
    exposure and the death, when the harm was latent. Instead, the
    discounting that was performed affected only the period before the harm
    became latent.
        In October 1991, the Fifth Circuit vacated the regulation and
    remanded in Corrosion Proof Fittings v. EPA, \50\ in part because of
    EPA's treatment of the discounting issue. The Fifth Circuit took the
    position that discounting was necessary in order to provide for a fair
    comparison of costs and benefits accruing at different times:
        Although various commentators dispute whether it ever is
    appropriate to discount benefits when they are measured in human lives,
    we note that it would skew the results to discount only costs without
    according similar treatment to the benefits side of the equation. . . .
    Because the EPA must discount costs to perform its evaluations
    properly, the EPA also should discount benefits to preserve an apples-
    to-apples comparison, even if this entails discounting benefits of a
    non-monetary nature. \51\
        The Fifth Circuit went on to hold that EPA had used an improper
    period for discounting, and that the value of human life should have
    been discounted to the time of injury. \52\ It noted:
        The EPA's approach implicitly assumes that the day on which the
    risk of injury occurs is the same day the injury actually occurs. Such
    an approach might be appropriate when the exposure and injury are one
    and the same, such as when a person is exposed to an immediately fatal
    poison, but is inappropriate for discounting toxins in which exposure
    often is followed by a substantial lag time before manifestation of
    injuries. \53\
        The court did not specify, however, whether it considered the
    injury to be the first manifestation of cancer or the death from
    cancer. The detection of carcinogenic cells is a serious injury, but if
    death does not follow it is not clear why it would be appropriate to
    attach to this injury the full value of life, rather than the value of
    the resulting morbidity. \54\
        Finally, the Fifth Circuit upheld EPA's choice of a 3 percent
    discount rate. It implicitly assumed that the correct discount rate was
    the real rate of interest (the nominal rate of interest minus the rate
    of inflation) and stated that, historically, this rate has fluctuated
    between 2 percent and 4 percent. \55\
        Despite the court's holding, the question of discounting the value
    of human life has continued to be controversial. For example, the
    Senate Report accompanying the Comprehensive Regulatory Reform Act of
    1995, \56\ which would require the use of cost-benefit analysis in
    regulatory proceedings, \57\ contains a statement by Senator Leahy
    railing against such discounting:
        Cost/benefit analysis assumes that benefits that occur in the
    future have very little value. After determining the value of human
    life, cost/benefit analysis applies a ``discount rate'' to benefits
    that will occur in the future. Benefits of the lives saved in the
    future by a regulation are reduced by 6-7 percent per year. . . . This
    business evaluation tool does not make sense when applied to the
    protection of human life. \58\
        The regulatory debate over the appropriateness of discounting of
    human lives, stated in conclusory terms and virtually devoid of any
    sustained analysis, fails to shed light on the important issues
    underlying this question. \59\ After providing a brief overview of the
    economic approach to valuing human life, the remainder of Part I seeks
    to fill this void.
    B. Valuations of Human Life
        Since the 1970's, willingness-to-pay studies have become the
    standard economic technique for placing a value on human life. \60\ By
    far the most common method for performing such valuations focuses on
    the choices that workers make in accepting risky jobs. \61\ The
    approach begins by defining sets of jobs that require comparable skills
    and offer comparable non-monetary amenities, except that one exposes
    the worker to a higher risk than the other. \62\ Presumably, a rational
    worker would not accept the riskier job unless she obtained sufficient
    compensation for the additional risk. The resulting wage differential
    is the compensation that the worker obtains for the additional
    probability of death that she faces as a result of having taken the
    riskier job. \63\ An extrapolation, consisting of dividing the wage
    differential by the additional probability of death, is then per formed
    to determine the value of life. \64\
        Willingness-to-pay studies of the value of human life have been
    conducted almost exclusively in the context of industrial accidents,
    where the worker faces a risk of being either fatally injured by a
    piece of machinery and dying instantaneously, or surviving unscathed.
    \65\ In any time period, there is a probability that a fatal accident
    will occur. This probability is ascertained from industrial safety
    statistics. \66\
        One could use the same approach to determine the willingness-to-pay
    to be free from risks with long latency periods. \67\ As long as
    workers understood the additional probability of, say, dying of cancer
    from a riskier job, and knew the length of latency period, they could
    figure out how much additional compensation to demand in order to
    accept the job with the higher risk. From this wage differential, one
    would extrapolate to determine the value of the life. The fact that the
    harm would accrue only in the future would be reflected in the wage
    differential. For example, other things being equal, an individual with
    a comparatively high discount rate would demand a comparatively low
    wage differential. We would then have measured exactly what we wanted
    to see, and there would be no need to perform any discounting.
        It is likely that such studies have not been conducted for three
    principal reasons. First, the industrial statistics on deaths resulting
    from la tent harms are not as extensive as those for instantaneous
    accidents. The Federal Government became extensively involved in the
    regulation of workplace and environmental safety only in the 1970's
    (and prior State efforts in these areas were relatively modest). \68\
    For example, if the Federal Government began to compile statistics on
    the risk of various work place settings in the mid-1970's, it would
    have immediately had a data set on instantaneous accidents. In
    contrast, for carcinogenic risks with a 20-year latency period,
    comparable statistics on such risks would not be available until the
    mid-1990's, unless retrospective studies could be per formed. Moreover,
    while accidents on the job are relatively easy to track, statistics on
    mortalities associated with latent harms require much more difficult
    tracking of the health status of individuals after they leave their
    jobs. Further, while the cause of on-the-job accidents typically is
    relatively easy to identify, the causal link between occupational
    exposure and future harms from carcinogens can be difficult to
    establish.
        Second, in order for willingness-to-pay studies to yield meaningful
    results, individuals must be able to properly understand the nature of
    the risk; otherwise, they cannot determine what sum of money properly
    compensates them for the risk. Some commentators doubt that our
    cognitive capacities are sufficiently developed to perform such
    valuations in the case of future harms. \69\
        Third, this problem is compounded by the fact that exposure to
    carcinogens may have a differential impact depending on an individual's
    characteristics, including, for example, whether she smokes. In order
    to decide how to respond to a wage premium, individuals would need to
    understand not only the ``pure'' carcinogenic risk of the job, but also
    the magnitude of any synergistic interactions that might result from
    such characteristics.
        In summary, the task of directly performing a willingness-to-pay
    study of the value of life in the case of latent harms is fraught with
    difficulties, perhaps insurmountable ones. Instead, to obtain such a
    valuation, resort to a second-best approach is necessary.
    C. Discounting as a Second-Best Approach
        As a result of the difficulty of obtaining a direct willingness-to-
    pay measure of the value of a life threatened by a latent carcinogenic
    harm, economists have devoted considerable attention to defining a
    relation ship between the value of a life lost today and the value of a
    life lost years from now. Such temporal models, also known as life-
    cycle models, study the distribution of an individual's utility
    throughout her life. \70\
        The discussion that follows focuses, for illustrative purposes, on
    three different valuations: first, the life of a 40-year old that is
    lost today, for example, from an industrial accident; second, the life
    of a 60-year old, also lost today; and third, the life of an individual
    who is currently 40 years old but dies in 20 years as a result of
    exposure today to a carcinogen with a 20-year latency period. \71\ For
    this discussion, Vj,k denotes the value attached to the life
    of an individual exposed to a harm at age j who dies at age k. Thus,
    the values of the three lives described above can be expressed as
    V40,40, V60,60, and V40,60,
    respectively. To keep the discussion simple, it assumes that these
    individuals, if not exposed to the industrial or carcinogenic risk,
    would die of natural causes at age 80. \72\
        The three valuations differ in two important ways. \73\ First, the
    40-year old dying immediately loses 40 years of life whereas the 60-
    year old dying immediately and the 40-year old dying in 20 years lose
    only 20 years of life. \74\ Second, the individual exposed to the
    carcinogen does not lose these 20 years of life immediately, but 20
    years later. \75\ Let ul denote the utility that an
    individual derives in year l from living that year. So, for example,
    for the 40-year old exposed today to the latent harm, u60 is
    the utility that the individual would derive in 20 years from living in
    the year following her sixtieth birthday. In contrast, for the 60-year
    old killed today in an industrial accident, u60 is the
    utility that the individual would have derived this year if the
    accident had not occurred.
        If these utilities were simply monetary payments as opposed to the
    well-being that comes from living, they could easily be compared with
    one another by discounting the future stream of benefits by a means of
    a discount rate. Discounting reflects the fact that it is more
    desirable to get a payment sooner rather than later. It is important to
    stress that this preference is not a function of the existence of
    inflation. In comparing monetary flows occurring at different times,
    the effects of inflation can be adjusted by converting all amounts to
    constant dollars. But even in an inflation-free world, it is best to
    get a given amount of money as soon as possible. Having the money
    sooner gives one the option of either spending it immediately or saving
    it for later, whereas getting it later (absent borrowing) rules out
    immediate spending. The rate used to discount amounts in constant
    dollars is typically known as a ``real'' discount rate. \76\
        Given a discount rate of r, the present value of a payment P that
    is paid t years from now is [1/(1 + r)t]P. \77\ I am not
    suggesting at this point that discounting to present value the utility
    that an individual derives from living for a year is equivalent to
    discounting a monetary payment, and will return to this issue later.
    \78\ Instead, I am showing the relation ship among the values of the
    three different lives if such discounting were appropriate.
        Then,

    V40,40 = u40 + [1/(1 + r)]u41 + . . .
    + [1/(1 + r)38]u78 + [1/(1 +
    r)39]u79

        The loss for the 40-year old killed by the industrial accident is
    the utility of living in the year following the individual's fortieth
    birthday, plus the utility of living 1 year later discounted for 1
    year, plus the utilities of living in all subsequent years until age 80
    (when the individual would have died anyway), with each utility
    discounted for the number of years elapsed since the present.
        In turn,

    V60,60 = u60 + [1/(1 + r)]u61> + . . .
    + [1/(1 + r)18]u78 + [1/(1 +
    r)19]u79

        Here, the loss takes the same form, except that the first year of
    loss of utility is the year following the individual's sixtieth
    birthday.
        Finally,

    V40,60 = [1/(1+r)20]u60 + [1/(1 +
    r)21]u61 + . . . + [1/(1 +
    r)38]u78 + [1/(1 + r)39]u79

        Only years following the individual's sixtieth birthday are lost,
    and these losses are discounted by the number of years from the
    present.
        The relationship between V[60,60] and
    V[40,60] should now become apparent. The latter value is
    simply the former discounted by 20 years. \79\ In other words, both
    individuals lose the same years of their lives--those following their
    sixtieth birthdays--but the latter individual loses them 20 years later
    than the former. Thus,
        V40,60 = [1/(1+r)20]V60,60
        Under this approach, the value that should be attached to the life
    of a 40-year old who is exposed to a carcinogen with a 20 year latency
    period and who dies at age 60 is equal to the value of the life of a
    60-year old who dies instantaneously in an industrial accident, with
    the latter value discounted for the 20 years that elapse before the
    carcinogenic victim dies.
        So far, in fact, the discussion suggests that the OMB approach
    actually overestimates the value of the loss resulting from exposure to
    latent risks. The OMB procedure takes V40,40 and discounts
    it back to present value to account for the latency period. \80\ In
    fact, the correct approach would be to discount V60,60
    instead, \81\ which is lower than V40,40 because of the 20
    fewer years of life loss. \82\ As explained later, however, this
    overvaluation is outweighed by the substantial undervaluation that
    results from other elements of OMB's approach. \83\
    D. Plausibility of the Model
        The model presented in the previous section relies on two important
    assumptions. First, it assumes that an individual's utility function
    can be expressed as a sum of utilities over the various periods
    comprising one's lifetime. Thus, one's enjoyment of life in one period
    is not affected by the resources available for consumption in prior
    periods, \84\ but only by the resources in that period. \85\ Under the
    model, an individual's utility in one period is not affected by the
    resources available for consumption in prior periods. \86\ So, for
    example, whether an individual was able to afford a quality education
    in a prior period does not affect the utility that she derives from a
    given level of consumption in subsequent periods. This assumption is
    clearly debatable. Indeed, John Broome, in a related con text, terms
    the assumption ``dubious,'' \87\ though he acknowledges that it is
    commonly made in economic analysis. \88\
        Moreover, an individual facing death from cancer may focus on the
    fact of the death and on its cause, without paying particular attention
    to the death's timing. One's willingness-to-pay to avoid the risk may
    then be relatively unaffected by the length of the latency period. A
    number of studies show that individuals of different ages exhibit
    different willingnesses-to-pay to avoid instantaneous deaths,
    suggesting, consistent with the model, that their valuations are indeed
    affected by the number of life-years that they would lose. \89\ It is
    possible, however, that such behavior would not extend to carcinogenic
    risks as a result of the dread associated with such deaths. \90\ As a
    result of the paucity of studies of the willingness-to-pay to avoid
    carcinogenic risks, \91\ it is not possible to make empirically
    grounded claims concerning this hypothesis.
        Second, the model uses a constant discount rate. \92\ So, for
    example, the same rate would be used to discount the utility of living
    20 years in the future as would be used to discount the utility of
    living next year. As Donald Shepard and Richard Zeckhauser put it, the
    model assumes that ``an individual's utility over lifespans of
    different length can be represented as a weighted sum of period
    utilities, the weights declining geometrically with time.'' \93\
    Shepard and Zeckhauser label this assumption ``heroic.'' \94\
        If, for example, I did not currently value at all the utility of
    living beyond the year 2010, I would be applying an infinite discount
    rate to the utilities that I would derive if in fact I were alive
    beyond that year. The present discounted value of those utilities would
    be zero. There is no mechanism by which I could transfer any life-years
    beyond the year 2010 to someone with a lower discount rate, in return
    for a higher present utility. In contrast, in the case of financial
    flows, if I undervalued relative to the market the stream of payments
    that I would receive on my Treasury bond after the year 2010, I could
    increase my utility by selling that stream of payments at the market
    price. \95\
        There is little attempt in the literature to validate the constant
    discounting feature of the model through experiment or observation.
    \96\ One study of the implicit discount rates reflected in individuals'
    contin gent valuation of the disutilities of various illnesses led the
    authors to question whether the conventional discounting model properly
    describes individual preferences. \97\
        These problems with the assumptions underlying the temporal models
    for the valuation of lives threatened by environmental carcinogens
    should not lead to the conclusion that the models are inappropriate. At
    present, such models are the state-of-the-art in economic analysis. It
    is therefore proper to continue to use them, absent a further
    refinement or an empirical falsification. But as the regulatory process
    seeks to construct appropriate second-best valuations for lives
    threatened by environmental carcinogens, it must pay further attention
    to the plausibility of the assumptions underlying temporal models.
    E. Necessary Adjustments
        It is time now to scrutinize with more care some of the assumptions
    made implicitly in the model described in Part I.C. Such scrutiny
    reveals, for several reasons, that one cannot simply take an estimate
    of the value of life from an industrial accident (whether
    V[40,40] or V[60,60]), \98\ discount it, and
    obtain a plausible estimate of the value of life from exposure to an
    environmental carcinogen with a latency period. \99\ Many adjustments
    need to be made for the estimate to be at all meaningful. These
    adjustments all lead to assigning a higher value to the life lost.
        This section examines the principal adjustments that need to be per
    formed. It focuses primarily on differences between the valuations for
    instantaneous and latent harms that have been the subject of empirical
    examination.
        1. Impact of Income on the Valuations of Life.--In the temporal
    model presented in Part I.C, the utility that an individual derives in
    a particular year is a function of the level of resources available for
    consumption that year. Economists have estimated that the elasticity of
    the value of life with respect to earnings (the percentage change in
    the value of life for a 1-percent change in earnings) is approximately
    one. Thus, for example, a 10 percent increase in income would lead to a
    10 percent increase in the value of life. \100\ The impact of income on
    the valuation of life calls into question several of the implicit
    assumptions made in Part I.C.
        a. Increases in Income Over Time.--That model assumes implicitly
    that the valuation of a particular year of life, say the year following
    one's 65th birthday, is independent of the age of the individual making
    the valuation. Thus, for example, u65, the utility of living
    in the year following one's 65th birthday, is the same for both a 40-
    year old and a sixty-year old. The only difference related to the
    valuation is that the 40-year old discounts this utility for the 25
    years that it will take until this utility is realized, whereas the
    sixty-year old discounts the utility for only 5 years.
        A correction needs to be made, however, if income adjusted for
    inflation rises over time. In comparing V[40,60] with
    V[60,60], one must account for the fact that by the time the
    40-year old is sixty, her income, in real terms, will be higher than
    the sixty-year old's income is today.
        If income rises in real terms over time, the relationship between
    V[40,60] and V[60,60] becomes different than that
    posited in Part I.C. \101\ Let g be the yearly increase in the
    individual's real income. Then,
        V[40,60] = [(1 + g)/(1 +
    r)][20]V[60,60]
        Thus, V[60,60] now needs to be subjected to two
    adjustments. \102\ First, it is increased by a factor of (1 +
    g)[20] to account for the fact that the years of lost life
    will occur 20 years later for the 40-year old, and that for each of the
    years of life lost, the utility lost 20 years from now to the
    individual who is currently 40 years old will be (1 + g)[20]
    greater than for the individual who is currently 60 years old. Second,
    it is decreased by a factor of [1/(1+r)][20] to discount to
    present value the utilities that the current 40-year old would enjoy 20
    years later. To a first approximation, \103\ the relationship between
    V[40,60] and V[60,60] simplifies as follows:
        V[40,60] = [1/(1 + r--
    g)][20]V[60,60]
        For example, if the real discount rate is 3 percent but income is
    rising at a yearly rate of 1 percent in real terms, then the effective
    rate at which V[60,60] would be discounted to arrive at
    V[40,60] would be 2 percent. Moreover, if r and g were
    equal, then V[40,60] and V[60,60] would be equal
    as well. \104\ The increase in the valuation of V[40,60] to
    account for rising real incomes would exactly counteract the decrease
    resulting from the time lag in the enjoyment of utilities.
        Table I presents the changes between 1982 and 1996 in mean and
    median incomes for workers 15 years and over. The figures are presented
    in constant 1996 dollars. \105\

      Table I: Median and Mean Earnings of Workers of 15 Years Old and Over
                           (in constant 1996 dollars)
    ------------------------------------------------------------------------
                                                  Median
                                                 Earnings      Mean Earnings
    ------------------------------------------------------------------------
    1996....................................          20,716          27,366
    1995....................................          20,541          26,870
    1994....................................          19,858          26,668
    1993....................................          19,566          26,107
    1992....................................          19,521          25,124
    1991....................................          19,752          25,110
    1990....................................          20,092          25,446
    1989....................................          20,667          26,293
    1988....................................          20,475          25,755
    1987....................................          20,182          25,401
    1986....................................          19,564          25,078
    1985....................................          18,787          24,169
    1984....................................          18,366          23,428
    1983....................................          18,275          23,064
    1982....................................          18,135          22,760
    ------------------------------------------------------------------------

        The table reveals that median and mean income grew at compound
    rates of 0.95 percent and 1.01 percent per year, respectively. \106\
        b. Age-Dependent Nature of the Valuation.--A different issue is
    raised by life-cycle changes in levels of income. For example, Donald
    Shepard and Richard Zeckhauser analyze the valuations of a typical
    individual who enters the work force at age 20, sees steadily rising
    income up to age 50, then experiences a small decrease in income until
    age 65, and loses all income as a result of retirement at age 65. \107\
    The economics literature assumes that people value their lives as a
    function of their current income (and resulting consumption), not on
    the basis of projections of future income. \108\ Richard Zeckhauser has
    labeled this phenomenon as ``temporal myopia.'' \109\
        Shifts in an individual's income across time would not make a
    difference to the valuations of life if borrowing were available to
    equalize the amounts available for consumption. Typically, however,
    there are serious roadblocks to borrowing based on the expectation of
    higher incomes in the future. \110\ And, to the extent that such
    borrowing is possible, for example through credit cards, the interest
    rates are prohibitively high.
        Shepard and Zeckhauser calculate the impact of age on a person's
    valuation of life for two different scenarios, to which they attach
    ``Robinson Crusoe'' and ``Perfect Markets'' labels. In both cases, the
    individual supports her consumption from her own income and wealth, and
    has no heirs or dependents. In the Perfect Markets scenario, the
    individual can borrow in the capital markets, in order to support a
    higher level of consumption earlier in life, and can purchase annuities
    to insure against variability in her lifespan. In contrast, in the
    Robinson Crusoe scenario, access to these two markets is unavailable.
    \111\
        The authors show that in the Robinson Crusoe model an individual's
    valuation of life reaches its peak at age 40. A 40-year old values her
    life 2.5 times as highly as a 20 year old (that is, returning to the
    notation previously used, V[40,40] =
    2.5V[20,20]). At first glance, this result might appear
    counterintuitive. After all, the 20-year old loses 20 more years of
    life than the 40-year old. The reason that the 40-year old's valuation
    is higher, however, is that her income is more than three times higher,
    and this effect more than counteracts the shorter remaining life. \112\
        In turn, in the Robinson Crusoe world, the 40-year old values her
    life almost twice as highly as a sixty-year old (V[40,40] =
    1.98V[60,60]). \113\ Two different effects are at play here.
    Most obviously, the sixty-year old has fewer years to live. But another
    factor is depressing the sixty-year old's valuation of her life. Beyond
    age 40, income continues to rise until age 50, but consumption begins
    to fall. The reason is that at age 40, the individual begins to save
    for retirement and therefore has fewer resources available for current
    consumption. Indeed, even though income at age 60 is comparable to
    income at age 40, consumption is about 25 percent lower. \114\
        The situation is more straightforward under the Perfect Markets
    scenario. There, the valuation of life is highest at age 20, and then
    falls continuously through the life cycle. In this model, the 40-year
    old's valuation is about two-thirds higher than that of the sixty-year
    old. \115\ Here, the difference between V[40,40] and
    V[60,60] is attributable exclusively to the different number
    of years of remaining life.
        To the extent that the assumptions underlying the Robinson Crusoe
    model are at least partly realistic, \116\ one needs to worry about the
    procedure described in Part I.C in which the sixty-year old's
    willingness-to-pay to avoid an immediate death, V[60,60],
    was used as a proxy (and then discounted) for a 40-year old's
    willingness to pay to avoid a death 20 years later,
    V[40,60]. Given the levels of income and savings analyzed by
    Shepard and Zeckhauser, using V[60,60] as a proxy for
    V[40,60], as was done in Section I.B, will result in an
    undervaluation of the willingness to pay to avoid death of about 25
    percent (as a result of the lower level of consumption at age 60).
    \117\
        This undervaluation, however, may have decreased over time. Shepard
    and Zeckhauser relied on data from the late 1970's. \118\ Certain legal
    changes since that decade, particularly the end of mandatory retirement
    and the strengthening of protections against age discrimination, are
    likely to have affected the impact of age on income. In particular, it
    is possible that the peak income is received later in life and that the
    assumption that individuals receive no income after the age of sixty-
    five is now unrealistic. These changes would result in increasing the
    ratio of the sixty-year old's consumption relative to that of the 40-
    year old and thereby diminishing the difference in the valuations of
    V[40,40] and V[60,60] in a Robinson Crusoe
    economy.
        In summary, the discussion in this subsection is presented only to
    illustrate the underlying methodological issues that must be resolved
    to obtain a plausible estimate of the value of life. More work needs to
    be done to determine the plausibility of the Robinson Crusoe model and
    the effects of changes in workplace patterns and legal protections
    since the 1970's.
        c. Distribution of Income Across Occupations.--Individuals who take
    risky jobs generally have lower-than-average income. \119\ Thus, there
    is a problem in extrapolating from the willingness-to-pay studies
    conducted in high-risk occupations to the broader population affected
    by environ mental carcinogens.
        One threshold issue concerns the definition of the population
    affected by the different environmental programs. In principle, for
    every environmental regulation, one could attempt to determine the
    identity, age profiles, and economic characteristics of the affected
    population. One could then construct program-specific valuations of
    life that took into account the distribution of ages and incomes of the
    affected population, as well as of the latency period of the carcinogen
    subject to the regulation.
        There are good reasons why one might not want to undertake such an
    evaluation. First, the informational requirements are likely to be
    daunting. For every environmental program, in addition to estimating
    the number of affected individuals, one would need to determine their
    demographic and economic characteristics. \120\
        Second, an effect of particularized valuations based on levels of
    in come would be to justify, on cost-benefit grounds, more stringent
    regulation when the affected population is wealthier. Such a policy
    would be inconsistent with the central tenet of the increasingly
    influential environ mental justice movement, which calls for
    environmental regulation to be no less (if not more) responsive to the
    needs of communities that are disproportionately poor, or
    disproportionately populated by people of color than to the needs of
    wealthy, white communities. \121\
        As a result, it is reasonable for EPA to use uniform valuations of
    life across environmental programs. These valuations would be based on
    representative characteristics of the population of the United States.
    \122\ Thus, to the extent that the subjects of the empirical studies
    involving industrial accidents have relatively low incomes, an upward
    adjustment in their valuations of life must be performed before
    translating these figures to the environmental context.
        The U.S. Census provides median and mean earnings for all workers
    and for various occupational categories. \123\ The category including
    operators, fabricators, and laborers might be a good proxy for workers
    in risky occupations who are the subjects of empirical studies
    concerning the value of life. In 1996, the median and mean earnings of
    all workers 15 years of age and over were $20,716 and $27,366,
    respectively. \124\ The corresponding figures for operators,
    fabricators, and laborers were $16,883 and $19,981. \125\ Thus, the
    overall median earning is 22.7 percent higher than the median for
    workers in risky occupations, and the overall mean is 36.8 percent
    higher.
        2. Involuntary Nature of the Harm
        a. Comparative Valuations of Voluntary and Involuntary Risks.--
    There is an extensive literature suggesting that individuals assign
    greater value to avoiding risks that are thrust upon them involuntarily
    than risks that they incur voluntarily. \126\ As Richard Zeckhauser
    points out, ``this tendency would introduce a downward bias in the
    implicit life valuations of those who voluntarily assume risks.'' \127\
        The risk assumed by individuals who take risky jobs and subject
    themselves to a non-trivial possibility of industrial accidents is
    generally thought of as a risk assumed voluntarily. \128\ In contrast,
    the risk of exposure to environmental carcinogens, for example, as a
    result of toxic air pollution, is generally thought of as involuntary.
    \129\
        As a result, there will be a systematic undervaluation if one takes
    the willingness-to-pay to avoid voluntary harms and imports that figure
    into the context of environmental regulation. Determining the extent of
    the undervaluation, however, is complicated.
        The economics profession strongly favors ``revealed preference''
    valuations, under which the value assigned to a good can be observed
    through a market transaction. Willingness-to-pay studies of wage
    differentials needed to compensate individuals for accepting a risk of
    death are a prominent example of a revealed preference technique. \130\
    Revealed preference approaches are poorly suited for determining the
    valuation of involuntary harms because they are based on the existence
    of market transactions, and such transactions are generally seen as
    voluntary. \131\
        Thus, in order to estimate how the valuations of involuntary and
    voluntary risks differ, one needs to resort to a different approach. In
    recent years, a great deal of attention has been devoted to the
    implicit valuations of human life derived from dividing the total cost
    of an environmental program by the number of lives saved. The result,
    for environmental pro grams that do not have significant other
    benefits, is the implicit value that the regulatory program has
    assigned to each life. The range of implicit valuations for regulatory
    programs is enormous, from around $100,000 per life to a number in the
    billions of dollars. \132\ To reach any worthwhile conclusions from
    these implicit valuations, one would need to make the heroic assumption
    that social expenditures in fact are reflective of public preferences.
        Thus, a more promising alternative is to directly question
    individuals about the relative value that they attach to avoiding
    voluntary and involuntary harms. \133\ In the most comprehensive study
    of this type, Maureen Cropper and Uma Subramanian conducted a
    nationwide telephone survey of 1,000 households, asking interviewees to
    compare an environmental program and a public health program designed
    to address a particular risk, such as respiratory illness or cancer.
    \134\ The interviewees were first told that the two programs would cost
    the same amount of money and save the same number of lives, and were
    asked to determine which pro gram was best for society. \135\ Then,
    they were told that the program that they had found less attractive
    would in fact save x times more lives than its counterpart. The authors
    computed the number of lives saved by each program that made the median
    respondent indifferent between the two programs.
        The interviewees were also told to describe some qualitative
    characteristics for the risk addressed by each of the programs, and,
    for each characteristic, to place the risk on a ten-point scale. One of
    these characteristics was the ease with which the risk could be
    avoided, \136\ which is a measure of the risk's voluntariness. \137\ In
    each case, the public health risk was deemed to be more voluntary than
    the environmental risk. \138\
        For the purposes of this Article, the most relevant pair examined
    by the researchers was radon control in homes and a pesticide ban on
    fruit. Radon control, like workplace hazards, is a paradigmatic
    voluntary risk: an individual can avoid the risk by making a monetary
    sacrifice. In con trast, pesticide control, like other environmental
    risks, generally cannot be addressed effectively absent some level of
    social coordination. For this reason, the risk should be regarded as
    involuntary. \139\
        The respondents were asked to assess, on a ten point scale, the
    ease with which the respective risks could be avoided. The mean ratio
    of the ease with which the radon risk could be avoided to the ease with
    which the pesticide risk could be avoided was 1.31. \140\ When
    respondents were told that the two programs would save the same number
    of lives (and cost the same), 72 percent chose the pesticide ban and
    only 28 percent opted for the radon control. \141\ The median
    respondent was indifferent between saving 100 lives by means of the
    pesticide ban and 213 lives through radon control. \142\ Thus, the
    median respondent implicitly found the life saved imperiled by the
    involuntary risk to be twice as ``valuable.''
        More generally, the authors found, across the six pairs of risks
    that they studied, a consistent, statistically significant preference
    for addressing the less voluntary risk. \143\ Moreover, a significant
    minority of respondents--between 20 and 30 percent--always preferred
    addressing the involuntary risk, regardless of how many more lives
    would be saved by transferring the resources to addressing the
    voluntary risk. \144\
        b. Unrepresentativeness of the Population Exposed to Workplace
    Risks.--Another type of adjustment needs to be made when using
    valuations of life in workplace settings as a second-best measure of
    the appropriate value of life for environmental programs. Individuals
    who take relatively risky jobs have a comparatively low willingness-to-
    pay to avoid the risk. \145\ Indeed, individuals with higher valuations
    would demand greater wage differentials to take a riskier job over an
    otherwise comparable job that was less risky. The employers, however,
    would not need to pay this higher premium if they could fill their jobs
    with workers who had lower valuations.
        This concept can be illustrated by reference to an auction. The
    employer with the risky jobs offers a low wage premium and sees how
    many workers are willing to take the positions. If it does not fill all
    the vacancies, it offers a somewhat higher premium, and continues this
    process until it is able to fill all the jobs. Any workers who place a
    higher value on avoiding the risk end up not getting the job.
        As a result, the willingness-to-pay valuations derived from the
    study of risky jobs are not the valuations of the mean or median member
    of society. Instead, they are the valuations of a relatively small
    subgroup with a disproportionate tolerance for risk.
        In contrast, environmental risks in general affect a far broader
    sector of society. Moreover, because they are involuntary, there is no
    easy mechanism for individuals to self-select for such risks based on
    their lower-than-average valuations of risk. \146\ Thus, an appropriate
    correction needs to be made when extrapolating from the workplace to
    the environmental arena. No empirical literature, however, sheds light
    on the magnitude of this correction.
        3. Dread Nature of the Harm.--There is also an important difference
    in the nature of deaths resulting from industrial accidents on the one
    hand and from environmental exposures to carcinogens on the other. The
    former occur instantaneously and without warning. The latter often
    occur following a long and agonizing ordeal. As Cass Sunstein pithily
    notes: ``All deaths are bad. But some deaths seem worse than others.''
    \147\
        A far greater level of social expenditures is devoted to combating
    toxic risks like cancer than risks of instantaneous deaths. A recent,
    admirably comprehensive study by Tammy Tengs and a number of co-authors
    compares the cost-effectiveness of various risk reduction regulations.
    \148\ The authors first determine the cost per life saved by dividing
    the direct costs of the regulation by the number of lives saved. Then,
    they divide this cost per life saved by ``the average number of years
    of life saved when a premature death is averted'' to obtain the cost
    per life-year saved. \149\
        The comparison of costs per life-year saved reveals enormous
    disparities. The median medical and toxin control measures cost $19,000
    and $2,800,000 per life-year, respectively; the overall median is
    $42,000 per life-year. \150\ The authors also found a wide disparity in
    occupational in terventions depending on the nature of the death. The
    median occupational intervention designed to avert a fatal injury costs
    $68,000 per life-year, whereas the median occupational intervention
    involving the control of toxins costs $1,400,000--more than 20 times as
    much. \151\
        But as in the case of the comparison between voluntary harms and
    involuntary harms, one cannot draw strong conclusions from these
    disparities because public expenditures may well not reflect people's
    preferences. \152\ Instead, a more direct measure of the difference in
    valuations is preferable.
        A study by George Tolley, Donald Kenkel, and Robert Fabian at
    tempts to quantify the values attached to the avoidance of unforeseen,
    instantaneous deaths on the one hand and carcinogenic deaths on the
    other. \153\ For each of these risks, the authors define a low
    estimate, a medium estimate, and a high estimate, and present their
    figures in 1991 dollars. For unforeseen, instantaneous deaths, the
    respective estimates, derived from a survey of willingness-to-pay
    studies, are $1 million, $2 mil lion, and $5 million, respectively.
    \154\
        Because, as indicated earlier, there are no willingness-to-pay
    studies estimating the value of life lost from a disease with a long
    latency period, \155\ the procedure used by the authors for estimating
    the value of carcinogenic deaths is more complicated. As their starting
    point, the authors use the estimates for instantaneous deaths. Then,
    for their low estimate, they add a component for the value of the
    morbidity period preceding the death. \156\ This value is derived
    primarily from contingent valuation rather than revealed preference
    approaches. \157\
        As the authors note, this estimate is conservative for two reasons.
    First, it understates the value of morbidity preceding mortality
    because conditions that eventually become fatal are more serious than
    nonfatal, chronic conditions. Second, it does not account for the dread
    aspects of carcinogenic deaths. \158\ The authors account for these two
    components in their medium and high estimates, relying primarily on a
    survey of how individuals compare deaths from cancer to deaths from
    other causes, \159\ and on contingent valuations of periods of severe
    limitations of activity preceding death. The authors' low, medium, and
    high estimates of the value attached to a life threatened by cancer are
    $1.5 million, $4 million, and $9.5 million, respectively. Thus, the
    medium valuation of life in the case of carcinogenic exposure is twice
    as high as the corresponding valuation for an unforeseen, instantaneous
    death. \160\
    F. Choice of a Discount Rate
        Parts of the preceding discussion have already hinted as to why the
    choice of the discount rate used in connection with the valuation of
    lives is more complicated than merely picking the discount rate used
    for monetary flows. \161\ I can invest $100 today at a 3.5 percent
    interest rate and have about $200 in 20 years. I cannot invest the
    utility that I derive from living a year at present and obtain, 20
    years later, the utility that I would then derive from living 2 years.
    \162\ Similarly, I can sell the right to get a payment of $200 in 20
    years for a present payment of about $100. I cannot engage in a
    comparable transaction with respect to the utility that I would derive
    from living in 20 years. As W. Kip Viscusi notes, ``One cannot trade
    health . . . across time . . . . If we value our health at 45 but do
    not at 25, then we cannot simply shift health status across time in the
    same way that we would shift monetary resources.'' \163\
        This section undertakes two separate tasks. First, it reviews
    empirical evidence suggesting that, despite the conceptual difference
    between the two, there is no statistically significant difference
    between the discount rate that individuals apply to future health risks
    and the discount rate that financial markets apply to flows of money.
    Second, it criticizes OMB's approach with respect to discounting,
    especially as applied to future health risks, showing that OMB employs
    a rate that is inappropriately high.
        1. Discounting Health Risks v. Discounting Financial Flows.--
    Thoughtful analysts have recognized that the discount rates applied to
    financial flows cannot be applied mechanically to the discounting of
    the utility that comes from living in the future. \164\ The most
    extensive empirical work in this area is that of Michael Moore and W.
    Kip Viscusi, who seek to deter mine whether the rates of discount for
    health risks differ from the financial rates of time preference. \165\
        In their most recent article on the subject, Moore and Viscusi
    estimate the implicit discount rate exhibited by workers facing a
    probability of instantaneous death as a result of job risks. \166\ They
    employ a temporal model that assumes that all life years are valued
    equally, \167\ and attempt to determine the relationship between wage
    premiums and job risks as a function of the remaining years of workers'
    lives (and other relevant characteristics). \168\
        For example, consider two workers who have the same life expectancy
    and are otherwise also identical, but who demand different wage
    premiums for undertaking a risky occupation. The worker with the higher
    valuation (who therefore demands the higher wage premium) has a lower
    discount rate and therefore values more highly than her counter part
    the years that she will lose in the future. Alternatively, if two
    workers who have different life expectancies but are otherwise
    identical were to demand equal wage premiums, the worker with the
    shorter life expectancy will be exhibiting a lower discount rate: she
    will be valuing the future years more highly than the other individual.
        On the basis of an empirical study of 1463 workers, Moore and
    Viscusi calculate a real discount rate of 2 percent. \169\ The authors
    note that this real rate ``accords roughly with financial market
    interest rates for the period, once these nominal rates are adjusted
    for inflation.'' \170\ Their results, therefore, ``provide no empirical
    support for utilizing a separate rate of discount for the health
    benefits of environmental policies.'' \171\
        Moore and Viscusi reach this conclusion despite their earlier
    studies, which had found discount rates in the 10-12 percent range.
    \172\ They maintain that the confidence limits around these estimates
    were sufficiently large that the results should be thought of as
    ``quite similar.'' \173\ The authors conclude:
        In each case the confidence intervals for the discount rate
    estimates overlap available market rates of return. Moreover, since the
    point estimate of the discount rate falls short of the market rate in
    one case and exceeds the market rate in two cases, we find no clear
    evidence of systematic differences between discount rates for health
    and financial rates of time preference. \174\
        With respect to the control of environmental carcinogens, it is
    relevant that the authors found that education has a large effect on
    the discount rate. In a study that found an overall real discount rate
    of 11 percent, the rates for workers with 8 years of schooling and
    college-educated workers were 15 percent and 5.5 percent, respectively.
    \175\ Thus, to the extent that workers in risky occupations have a
    lower-than-average level of educational attainment, a downward
    adjustment on the discount rate would need to be made. For
    environmental carcinogens, this factor strengthens the authors'
    conclusion that the discount rate exhibited by financial markets is
    appropriate. \176\
        To conclude, it is worth noting that the methodology used to
    estimate the rate at which individuals discount future utilities may
    lead to an overstatement of this rate. Recall that Moore and Viscusi
    assume that all life years are valued equally. \177\ This assumption is
    consistent with the standard approach in life-cycle models, in which
    the utilities derived from living in particular years are a function
    solely of the level of consumption available in those years. \178\ It
    is plausible, however, that such utilities are affected also by one's
    age, and that they fall (for a given level of consumption) with
    increasing age, as a result of the deterioration of one's physical
    capacity.
        For example, at age 50, one might not be able to engage in the full
    range of pleasurable activities that one could have undertaken at age
    30. Thus, the choices on how to convert consumption resources into
    utility at age 50 would be more constrained. \179\ If this were the
    case, part of the lower valuation attributed to later years in one's
    life would result from the lower utility derived from living during
    those years, rather than from discounting to reflect the passage of
    time. As a result, the discount rate estimated from a model in which
    utilities are constant across time (or a function only of the magnitude
    of resources available for consumption) would overestimate the actual
    discount rate.
        2. Selecting an Appropriate Rate.--The choice of a discount rate is
    a key variable in the cost-benefit analysis of many environmental
    regulations. Because the costs of regulatory programs are typically
    borne around the time that the regulations go into effect but the
    benefits, in the case of latent harms, do not accrue for decades into
    the future, the higher the discount rate, the less desirable the
    regulation will seem. Re call, for example, that in the Corrosion Proof
    Fittings case, the present discounted value of the benefits would have
    been approximately ten times greater under a 4 percent discount rate
    than under a 10 percent discount rate. \180\
        The OMB policy on discount rates does not address specifically the
    issue of how to discount health risks. \181\ Thus, these risks are
    discounted at the rates used in the evaluation of government projects
    in general, and government regulation in particular.
        Until 1992, OMB employed a discount rate of 10 percent pursuant to
    a policy contained in its Circular A-4.\182\ In 1992, OMB amended this
    circular to mandate a real discount rate of 7 percent. \183\ OMB
    justifies this rate as ``the marginal pretax rate of return on an
    average investment in the private sector in recent years.'' \184\
        The OMB policy, however, uses a different discount rate for cost-
    effectiveness analysis--that is, to determine which of several programs
    yielding identical benefits has the lowest cost in present discounted
    terms. For this purpose, OMB employs the real return on long-term
    government debt--the interest rate on long-term government bonds minus
    the rate of inflation. \185\ In recent years, this figure has
    fluctuated between 3 percent and 4 percent. \186\
        The use of different rates for cost-benefit and cost-effectiveness
    analysis can produce perverse results. For example, consider two
    policies that have the same benefits, which are designed to address a
    future risk. Policy A costs $700,000 at present whereas Policy B costs
    $1,200,000 in 10 years (the figures are in constant dollars). At a 3
    percent discount rate, the present discounted value of the cost of
    Policy B is higher than $700,000, and thus Policy A would be preferred
    on cost-effectiveness grounds. On the other hand, at the discount rate
    of 7 percent, which would apply to cost-benefit analysis, Policy B
    would be more attractive.
        Cost-effectiveness analysis can be used as a short-cut to cost-
    benefit analysis where the benefits of two policies are the same. But
    logic compels that the policy with the most attractive cost-benefit
    ratio also be the most cost-effective. This consistency requirement can
    be violated when the discount rates used for cost-benefit and cost-
    effectiveness analysis are different. Otherwise a trivial difference,
    say of one dollar, in the benefits of the two policies (so that cost-
    benefit analysis rather than cost-effectiveness analysis must be used)
    would alter the choice between two policies that are essentially
    identical.
        More fundamentally, however, there appears to be a growing
    consensus in the economics literature that the appropriate real
    discount rate for government projects is the real return on long-term
    government debt--the interest rate on long-term government bonds minus
    the rate of inflation. The underlying issues are quite complex, but can
    be simplified considerably for the purposes of this discussion. \187\
        When the government undertakes a regulatory project, it is trading
    costs and benefits on behalf of its citizens. As Frank Arnold notes,
    ``it then seems reasonable to discount the future benefits to the
    present using the same rate that the affected citizens would use, for
    it is on their behalf that the project is undertaken.'' \188\ This
    rate, often referred to in the literature as the ``consumption'' rate
    of interest, \189\ is generally taken to be the after-tax rate of
    return, adjusted for inflation, \190\ on relatively risk-free financial
    instruments, \191\ such as government bonds. In recent years, the
    economics literature has generally called for the use of a real
    discount rate of 2-3 percent. \192\
        There is a complication, however. Consider initially two environ
    mental projects undertaken directly by the government, one financed by
    taxes and the other by borrowing. In the case of the project financed
    by taxes, the taxes will reduce the consumption of goods, so
    discounting the benefits at the consumption rate of interest is the
    appropriate procedure: individuals are simply trading off less
    consumption now, as a result of the taxes, for future benefits flowing
    from the project. \193\
        The situation is potentially different if the government finances
    the project through borrowing. In a closed economy, with no capital
    flows into the country, the borrowing would displace money available
    for private investment. Because the returns from this investment yield
    taxes, its displacement would produce a loss to the government, equal
    to the fore gone taxes. \194\
        An analytically analogous situation is posed by environmental
    regulation that imposes costs on firms, if these costs cannot be
    shifted to con sumers. In a closed economy, such investments would
    displace other private sector projects. \195\
        The appropriate discount rate under these circumstances is the
    marginal pre-tax rate of return on private investment--the rate used by
    OMB. \196\ After this return is taxed by the government, the remaining
    return must be sufficient to cover the consumption rate of interest. If
    the return on the government's project was lower, social welfare would
    be enhanced by not undertaking the government project and thereby not
    displacing the private investment. \197\
        In summary, traditionally, the literature on cost-benefit analysis
    inquired as to whether the project under consideration displaced
    consumption or private investment. It used the consumption rate of
    interest in the former case and the rate of return on capital in the
    latter. \198\
        In recent years, however, the assumptions underlying this
    bifurcated approach have been called into question. In particular,
    increasing globalization has led to the integration of capital markets
    and the opening of the U.S. economy to foreign investment. \199\ As a
    result, our economy can no longer realistically be viewed as closed. In
    an open economy, the level of taxable investments is unaffected by
    environmental regulation because no capital projects are displaced; the
    government therefore does not lose the corresponding tax revenues.
    Under these conditions, the consumption rate of interest is the
    appropriate discount rate. \200\
        Consistent with this view, the consumption rate of interest is
    currently used as the discount rate by the General Accounting Office
    (GAO) and the Congressional Budget Office (CBO). \201\ Even EPA, which
    must submit its proposed and final regulations to OMB for review under
    Executive Order 12,866, has used a 3 percent discount rate in
    connection with a proposed regulation designed to address lead-based
    paint hazards. \202\ Other agencies, however, have explicitly linked
    their discount rate to OMB's. \203\
    G. Estimating the Undervaluation of Lives Under OMB's Policy
        Section E explains the nature of the corrections that need to be
    made to intelligently translate the existing valuations of life from
    industrial accidents to appropriate valuations for environmental harms
    in general and carcinogenic harms in particular. Section F discusses
    how to choose an appropriate rate to discount the utility of life-years
    saved at the end of a latency period. The purpose of this section is to
    obtain a rough estimate of the underestimation of the value of human
    life that results from the OMB approach of taking valuations from
    workplace settings and mechanically reducing them by an inappropriately
    high discount rate over the length of the latency period. Because of
    OMB's role as the arbiter of regulatory analysis under Executive Order
    12,866, this undervaluation has important public policy consequences.
        Once again, the focus is on comparing the valuation of two
    different 40-year olds: one who faces a probability of instantaneous
    death in an industrial accident, V[in'40,40'], and the other who faces
    a probability of death at age 60 from an environmental carcinogen with
    a 20-year latency period, V[in'40,60']. Recall the two factors that
    make V[in'40,60'] smaller. \204\ First, assuming for the sake of
    simplicity that these individuals would otherwise die at age 80, the
    number of life-years lost from the carcinogenic risk is only half.
    Second, the years lost from the carcinogenic harm occur later, and
    discounting is therefore appropriate; at a discount rate of 3 percent,
    the discount factor is 0.55. So, using round numbers, if these two
    corrections were the only relevant ones, V[in'40,60'] would be about
    one-quarter of V[in'40,40'], reflecting reductions of about one-half
    each on the account of the discounting and the difference in the life-
    years saved, respectively.
        One should not overlook, however, the corrections on the other
    side, particularly those resulting from the involuntary nature of the
    environmental harm compared to the voluntary nature of the workplace
    harm, and the dread nature of deaths from environmental carcinogens
    compared to the non-dread nature of deaths from instantaneous
    industrial accidents. With respect to the first adjustment, the Cropper
    and Subramanian study, which compares deaths from voluntary and
    involuntary harms, suggests that an adjustment by a factor of two is
    appropri ate. \205\ As to the second adjustment, the study by Tolley,
    Kenkel, and Fabian finds that avoiding deaths from cancer is valued
    twice as much as avoiding instantaneous deaths. \206\
        There is a question about how to combine the results of these two
    studies. It is not completely clear that the correction from the
    Tolley, Kenkel, and Fabian study is based only on the dread nature of
    the harm, and is not also affected by different degrees of
    voluntariness of the harm. If the carcinogenic and non-carcinogenic
    harms compared by these authors shared the same level of voluntariness,
    then it would be reasonable to multiply the two factors of two, and
    conclude that an adjustment by a factor of four is necessary to account
    for the differences in voluntariness and dread.
        In contrast, if the carcinogenic harm considered in their estimate
    is less voluntary than the non-carcinogenic harm, such a correction
    would be excessive. It is clear that the difference in valuations comes
    in part from the morbidity that precedes carcinogenic deaths--one
    component of the dread nature of cancer. \207\ Moreover, nothing in the
    survey on which this study relied for the remainder of the correction
    focused the attention of the respondents on differences in the level of
    voluntariness. \208\ Thus, it seems unlikely that this issue would have
    played a large role in the valuations. \209\
        While further research on these matters is clearly needed, to a
    first approximation it is reasonable in light of the designs of the two
    studies to treat the two factors as multiplicative. Thus, other things
    being equal, the value of avoiding a death from an involuntary,
    carcinogenic risk should be estimated as four times as large as the
    value of avoiding an instantaneous workplace fatality. This upward
    adjustment thus cancels the two downward adjustments resulting from the
    fewer number of life-years lost and the discounting for the latency
    period.
        Moreover, other upward adjustments are necessary as well. \210\
    First, as indicated above, the median salary for all wage earners is
    about 23 percent higher than the median salary for operators,
    fabricators and laborers, the U.S. Census category most likely to
    contain the subjects of willingness-to-pay studies in the context of
    industrial accidents. \211\ Thus, the valuation of lives threatened by
    environmental carcinogens should be the subject of an upward adjustment
    of another 23 percent.
        Second, economic growth must be accounted for. As a result, based
    on the 1982-1996 period, the discount rate used in making the down ward
    adjustment necessary to account for the fact that the life-years would
    be lost in the future should be reduced by about 1 percent. \212\ Thus,
    accounting for economic growth leads to an upward adjustment of the
    valuation of life of 22 percent. \213\
        As indicated above, the OMB approach is to take the valuations of
    life from workplace settings and discount them for the length of the
    latency period at a rate of 7 percent. \214\ While this approach does
    not reduce the valuation to reflect the smaller number of life-years
    saved, \215\ using a 7 percent discount rate instead of a 3 percent
    rate over a 20-year latency period leads to a downward adjustment of
    the valuation by a factor of about four, rather than by a factor of
    about two. \216\ One would arrive at the same downward adjustment by a
    factor of four, however, if one took account of the smaller number of
    life-years saved and discounted at a 3 percent rate.
        Moreover, the OMB approach neglects to perform any of the necessary
    upward adjustments. Thus, over a 20-year latency period the approach
    may undervalue human life by a factor of about six. \217\ For
    contaminants with longer latency periods, the undervaluation would be
    even greater. \218\
        Finally, this estimate of the undervaluation that results from the
    OMB approach is probably a lower bound. The true figure may well be
    higher because the calculation is based only on those differences
    between instantaneous deaths from workplace accidents and deaths from
    environ mental carcinogens that can be quantified on the basis of
    plausible empirical studies. The preceding discussion has identified
    two additional possible sources of undervaluation, but the
    quantification of the impact of these sources is not possible as a
    result of the lack of relevant empirical analysis. First, and probably
    most importantly, the population exposed to workplace accidents has a
    comparatively low willingness-to-pay to avoid death, as a result of a
    disproportionate tolerance for risk. \219\ Second, to the extent that,
    for a given level of resources available for consumption, the utility
    of being alive at a particular age falls with increasing age, the
    estimates in the literature of the rate at which individuals discount
    their future consumption would be higher than warranted. \220\
    H. Recasting the Debate
        It is now worth highlighting that this Article's approach to
    discounting in an intragenerational setting does not pose significant
    ethical issues that are distinct from those raised by cost-benefit
    analysis in general or the valuation of human life in particular. \221\
    In principle, one could directly ascertain, through willingness-to-pay
    studies, the value of lives threatened by latent harms. Because
    practical problems stand in the way of obtaining such valuations, a
    second-best measure, constructed in part by means of discounting future
    utilities, must be used instead. \222\ The use of such a proxy,
    however, does not give rise to ethical issues other than those that
    might exist if the measurement were done directly.
        The reason for discounting in the case of latent harms is not that
    a regulator or some other outsider determines that life in the future
    is less valuable than life in the present. \223\ Instead, discounting
    simply reflects the fact that the individual who is valuing her own
    life derives less utility from living a year in the future than in the
    present. \224\ Discounting is therefore necessary to provide an
    accurate value of the utility that the individual loses in the present
    as a result of a premature death that might occur in the future.
        At the same time, however, discounting is only one of many
    necessary adjustments that need to be made when valuations in the
    context of industrial accidents are used as the starting point to
    construct a value of human life for the purpose of regulating
    environmental carcinogens. It has no greater call for legitimacy than
    any of the other adjustments analyzed in Part I.E. As the various
    empirical estimates show, it is not even dominant in terms of
    magnitude. \225\ Thus, the failure of the regulatory process to make
    other adjustments, principally as a result of OMB's approach to the
    matter, leads to a substantial undervaluation of human life. \226\
        The preceding discussion views discounting in this intrapersonal
    situation raised by the presence of latent harms as an essentially
    technocratic procedure, which must be undertaken in conjunction with
    other adjustments of the value of life from instantaneous industrial
    accidents, in order to obtain a second-best estimate of the value of a
    human life threatened by latent environmental contaminants. This
    characterization of the problem may give rise to two types of concerns.
    Neither, however, calls for a reevaluation of the ethical status of
    discounting in the case of latent harms.
        First, one might worry that an individual's decisions today do not
    sufficiently protect the person that the individual might become in
    several decades. This perspective views the individual as a succession
    of ``multiple selves.'' \227\ Its concern is that the individual's
    current self would make decisions that undervalued the interests of the
    individual's future self by choosing a discount rate that was too high.
    This formulation gives rise to a typical externality problem and
    converts a technocratic intrapersonal problem into an ethically laden
    quasi-interpersonal one.
        The objection, however, would not be confined to the role that
    discounting plays as a step toward a second-best valuation of human
    life threatened by latent harms. Precisely the same objection could be
    lodged against an attempt to measure this value directly through
    willingness-to-pay studies. One would worry in this context that the
    wage premiums demanded by an individual would be too low because the
    future costs would be borne not by her current self but by a future
    self. The complaint would thus not be attributable to the specific role
    played by discounting but, more generally, to the process of valuing
    life itself. Thus, as a formal matter, the objection does not disprove
    my claim that discounting in an intragenerational setting poses no
    significant ethical issues that are distinct from those raised by cost-
    benefit analysis in general or the valuation of human life in
    particular. \228\
        Moreover, such a criticism of revealed preference approaches to the
    valuation of threats to human life would not be confined to latent
    harms. Take, for example, an instantaneous industrial accident in which
    an individual faces probabilities of both death and serious morbidity.
    The individual's current self might not have sufficient empathy toward
    a future self confined to a wheelchair, and might therefore demand too
    low a wage premium.
        More broadly, most decisions that we make have future consequences.
    Every time that we borrow money, we reduce the resources that will be
    available to us in the future. Similarly, every current expenditure
    affects the amount that will be available for future expenditures. To
    find an externality in each decision with future consequences as a
    result of the presence of multiple selves would open the door to
    government regulation of essentially every financial decision that we
    make. Such an approach would therefore constitute a serious affront to
    individual autonomy.
        Interfering with individual preferences in this manner might be
    appropriate in the face of fairly egregious myopia. For example, in the
    somewhat analogous context of social welfare policy, Bruce Ackerman and
    Anne Alstott note:
        The aim of liberal policy is not to second-guess [individuals']
    choices by supposing that everybody 'ought' to save a lot for
    retirement if they are to maximize their happiness over their life
    times. Its mission is more modest but more fundamental. It is to
    protect elderly citizens against the worst consequences of their
    earlier psychological myopia. The watchword is not utility maximization
    but the assurance of dignified existence in old age. \229\
        It would be unwarranted, however, to attack this Article's approach
    to the problem of latent harms by deploying the machinery of ``multiple
    selves'' analysis. Recall that the approach advocated here is to use
    the after-tax return on riskless investments--a rate that currently
    stands at between 2 and 3 percent. \230\ If this rate were to be
    trumped as insufficiently protective of the future, one would need to
    trump every decision to borrow money at market rates of interest. Then,
    governmental regulation of individual choices in the face of any
    decision with future consequences would become the norm, rather than a
    relatively rare club to be wielded only in the face of egregious lack
    of foresight.
        A different type of objection might be raised to the claim that, in
    the context of latent harms, discounting is a technocratic exercise
    that does not give rise to difficult ethical choices. Different
    individuals have different discount rates, but the social decision of
    how to control latent environmental harms needs to be based on a single
    rate. Thus, in choosing the rate on which to base social policy, one
    needs to make some type of interpersonal comparison. Such comparisons,
    which are highly value laden, are inevitable, even if they are made
    implicitly by using a common rule of thumb such as basing the policy on
    the median discount rate.
        Because environmental quality is a public good, once the government
    acts, individuals will enjoy a uniform level of quality regardless of
    their individual discount rates. Thus, individuals with low discount
    rates would be exposed to more latent harms than they would have
    preferred, and individuals with high discount rates will be exposed to
    harms that are lower than they would have preferred (and consequently,
    perhaps, would have to face too high a current financial sacrifice to
    fund the policy).
        This objection, again, is not particular to the role played by
    discounting future utilities in the case of latent harms, but can be
    raised more generally against both cost-benefit analysis and the
    valuation of human lives. Under cost-benefit analysis, public policy is
    chosen on the basis of the aggregate valuations of the benefits. Thus,
    individuals with particularly high valuations have to accept a policy
    that is laxer than they would have preferred, whereas individuals with
    a particularly low valuation face the opposite problem. Similarly, in
    the case of public policy decisions taken to prevent even instantaneous
    deaths, individuals who value their lives particularly highly (perhaps
    because they are unusually wealthy or have a particularly low tolerance
    for risk) will face a policy that is laxer than they would have
    preferred.
        In summary, to the extent that the valuation procedures discussed
    in Part I give rise to ethical objections, these objections should be
    leveled either against cost-benefit analysis generally or against the
    valuation of life in particular. \231\ If these two techniques survive
    ethical scrutiny, no substantial independent ethical argument should be
    raised against the role played by discounting in an intragenerational
    setting. More generally, it is not defensible to argue that the value
    assigned by the regulatory process to a human life should be
    independent of when an individual's life-years are lost, regardless of
    how the timing affects the individual's own valuation.
                        ii. harms to future generations
        As indicated at the outset of this Article, discounting at a rate
    of re turn comparable to that earned by financial investments turns the
    utilities of generations living a few hundred years from now into a
    negligible present discounted value. \232\ Under such conditions,
    practically no current expenditure for the benefit of relatively
    distant generations could be justified within a cost-benefit framework.
    Because many of the consequences of climate change will not manifest
    themselves for a long time, \233\ the consequences of discounting at
    the rate of return of financial instruments may well be to make any
    plausible expenditure to address climate change fail a cost-benefit
    test.
        The emphasis of many economists on the use of constant discounting
    models stands in stark contrast to the approach of international
    environmental law, which has given its unqualified endorsement to an
    alter native concept to guide intergenerational allocations: the
    principle of sustainable development. Indeed, the concept of
    sustainable development figures prominently in the most important
    agreements concerning international environmental law, \234\ including
    the Stockholm Declaration, \235\ the Rio Declaration, \236\ and the
    Framework Convention on Climate Change. \237\
        Section A shows that models of discounting harms to future
    generations cannot be justified merely through appeals to logic.
    Section B reviews the empirical literature concerning how individuals
    would discount benefits to future generations. The results reveal a
    strong intuition against the use of constant discounting models.
    Section C analyzes the serious shortcomings of discounting models when
    they are used in an intergenerational context. Section D discusses the
    role of opportunity costs; even if future utilities are not discounted,
    expenditures for environ mental projects might nonetheless be postponed
    if other investments can yield higher returns. Section E analyzes the
    principle of sustainable development and shows why it too suffers from
    serious shortcomings. Finally, Section F presents the outlines of an
    attractive theory of intergenerational obligations with respect to the
    environment.
    A. Discounting and Appeals to Logic
        Some proponents of discounting the benefits to future generations
    justify their position through appeals to logic, invoking a set of
    absurd consequences that would inexorably follow if discounting was not
    per formed. Their arguments in this regard are unpersuasive.
        1. No Environmental Projects Will Be Undertaken Unless One
    Discounts at a Market Rate.--Some commentators argue that unless
    environmental benefits are discounted at the rate of return on other
    investments, environmental expenditures would always be deferred into
    the future and ultimately would never be undertaken. For example, Susan
    Putnam and John Graham state:
        If a smaller discount rate were to be applied to health than to
    money, it would always make sense to postpone adoption of public health
    programs that invest money now for deferred health improvements. In
    short, society would continually delay risk reduction into the future
    and impose the burdens on future generations. \238\
        Similarly, according to Emmett Keeler and Shan Cretin:
        The discounting of costs but not benefits . . . has a paralyzing
    effect on a decisionmaker. . . . For any attractive program, there is
    always a superior delayed program which should be funded first. The
    result is that no program with a finite starting date can be selected.
    \239\
        The idea behind this position is that, instead of undertaking the
    environ mental program, one could invest the funds in an alternative
    project, watch the investment grow, and then address the environmental
    problem at some time in the future. At this future time, moreover, one
    would engage in the same calculus and decide to postpone the
    environmental expenditure once more.
        Environmentalists have traditionally favored low discount rates be
    cause the costs of environmental protection generally must be borne
    well before the benefits begin to accrue. \240\ Thus, a low discount
    rate makes a given expenditure seem more desirable. The argument that
    no environ mental programs would be undertaken absent discounting at a
    market rate turns this view on its head: lack of discounting becomes
    environ mentally undesirable.
        There are several responses to the justification of the discounting
    of environmental benefits by an appeal to a seemingly logical claim
    that any alternative would lead to the indefinite postponement of
    environmental expenditures. To begin, regardless of whether one
    discounted the environmental benefits at the market rate, it would
    always be desirable to undertake environmental investments that yielded
    a market rate of re turn. So, the claim has to be somewhat more modest:
    that only environ mental investments yielding at least a market rate of
    return would be undertaken. Other environmental projects, in contrast,
    would be delayed forever because they would always look more attractive
    in the future, after the funds that would have been allocated to these
    projects earned a higher rate of return elsewhere. \241\
        There is then a seemingly inescapable logic to discounting environ
    mental benefits at the rate of return earned by other investments. If
    one used a lower discount rate for environmental benefits,
    environmental remediation projects could pass a cost-benefit inquiry
    even though the resources would be best spent elsewhere. The use of a
    discount rate equal to the rate of return on other projects ensures
    that only desirable projects pass a cost-benefit test. \242\
        Even with this reformulation, however, the appeal to logic assumes
    implicitly that the costs and benefits of the environmental program
    will remain unchanged over time; \243\ it is because of this invariance
    that delaying expenditures in order to invest at the market rate of
    return seems attractive. This assumption, however, is inconsistent with
    the structure of many environmental problems.
        For example, in the case of the remediation of hazardous waste
    sites under the Superfund program, the damages caused by the
    contamination are likely to increase significantly over time if the
    problem is left unattended. \244\ If addressed early, a cleanup can
    take place before the hazardous waste has seeped down to an aquifer,
    affecting the quality of the groundwater. At this stage, the cost of
    remediation is comparatively modest and the damage from the
    contamination (and therefore the benefit of undertaking a remediation)
    is comparatively modest as well.
        A few years or decades later, however, the pollutants may have
    worked their way down to the aquifer. \245\ Then, the damage may be far
    higher, since the pollutants could have destroyed important sources of
    drinking water. In turn, the costs of remediation would be far higher
    as well. \246\
        Alternatively, certain environmental problems may become
    irreversible. Once that occurs, any finite expenditure on abatement, no
    matter how high, will fail to remedy the problem. The costs of
    abatement will effectively have increased to infinity.
        Thus, in deciding whether to undertake an environmental project
    now, one cannot merely perform a static calculation of the magnitude of
    costs and damages on a particular date. One needs also to look at the
    problem dynamically and determine how the costs and damages would vary
    over time if the problem were left unattended.
        Consider the following simple example. We could remove some soil
    from the site and incinerate it now at a cost of $110, \247\ and the
    damage from the current contamination is $100, reflecting a small
    increase in the cancer risk of certain residents in neighboring areas.
    If one looked at these figures statically, one would decide, on cost-
    benefit grounds, not to undertake the cleanup. If the problem is left
    unattended, however, in 10 years the remediation cost would be $500, as
    a result of the need to pump and treat groundwater, and damage from the
    contamination would be $600. At that point, the cleanup would be
    justifiable on cost-benefit grounds. For any plausible discount rate,
    however, it would be better to spend the $110 upfront to remove and
    incinerate the contaminated soil, thereby addressing the current $100
    damage problem as well as preventing it from becoming a $600 damage
    problem in the future.
        Thus, the situation described above presents three policy options:
    remediate now, remediate later, or do not remediate. It is desirable to
    remediate now not only when the current damage is greater than the
    current cost of addressing this damage, but also when the future damage
    is greater than the future cost of addressing it, and the increase in
    costs in the intervening period is greater than the rate of return on
    other investments. \248\
        These features concerning the structure of environmental benefits
    and costs are no less an issue for climate change than they are for
    Superfund problems. \249\ Certain climate change problems may be
    irreversible, \250\ and in such cases delaying investment in the
    environmental project is not an option. More generally, to make
    intelligent policy choices one needs to know, for example, not only the
    costs and damages at the time that carbon dioxide loadings in the
    atmosphere are doubled relative to some baseline, but also how the
    damage changes over time and the extent to which this damage can be
    reduced by means of particular policy measures. \251\
        In addition, in the case of climate change, there is the
    possibility of catastrophic consequences. \252\ In the face of such
    consequences, risk aversion would justify undertaking projects even if
    their expected return was lower than that of other projects. \253\
        Moreover, the view that before addressing environmental programs we
    should exhaust higher-yielding investments in other areas overlooks
    important difficulties concerning the transfer of resources across
    projects. \254\ Say, for example, that initially the greatest returns
    to a given investment would be to improve the educational system of
    particularly poor developing countries. \255\ Over the first 20 years,
    resources in vested in this manner earn a greater return than if they
    had been placed in an environmental project. Moreover, over this
    period, the costs of environmental remediation are increasing at a rate
    lower than the return on the educational investment.
        After 20 years, however, the calculus changes. The costs of the
    environmental project, though less than the resulting benefits, begin
    to rise at a rate higher than the rate of return to education in the
    developing country. At that point, it is desirable to take the proceeds
    of the educational investment and transfer them to the environmental
    investment.
        There is good reason to be skeptical about the feasibility of this
    transfer. Part of the returns from the educational investment may have
    been consumed by its beneficiaries, and may therefore no longer be
    available to fund the environmental project. Other resources may be
    sunk in long-term investments, such as infrastructure, from which they
    could not feasibly be extricated.
        The transfer of even liquid investments may raise problems. The
    developing countries (or whatever interest group benefits from the
    initial allocation) might object to having the resources transferred to
    address a problem that they attribute to developed countries. Absent
    their con sent, there might be no clear mechanism for effecting the
    transfer. Of course, one could attempt to deal with this problem ex
    ante by contracting between the provider of the funds and the temporary
    recipient. Nonetheless, there are likely to be difficulties enforcing
    the rights under such a contract.
        In summary, the resort to logic must fail. Perhaps the argument
    could be further recast to state that environmental expenditures should
    not be undertaken if other projects have a higher return, if the costs
    and damages associated with leaving the environmental problem
    unattended do not rise too fast, if the potential for catastrophic
    environmental consequences in the absence of immediate measures is
    sufficiently low, and if the difficulties of transferring resources
    across projects are not insurmountable. Then, of course, the claim made
    by supporters of discounting would have lost all their bite and would
    have become essentially tautological.
        2. Failure to Discount Would Lead to the Impoverishment of the
    Current Generation.--A different argument maintains that not
    discounting the value of benefits to future generations makes it
    desirable for us to impoverish ourselves down to subsistence levels for
    the benefit of future generations. As Tyler Cowen and Derek Parfit
    describe the argument (to which they do not subscribe):
        We clearly need a discount rate for theoretical reasons. Other wise
    any small increase in benefits that extends far into the future might
    demand any amount of sacrifice in the present, be cause in time the
    benefits would outweigh the cost. \256\
        The logic is not limited to our generation. In turn, subsequent
    generations face the same incentive, and they become impoverished as
    well. Thus, ``failure to discount would leave all generations at a
    subsistence level of existence, because benefits would be postponed
    perpetually for the future.'' \257\
        There are two serious problems with the argument. First, it assumes
    implicitly that the objective of the decisionmaker is to maximize a
    social welfare function that adds up the interests of all generations.
    Then, deferring consumption now makes additional resources available
    for the future, when more people are around to derive utility from
    them. The question of whether it is appropriate to determine our
    obligations to future generations by reference to an aggregate social
    welfare function can not be resolved as a matter of logic. Instead, it
    must be defended by means of an ethical theory. \258\ The argument that
    all generations will be impoverished unless we discount environmental
    benefits assumes away the hard ethical choice, \259\ and then notes
    that an absurd conclusion would follow absent discounting.
        Moreover, the argument for discounting as a way to avoid
    impoverishment takes a truncated and fundamentally misleading view of
    the manner in which one generation affects the welfare of subsequent
    generations. One component, to be sure, is through its consumption of
    renewable and nonrenewable resources. Thus, one way in which we could
    attempt to impoverish ourselves is by foregoing the consumption of such
    resources.
        But to a large extent the standard of living of future generations
    will depend on current investments in areas such as technological
    knowledge, educational attainment, and productive capacity. \260\ Would
    our generation make those investments if it was wholly deprived of the
    resulting benefit? The answer, presumably, must be negative--that the
    level of effort that we bring to the business of making investments
    with long-term consequences is a function of the benefits that we can
    realize from those investments.
        As a result, a requirement that we impoverish ourselves to leave
    more resources for future generations could actually decrease, rather
    than in crease, the resources available in the future. One might
    respond by saying that our generation has an obligation to provide the
    level of investment that it would have provided under a regime in which
    it could at least share in the fruits of its labors. That may well be a
    plausible argument, but it derives from an ethical judgment. Thus, the
    appeal to logic fails here as well.
        In summary, the failure to discount does not inexorably lead to the
    impoverishment of all generations; it does so only if one makes two
    ethical judgments: that the appropriate social welfare function adds up
    the utilities of all generations, and that the current generation has
    an ethical obligation to invest in a stock of activities affecting
    long-term well-being even if it cannot keep any of the resulting
    benefits.
    B. Intuitions About Discounting
        Before proceeding further, it is worth reviewing some empirical
    studies seeking to determine how individuals think about long-term
    discount ing issues. A caveat is appropriate at the outset. If
    individuals in the cur rent generation indicate that they would
    discount the benefits of future generations, one should not
    automatically conclude that the decision reflects an honest ethical
    judgment. Instead, the judgment of these individuals might be
    compromised by self-interest. On the other hand, it would be relevant
    if members of the current generation, despite their self-interst to the
    contrary, were prepared to make social decisions protective of future
    generations. Their generosity might be indicative of an ethical in
    tuition that the benefits accruing to future generations should not be
    discounted very much, or perhaps not at all.
        Most of the empirical studies in this area use a similar
    methodology. Typical of the approach is the questionnaire prepared by
    Maureen Cropper, Sema Aydede and Paul Portney, which states:
        Without new programs, 100 people will die this year from pollution
    and 200 people will die 50 years from now. The government has to choose
    between programs that cost the same, but there is only enough money for
    one . . . . Which program would you choose? \261\
        In their surveys, the authors varied the number of lives that would
    be saved in the future (but kept constant at 100 the number of lives
    saved in the present). They also varied, between 5 years and 100 years,
    the time at which the future lives would be saved. \262\ From the
    responses, they computed the discount rates that the respondents
    assigned to future consequences. The mean of the respondents' discount
    rates was 8.6 percent, 6.8 percent, and 3.4 percent, for time horizons
    of 25, 50, and 100 years, respectively. \263\ A similar study,
    conducted in Sweden, calculated discount rates of about 25 percent, 12
    percent, and 8 percent, for time horizons of 20, 50, and 100 years,
    respectively. \264\
        More strikingly, another Swedish study sought to compare the
    seriousness of a leakage of spent nuclear fuel at times ranging between
    one thousand and almost two million years into the future. Almost one
    third of the respondents did not discount the future consequences at
    all. Among those who did, the mean discount rate attached to an
    accident in the year 10,000 was less than one-hundredth of 1 percent--
    practically zero. \265\
        The studies reveal an essentially unanimous opposition to the core
    component of the traditional discounting model: that future
    consequences should be discounted at a constant rate and that the rate
    of discounting should be set by reference to the rate of return on
    particular investments. \266\ Instead, the studies show a consistent
    pattern under which the discount rate falls as the time horizon gets
    longer. \267\ More over, the discount rate with respect to very long
    time horizons is well under the rate of return on investments in
    financial markets. \268\
    C. Discounting in a Global Utilitarian Calculus
        Thus, at this point the argument has established that the propriety
    of discounting the benefits to future generations cannot be resolved by
    appeals to logic. Moreover, empirical studies reveal a moral intuition
    opposed, over the long-term, to constant discounting at a rate of
    return comparable to that generated by financial markets. It is now
    time to focus directly on the propriety of discounting.
        Most economic formulations of discounting in an intergenerational
    context posit a social welfare function that aggregates the utilities
    of individuals in the different generations. \269\ For each time
    period, the utility is multiplied by a rate of pure time preference,
    which is a measure of the difference in importance attached to current
    utility as compared to utility in the future. \270\ This rate could be
    zero (the utilities of current and future generations have the equal
    importance) or positive (the utilities of earlier generations are
    privileged). \271\ The goal of the decisionmaker is to maximize the
    aggregate utility function. \272\
        In this framework, the discount rate that maximizes aggregate
    utility can be written as follows:
        d = [rho] + [THETA] g where d is the discount rate, [rho] is the
    rate of pure time preference, [THETA] is the absolute value of the
    elasticity of marginal utility (a measure of the relative effect of a
    change in income on utility), and g is the growth rate of per capita
    consumption. \273\
        The pure rate of time preference, [rho] , reflects the fact that if
    the social welfare function gives less weight to the utilities of later
    generations, then those utilities must be discounted in order to make
    them comparable to the utility of the current generation. The term
    composed of the product of [THETA] and g has a less direct genesis.
    Most economic models of discounting assume that individuals in the
    future will enjoy higher rates of consumption than individuals in the
    present: more specifically, the level of consumption will increase at a
    rate of g. \274\ The models also assume that individuals exhibit a
    declining marginal utility of consumption--that is, that a unit of
    consumption has a greater effect on the utility of an individual with a
    lower level of consumption than on one with a higher level of
    consumption. \275\
        As a result, if later generations will enjoy a higher level of
    consumption as a result of economic growth, social welfare can be
    increased by allocating some additional resources to earlier
    generations. The [THETA] g term represents the amount of discounting
    that must be performed, in order to maximize social welfare, on account
    of the higher levels of consumption of later generations.
        The following subsections deal specifically with each of the two
    components of the discount rate.
        1. Pure Rate of Time Preference.--Exemplifying the position of many
    economists, Victor Fuchs and Richard Zeckhauser take a strong position
    in favor of discounting at the rate of return on financial instruments.
    They maintain:
        Most policy planning discussions assume full altruism--future
    citizens are given equal weight with present citizens--and discount
    solely for the time value of money. Given this ethical premise, the
    value of life years to future generations should be discounted at the
    time-value-of-money rate. \276\
        Terming this approach ``full altruism'' is somewhat contrived. In
    fact, it privileges the interests of the current generation to a very
    large extent.
        Recall that, at a time-value-of-money rate of 5 percent, this
    approach equates the loss of one life today with the loss of a billion
    lives in 500 years. \277\ Stated somewhat differently, assume that the
    population of the world remains constant at about 6 billion people over
    the next 500 years. Under a model of time discounting, what would be
    the maximum current expenditure that could be justified in order to
    prevent the death of every living individual in 500 years? Placing a
    value of life of $5 million, in constant dollars, the maximum current
    amount that we could justify spending now to avert the destruction of
    the human race in 500 years would be $30 million. (At the OMB rate of 7
    percent, this amount would be only about $10!) More conventional
    definitions of altruism would presumably call for a different result.
        Indeed, the discount factors are simply the weights used to compare
    the value attached to the utilities of individuals in different
    generations. A pure rate of time preference of zero is equivalent to
    giving the utility of persons living at different points in time the
    same weight in the social welfare calculus. \278\ Any positive rate
    simply reflects the preferences of a social welfare evaluator to
    depreciate the utilities of future generations. \279\
        The ethically compromised status of discounting for time preference
    at a constant rate can perhaps be best illustrated by the following
    example. Consider an exceedingly simple economy with 100 units of re
    sources. Two individuals, with identical utility functions, live in
    this economy: one from year 1 to year 50 and the other from year 51 to
    year 100. There is no possibility for productive activity; thus, the
    individuals will be able to derive utility only from the existing 100
    units of resources. \280\
        In the absence of discounting for time preference, each individual
    would be allocated 50 units of resources. In the face of a positive
    rate of time preference, however, even a relatively modest one, the
    first individual would get the bulk of the resources. It would be
    difficult to construct an attractive ethical theory that privileged the
    first individual in this manner merely because she lived 50 years
    earlier than the second individual.
        The possible justifications for discounting for time preference at
    a positive rate are not compelling. First, one might posit that if
    discounting for time is appropriate intragenerationally, it should be
    acceptable in tergenerationally as well. There is a fundamental
    difference, however, between the two situations.
        Intragenerational discounting affects the timing with which a
    particular individual decides to expend a fixed amount of resources. It
    is merely a reflection of the individual's preferences and, as
    discussed in Part I.H, does not raise any significant ethical
    questions. \281\ In contrast, intergenerational discounting affects the
    quantity of resources available to each individual.
        In an intergenerational context, one must initially decide how to
    allocate resources to individuals in different generations--a societal
    decision with ethical underpinnings. Then, each individual must decide
    how to time the consumption of resources across her lifetime--a
    personal decision with no ethical ramifications, \282\ other than a
    weak concern about excessive myopia. \283\
        Some economic models that purport to analyze intergenerational
    problems construct their utility function by reference to an individual
    who lives forever. \284\ Models of this type collapse the
    intergenerational and intragenerational aspects of the optimization
    across generations. \285\ Thus, they overlook an important dimension of
    the problem. One simply cannot avoid making ethical judgments about
    intergenerational transfers by mechanically importing to this endeavor
    the intragenerational framework. \286\
        The second possible justification is that time discounting does not
    show lesser regard for future generations because even though it under
    values the interests of a particular generation relative to an earlier
    generation, it overvalues its interests relative to a later one.
    According to this claim, each generation is treated in a comparable
    way: somewhat worse than its predecessors and somewhat better than its
    successors.
        The claim is not an affirmative argument for discounting. Instead,
    its ambition is far narrower: it merely responds to one possible
    argument against discounting. It does not carry the day, however, even
    in this limited respect. Absent economic growth, as would be the case
    for example in economies with high levels of consumption, constant
    discounting for time preference would lead to the progressive
    impoverishment of subsequent generations. Given the choice between
    consuming resources in the present and leaving them for future
    generations one would choose the former because the utilities derived
    from these resources by later generations would be heavily discounted.
        It is true that if discounting actually threatened to impoverish
    future generations additional resources would be allocated to these
    generations as a result of the declining marginal utility of
    consumption, which would make the poorer generations value a unit of
    consumption more. This phenomenon, which is a feature of growth
    discounting at a negative rate of growth, could mitigate some of the
    harshness that would otherwise result. The existence of such a safety
    valve, however, is hardly a ringing endorsement of discounting for the
    pure rate of time preference.
        Yet another argument for discounting for time preference focuses on
    the greater affinity that the current generation feels for itself and
    for the generations that immediately follow it. As Kenneth Arrow and
    several co-authors note, the rate of time preference ``may represent
    discounting for empathetic distance (because we may feel greater
    affinity for generations closer to us).'' \287\ By its terms, the
    statement purports to make a descriptive claim rather than a normative
    judgment: it does not explain why a social welfare function that
    reflects such judgments is ethically defensible. \288\
        Moreover, this argument for discounting is suspect even as a
    descriptive claim, as the empirical evidence discussed in Part II.B
    shows quite clearly. \289\ It is plausible that we would like to favor
    ourselves over future generations, and that with respect to future
    generations we would like to privilege the generations of our children
    and grandchildren, and per haps even great-grandchildren, over
    subsequent generations. \290\ But discounting at a constant rate
    implies that our decreasing regard for subsequent generations continues
    forever. For example, it seems unlikely that, on this account, we would
    value the loss of one billion lives 1000 years no more than the loss of
    one life 500 years from now, as would be the case if we used a discount
    rate of 5 percent. \291\
        Other commentators justify discounting by reference to the
    probability that some catastrophe in the future will result in the
    destruction of human civilization. \292\ The point then is that if we
    are not sure that a future generation will exist, we should allocate
    more resources to earlier generations, which are more likely to be
    around to enjoy the re sources. This argument could well justify
    discounting at a constant rate, but it is very unlikely that the rate
    would be more than infinitesimal. \293\
        Also embedded in the claim is an ethical issue. To some extent, the
    survival of humanity is imperiled by actions of our generation, and of
    a few generations immediately preceding ours. The consequences of
    nuclear war are one such example. Over the long run, climate change
    itself may result in a catastrophic scenario. \294\ If we are
    contributing to the probability of humanity's extinction, should we
    then invoke this possible outcome as an argument to allocate more
    resources to ourselves? A quite plausible principle is that the current
    generation should not benefit in this manner from its externalizing
    behavior.
        Finally, time discounting is sometimes justified on the grounds
    that over time some kind of countermeasures or cures for environmental
    problems may be devised. \295\ If, indeed, there were a scientific
    basis to support such an assumption, a welfarist framework would call
    for reducing the harm by the probability that ultimately the harm will
    not in fact accrue. To the extent that the harm was potentially a
    catastrophic one, however, risk aversion would mitigate that reduction.
    \296\ More fundamentally, it would be an exceedingly unusual
    coincidence if the probability that an environmental problem would
    self-correct just happened to equal the interest rate on financial
    instruments for every problem and for every length of time. \297\ Thus,
    in its general formulation, this argument for discounting must be
    rejected as devoid of any factual basis. \298\
        In summary, the arguments for discounting as a result of the pure
    time preference are not compelling. \299\ The confusion surrounding the
    issue stems, at least in part, from equating intragenerational
    discounting, which ought not to be considered particularly
    controversial, \300\ with in tergenerational discounting, \301\ which
    raises a different set of issues. \302\ To conclude, it is worth noting
    that even though discounting for time preference is a relatively
    standard technique in economics, there is a long and respectable
    tradition, traced to an article published in 1926 by Frank Ramsey, that
    rejects such discounting in intergenerational contexts. \303\
        2. Growth in Levels of Consumption Over Time.--It is time to turn
    to the question of discounting as a result of the growth in levels of
    consumption over time. Recall that the argument in favor of such
    discounting rests on the predicted additional wealth of future
    generations and the decreasing marginal utility of consumption. \304\
    Given these conditions, growth discounting leads to the maximization of
    the social welfare function. \305\
        Before evaluating the argument for such discounting, it is worth
    pausing to consider the magnitude of what is at stake. As explained
    above, the discount rate for growth that maximizes social welfare is
    the product of g, the growth rate of per capita consumption, and
    [THETA] , the absolute value of the elasticity of marginal utility.
    Arrow and his co-authors indicate that most empirical estimates of this
    elasticity place it in the range between one and two; thus they use the
    mid-point, 1.5, in some of their calculations. \306\ With respect to
    long-term per capita growth, the central estimate of the
    Intergovernmental Panel on Climate Change placed it at 1.6 percent.
    \307\ Thus, the rate of discount for growth would be 2.4 percent. This
    amount is far from inconsequential. It implies, for example, that we
    would be indifferent between saving one life now and 10.7 lives in 100
    years, or between saving one life now and 141,247 lives in 500 years.
        This type of discounting gives rise to two important concerns.
    First, to the extent that subsequent generations are wealthier, they
    will value the benefits of environmental protection more highly. The
    standard economic models calculate the environmental damage on the
    basis of the valuation of the current generation: economic growth
    implies that later generations will have higher valuations. \308\
    Standard estimates of the benefits of climate change measures include a
    reduction in the loss of lives. \309\ As shown above, the elasticity of
    this valuation with respect to levels of consumption is approximately
    one. \310\ Thus, this valuation should be expected to rise at the rate
    of economic growth. \311\ Similarly, valuations of environmental
    amenities and natural resources are closely linked to levels of income,
    \312\ and will rise with rising income. \313\ If the valuation of all
    the components of the damage of climate change in creased at the rate
    of economic growth, this factor would either completely cancel out any
    discounting as a result of greater wealth (when [THETA] is equal to
    one), or greatly reduce the extent of such discounting (when [THETA] is
    somewhat greater than one).
        More fundamentally, the growth discounting account assumes
    implicitly that the benefits of environmental activities are
    distributed in the same manner as the costs. Then, because the benefits
    accrue to individuals who are wealthier than those who bear the costs,
    the beneficiaries have a lower marginal utility of consumption, and
    discounting is necessary to maximize social welfare. This implicit
    assumption is highly questionable. Most studies of the impact of
    climate change show that the damages will be suffered
    disproportionately by individuals in poor developing countries:
    Bangladesh, for example, is likely to be particularly affected by sea
    level rises. \314\ In contrast, the contribution to the global warming
    problem lies to a large extent with the developed countries, and
    financial responsibility for mitigation measures will be borne
    primarily by these countries. \315\
        Currently, the United States and Bangladesh have per capita gross
    national products (GNP) of $26,980 and $240, respectively. \316\ The
    figures differ by a factor of about 112. It is quite unlikely that in
    100 years or so Bangladesh and the United States will have the same per
    capita GNP. Thus, to the extent that the United States is paying for
    the environ mental measures and Bangladesh is benefiting from them, the
    kind of growth discounting contemplated in the standard economic models
    is clearly inapposite. In order to maximize the social welfare
    function, a lower factor would have to be used to reflect the fact that
    even when the benefits of climate change measures begin to accrue,
    Bangladesh will be poorer than the United States.
        It is quite possible that even in a hundred years Bangladesh's per
    capita GNP, in constant dollars, will be lower than the per capita GNP
    in the United States is now. Then, in order to maximize the social
    welfare function, one would have to apply a negative discount rate.
    Such a rate would justify spending more now than the benefits in the
    future because the benefits in the future would accrue to individuals
    with lower levels of consumption, and hence higher marginal utilities
    of consumption.
        One might object to this line of argument on the grounds that
    citizens of the United States have no obligation to improve the lot of
    Bangladesh. Such a position is certainly debatable, but it resides
    outside the domain of utilitarianism, where the concept of discounting
    future utilities has its intellectual home. In the example described
    above, where in constant dollars the per capita GNP in Bangladesh in
    100 years is lower than the current per capita GNP in the United
    States, a negative discount rate does maximize the social welfare
    function and is the policy that should be chosen on utilitarian
    grounds.
        This discussion points to an obvious anomaly. If we are prepared to
    be serious about utilitarianism in the intergenerational context, why
    do we not take it seriously in the intragenerational context? Doing so
    would imply a large increase in the aid from developed to developing
    countries, where the marginal utility of consumption is far higher as a
    result of the much lower per capita GNP.
        One can, to be sure, construct a plausible ethical theory under
    which greater current foreign aid is not compelled but mitigation
    measures for climate change are. The depressed economic status of
    developing countries might not be the direct consequence of any actions
    by the developed countries, although the issue is not uncontroversial.
    In contrast, any damages that might affect developing countries as a
    result of climate changes are caused to a large degree by energy
    consumption patterns in the developed countries. \317\ So, the
    developed countries might have an obligation to mitigate a problem that
    they caused and yet not have a similar obligation to reduce a level of
    inequality that they did not cause.
        It is difficult, however, to reconcile such an ethical theory with
    welfarist approaches. Whether the lower level of per capita GNP in
    developing countries is caused by climate change or not, it still
    results in a higher marginal utility of consumption. If the purpose is
    to transfer re sources to where they will produce the greatest increase
    in utility, the cause of the inequality simply does not matter.
    Moreover, the selective rejection of utilitarianism to justify the
    current low levels of foreign aid would call into question its
    selective invocation to justify discounting in some fashion the
    benefits to future generations of environmental measures. \318\
        Alternatively, one might argue that utilitarianism calls for
    maximizing only the aggregate social welfare function of the relevant
    polity. With respect to the analysis of foreign aid, the relevant
    polity might be each individual nation. Foreign aid would then be
    justified only to the extent that donors in a wealthy country derive
    utility from helping recipients in a poorer country, not on the basis
    of the utility derived by the recipients.
        In the context of climate change, given the global nature of the
    problem, it would be paradoxical to decide on a nation's obligations
    merely by reference to that nation's aggregate social welfare function.
    Indeed, the standard economic formulation of discounting aggregates
    across a global social welfare function and no commentator that I am
    aware of argues for a more constrained view. Perhaps one could
    construct a defensible theory under which the relevant polity changed
    with the nature of the problem, but it could not be derived solely from
    utilitarian principles and would have to be grounded on some
    nonconsequentialist ethical norm.
        Growth discounting also inappropriately merges the decision
    concerning the desirability of a project with distributional
    considerations. Under cost-benefit analysis, projects are undertaken
    based on the aggregate willingness-to-pay of the beneficiaries. Because
    the government undertakes large numbers of projects and regulatory
    initiatives, the losers with respect to one governmental intervention
    may well become winners with respect to another. It therefore does not
    make sense to suffer social welfare losses with respect to an
    individual project simply to obtain a more desirable distribution of
    resources.
        After aggregating all projects, however, the set of policies that
    maximizes net social welfare across the population as a whole might
    impose significant net costs on a subset of the population. To the
    extent that such inequities persist, the government can effect
    redistribution intragenerationally through the income tax system. Such
    an approach generally gives rise to fewer distortions and is therefore
    more desirable than compromising the social welfare consequences of
    individual projects. \319\
        In contrast, under growth discounting, the amount invested in an
    environmental project will be less than that justified by reference to
    the aggregate willingness-to-pay of the beneficiaries. Thus, the
    efficiency of each individual project would be compromised in order to
    effect redistribution.
        It is true, of course, that intergenerational redistribution is
    more difficult to achieve than its intragenerational counterpart. For
    example, if we allocate more to the current generation in order to
    improve the aggregate social welfare but feel that such a policy
    imposes net costs on future generations, there is no easy means to
    compensate future generations. In theory, we could tax ourselves to
    create a trust fund that future generations could tap into at
    predetermined times, but there is a high likelihood that the money
    would become an attractive target in the future for our generation, or
    for intervening generations. Thus, the durability of the arrangement
    over the long-term could not be assured.
        A different problem would arise if social welfare were to be
    maximized by allocating resources to future generations in a manner
    that imposed unacceptably high net costs on the current generation--the
    phenomenon that underlies the growth discounting approach. There is no
    obviously desirable mechanism by which we could tax future generations
    in order to compensate ourselves. \320\ While we could consume
    suboptimally high levels of renewable and nonrenewable resources, such
    consumption imperils social welfare in a way that is avoided by
    redistribution through the tax system. A better alternative is to
    finance measures that benefit the current generation through long-term
    debt, the burden of which would eventually fall on future generations.
        These difficulties suggest that the benefits of intragenerational
    redistribution through the tax system will not be fully available
    intergenerationally. Nonetheless, these difficulties do not necessarily
    call for conflating the resource allocation and distribution inquiries,
    as growth discounting does. Instead, one needs to ascertain, as one
    typically does in the intragenerational context, whether bifurcating
    the inquiry and per forming the redistribution through a different
    mechanism would reduce undesirable distortions.
    D. Role of Opportunity Costs
        My argument should not be read to imply that discounting has no
    role to play in the intergenerational context. For example, consider a
    harm that could be averted either now or in the future. In this
    scenario, assume that if the problem were addressed in the future,
    funds could be invested now in other projects and then transferred at a
    later time to avert the harm. The most that it would be worth paying to
    avert the future harm now is the present discounted value, at the rate
    of return generated by these alternative projects, of the amount that
    would be needed if the problem were addressed in the future. Regardless
    of the nature of our obligation to future generations, it makes no
    sense to spend more when we can achieve the same result for less.
        A similar result could attach even to an irreversible environmental
    problem. Consider an environmental harm that can be remedied only
    through a current expenditure: if the problem is not addressed now, it
    cannot be successfully addressed in the future. Even if the objective
    were to transfer resources to a future generation, it might nonetheless
    be preferable to leave the problem unattended if alternative
    investments would yield a higher rate of return. Then, the future
    generation would have to face the environmental harm but would enjoy,
    for example, the fruits of greater investments in technological
    innovation. \321\
        The substitutability of environmental and non-environmental
    benefits can be seen most clearly from the vantage point of a
    utilitarian perspective. The utilitarian objective is to deploy
    society's resources in whatever way increases aggregate utility by the
    largest amount, not to prevent specific environmental harms. Suppose
    that aggregate utility would increase by transferring current resources
    to a future generation. If a given investment of resources would yield
    a larger return in a non-environmental project, the utilitarian
    calculus would favor this investment over an environmental investment
    yielding a lower return.
        One might conclude at first glance that my disagreement with
    advocates of discounting the utilities of future generations is only
    semantic. It might appear, indeed, that taking account of opportunity
    costs in deciding whether to undertake environmental projects for the
    benefit of future generations leads to the same results as discounting
    the utilities of those generations.
        Indeed, consider the following two procedures. Under the first
    procedure, one undertakes any project for which the current cost (in
    fore gone utility for the current generation) is greater than the
    present discounted value of the utilities of the future generation that
    the project is intended to benefit. Under the second procedure, one
    does not discount the utilities of future generations, but undertakes
    the project only if the rate of return of the investment is greater
    than the rate of return of alter native investments (otherwise, even if
    resources are worth transferring into the future, the alternative
    investments will be preferable).
        As is almost self-evident, these two procedures will yield the same
    results in certain cases. These procedures, however, are conceptually
    different and can yield different results in other cases.
        Most importantly, discounting the utilities of future generations
    is a means for determining our obligations to those generations. It is
    the objective function of a specific ethical theory. In contrast,
    paying attention to opportunity costs does not imply the choice of any
    particular theory. It is simply a way of ensuring that society furthers
    its chosen theory, whatever that theory may be, in the most cost-
    effective way possible.
        For example, suppose that a societal goal is in fact to prevent
    certain types of irreversible environmental harms, as may be the case
    under formulations of the principle of sustainable development. \322\
    We would still defer expenditures for environmental projects if
    alternative uses of the funds could have a higher rate of return over a
    given period. But at the point at which such a harm was about to become
    irreversible, we would undertake the environmental expenditure to
    prevent this outcome regardless of the rate of return on other
    projects. Moreover, in deciding how long to delay the expenditure, one
    would have to consider whether funds invested in other projects could
    easily be transferred at a later time to the environmental project.
    \323\ In contrast, if the social objective were to maximize a
    discounted social welfare function, the expenditure would never be
    undertaken if the present discounted value of the benefits was lower
    than the costs.
        Similarly, under a corrective justice approach, countries
    responsible for environmental degradation would have an obligation to
    mitigate the adverse effects of such degradation. It would nonetheless
    be appropriate to delay expenditures if alternative interim investments
    were to yield a higher rate of return. But, at some point, the
    mitigation would have to be tackled. In contrast, the approach of
    discounting the utilities of future generations could provide a
    different prescription altogether.
    E. Intergenerational Obligations and Sustainable Development
        There is virtual agreement that the central function of the
    principle of sustainable development is to guide intergenerational
    allocations. \324\ Because this principle is strongly endorsed in
    international environmental law agreements, \325\ it is important to
    ascertain the extent to which it sets forth an attractive theory of
    intergenerational obligations. \326\
        Before turning to this task, however, one must at least attempt to
    convert what is still quite an amorphous concept, which suffers from
    the lack of a uniform definition, \327\ into a tool that can actually
    guide decisions. The starting point to most discussions in this area is
    the language in Our Common Future, the 1987 report of the World
    Commission on Environment and Development (often referred to as the
    Brundtland Re port, after its chair, the then Prime Minister of
    Norway). \328\ This report defines sustainable development as
    development that ``meets the needs of the present without compromising
    the ability of future generations to meet their own needs.'' \329\ This
    statement, however, leaves open wide room for disagreement.
        Perhaps the two most influential perspectives on what obligations
    to future generations are encompassed by the principle of sustainable
    development are those of Edith Brown Weiss and Robert Solow, which are
    rooted in the traditions of international law and of economics,
    respectively. \330\
        Weiss equates sustainable development with intergenerational
    equity, which she defines by reference to three principles. \331\
    First, the principle of conservation of options requires each
    generation to preserve the natural and cultural resource bases so that
    the options available to future generations are not unduly restricted.
    Second, the principle of conservation of quality requires each
    generation to prevent a worsening of the planet's environmental
    quality. Third, the principle of conservation of access requires each
    generation to provide its members with equitable rights of access to
    the legacy of past generations, and to conserve this access for the
    benefit of future generations. \332\
        In contrast, according to Solow, sustainability requires that each
    future generation have the means to be as well off as its predecessors.
    He gives content to this principle by proposing a modification to the
    traditional measure of a nation's economic activity. From Net National
    Product (NNP)--Gross Domestic Product (GDP) minus the depreciation of
    fixed capital assets--he would subtract the value of expended
    nonrenewable resources and environmental assets like clean air and
    water. \333\ Solow argues that each generation must use its
    nonrenewable and environmental resources in a way that does not detract
    from the ability of future generations to have a similar standard of
    living. \334\ He admits that certain unique and irreplaceable
    resources, like certain national parks, should be preserved for their
    own sake, \335\ but maintains that the consumption of non-unique
    natural and environmental resources ought to be permissible as long as
    they are replaced by other resources such as equipment or technological
    knowledge.
        The two formulations share important characteristics. First, they
    define the primary obligation to future generations in terms of a
    constraint that specifies how much must be left to a subsequent
    generation. \336\ Second, Weiss and Solow would both allow some level
    of destruction of most natural resources, as long as future generations
    are compensated in an other way, such as by technological development.
    \337\ Third, they both regard certain natural resources as
    irreplaceable and would require that such resources be protected for
    subsequent generations. \338\
        In essence, then, under both formulations, every generation must
    provide the subsequent generation with the means to do at least as well
    as it did. So, for example, sustainable development would be consistent
    with the current generation seeking to maximize its own utility, as
    long as this maximization is subject to a constraint resulting from the
    need to leave sufficient resources to future generations.
        There are, of course, daunting challenges ahead in providing
    further specificity to the principle. For example, additional work
    needs to be done to determine how to value the increase in knowledge or
    the negative long-term environmental effects of economic activity.
    \339\
        Also, throughout history, there has been a progressive increase in
    standards of living. Should the constraint defining one generation's
    obligation to its successors thus provide for a progressive increase in
    well-being, so that this pattern may continue? On what basis would that
    in crease be determined? What would be the ethical underpinnings for
    such a requirement?
        Moreover, the link between sustainable development and population
    policy is not well articulated. \340\ The population in any generation
    is a function of decisions of prior generations. \341\ For example, one
    might argue that if the current generation's actions were to lead to an
    increase in population, it would have an obligation to provide
    additional resources so as not imperil the level of well-being of an
    average person in the next generation. \342\
        Many commentators also believe that the concept of sustainable
    development contains a precautionary principle, which prescribes that
    scientific uncertainties be resolved in favor of environmental
    controls. \343\ As discussed above, there is some possibility that
    catastrophic events would materialize in the future if the climate
    change problem is left unattended. \344\ The precautionary principle
    would presumably call for avoiding such consequences. In fact, given
    that technological advances may greatly contribute to the wealth of
    future generations, it may be that the precautionary principle will do
    most of the work in justifying climate change expenditures.
        Left unanswered in the academic discussions concerning the
    precautionary principle, however, are important questions about its
    scope. For example, what probability of a catastrophic event is
    sufficiently high to trigger the operation of the principle? Similarly,
    what is a sufficiently harmful consequence? \345\ Spending the
    resources needed to avoid a low-probability, catastrophic outcome might
    interfere with the ability to make resources available to subsequent
    generations. How should this tradeoff be resolved?
        This background on the scope of the principle of sustainable
    development is sufficient to permit an evaluation of the extent to
    which the principle can form the basis for a desirable theory of
    intergenerational obligations with respect to environmental matters. At
    a very general level, the principle appropriately underscores that the
    current generation, which has control of vast decisionmaking authority
    concerning the resources that will be available in the future, should
    not simply ignore the interests of future generations.
        Beyond this level of generality, however, the principle suffers
    from severe shortcomings. Most importantly, in practice it is likely to
    impose too limited an obligation on the current generation. Say, for
    example, that the current generation, for a comparative small
    sacrifice, can prevent a very large harm to a subsequent generation.
    Perhaps an expenditure of only $1 at the present would lead to averting
    harm of several hundred billion dollars in 100 years. Even if the
    future benefit were discounted at a high level, the present discounted
    value of the benefit would greatly exceed the corresponding cost.
        The principle of sustainable development, however, would not
    require this expenditure if the subsequent generation would, despite
    the harm, be better off than the current one. Thus, if the next hundred
    years can be expected to bring sufficiently rapid technological
    progress, the environmental expenditure would not need to be
    undertaken. In fact, because the rate of technological progress is
    currently so high, the principle of sustainable development could in
    fact remove from the current generation any obligation to undertake
    environmental measures for the benefit of future generations.
        Conversely, while this issue is of less direct practical
    importance, the principle of sustainable development could, in theory,
    demand excessive sacrifice from the current generation. Say, for
    example, that absent some intervention, the generation living 100 years
    from now would be $1 poorer than the current generation, and that for
    an expenditure of several hundred billion we could confer upon that
    generation an extra $1. The principle of sustainable development would
    require the expenditure, despite the obvious waste in resources. \346\
        These shortcomings of the principle of sustainable development
    serve to underscore the relative attractiveness of utilitarian
    approaches. Consistent with such approaches, in an intragenerational
    context, the social decisionmaker would seek first to undertake all
    projects that have desirable cost-benefit ratios. Then, if the
    resulting distribution of re sources was unattractive, the social
    decisionmaker would require redistribution. In a utilitarian framework,
    redistribution is justified as a result of the fact that poorer
    individuals have a higher marginal utility of consumption; total
    utility is therefore increased by redistributing from rich to poor.
    \347\
        The costs of effecting redistribution (whether in the form of
    transaction costs or perverse incentives) play an important role in
    determining how much redistribution is socially desirable. Indeed,
    sufficiently high costs could dominate the benefits that would come
    from transferring re sources from wealthier individuals, with a lower
    marginal utility of consumption, to their poorer counterparts.
        In an intergenerational context, the inquiry could be essentially
    the same: pick projects with good cost-benefit ratios and redistribute
    as guided by reference to the relative marginal utilities of
    consumption and by the costs of effecting redistribution. In contrast,
    the principle of sustainable development requires expenditures with
    unattractive cost-benefit ratios, fails to require expenditures with
    attractive cost-benefit ratios, and is oblivious to the costs of
    effecting redistribution.
    F. Toward a Theory of Intergenerational Obligations
        The articulation of a complete theory of intergenerational
    obligations with respect to environmental matters is beyond the scope
    of this Article. Nonetheless, the preceding discussion can be
    crystallized into a set of principles setting forth the backbone for
    such a theory.
        First, the mechanical importation of discounting for time
    preference at the rate used intragenerationally is wholly unjustified:
    how one individual decides to time her expenditure of a fixed set of
    resources over her lifetime is a fundamentally different question from
    how society allocates a given set of resources among individuals in
    different generations. \348\ Intergenerationally, discounting for time
    preference unjustifiably undervalues the interests of future
    generations.
        Second, discounting for economic growth is also fraught with
    problems. Most importantly, the formula used in the standard economic
    models ignores the fact that the primary contributors to international
    environmental measures are far wealthier than the primary beneficiaries
    of such measures. In fact, even in the future, when the benefits of
    measures undertaken now actually accrue, these beneficiaries are likely
    to be poorer than the contributors to such measures are now. Under
    these circumstances, any positive discounting for economic growth would
    be inappropriate. To the contrary, given the decreasing marginal
    utility of consumption, a utilitarian framework would call for
    environmentally protective measures even if the current costs are
    somewhat greater than the future benefits. \349\
        Third, a theory of intergenerational obligation must play close
    attention to opportunity costs. Even though it is inappropriate to
    discount the utility functions of future generations, it does not make
    sense to under take environmental expenditures for the benefit of
    future generations if the investment can yield higher benefits
    elsewhere, and if no ethical obligations are compromised by delaying
    expenditures.
        Fourth, consistent with the principle of sustainable development,
    \350\ an attractive theory of intergenerational obligations should seek
    to prevent catastrophic harms and the destruction of unique natural
    resources. Admittedly, however, the dividing line between the use of
    everyday renewable and nonrenewable natural resources, and the
    destruction of unique resources may be hard to draw in particular
    circumstances.
        Fifth, proper attention needs to be given to distributional issues.
    As in the intragenerational context, one should not compromise the
    efficiency of a particular environmental policy in the name of
    distributional concerns, but one should be prepared to redistribute if
    the aggregate effects of such policies lead to unattractive
    distributional outcomes. In the intergenerational context, the
    mechanisms for redistribution are more cumbersome, \351\ but the issue
    nonetheless merits attention.
        Sixth, an attractive theory of intergenerational obligations is
    likely to contain a corrective justice component. Within a traditional
    utilitarian framework, one cannot explain the moral intuition that
    industrialized nations have a responsibility to mitigate the adverse
    effects of climate change, but not to effect massive current
    redistributions of wealth to poorer countries. \352\ To the extent that
    the current pattern of expenditures and concern on the part of
    industrialized countries derives from a moral intuition concerning
    differential levels of responsibility for the two situations, \353\
    this intuition should be an element of a theory of intergenerational
    obligations.
    Conclusion
        This Article shows that the lack of a proper understanding of
    discounting has led to bad regulatory decisions in the case of latent
    harms and to an undesirable skewing of the debate in the case of harms
    to future generations.
        If two individuals of the same age are exposed to a latent harm
    from an environmental carcinogen and to a risk of instantaneous death,
    respectively, the person exposed to the carcinogen stands to lose fewer
    life-years and to lose them later in life. Discounting is an
    appropriate technique for taking account of the latter factor. The use
    of discounting, however, will lead to misleadingly low valuations of
    life unless it is coupled with significant upward adjustments to
    account for the dread and involuntary nature of environmental
    carcinogens, as well as for higher income levels of the victims.
    Unfortunately, the regulatory regime has failed to recognize the need
    for such adjustments.
        With respect to harms to future generations, the Article shows that
    the use of discounting is ethically unjustified. It privileges the
    interests of the current generation without a defensible foundation.
        The misguided approach to discounting in the two contexts may be
    attributable in part to a fairly generalized failure to take proper
    account of the differences between the cases of latent harms and harms
    to future generations. For the former, discounting raises no
    significant ethical objections that are independent of those that could
    be raised against cost-benefit analysis in general and the valuation of
    human lives in particular. For the latter, in contrast, discounting
    gives rise to daunting ethical issues.
        This Article aims to effect two important public policy changes.
    With respect to latent harms, it seeks to provide an impetus for
    correcting the substantial undervaluation of environmental benefits
    that comes from the regulatory system's approach of mechanically taking
    valuations of life from the workplace setting and discounting them at
    an artificially high rate, without performing any of the necessary
    upward adjustments. With respect to harms to future generations, it
    seeks to move the debate away from discounting and toward more
    attractive alternatives.
                                   footnotes
        1. Exec. Order No. 12,866, 3 C.F.R. 1993, p.638, reprinted in 5
    U.S.C. 601 (1994). This order replaced a similar Executive Order,
    promulgated by President Reagan. See Exec. Order No. 12,291, 3 C.F.R.
    1981, p.127, formerly in 5 U.S.C. 601. Given its legal status, however,
    it cannot displace contrary statutory provisions.
        For discussion of the practice of OMB review, see Environmental
    Policy Under Reagan's Executive Order: The Role of Benefit-Cost
    Analysis (V. Kerry Smith ed., 1984); Thomas O. McGarity, Reinventing
    Rationality: The Role of Regulatory Analysis in the Federal Bureaucracy
    (1991); Richard H. Pildes & Cass R. Sunstein, Reinventing the
    Regulatory State, 62 U. Chi. L. Rev. 1 (1995).
        2. Currently, a bill sponsored by Senator Carl M. Levin, Democrat
    of Michigan, which enjoys bipartisan co-sponsorship, is pending before
    the Senate. S. 746, 106th Cong. (1999). It mandates the preparation of
    a cost-benefit analysis for major rules. See id. 623(b)(2). The bill
    does not preclude an agency from promulgating regulations that fail a
    cost-benefit test but imposes seemingly tough hurdles to such
    regulations. See id. 623(d)(2). Legislative efforts to require that
    essentially all important regulations satisfy a cost-benefit test,
    began in earnest with the 104th Congress ``Contract with America.'' See
    Cass R. Sunstein, Congress, Constitutional Moments, and the Cost-
    Benefit State, 48 Stan. L. Rev. 247 (1996); see infra text accompanying
    notes 56-58 (views of Senator Leahy on S. 343). The House passed a bill
    during the Congress' second month, Sunstein, supra, at 275-76, but a
    companion bill in the Senate failed to move forward when cloture was
    defeated, id. at 277-82.
        3. For example, Richard Morgenstern explains: ``The value of
    fatality risk reduction figures prominently in assessment of
    environmental benefits. In the case of air pollution, the reduced risk
    of death often accounts for the largest single component of the dollar
    value of environmental benefits.'' Richard D. Morgenstern, Conducting
    an Economic Analysis: Rationale, Issues, and Requirements, in Economic
    Analyses at EPA: Assessing Regulatory Impact 25, 41-42 (Richard D.
    Morgenstern, ed., 1997); see James K. Hammitt, Stratospheric-Ozone
    Depletion, in id. at 131, 151-52 (value of averted skin cancer
    mortality comprises 98 percent of the benefits of the regulations
    implementing the Montreal Protocol). More generally, for all health-
    and-safety regulations, one recent estimate is that ``about 60 percent
    of the total benefits results from reduction in the risk of death,
    disease, and injury.'' Robert W. Hahn, Regulatory Reform: What Do the
    Government's Numbers Tell Us?, in Risks, Costs, and Lives Saved:
    Getting Better Results from Regulation 208, 219 (Robert W. Hahn ed.,
    1996).
        Moreover, even in cases in which there are other benefits, EPA's
    calculation of the magnitude of the benefits focuses on human health
    effects. See Lisa Heinzerling, Reductionist Regulatory Reform, 8
    Fordham Envtl. L.J. 459, 461-62 (1997). For examples, see id. at 495
    (asbestos ban); Ronnie Levin, Lead in Drinking Water, in Economic
    Analyses at EPA, supra, at 205, 227 (corrosion control). The same
    failure to quantify benefits other than those related to human health
    effects and mortality are also present with regard to agricultural
    pesticides, worker protection and primary air quality standards for
    ozone depletion. Louis P. True Jr., Agricultural Pesticides and Worker
    Protection 303, 318. However misguided such a policy might be, it
    magnifies the importance of the discounting issues analyzed in this
    Article.
        4. See Thomas O. McGarity & Sidney A. Shapiro, OSHA's Critics and
    Regulatory Reform, 31 Wake Forest L. Rev. 587, 629 (1996) (discussing
    occupational safety).
        5. Compare Emmett B. Keeler & Shan Cretin, Discounting of Life-
    Saving and Other Nonmonetary Effects, 29 Mgmt. Sci. 300, 303-05 (1983)
    (favoring discounting), I. Steven Udvarhelyi et al., Cost-Effectiveness
    and Cost-Benefit Analyses in the Medical Literature, 116 Annals
    Internal Med. 238, 239 (1992) (same), and Milton C. Weinstein & William
    B. Stason, Foundations of Cost-Effectiveness Analysis for Health and
    Medical Practices, 296 New Engl. J. Med. 716, 719-20 (1977) (same) with
    Alan L. Hillman & Myoung S. Kim, Economic Decision Making in
    Healthcare: A Standard Approach to Discounting Health Outcomes, 7
    PharmacoEconomics 198, 198 (1995) (rejecting automatic discounting but
    arguing for ``thoughtful adjustments'' to reflect period of latency)
    and Michael Parsonage & Henry Neuburger, Discounting and Health
    Benefits, 1 Health Econ. 71 (1992) (opposing discounting).
        For discussion of different methods for discounting the benefits of
    medical interventions, see Magnus Johannesson, On the Discounting of
    Gained Life-Years in Cost-Effectiveness Analysis, 8 Int'l J. Tech.
    Assessment in Health Care 359 (1992).
        6. See, e.g., U.S. Office of Management and Budget, Regulatory
    Program of the U.S. Government, April 1, 1991-March 31, 1992, at 147-48
    (1991); Susan W. Putnam & John D. Graham, Chemicals Versus Microbials
    in Drinking Water: A Decision Sciences Perspective, J. Am. Water Works
    Ass'n, March 1993, at 57, 60; W. Kip Viscusi, Equivalent Frames of
    Reference for Judging Risk Regulation Policies, 3 N.Y.U. Envtl. L. J.
    431, 436 (1995); infra notes 28-55 (discussing Corrosion Proof Fittings
    case).
        7. See Michael B. Gerrard, Demons and Angels in Hazardous Waste
    Regulation: Are Justice, Efficiency, and Democracy Reconcilable?, 92
    Nw. L. Rev. 706, 743 (1998) (``[The] protection of future generations
    is not merely a matter for accountants. The Constitution was adopted in
    part to 'secure the Blessings of Liberty to ourselves and our
    Posterity.'''); Lisa Heinzerling, Regulatory Costs of Mythic
    Proportions, 107 Yale L.J. 1981, 2044 (1998) (``the decision to
    discount lives saved in the future involves a choice about values, as
    to which reasonable people may disagree''); A. Dan Tarlock, Now, Think
    Again About Adaptation, 9 Ariz. J. Int'l & Comp. L. 169, 173 (1992)
    (``Speculation about discount rates becomes a disguised debate about
    our ethical duties toward future generations.'').
        8. See Gerrard, supra note 7, at 742-43 (``If a human life is
    considered to be worth $8 million, and a 10 percent discount rate is
    chosen, then the present value of saving a life one hundred years from
    now is only $581. . . . Neither I nor anyone else uses this kind of
    argument. . . .''); McGarity & Shapiro, supra note 4, at 629 (``The
    practice of discounting future benefits to present value . . . biases
    cost-benefit analysis against future generations. A high discount rate
    clearly biases the analysis against future benefits, even though 'it is
    not clear why the later-born should have to pay interest to induce
    their predecessors not to exhaust [depletable resources.]''').
        9. The government of the United Kingdom, for example, has rejected
    the concept of discounting in connection with the health benefits of
    medical interventions. See Hillman & Kim, supra note 5, at 198.
        10. See What Price Posterity?, Economist, Mar. 23, 1991, at 73.
        11. See John K. Horowitz & Richard T. Carson, Discounting
    Statistical Lives, 3 J. Risk & Uncertainty 403, 412 n.2 (1990).
        12. See Al Gore, Earth in the Balance: Ecology and the Human Spirit
    190-91 (1992). Gore takes a negative view toward discounting:
        The accepted formulas of conventional economic analysis contain
    short-sighted and arguably illogical assumptions about what is valuable
    in the future as opposed to the present; specifically, the standard
    'discount rate' that assesses cost and benefit flows resulting from the
    use or development of natural resources routinely assumes that all
    resources belong to the present generation. . . . In the words of
    Herman Daly, ``There is something fundamentally wrong in treating the
    earth as if it were a business in liquidation.''
        Id.
        13. See, e.g., Peter S. Burton, Intertemporal Preferences and
    Intergenerational Equity Considerations in Optimal Resource Harvesting,
    24 J. Envtl. Econ. & Mgmt. 119, 119 (1993) (``Standard discounting
    practices confuse two issues: (1) intertemporal discount rates of
    members of the society and (2) intergenerational equity
    considerations.''); Harold P. Green, Legal Aspects of Intergenerational
    Equity Issues, in Equity Issues in Radioactive Waste Management 189,
    192 (Roger E. Kasperson ed. 1983) (noting that most of the statutes
    governing conservation of land and water resources and wildlife
    preservation ``do not distinguish between benefits accruing in the
    short-term future to members of the current generation and longer-term
    benefits to future generations''); Heinzerling, supra note 7, at 2043-
    56 (not distinguishing the analysis of carcinogenic risks to the
    current generation and of risks to future generations); Magnus
    Johannesson & Per-Olov Johansson, The Discounting of Lives Saved in
    Future Generations: Some Empirical Results, 5 Health Econ. 329, 329
    (1996); Putnam & Graham, supra note 6, at 60 (equating delays in the
    adoption of public health problems with burdens on future generations).
        14. See infra text accompanying notes 28-55 (providing more
    detailed analysis of the proceedings).
        15. See Exec. Order 12,866, supra note 1, 2(b), 6(b)
    (responsibilities of OMB's Office of Information and Regulatory Affairs
    (OIRA)).
        16. See infra text accompanying notes 32-38.
        17. See Corrosion Proof Fittings v. EPA, 947 F.2d 1201, 1218-19
    (5th Cir. 1991).
        18. See Heinzerling, supra note 7.
        19. See id. at 1984-85. Heinzerling does not ultimately take a
    position on the propriety of discounting. See id. at 2055-56 (``More
    case-by-case attention needs to be given to the question of whether the
    future benefits of health and environmental regulation should be
    discounted at all, and if so, at what rate.''). In passing, however,
    she makes arguments that reveal a deep animosity toward discounting.
    See id. at 2043-54. The legal literature contains one other sustained
    discussion on the discounting of environmental benefits. See Daniel A.
    Farber & Paul A. Hemmersbaugh, The Shadow of the Future: Discount
    Rates, Later Generations, and the Environment, 46 Vand. L. Rev. 267
    (1993). The authors urge that, both intra-and intergenerationally,
    benefits should be discounted at the long-term real rate of return on
    riskless investments, which they take to be ``in the neighborhood of 1
    percent.'' See id. at 280, 303-04.
        20. See Christopher D. Stone, Beyond Rio: ``Insuring'' Against
    Global Warming, 86 Am. J. Int'l L. 445, 476 (1992) (``Any variations in
    policy that might be implied from defensible attitudes toward risk may
    well be swamped by the implications of defensible discount rates, and,
    indeed, of how one resolves the philosophical conundrums of valuing the
    welfare of future generations.''); Tarlock, supra note 7, at 173 (``The
    selection of the [discount] rate determines the strategy.'').
        21. Derek Parfit, Reasons and Persons 357 (1984). For other
    examples, see Gerrard, supra note 7, at 742-43 (``If a human life is
    considered to be worth $8 million and a 10 percent discount rate is
    chosen, then the present value of saving a life one hundred years from
    now is only $581.''); McGarity & Shapiro, supra note 4, at 629 (``At a
    discount rate of 10 percent, a dollar's worth of benefits 50 years from
    now is worth slightly less than a penny today.'').
        22. Clifford S. Russell, ``Discounting Human Life'' (Or, the
    Anatomy of a Moral-Economic Issue), Resources, Winter 1986, at 8, 8;
    see Frank S. Arnold, Economic Analysis of Environmental Policy and
    Regulation 193 (1995) (``When the delay between the present and the
    time the benefits of a regulatory action are enjoyed is very large, say
    hundreds of years, using virtually any positive discount rate will
    render the present value of the benefits almost nil.''); Robert C.
    Lind, Reassessing the Government's Discount Rate Policy in Light of New
    Theory and Data in an Economy with a High Degree of Capital Mobility,
    18 J. Envtl. Econ. & Mgmt. S-8, S-20 (1990). (``The basic arithmetic of
    exponential growth applied in a cost-benefit analysis implies that,
    regardless of how small the cost today of preventing an environmental
    catastrophe that will eventually wipe out the entire economy, it would
    not be worth this cost to the present generation if the benefits in the
    future are sufficiently distant.'').
        23. See supra text accompanying note 13.
        24. See, e.g., Environmental Policy Under Reagan's Executive Order,
    supra note 1; McGarity, supra note 1, at 29-59, 174-76, 239-61; Pildes
    & Sunstein, supra note 1; Sunstein, supra note 2.
        25. See supra text accompanying notes 1-4.
        26. See infra Part I.G.
        27. A similar set of issues arises where current expenditures can
    prevent future harms to individuals now alive, even though the harm is
    not a latent disease. The analysis in Part I is therefore relevant to
    this situation as well.
        28. 947 F.2d 1201 (5th Cir. 1991); see Russell, supra note 22, at 9
    (noting that before this proceeding, ``'discounting of human lives' had
    not yet become an issue in the public debate''). For discussion of the
    case, see Rita L. Wecker, Case Comment: A ``Hard Look'' at a Soft
    Analysis, Corrosion Proof Fittings v. Environmental Protection Agency,
    4 B.U. Pub. Int. L.J. 145 (1994).
        29. 51 Fed. Reg. 3738 (1986).
        30. See supra text accompanying notes 1-4.
        31. See Letter of Robert P. Bedell, Deputy Administrator, Office of
    Information and Regulatory Affairs to A. James Barnes, Acting Deputy
    Administrator, Environmental Protection Agency (March 27, 1985),
    reprinted in Peter S. Menell & Richard B. Stewart, Environmental Law
    and Policy 104 (1994).
        32. See id.
        33. See infra text accompanying note 182.
        34. See Letter of Robert P. Bedell, supra note 31, at 104.
        35. Subcomm. on Oversight and Investigations of the House Comm. on
    Energy and Commerce, EPA's Asbestos Regulations: Report on a Case Study
    on OMB Interference in Agency Rulemaking, reprinted in Menell &
    Stewart, supra note 31, at 111. The Barnes comment does not deal
    specifically with the problem of latent harms, but it reflects a
    general antipathy to discounting the valuations of human life.
        36. Some Members of Congress took a strident position against
    discounting. For example, Representative Bob Eckhardt noted that ``'it
    was difficult to say whether that kind of approach was more callous or
    more foolish''' and Representative James Florio called OMB's approach
    ``ghoulish[].'' See Russell, supra note 22, at 9.
        37. See Subcomm. on Oversight and Investigations, supra note 35,
    reprinted in Menell & Stewart, supra note 31, at 109.
        38. See id.
        39. See id. at 110; Sidney A. Shapiro & Thomas O. McGarity, Not So
    Paradoxical: The Rationale for Technology-Based Regulation, 1991 Duke
    L.J. 729, 735 (``In cases of toxic substance exposure, where the onset
    of disease can be delayed by as much as 30 years, [discounting]
    effectively ignores the risk altogether.'').
        40. Subcomm. on Oversight and Investigations, supra note 35,
    reprinted in Menell & Stewart, supra note 31, at 111.
        41. Id.
        42. 51 Fed. Reg. 3738, 3757-59 (1986).
        43. See id. at 3748; 54 Fed. Reg. 29,460, 29,487 (1989).
        44. 54 Fed. Reg. 29,460, 29,483 (1989).
        45. See id. at 29,485.
        46. See id.
        47. Id. at 29,487.
        48. Id.
        49. Id.
        50. 947 F.2d 1201 (5th Cir. 1991).
        51. Id. at 1218. Lisa Heinzerling criticizes the Fifth Circuit's
    position: ``One worries about 'preserving an apples-to-apples
    comparison,' however, only if one is dealing only with apples. In the
    asbestos case, the costs were dollars and the benefits were lives.
    These costs and benefits are the same only if dollars and lives are the
    same.'' Heinzerling, supra note 7, at 2053. Both positions overlook an
    aspect of the problem. The Fifth Circuit misses the fact that the
    intertemporal choices of individuals do not necessarily reflect
    discounting at the rates used by financial markets (though in fact
    empirical studies show no statistically significant differences). See
    infra Part I.F.1. In turn, Heinzerling's rhetorical device fails to
    acknowledge that the cost-benefit calculus in the case required the
    valuation of the life, and that the question whether this amount should
    be discounted is one that depends on how individuals compare the
    utilities derived from living in the present to the utilities derived
    from living in the future. See infra text accompanying notes 223-224.
        52. See Corrosion Proof Fittings, 947 F.2d at 1218-19, 1229-30. The
    court's analysis revealed confusion. It relied primarily on the
    following example:
        Suppose two workers will be exposed to asbestos in 1995, with
    worker X subjected to a tiny amount of asbestos that will have no
    adverse health effects, and worker Y exposed to massive amounts of
    asbestos that quickly will lead to an asbestos-related disease. Under
    the EPA's approach, which takes into account only the time of the
    exposure rather than the time at which any injury manifests itself,
    both examples would be treated the same.
        Id. at 1218. In fact, if worker X would never get cancer, the
    regulation would have no benefit with respect to this worker. With zero
    benefits, there would be nothing to discount. What the court might have
    meant is that if workers X and Y had been exposed to asbestos at the
    same time, and worker Y was injured before worker X, the EPA would
    treat both cases in the same way (and presumably the Fifth Circuit
    would have wanted to treat them differently).
        53. Id.
        54. For related discussion, see infra text accompanying notes 155-
    157.
        55. See Corrosion Proof Fittings, 947 F.2d at 1218 n.19. For
    further discussion of discount rates, see infra Part I.F.2.
        56. S. 343, 104th Cong. (1995).
        57. See id. at 623 (``[no] final rule . . . shall be promulgated
    unless the agency finds that . . . the potential benefits from the rule
    . . . justify the potential costs of the rule''); id. at 621-622
    (dealing with the preparation of cost-benefit analyses); see generally
    supra text accompanying notes 1-4 (discussing regulatory reform).
        58. S. Rep. No. 104-90, at 153 (1995) (supplemental views of
    Senator Leahy).
        59. The only two sustained treatments of the question of
    discounting in the legal academic literature were those of Farber &
    Hemmersbaugh, supra note 19, and Heinzerling, supra note 7. See supra
    note 19 (discussing their positions). While the economics literature
    has focused on isolated nuances, it has not taken a broad look at the
    problem or connected the various strands that are necessary to a
    sophisticated analysis of the public policy choices.
        60. See W. Kip Viscusi, The Valuation of Risks to Life and Health:
    Guidelines for Policy Analysis, in Benefits Assessment: The State of
    the Art 193, 193 (Judith D. Bentkover et al. eds., 1986) [hereinafter
    Viscusi, Valuation]. For a more recent survey, see W. Kip Viscusi, The
    Value of Risks to Life and Health, 31 J. Econ. Literature 1912 (1993)
    [hereinafter Viscusi, Value]. The technique is generally traced to
    Thomas C. Schelling, The Life You Save May Be Your Own, in Problems in
    Public Expenditure Analysis 127 (Samuel B. Chase, Jr. ed., 1968), and
    E.J. Mishan, Evaluation of Life and Limb: A Theoretical Approach, 79 J.
    Pol. Econ. 687, 695-705 (1971).
        Before the ascendancy of willingness-to-pay studies, the human
    capital approach was prevalent. This approach valued life in terms of
    lost earnings. See Viscusi, Valuation, supra, at 198. The technique is
    subject to the obvious criticism that earnings provide that
    ``individual well-being goes far beyond its financial implications.''
    Id.; accord W.B. Arthur, The Economics of Risks to Life, 71 Am. Econ.
    Rev. 54, 54 (1981); Lewis A. Kornhauser, The Value of Life, 38 Clev.
    St. L. Rev. 209, 212 (1990).
        61. See Viscusi, Valuation, supra note 60, at 200.
        62. See id. at 199-200.
        63. Such workers might also face a higher probability of nonfatal
    risks. Some studies estimate the portion of the wage differential that
    is attributable to such non-fatal risks. The residual wage differential
    is then attributed to fatal risks. See Viscusi, Value, supra note 60,
    at 1919. Some studies, however, do not separate the wage differential
    into these two components. See id.
        64. For criticism of the approach, see McGarity, supra note 1, at
    147-48; Steven Kelman, Cost-Benefit Analysis and Environmental, Safety,
    and Health Regulation: Ethical and Philosophical Considerations, in
    Cost-Benefit Analysis and Environmental Regulations: Politics, Ethics,
    and Methods 137, 143-45 (Daniel Swartzman et al. eds., 1982); J. Paul
    Leigh, Compensating Wages, Value of a Statistical Life, and Inter-
    industry Differentials, 28 J. Envtl. Econ. & Mgmt. 83, 94-95 (1995);
    McGarity & Shapiro, supra note 4, at 628-29.
        An alternative methodology consists of surveying individuals and
    asking them how much they would be willing to pay for a particular risk
    reduction. See Viscusi, Valuation, supra note 60, at 204-05. The
    disadvantage of this contingent valuation method is that the responses
    are to hypothetical situations and have no economic consequences. See
    V. Kerry Smith & William H. Desvousges, An Empirical Analysis of the
    Economic Value of Risk Changes, 95 J. Pol. Econ. 89, 93-94 (1987).
        65. See Maureen L. Cropper & Frances G. Sussman, Valuing Future
    Risks to Life, 19 J. Envtl. Econ. & Mgmt. 160, 160 (1990) (``The
    empirical literature on valuing risks to life has focused almost
    exclusively on valuing mortality risks that occur today--the risk of
    accidental death a worker faces during the coming year or the risk of
    dying this month in an auto accident.''); Horowitz & Carson, supra note
    11, at 405 (``Virtually all the empirical work on the value of risk
    reductions has considered risks that occur entirely in the present. . .
    .''); Shapiro & McGarity, supra note 39, at 734 (``most wage premium
    studies . . . are based on safety hazards, not health risks''). Of
    course, to the extent that there is a probability of a non-fatal
    accident, the resulting morbidity risk could also be measured using a
    willingness-to-pay approach.
        66. See Leigh, supra note 64, at 86-87; Viscusi, Valuation, supra
    note 60, at 200. Of course, in some cases, industrial accidents result
    in long-term disability rather than death.
        67. One ongoing attempt to derive a willingness-to-pay valuation of
    human lives threatened by carcinogens is reflected in John R. Lott, Jr.
    & Richard L. Manning, Have Changing Liability Rules Compensated Workers
    Twice for Occupational Hazards?: Earnings Premiums and Cancer Risks
    (June 28, 1998) (manuscript on file with the Columbia Law Review). For
    a contingent valuation study inquiring how individuals value risk
    reductions from hazardous waste sites, see Smith & Desvousges, supra
    note 64.
        68. Both the Occupational Safety and Health Administration (OSHA)
    and EPA were established in 1970. See Sidney A. Shapiro & Thomas O.
    McGarity, Reorienting OSHA: Regulatory Alternatives and Legislative
    Reform, 6 Yale J. on Reg. 1, 1 n.1, 2 n.9 (1989).
        69. See Cropper & Sussman, supra note 65, at 166 n.8. Moreover,
    certain risks may be poorly understood even by experts. See Smith &
    Desvousges, supra note 64, at 108-09.
        70. See Sherwin Rosen, The Quantity and Quality of Life: A
    Conceptual Framework, in George Tolley et al., Valuing Health for
    Policy: An Economic Approach 221 (1994).
        71. One commentator estimates that ``the average age of the
    workplace accident fatality is about 41'' whereas ``the average age of
    the workplace cancer victim is likely to be 55, 65, or even higher.''
    John M. Mendeloff, The Dilemma of Toxic Substance Regulation: How
    Overregulation Causes Underregulation at OSHA 48 (1988).
        72. Additional complications are introduced when the length of the
    person's life is uncertain. See Rosen, supra note 70, at 236-45. No
    important insights are lost, however, as a result of this
    simplification. In practice, of course, an individual who would have
    died of cancer at the end of the latency period may die earlier of
    other causes. See Lester B. Lave, The Strategy of Social Regulation:
    Decision Frameworks for Policy 43 (1981).
        73. See Maureen L. Cropper & Paul R. Portney, Discounting and the
    Evaluation of Lifesaving Programs, 3 J. Risk & Uncertainty 369, 376
    (1990).
        74. A more complicated situation arises when an individual is
    exposed to a carcinogen over a long period of time and the harm
    resulting from the exposure is cumulative.
        75. See Cropper & Sussman, supra note 65, at 172-73.
        76. See W. Kip Viscusi, Discounting Health Effects for Medical
    Decisions, in Valuing Health Care: Costs, Benefits, and Effectiveness
    of Pharmaceuticals and Other Medical Technologies 125, 129 (Frank A.
    Sloan ed., 1995). In contrast, a nominal rate is used to discount
    current dollars. The real rate is the nominal rate minus the rate of
    inflation.
        77. See Edith Stokey & Richard Zeckhauser, A Primer for Policy
    Analysis 161-65 (1978).
        78. See infra Part I.F.1.
        79. See Cropper & Sussman, supra note 65, at 165-66.
        80. See supra text accompanying note 71 (hypothesizing that the
    worker exposed to the risk of instantaneous death is 40-years old).
        81. See Cropper & Portney, supra note 73, at 378 n.12.
        82. See Cropper & Sussman, supra note 65, at 172 (``This fact . . .
    is often ignored in risk-benefit analyses.'').
        83. See infra Part I.G.
        84. See Robert F. Bordley, Making Social Trade-Offs Among Lives,
    Disabilities, and Cost, 9 J. Risk & Uncertainty 135, 138 (1994).
        85. See Cropper & Portney, supra note 73, at 371-72; Rosen, supra
    note 70, at 222-23.
        86. A similar issue arises in the literature on QALYs, or quality-
    adjusted life years, which are a means for adjusting the utility that
    an individual gets in a period by the quality of her health in that
    period. So, for example, an individual derives greater utility from a
    year in which her health is excellent than in one in which she is
    disabled. See Richard Zeckhauser & Donald Shepard, Where Now for Saving
    Lives?, Law & Contemp. Probs., Autumn 1976, at 5, 12-13. In the context
    of QALYs, separability implies that the utility that a person derives
    from the quality of her life in a particular year is independent of the
    qualities of her life in past years. See John Broome, QALYs, 50 J. Pub.
    Econ. 149, 151-52 (1993).
        87. Broome, supra note 86, at 151-52. Broome applies this label to
    a separability model in the context of QALYs. See supra note 86.
        88. See Bordley, supra note 84, at 138.
        89. See infra Part I.F.1.
        90. See infra Part I.E.3.
        91. See supra text accompanying notes 65-69.
        92. See Bordley, supra note 84, at 138; Michael J. Moore & W. Kip
    Viscusi, Discounting Environmental Health Risks: New Evidence and
    Policy Implications, 18 J. Envtl. Econ. & Mgmt. S-51, S-54 (1990);
    Rosen, supra note 70, at 224.
        93. Donald S. Shepard & Richard J. Zeckhauser, Survival Versus
    Consumption, 30 Mgmt. Sci. 423, 424 (1984).
        94. Id. at 424; see also Joseph Lipscomb, Time Preference for
    Health in Cost-Effectiveness Analysis, 27 Med. Care S233, S237 (1989)
    (asking whether individuals evaluate multiperiod health outcomes ``in
    accordance with constant-rate discounting'').
        95. See W. Kip Viscusi & Michael J. Moore, Rates of Time Preference
    and Valuations of the Duration of Life, 38 J. Pub. Econ. 297, 297-98
    (1989) (``Although money is readily transferable across time, health
    status is not.''). Part I.F.1, infra, explains more generally why
    discounting health risks is analytically different from discounting
    financial flows.
        96. There have been attempts to estimate the rate at which
    individuals discount their utilities, but they have been conducted on
    the basis of constant discounting models. See Moore & Viscusi, supra
    note 92, at S-54. There also are empirical estimates of how discount
    rates depend on the period over which the discounting is performed, but
    these studies are intergenerational, or at the very least
    interpersonal. See infra Part II.B.
        97. See Donald A. Redelmeier & Daniel N. Heller, Time Preference in
    Medical Decision Making and Cost-Effectiveness Analysis, 13 Med.
    Decision Making 212, 216 (1993); id. at 214-15 (finding that rates for
    temporally proximate events were larger than for more distant events);
    infra Part II.B (same finding in intergenerational models).
        98. See supra text accompanying notes 36-38.
        99. See Cropper & Portney, supra note 73, at 377.
        100. See Shepard & Zeckhauser, supra note 93, at 437 n.18; Viscusi,
    supra note 76, at 130. But see Glenn Blomquist, Value of Life Saving:
    Implications of Consumption Activity, 87 J. Pol. Econ. 540, 555 (1979)
    (finding lower elasticity).
        101. See supra text accompanying notes 78-80.
        102. See Viscusi, supra note 76, at 130; Richard Zeckhauser,
    Procedures for Valuing Lives, 23 Pub. Pol'y 419, 437 (1975).
        103. See William D. Nordhaus, To Slow or Not to Slow: The Economics
    of the Greenhouse Effect, 101 Econ. J. 920, 925-26 (1991); Viscusi,
    supra note 76, at 130.
        104. Farber & Hemmersbaugh, supra note 19, state that ``the
    discount rate even for economic benefits cannot significantly exceed
    the expected long-term rate of economic growth; otherwise, we would
    discount even the destruction of most future Gross Domestic Product to
    a low present value over periods of only decades.'' Id. at 296. The
    authors appear to be making a pragmatic argument for keeping the
    effective discount rate low. There is, however, no plausible normative
    argument for linking the two rates in this manner.
        105. U.S. Census Bureau, Historical Income Tables--Persons, Table
    P-44 (visited June 22, 1998) .
        106. Over the longer run, the rate has been higher. See William R.
    Cline, The Economics of Global Warming 251 (1992) (estimating that
    ``real per capita income in the United States has grown at about 1.7
    percent annually over the past century'').
        107. See Donald S. Shepard & Richard J. Zeckhauser, Life-Cycle
    Consumption and Willingness to Pay for Increased Survival, in The Value
    of Life and Safety 95, 120-27 (M.W. Jones-Lee ed., 1982) [hereinafter
    Shepard & Zeckhauser, Life-Cycle Consumption]; Shepard & Zeckhauser,
    supra note 93, at 432-36.
        108. See Zeckhauser, supra note 102, at 437.
        109. Id. at 438.
        110. In general, one's credit suitability for loans is evaluated on
    the basis of one's present income. There are some exceptions, however,
    such as student loans to finance post-secondary education.
        111. See Shepard & Zeckhauser, Life-Cycle Consumption, supra note
    107, at 107-15. There is potentially a logical inconsistency in
    believing that individuals cannot process the fact that they will have
    higher incomes in the future in order to value their lives accordingly,
    but positing that individuals will borrow money in the expectation of
    higher income in the future.
        112. See id. at 125.
        113. See id.
        114. See id. at 121.
        115. See Shepard & Zeckhauser, supra note 93, at 434.
        116. See id. at 435 (noting that ``the real world lies somewhere in
    between'' the two models).
        117. See supra text accompanying note 114.
        118. See Shepard & Zeckhauser, supra note 93, at 433.
        119. See Viscusi, Value, supra note 60, at 1942-43 (``the
    population of exposed workers . . . generally have lower incomes than
    the individuals being protected by broadly based risk regulation'').
        120. EPA should, however, vary its valuations of life on the basis
    of the age profile of the affected population, to account for the
    different numbers of life-years at stake in various regulatory
    programs.
        121. For discussion of environmental justice, see Vicki Been,
    Coming to the Nuisance or Going to the Barrios? A Longitudinal Analysis
    of Environmental Justice Claims, 24 Ecology L.Q. 1 (1997); Vicki Been,
    Locally Undesirable Land Uses in Minority Neighborhoods:
    Disproportionate Siting or Market Dynamics?, 103 Yale L.J. 1383 (1994);
    Robert D. Bullard, Anatomy of Environmental Racism and the
    Environmental Justice Movement, in Confronting Environmental Racism:
    Voices from the Grassroots 15 (Robert D. Bullard ed., 1993); Richard J.
    Lazarus, Pursuing ``Environmental Justice'': The Distributional Effects
    of Environmental Protection, 87 Nw. U. L. Rev. 787 (1993).
        122. An ethical objection to such particularization would be an
    attack on cost-benefit analysis in general and to the use of a
    willingness-to-pay methodology for valuing lives in particular. See
    Guido Calabresi & Philip Bobbitt, Tragic Choices: The Conflicts Society
    Confronts in the Allocation of Tragically Scarce Resources 32 (1978)
    (referring to ``the external costs--moralisms and the affront to
    values, for example--of market determinations that say or imply that
    the value of a life or of some precious activity integral to life is
    reducible to a money figure''). Nonetheless, using differential
    valuations of life based on income levels is likely to prove
    objectionable to some supporters of cost-benefit analysis, and to
    magnify the objections adduced by opponents of this approach.
        123. See U.S. Census Bureau, Historical Income Tables--Persons:
    Table P-36: Occupation of Longest Job--Workers (Both Sexes Combined) by
    Median and Mean Earnings (visited June 22, 1998) .
        124. See id.
        125. See id.
        126. See Paul Slovic, Perception of Risk, 236 Science 280 (1987).
        127. Zeckhauser, supra note 102, at 445 n.27.
        128. Cass Sunstein cogently explains that ``the question whether a
    risk is run voluntarily or not is often not a categorical one but
    instead a matter of degree.'' Cass R. Sunstein, Bad Deaths, 14 J. Risk
    & Uncertainty 259, 272 (1997). Sunstein would place risks on a
    voluntariness/involuntariness continuum based on three factors: whether
    the worker has adequate information about the risk; whether the worker
    is compensated for the risk; and whether the compensation package does
    not appear unfair, even if voluntarily chosen by the parties, as a
    result of background inequality between the employer and employee. See
    id.; see also Shapiro & McGarity, supra note 39, at 734
    (``Unfortunately, low-paid workers in hazardous industries where there
    are no (or weak) unions may act more out of desperation than
    choice.'').
        129. See Maureen L. Cropper & Uma Subramanian, Public Choice
    Between Lifesaving Programs 6 (World Bank Policy Research Working Paper
    1497, 1995). Of course, if an individual is exposed to a toxic air
    pollutant, she could move somewhere else. Sunstein would nonetheless
    classify the risk as involuntary because the individuals are not in a
    contractual relationship with the producer of the risk and cannot avoid
    the risk except at great cost, in this case by moving to another area.
    See Sunstein, supra note 128, at 271.
        Moreover, in many cases, individuals may lack sufficient
    information about environmental risks to make informed choices. Even if
    they had such information, risks that are uniformly distributed
    throughout the country could obviously not be avoided by moving
    elsewhere. For further discussion of the difference between voluntary
    and involuntary risks, see Richard H. Pildes & Cass R. Sunstein,
    Democrats and Technocrats, Journees d'Etudes Juridiques Jean Dabin
    (forthcoming 2000) (manuscript on file with the Columbia Law Review).
        130. See supra text accompanying notes 60-62.
        131. Even studies of how the price of a house in an area with high
    concentrations of this pollutant compares to the price of an otherwise
    similar house in an area with better air quality do not capture the
    value of involuntary risk. While such hedonic price studies are a
    commonly used revealed preference tool for economic valuations, see
    Ronald G. Cummings et al., General Methods for Benefits Assessment, in
    Benefits Assessment, supra note 60, at 171-76, the participants in
    these housing markets are individuals attempting to decide where to
    live. They are making a choice about whether to live in one area rather
    than another. As a result, it would be a stretch to regard their
    ``choice'' as involuntary. Rather, the involuntary label is better used
    for individuals who have lived in an area for a long time, have strong
    personal ties to the area, and lack the resources to move.
        132. An extensive list of such references is provided in
    Heinzerling, supra note 7, at 1983 n.1, 2. The genesis for these
    studies is a table prepared in the 1980's by John Morrall, an OMB
    official. See John F. Morrall III, A Review of the Record, Regulation,
    Nov./Dec. 1986, at 25, 30 tbl.4. Heinzerling notes, however, that the
    regulations with numbers at the high end were never promulgated.
    Moreover, she argues that the remaining differences would be less stark
    if Morrall had not discounted the benefits of environmental regulation
    or reduced the estimates of risk prepared by the agencies. See
    Heinzerling, supra note 7, at 1984-85.
        133. There has been strong criticism to valuations based on survey
    responses. See Richard B. Stewart, Liability for Natural Resource
    Injury: Beyond Tort, in Analyzing Superfund: Economics, Science, and
    Law 219, 234-38 (Richard L. Revesz & Richard B. Stewart eds., 1995).
    Nonetheless, a panel of distinguished economists, co-chaired by Nobel
    Prize winners Kenneth Arrow and Robert Solow, which had been empaneled
    by the National Oceanic and Atmospheric Administration (NOAA), gave
    qualified endorsement to the use of contingent valuation techniques.
    See 58 Fed. Reg. 4601, 4610 (1993). Clearly, revealed preference
    valuations would be preferable, but, as indicated above, such
    valuations cannot be used for involuntary harms. See supra text
    accompanying notes 130-131.
        134. See Cropper & Subramanian, supra note 129, at 2.
        135. See id. at 16-18.
        136. See id. at 3-7.
        137. The remaining characteristics were the extent to which the
    affected population was to blame for the risk, the seriousness of the
    risk, and whether the risks affected respondents personally. In
    addition to these four risk characteristics, the respondents were also
    asked to assess four program characteristics: the efficacy of the
    program, the appropriateness of government intervention, the fairness
    of the funding mechanism, and the time before the program begins to
    save lives. See id. at 39.
        138. See id. at 40.
        139. A labeling program, designating food to be free of pesticide,
    could work effectively if the claims were in fact truthful and adequate
    information was conveyed to prospective buyers. But social coordination
    would be necessary to set up the labeling program and to police its
    integrity.
        140. See Cropper & Subramanian, supra note 129, at 40.
        141. See id. at 41.
        142. See id. at 48.
        143. See id. at 24, 41.
        144. See id. at 4-5.
        145. See McGarity, supra note 1, at 146-49; Kelman, supra note 64,
    at 144; Viscusi, Value, supra note 60, at 1928.
        This effect is discussed even though it has not been the focus of
    empirical study, see supra text accompanying notes 99-100, because it
    flows in part from the difference between the voluntary nature of
    workplace harms and the involuntary nature of environmental harms.
        146. Some self-selection can take place with respect to reasonably
    local risks, such as those that result from proximity to hazardous
    waste sites. With respect to more regional risks, such as regional air
    pollution, however, such self-selection is far more difficult.
        147. See Sunstein, supra note 128, at 259.
        148. See Tammy O. Teng et al., Five-Hundred Life-Saving
    Interventions and Their Cost-Effectiveness, 15 Risk Analysis 369
    (1995).
        149. See id. at 370.
        150. See id. at 371.
        151. See id.
        152. See supra text accompanying notes 131-133.
        153. George Tolley et al., State-of-the-Art Health Values, in
    Tolley et al., supra note 70, at 323, 339-44.
        154. See id. at 339-40.
        155. See supra text accompanying notes 64-68.
        156. But cf. Sunstein, supra note 128, at 269 (an extended period
    before death can contain benefits, since it allows grief and
    adjustment).
        157. See Tolley et al., supra note 153, at 329-32, 340; supra note
    133 and accompanying text.
        158. See Tolley et al., supra note 153, at 340.
        159. See id. at 340-41; see also Michael W. Jones-Lee et al., The
    Value of Safety: Results of a National Sample Survey, Econ. J., March
    1985, at 49, 58-60. For a more recent study finding a higher
    willingness-to-pay to avoid carcinogenic harms, see Ian Savage, An
    Empirical Investigation into the Effect of Psychological Perceptions on
    the Willingness-to-Pay to Reduce Risk, 6 J. Risk & Uncertainty 75, 77,
    85 (1993).
        160. For intuitions supporting a higher valuation for dreaded
    harms, see Mendeloff, supra note 71, at 48; Shapiro & McGarity, supra
    note 39, at 734 n.29.
        161. See Lave, supra note 72, at 44 (``Discounting future health
    effects at the standard rate makes sense only if there is a fixed
    transformation rate between dollars and health.''); John Mendeloff,
    Measuring Elusive Benefits: On the Value of Health, 8 J. Health Pol.,
    Pol'y & Law 554, 568 (1983) (``discount rate for health effects should
    largely be based upon individuals' time preferences''); supra note 51
    and accompanying text; infra Part I.F.1. But see Victor R. Fuchs &
    Richard Zeckhauser, Valuing Health--A ``Priceless'' Commodity, 77 Am.
    Econ. Rev. 263, 264 (1987) (suggesting that life years should be
    discounted in the same manner as cash-flows).
        162. See Farber & Hemmersbaugh, supra note 19, at 287.
        163. Viscusi, supra note 76, at 131-32.
        164. See John A. Cairns, Valuing Future Benefits, 3 Health Econ.
    221, 221 (1994) (``Little is known about individual time preferences
    with respect to future health, and in particular whether they differ
    from preferences with respect to future wealth.''); Putnam & Graham,
    supra note 6, at 60 (``Instead of choosing a standard discount rate . .
    . the rate should be based on the . . . preferences of citizens.'').
        165. See Moore & Viscusi, supra note 92, at S-61 (``One should also
    be cognizant of the ultimate objective of our study, which is to
    ascertain whether systematic differences exist between rates of time
    preference for health and financial rates of return.'').
        166. See id. at S-52-S-55.
        167. See id. at S-53.
        168. See id. at S-57. These studies follow a revealed preference
    approach, which consists of observing the prices at which market
    transactions take place. See supra text accompanying notes 130-131.
        169. See Moore & Viscusi, supra note 92, at S-59, S-61.
        170. Id. at S-59; see also supra text accompanying note 55; supra
    note 76 (discussing difference between real and nominal rates).
        171. Moore & Viscusi, supra note 92, at S-61; see also id. at S-52.
        It is worth thinking about how the regulatory system ought to react
    if, contrary to the findings by Moore and Viscusi, one found that
    individuals discounted health risks at a very high rate, even when they
    were well informed about these risks. In such situations, it might be
    appropriate for the government to act in a paternalistic fashion and
    make social policy on the basis of a lower discount rate. The rationale
    would be somewhat analogous to the rationale for the usury laws, which
    prohibit lending at an overly high interest rate.
        The utility of an individual with an unusually high discount rate
    would increase if she were allowed to borrow at a rate up to her
    discount rate in order to transfer consumption from the future to the
    present. The usury laws, however, prevent her from doing so because of
    concern that she might later experience excessive regret. Similarly, in
    deciding how stringently to regulate future environmental risks, the
    government could be skeptical of discount rates for health risks that
    are high compared to the rates at which money gets transferred through
    the financial markets.
        Empirical findings of high discount rates would at the very least
    be troubling and raise difficult questions as to how social
    policymakers should react. The Moore and Viscusi studies, showing an
    equivalence between the rates at which individuals discount health
    risks and the rates at which the market discounts flows of money, make
    it unnecessary to face this issue.
        172. See id. at S-61. The earlier studies are Michael J. Moore & W.
    Kip Viscusi, Models for Estimating Discount Rates for Long-Term Health
    Risks Using Labor Market Data, 3 J. Risk & Uncertainty 381 (1990);
    Michael J. Moore & W. Kip Viscusi, The Quantity-Adjusted Value of Life,
    26 Econ. Inquiry 369 (1988); Viscusi & Moore, supra note 95.
        173. See Moore & Viscusi, supra note 92, at S-61.
        174. Id.
        175. See Viscusi & Moore, supra note 95, at 314.
        176. The issue is not entirely free of doubt. For example, a more
    recent study by Viscusi and a different co-author, using a similar
    methodology, found real discount rates ranging from 11-17 percent, in
    the context of automobile safety. See Mark K. Dreyfus & W. Kip Viscusi,
    Rates of Time Preference and Consumer Valuations of Automobile Safety
    and Fuel Efficiency, 38 J.L. & Econ. 79, 84, 99 (1995). The authors
    note that the riskless rate of interest, which they estimate in the 2-5
    percent range, is outside the confidence limit of their estimates. See
    id. at 99. They note, however, that in many cases consumers face
    interest rates that are far higher than the riskless rate, and that
    their estimated discount rate was not statistically different, at a 95
    percent confidence interval, from the real rates for the financing of
    automobile purchases (8.5 percent and 11.0 percent for new and used
    cars, respectively). See id. at 99-100.
        Individuals also exhibit inordinately high discount rates with
    respect to purchases having an effect on energy conservation. Thus,
    they have not been willing to pay much of a premium on the purchase of
    products such as air conditioning or heating units in return for lower
    energy costs in the future. See Jeffrey A. Dubin, Will Mandatory
    Conservation Promote Energy Efficiency in the Selection of Household
    Appliance Stocks?, 7 Energy J. 99, 109-13 (1986); Jerry A. Hausman,
    Individual Discount Rates and the Purchase and Utilization of Energy-
    Using Durables, 10 Bell J. Econ. 33, 50-52 (1979); Douglas A. Houston,
    Implicit Discount Rates and the Purchase of Untried, Energy-Saving
    Durable Goods, 10 J. Consumer Res. 236, 236-37 (1983).
        These studies, which are discussed in Dreyfus & Viscusi, supra, at
    83-84, affect only financial flows and do not raise the question of how
    to discount future health risks. The problem here may well be that
    consumers lack clear information on energy savings benefits or cannot
    properly process this information if they have it, see Wesley A. Magat
    & W. Kip Viscusi, Informational Approaches to Regulation 5 (1992), or
    that they violate some of the postulates of rational theory, see George
    Loewenstein & Richard H. Thaler, Intertemporal Choice, 3 J. Econ.
    Persp. 181, 182-83, 192 (1989).
        177. See supra text accompanying note 167.
        178. See Rosen, supra note 70, at 224; supra text accompanying
    notes 99-100.
        179. In fact, the situation may be even more complicated. Children,
    for example, may increase one's utility. See Richard A. Epstein,
    Justice Across Generations, 67 Tex. L. Rev. 1465, 1472 (1989). Then,
    for a given level of consumption, after one has children one's utility
    might be higher than before.
        180. See supra text accompanying notes 36-38.
        181. See Circular No. A-94, 57 Fed. Reg. 53,519 (1992).
        182. See Robert C. Lind, Discounting for Time and Risk in Energy
    Policy 5-6 (1982). For criticisms, see Daniel A. Farber, Risk
    Regulation in Perspective: Reserve Mining Revisited, 21 Envtl. L. 1321,
    1349-50 (1991); Farber & Hemmersbaugh, supra note 19, at 278 & n.43;
    Viscusi, supra note 76, at 129.
        183. See 57 Fed. Reg. at 53,522-23.
        184. Id. at 53,523.
        185. See id. at 53,520, 53,523.
        186. See id. at 53,528 (3.8 percent); 61 Fed. Reg. 6397, 6397
    (1996) (3.0 percent); 63 Fed. Reg. 3932, 3933 (1998) (3.8 percent).
        187. For clear analyses, see Arnold, supra note 22, at 177-97;
    Lind, supra note 22. For an excellent primer on discounting, see Lind,
    supra note 182, at 21-94.
        188. Arnold, supra note 22, at 180.
        189. See id. at 181.
        190. Because income taxes are due on nominal interest, the tax
    adjustment must be performed first. See id. at 192 n.10.
        191. See id. at 192.
        192. See id. at 192; Viscusi, supra note 76, at 129, 134.
        In 1998, the yield on 30-year Treasury bonds stood at 5.57 percent,
    the lowest since auctions on these bonds began in 1977. See Guy Dixon &
    Candace Cumberbatch, Bond Price Hit New Highs, Lifted by Concerns About
    Japan and Signals of a U.S. Slowdown, Wall St. J., July 7, 1998, at
    C19. An individual facing a 28 percent Federal marginal tax rate would
    have an after-tax return of 4.0 percent. Subtracting the change in the
    consumer price index for the twelve-month period ending in May 1998,
    which is 1.7 percent, see U.S. Bureau of Labor Statistics, Consumer
    Price Index Summary (visited July 8, 1998) , would result in a discount rate of 2.3
    percent.
        193. See Arnold, supra note 22, at 181.
        194. See id. at 184-85.
        195. See id. at 190.
        196. See supra text accompanying notes 183-184.
        197. In the case of environmental regulation, the government is not
    making the investment, but is instead requiring private parties to make
    it. The same analysis is applicable, however. See Arnold, supra note
    22, at 189-91.
        198. See id. at 180-84; Lind, supra note 22, at S-10, S-11.
        The Department of Energy continues to engage in this inquiry:
        Because the proposed appliance efficiency standards will primarily
    affect private, rather than public, investment, the Department
    continues to believe that using the average real rate of return on
    private investment as the basis for the social discount rate is most
    appropriate. If the primary impact of the standards were on Federal or
    other public expenditures, DOE agrees that real interest rates on long
    term government securities would likely be a better basis.
        60 Fed. Reg. 37,388, 37,394 (1995).
        199. See Arnold, supra note 22, at 184-85; Lind, supra note 22, at
    S-8, S-9.
        200. See Arnold, supra note 22, at 184-85, 190-91; Lind, supra note
    22, at S-8, S-9.
        201. See Ronald G. Cummings, Legal and Administrative Uses of
    Economic Paradigms: A Critique, 31 Nat. Resources J. 463, 471 (1991);
    Randolph M. Lyon, Federal Discount Rate Policy, The Shadow Price of
    Capital, and Challenges for Reforms, 18 J. Envtl. Econ. & Mgmt. S-29,
    S-30 (1990). For an interesting survey of the different choices of
    discount rates in Federal agencies, see Edward R. Morrison, Comment,
    Judicial Review of Discount Rates Used in Regulatory Cost-Benefit
    Analysis, 65 U. Chi. L. Rev. 1333, 1336-37, 1364-69 (1998).
        202. 59 Fed. Reg. 45,872, 45,895-97 (1994).
        203. See 43 C.F.R. 11.84(e)(2) (1998) (Department of the Interior).
    Ohio v. Department of the Interior, 880 F.2d 432, 464-65 (D.C. Cir.
    1989), upheld the Department of the Interior's choice of a 10 percent
    discount rate for natural resources damages, following OMB's pre-1992
    policy, see supra text accompanying note 182.
        204. See supra text accompanying notes 73-75.
        205. See supra text accompanying notes 133-143.
        206. See supra text accompanying notes 153-160.
        207. See supra text accompanying note 156.
        208. See Jones-Lee et al., supra note 159, at 55-57.
        209. In contrast, in the Cropper and Subramanian study, the
    respondents were asked to evaluate the ease with which each of the
    risks could be avoided. See supra text accompanying notes 136-138.
        210. The upward adjustment resulting from the unrepresentativeness
    of the risk preferences of the population exposed to workplace risks
    cannot be estimated as a result of the paucity of the empirical data,
    though logic compels the conclusion that such workers will have a
    lower-than-average willingness-to-pay to avoid risk. See supra Part
    I.E.2.b.
        211. See supra text accompanying notes 123-125.
        212. See supra text accompanying notes 103-106.
        213. For a 20 year lag, a discount rate of 2 percent reduces the
    valuation to 67 percent of the undiscounted amount, as compared to a
    reduction to 55 percent of the undiscounted amount for a 3 percent
    discount rate.
        214. See supra text accompanying notes 183-184.
        215. See supra text accompanying notes 80-83.
        216. The OMB approach, however, avoids the pitfall of using
    V[in'60,60'] as the basis for estimating V[in'40,40']. Such a procedure
    might lead to undervaluation because of changes over time in the income
    and saving levels of individuals. See supra Part I.E.1.b.
        217. The adjustments for the dread nature of the harm, the
    involuntary nature of the harm, the salary differential, and the impact
    of economic growth are 2, 2, 1.23, and 1.22, respectively. See supra
    text accompanying notes 204-213. The calculation assumes that all the
    factors are multiplicative. See supra text accompanying notes 206-210.
    This assumption should be the focus of empirical study.
        218. See B.T. Westerfield, Asbestos-Related Lung Disease, 85
    Southern Med. J. 616 (1992). Some of the adverse consequences of
    exposure to asbestos have latency periods of 30 and 40 years. See id.
    at 618.
        219. See supra Part I.E.2.b.
        220. See supra text accompanying notes 177-179.
        221. For discussion of the differences with the intergenerational
    setting, see infra text accompanying notes 281-283.
        222. See supra text accompanying notes 65-69.
        223. See supra text accompanying note 35 (discussing Barnes's
    testimony).
        224. See supra Part I.F.1.
        225. See supra Part I.G.
        226. See supra text accompanying notes 214-218.
        227. For applications of this concept in the legal literature, see
    Bruce Ackerman & Anne Alstott, The Stakeholder Society (forthcoming
    1999) (manuscript at 131-42, on file with the Columbia Law Review);
    Christine Jolls, Contracts as Bilateral Commitments: A New Perspective
    on Contract Modification, 26 J. Legal Stud. 203, 210, 219-24 (1997);
    Christine Jolls et al., A Behavioral Approach to Law and Economics, 50
    Stan. L. Rev. 1471, 1538-41 (1998); Deborah M. Weiss, Paternalistic
    Pension Policy: Psychological Evidence and Economic Theory, 58 U. Chi.
    L. Rev. 1275, 1285-86, 1300-06 (1991).
        228. Intergenerationally, the situation is different because the
    individual making the decision is different from the individual
    affected by the decision. See infra text accompanying notes 281-283.
        229. Ackerman & Alstott, supra note 227, at 141.
        230. See supra note 192.
        231. For critiques of cost-benefit analysis, see Steven Kelman,
    Cost-Benefit Analysis: An Ethical Critique, Regulation, Jan./Feb. 1981,
    at 33; Duncan Kennedy, Cost-Benefit Analysis of Entitlement Problems: A
    Critique, 33 Stan. L. Rev. 387 (1981). For critiques of the techniques
    for valuing human lives, see sources cited supra note 64.
        232. See supra text accompanying notes 21-22.
        233. See William D. Nordhaus, Managing the Global Commons: The
    Economics of Climate Change 4 (1994) (``A complete analysis of the
    economics of climate change must recognize the extraordinarily long
    time lags involved in the reaction of the climate and economy to
    greenhouse gas emissions.'').
        234. For a comprehensive list, see 1 Philippe Sands, Principles of
    International Environmental Law 198-213 (1995).
        235. Stockholm Declaration of the United Nations Conference on the
    Human Environment, June 16, 1972, 11 I.L.M. 1461.
        236. United Nations Conference on Environment and Development: Rio
    Declaration on Environment and Development, June 13, 1992, 31 I.L.M.
    874.
        237. United Nations Conference on Environment and Development:
    Framework Convention on Climate Change, May 9, 1992, 31 I.L.M. 849.
        238. Putnam & Graham, supra note 6, at 60.
        239. Keeler & Cretin, supra note 5, at 303; see also id. at 304
    (``Delaying any program . . . increases its benefit to cost ratio.'').
        240. See Arnold, supra note 22, at 178.
        241. See Nordhaus, supra note 233, at 125 (``If investments in
    equipment or human capital yield 10 percent annually, it would be
    inefficient to make investments that yielded only 3 percent.''); id. at
    135.
        242. See id. at 125.
        243. See Hillman & Kim, supra note 5, at 200-02; Michael W. Jones-
    Lee & Graham Loomes, Discounting and Safety, 47 Oxford Econ. Papers
    501, 511 (1995); Lipscomb, supra note 94, at S237.
        244. See Lewis A. Kornhauser & Richard L. Revesz, Evaluating the
    Effects of Alternative Superfund Liability Rules, in Analyzing
    Superfund, supra note 133, at 115, 118.
        245. See id.
        246. In some cases, in contrast, environmental remediation costs
    may fall over time as a result of technological innovation.
        247. Even if the cost were less than $100, a static evaluation
    would counsel against investing in remediation if the funds could be
    invested in an alternative project with a sufficient return.
        248. In practice, the problem is more complicated because the
    increase in costs and damages is likely to be continuous but the
    structure of the analysis remains the same.
        249. See William D. Nordhaus, Economic Approaches to Greenhouse
    Warming, in Global Warming: Economic Policy Responses 33, 58 (Rudiger
    Dornbusch & James M. Poterba eds., 1991) (``we are likely to be
    increasingly averse to climate change as the change becomes larger'').
        250. See Robert C. Lind, Intergenerational Equity, Discounting, and
    the Role of Cost-Benefit Analysis in Evaluating Global Climate Policy,
    23 Energy Pol'y 379, 382 (1995); David W. Pearce et al., The Social
    Costs of Climate Change: Greenhouse Damage and the Benefits of Control,
    in Climate Change 1995: Economic and Social Dimensions of Climate
    Change 179, 184-86 (James P. Bruce et al. eds., 1996) [hereinafter
    Climate Change 1995].
        251. See Pearce et al., supra note 250, at 214.
        252. See Lind, supra note 250, at 384.
        253. See James K. Hammitt, Outcome and Value Uncertainties in
    Global-Change Policy, 30 Climatic Change 125, 130 (1995).
        254. See K. J. Arrow et al., Intertemporal Equity, Discounting, and
    Economic Efficiency, in Climate Change 1995, supra note 250, at 125,
    132 (``society cannot set aside investments over the next three
    centuries, earmarking the proceeds for the eventual compensation of
    those adversely affected by global warming''); Farber & Hemmersbaugh,
    supra note 19, at 297 (same); Lind, supra note 250, at 381-82
    (questioning society's ability to make transfers across several
    generations).
        255. See Nordhaus, supra note 249, at 57.
        256. Tyler Cowen & Derek Parfit, Against the Social Discount Rate,
    in Justice Between Age Groups and Generations 144, 148 (Peter Laslett &
    James S. Fishkin eds., 1992); see Farber & Hemmersbaugh, supra note 19,
    at 291; James C. Wood, Intergenerational Equity and Climate Change, 8
    Geo. Int'l Envtl. L. Rev. 293, 321 (1996).
        257. David W. Pearce & R. Kerry Turner, Economics of Natural
    Resources and the Environment 223-24 (1990); see Morrall, supra note
    132, at 28 (without discounting ``all rules yielding continuous
    benefits are worth any amount of immediate costs'').
        258. For further discussion, see infra Part II.C.
        259. For example, Tyler Cowen and Derek Parfit note:
        No generation can be morally required to make more than certain
    kinds of sacrifice for the sake of future generations. And this is part
    of a more general view, which has nothing to do with time. On this
    view, no one is required to make great sacrifices merely to benefit
    others.
        Cowen & Parfit, supra note 256, at 149.
        260. See Robert Solow, An Almost Practical Step Toward
    Sustainability, 19 Resources Pol'y 162, 168 (1993).
        261. Maureen L. Cropper et al., Rates of Preference for Saving
    Lives, 80 Am. Econ. Rev. Papers & Proc. 469, 469 (1992) [hereinafter
    Cropper et al., Rates of Time Preference]. For an earlier version of
    the study, see Maureen L. Cropper et al., Discounting Human Lives, 3
    Am. J. Agric. Econ. 1410 (1991).
        262. See Cropper et al., Rates of Time Preference, supra note 261,
    at 469.
        263. See id. at 471 tbl.1. For studies using shorter timeframes,
    see Cairns, supra note 164, at 222; John A. Cairns & Marjon M. van der
    Pol, Saving Future Lives: A Comparison of Three Discounting Models, 6
    Health Econ. 341, 343 (1997); Horowitz & Carson, supra note 11, at 408;
    Jan Abel Olsen, Time Preferences for Health Gains: An Empirical
    Investigation, 2 Health Econ. 257, 259 (1993).
        264. See Johannesson & Johansson, supra note 13, at 331. For an
    evaluation of the extent to which the framing of the question affects
    the results, see Magnus Johannesson & Per-Olov Johansson, Saving Lives
    in the Present Versus Saving Lives in the Future--Is There a Framing
    Effect, 15 J. Risk & Uncertainty 167, 169 (1997) [hereinafter
    Johannesson & Johansson, Risk & Uncertainty].
        265. See Cropper & Portney, supra note 73, at 375. The study is Ola
    Svenson & Gunnar Karlsson, Decision-Making, Time Horizons, and Risk in
    the Very Long-Term Perspective, 9 Risk Analysis 385 (1989).
        266. See supra text accompanying notes 92-97. As three prominent
    commentators recently explained:
        If one discounts present world GNP over 200 years at 5 percent per
    annum, it is worth only a few hundred thousand dollars, the price of a
    good apartment. On the basis of such valuations, it is clearly
    irrational to be concerned about global warming, nuclear waste, species
    extinction, and other long-term phenomena. Yet we are worried about
    these issues, and are actively considering devoting very substantial
    resources to them. There appears to be a part of our concern about the
    future that is not captured by discounted utilitarianism.
        Andrea Beltratti et al., Sustainable Growth and the Green Golden
    Rule, in The Economics of Sustainable Development 147, 149 (Ian Goldin
    & L. Alan Winters eds., 1995).
        267. See Cairns, supra note 164, at 224-25 (``the further in the
    future the benefit the lower the rate at which most individuals
    discount it''); Cairns & van der Pol, supra note 263, at 342 (referring
    to ``increasing evidence . . . that individuals do not appear to apply
    a constant discounting model''); Cropper et al., Rates of Time
    Preference, supra note 261, at 471 (``Discount rates are much higher
    for short horizons than for long horizons.''); Johannesson & Johansson,
    Risk & Uncertainty, supra note 264, at 174 (``estimated discount rates
    decrease[] with the time horizon''); Olsen, supra note 263, at 262
    (``The longer the time horizon, the lower are the implied [discount]
    rates.''). One study found a similar result in an intragenerational
    context. See Loewenstein & Thaler, supra note 176, at 184 (``discount
    rates declined sharply with the length of time to be waited'').
        268. See supra text accompanying notes 264-265 (discussing Svenson
    & Karlsson study).
        In arguing in favor of a constant discounting model, William
    Nordhaus states that ``it would be unrealistic to make decisions based
    on the premise that there is, in fact, no time preference given that
    many social decisions are, in fact, tilted in favor of present
    generations.'' Nordhaus, supra note 233, at 123. It is therefore worth
    emphasizing that the studies discussed in this section reveal a strong
    moral intuition against such discounting.
        269. See Arrow et al., supra note 254, at 137-38; Cropper &
    Sussman, supra note 65, at 162; Fuchs & Zeckhauser, supra note 161, at
    265; Jones-Lee & Loomes, supra note 243, at 501; Lind, supra note 250,
    at 385-86.
        270. See Arrow et al., supra note 254, at 130, 134.
        271. In theory, the rate could also be negative, which would imply
    the privileging of the utilities of later generations.
        272. See Arrow et al., supra note 254, at 134-35; Lind, supra note
    250, at 385. If one adds utilities over an infinite time period, the
    social welfare function will be ill-defined; to avoid this problem,
    some discounting would be required. See Arrow et al., supra note 254,
    at 136; Jones-Lee & Loomes, supra note 243, at 507, n.10. As Kenneth
    Arrow and his coauthors explain, however, ``because even a very small
    positive discount rate . . . would resolve the mathematical issue, this
    objection has little practical moment.'' Arrow et al., supra note 254,
    at 136.
        273. Arrow et al., supra note 254, at 130; see Nordhaus, supra note
    233, at 123-24; David Pearce et al., Sustainable Development: Economics
    and Environment in the Third World 30 (1990). For the derivation of the
    relationship, see Arrow et al., supra note 254, at 134-35.
        274. See Arrow et al., supra note 254, at 130; Lind, supra note
    250, at 384.
        275. See Cline, supra note 106, at 249; Arrow et al., supra note
    254, at 134.
        276. Fuchs & Zeckhauser, supra note 161, at 265 (emphasis added).
        277. See supra text accompanying notes 21-22.
        278. See Robert C. Lind, Intertemporal Equity, Discounting, and
    Economic Efficiency in Water Policy Evaluation, 37 Climatic Change 41,
    52 (1997).
        279. See Thomas C. Schelling, Intergenerational Discounting, 23
    Energy Pol'y 395, 396 (1995) (``To be less interested in the welfare of
    East Africans than former Yugoslavians is less like 'discounting' than,
    perhaps, 'depreciating.' When we count future welfare less than our own
    we are depreciating generations that are distant in time, in
    familiarity, in culture, in kinship, and along other dimensions.'').
        280. As a result, the issue of growth discounting is not presented
    by the example.
        281. Of course, taking a ``multiple selves'' analysis to its
    logical conclusions, see supra text accompanying notes 227-230, would
    turn any intragenerational problem into an intergenerational problem.
        282. See Cowen & Parfit, supra note 256, at 155 (``Pure time
    preference within a single life does not imply pure time preference
    across different lives.''). As Joseph Lipscomb notes in the medical
    context, with respect to future generations, ``discounting represents a
    global political decision about the relative weights current
    decisionmakers should attach to future population cohorts.'' Lipscomb,
    supra note 94, at S246. He adds that this discount rate ``need have no
    relationship to how a given population member (or a statistically
    representative member) values current versus future gains in health
    status.'' Id.
        283. See supra text accompanying notes 227-230 (discussing
    ``multiple selves'').
        284. See Richard Dubourg & David Pearce, Paradigms for
    Environmental Choice: Sustainability versus Optimality, in Models of
    Sustainable Development 21, 24 (Sylvie Faucheux et al. eds., 1996)
    (``For maximizing a single utility function . . . over infinite time
    cannot help but suggest that we are dealing with a single generation
    which exists forever, or even a single individual.''); Lind, supra note
    250, at 385 (discussing why other approaches are preferable). For
    example, Kenneth Arrow and his co-authors acknowledge that the rate of
    time preference ``is sometimes said to represent discounting for
    impatience or myopia.'' Arrow et al., supra note 254, at 131. These are
    precisely the sorts of psychological characteristics that justify
    intragenerational discounting.
        285. The problem is fairly pervasive. For example, Kenneth Arrow
    and his co-authors note that discounting for time preference reflects
    that ``one cares less about tomorrow's consumer than today's, or about
    one's own welfare tomorrow than today.'' Arrow et al., supra note 254,
    at 130. This formulation conflates the intergenerational and
    intragenerational problems.
        286. See Lipscomb, supra note 94, at 238 (constant discounting ``is
    basically a political judgment about intergenerational equity'').
        287. Arrow et al., supra note 254, at 131; Parfit, supra note 21,
    at 485.
        288. An even narrower view of the role of future generations in the
    utilitarian calculus is that of Maureen Cropper and Frances Sussman.
    They explain their approach:
        Each generation receives utility from its own consumption and that
    of its immediate descendants. Because this is true of all generations,
    the current generation necessarily takes into account the utilities of
    all future generations in making its consumption and bequest plans.
        Cropper & Sussman, supra note 65, at 170.
        This approach has been criticized as unduly privileging the
    position of the current generation. See Zeckhauser, supra note 102, at
    440-41 (``There is the significant issue . . . whether . . . this sort
    of altruism does not substantially underrepresent the impacts that will
    be truly felt.'').
        289. See supra text accompanying notes 261-268.
        290. See Arrow et al., supra note 254, at 137.
        291. See supra text accompanying notes 21-22; Schelling, supra note
    279, at 396.
        292. See Arrow et al., supra note 254, at 136; Jones-Lee & Loomes,
    supra note 243, at 502 n.4; George Tolley & Robert Fabian, Future
    Directions for Health Value Research, in Tolley et al., supra note 70,
    at 300, 311.
        293. See Arrow et al., supra note 254, at 136 (``Some have argued
    that the discount rate should be adjusted for the probability of
    extinction. Plausible estimates of this effect would add very little to
    the discount rate.'').
        294. See supra text accompanying notes 252-253.
        295. See Parfit, supra note 21, at 482; Jones-Lee & Loomes, supra
    note 243, at 502 n.4; John F. Morrall III, Cotton Dust: An Economist's
    View, in The Scientific Basis of Health and Safety Regulation 93, 107-
    08 (Robert W. Crandall & Lester B. Lave eds., 1981).
        296. See supra text accompanying notes 252-253.
        297. See Heinzerling, supra note 7, at 2044-45.
        298. It is conceivable that in some instance one could make a
    particularized, factually grounded case for a probabilistic reduction
    of harms.
        299. John Rawls makes the following case against a pure time
    preference:
        There is no reason for the parties [in the original position] to
    give any weight to mere position in time. They have to choose a rate of
    saving for each level of civilization. If they make a distinction
    between earlier and more remote periods because, say, future states of
    affairs seem less important now, the present state of affairs will seem
    less important in the future. Although any decision has to be made now,
    there is no ground for their using today's discount of the future
    rather than the future's discount of today. The situation is
    symmetrical and one choice is as arbitrary as the other. Since the
    persons in the original position take up the standpoint of each period,
    being subject to the veil of ignorance, this symmetry is clear to them
    and they will not consent to a principle that weighs nearer periods
    more or less heavily.
        John Rawls, A Theory of Justice 294 (1971); see also id. at 284-98
    (setting forth a theory of intergenerational justice). For commentary,
    see John Broome, Counting the Cost of Global Warming 31, 96-98 (1992);
    B.M. Barry, Justice Between Generations, in Law, Morality, and Society:
    Essays in Honour of H.L.A. Hart 268, 276-81 (P.M.S. Hacker & J. Raz
    eds., 1977).
        300. See supra Part I.H.
        301. Some prominent economists are at the very least ambivalent
    about discounting for pure time preference. For example, Robert Solow
    notes:
        You may wonder why I allow discounting at all. I wonder, too: no
    generation 'should' be favored over any other. The usual scholarly
    excuse--which relies on the idea that there is a very small fixed
    probability that civilization will end during any little interval of
    time--sounds far-fetched. We can think of intergenerational discounting
    as a concession to human weakness or as a technical assumption of
    convenience (which it is).
        Solow, supra note 260, at 165; see also Cline, supra note 106, at
    249 (``Impatience or 'myopia' may be a legitimate basis for a single
    individual's preferring consumption earlier rather than later in his
    lifetime, but from society's standpoint it is hardly a justifiable
    basis for making intergenerational comparisons''); Lind, supra note 22,
    at S-20 (intergenerational discounting ``would seem a highly
    questionable if not immoral public policy''); Robert M. Solow,
    Intergenerational Equity and Exhaustible Resources, 41 Rev. Econ. Stud.
    29, 40 (1973) (expressing doubts as to whether time discounting is
    appropriate). Kenneth Arrow and his co-authors do not analyze
    explicitly what the rate of time preference should be, but assume at
    times that it would be zero. See Arrow et al., supra note 254, at 131.
        302. In practice, the distinction is not as crisp because
    generations are not successive, but overlapping. The conceptual
    distinction, however, remains important. For models of overlapping
    generations, see Burton, supra note 13; Cropper & Sussman, supra note
    65, at 169-72. When generations overlap, the current generation tends
    to convey benefits on the next generation even when it is motivated
    only by its self-interest. See Barry, supra note 299, at 268 (as a
    result of the overlap ``prudent provision for the welfare of all those
    currently alive therefore entails some considerable regard for the
    future'').
        303. See Geoffrey H. Heal, Discounting and Climate Change: An
    Editorial Comment, 37 Climate Change 335, 335 (1997).
        304. See supra text accompanying notes 273-275.
        305. See Arrow et al., supra note 254, at 134-35.
        306. See id. at 131-32, 141 n.10.
        307. See id. at 132.
        308. See supra Part I.E.1.a.
        309. See Cline, supra note 106, at 116-19; Pearce et al., supra
    note 250, at 195, 198.
        310. See supra text accompanying note 100.
        311. See Heinzerling, supra note 7, at 2051.
        312. See Cline, supra note 106, at 101-06 (discussing species loss
    and damage to forests).
        313. See Arnold, supra note 22, at 177; Heinzerling, supra note 7,
    at 2051.
        314. See Cline, supra note 106, at 110-12.
        315. See Schelling, supra note 279, at 399.
        The 1990 Amendments to the Montreal Protocol on Substances that
    Deplete the Ozone Layer marked the first time that a developing
    country's adherence to the provisions of an international environmental
    treaty was linked to the receipt of financial resources. See 1 Sands,
    supra note 234, at 269. As Philippe Sands points out, these amendments
    ``introduced a radical and innovative change which has had profound
    consequences on the negotiation of subsequent global environmental
    treaties.'' Id. This change is evident in the provisions of the 1992
    Climate Change Convention which requires developed countries to provide
    financial assistance and technological assistance to developing
    countries. See id. at 740-41.
        316. See World Bank, GNP Per Capita (visited July 24, 1998) .
        317. The differences in the patterns of per capita energy
    consumption between developed and developing countries are stark. See
    International Energy Agency, Climate Change Policy Initiatives 28 tbl.3
    (1992). Over time, this share of the responsibility might decrease as
    developing countries industrialize.
        318. Perhaps, however, there is a concern that direct foreign aid
    would not be spent wisely by the recipient, or could create undesirable
    incentives. If these problems were sufficiently serious, long-term
    environmental investments could be the most desirable way of providing
    foreign assistance.
        319. See Louis Kaplow, The Optimal Supply of Public Goods and the
    Distortionary Cost of Taxation, 49 Nat'l Tax J. 513, 516-19 (1996);
    Louis Kaplow & Steven Shavell, Property Rules Versus Liability Rules:
    An Economic Analysis, 109 Harv. L. Rev. 713, 744-45 (1996). For
    discussion of the distributional consequences of environmental policy,
    see Richard L. Revesz, Foundations of Environmental Law and Policy 102-
    03 (1997).
        320. See Farber & Hemmersbaugh, supra note 19, at 300.
        321. The substitutability of these future benefits is discussed
    below in the context of the principle of sustainable development. See
    infra Part II.E.
        322. See infra text accompanying notes 343-344.
        323. See supra text accompanying notes 254-256.
        324. See, e.g., Gary D. Meyers & Simone C. Muller, The Ethical
    Implications, Political Ramifications and Practical Limitations of
    Adopting Sustainable Development as National and International Policy,
    4 Buff. Envtl. L.J. 1, 10 (1996) (``The core idea of sustainability,
    then, is the concept that current decisions should not impair the
    prospects for maintaining or improving future living standards.'');
    Edith Brown Weiss, Intergenerational Equity: A Legal Framework for
    Global Environmental Change, in Environmental Change and International
    Law: New Challenges and Dimensions 385, 385 (Edith Brown Weiss ed.,
    1991) (``Sustainable development rests on a commitment to equity with
    future generations.'').
        For a strong critique of the concept of sustainable development,
    see Wilfred Beckerman, Through Green-Colored Glasses: Environmentalism
    Reconsidered 143-60 (1996).
        325. See Dubourg & Pearce, supra note 284, at 27 (``Sustainability
    has become a common policy objective of many government institutions,
    international agencies, and non-governmental organisations.''); supra
    text accompanying notes 234-237.
        326. Some commentators link the attractiveness of sustainable
    development with criticisms of discounting approaches: ``There appears
    to be a part of our concern about the future that is not captured by
    discounted utilitarianism. Perhaps as much as anything it is this that
    is driving an interest in formalising the concept of sustainability.''
    Beltratti et al., supra note 266, at 149.
        327. See David Hodas, The Climate Change Convention and Evolving
    Legal Models of Sustainable Development, 13 Pace Envtl. L. Rev. 75, 77
    (1995); Averil Rothrock, Oregon's Goal Five: Is Ecologically
    Sustainable Development Reflected?, 31 Willamette L. Rev. 449, 451
    (1995); Mary Pat Williams Silveira, International Legal Instruments and
    Sustainable Development: Principles, Requirements, and Restructuring,
    31 Willamette L. Rev. 239, 243 (1995); Christopher D. Stone,
    Deciphering ``Sustainable Development'', 69 Chi.-Kent L. Rev. 977, 978
    (1994). For general discussion of the principle of sustainable
    development, see 1 Sands, supra note 234, at 198-208.
        One commentator has suggested that over 70 definitions of the term
    exist. See Susan L. Smith, Ecologically Sustainable Development:
    Integrating Economics, Ecology, and Law, 31 Willamette L. Rev. 261, 276
    (1995); see also John Peezey, World Bank Environment Paper Number 2:
    Sustainable Development Concepts: An Economic Analysis, app. A (1992)
    (presenting an extensive list of definitions).
        328. World Commission on Environment and Development, Our Common
    Future (1987).
        329. Id. at 43.
        330. See Weiss, supra note 324, at 401-05; Solow, supra note 260,
    at 162.
        331. The following two paragraphs are adapted from Revesz, supra
    note 319, at 307-08.
        332. See Weiss, supra note 324, at 401-05; Edith Brown Weiss, In
    Fairness to Future Generations: International Law, Common Patrimony,
    and Intergenerational Equity 40-45 (1988).
        333. See Solow, supra note 260, at 162-63.
        334. See id. at 167-68.
        335. See id. at 168.
        336. Compare Weiss, supra note 324, at 404 (``The principle of
    conservation of quality requires that we leave the quality of the
    natural and cultural environments in no worse condition than we
    received it.''), with Solow, supra note 260, at 167 (``If
    sustainability means anything more than a vague emotional commitment,
    it must require that something be conserved for the very long run.'').
        337. Compare Weiss, supra note 324, at 404 (``We may exhaust more
    reserves of a natural resource and cause modest levels of pollution,
    but pass on a higher level of income, capital, and knowledge sufficient
    to enable future generations to develop substitutes for the depleted
    resource and methods for abating or removing pollutants.''), with
    Solow, supra note 260, at 168 (``Most routine natural resources are
    desirable for what they do, not for what they are. It is their capacity
    to provide usable goods and services that we value. Once that principle
    is accepted, we are in the everyday world of substitutions and
    tradeoffs.'').
        338. Compare Weiss, supra note 324, at 403 (we ``must proceed
    extremely cautiously'' with respect to the possible destruction of a
    ``unique natural resource''), with Solow, supra note 260, at 168 (``It
    makes perfectly good sense to insist that certain unique and
    irreplaceable assets should be preserved for their own sake'').
        339. See Solow, supra note 260, at 163 (``So far . . . the proper
    adjustments needed to measure the stocks and flows of our natural
    resources and environmental assets are not being made in the published
    national accounts.'').
        340. See Michael Jacobs, The Green Economy: Environment,
    Sustainable Development and the Politics of the Future 84 (1991) (``The
    final objection which might be made to our definition of sustainability
    is that it ignores population growth.''); Michael Redclift, Sustainable
    Development: Exploring the Contradictions 29 (1987) (``The concept of
    'sustainability' makes little sense . . . unless we also consider the
    impact of rapid population growth on the physical resource base.'');
    Nafis Sadik, Population, Environment, and Sustainable Development, in
    In the Aftermath of the Earth Summit 21, 23 (Andreas Gettkant ed.,
    1993) (``The universal acceptance of the strong links between
    sustainable development and the preservation of the environment does
    not extend to the links between these two and the population
    policy.''). But see President's Council on Sustainable Development,
    Population and Consumption Task Force Report 13-32 (1997) (discussing
    how population growth is linked to sustainability).
        The link to population does not play a role in the discussions by
    Weiss, supra note 324, at 401-05, and Solow, supra note 260.
        341. For an exploration of the ethical consequences of this link,
    see Parfit, supra note 21, at 351-441; Broome, supra note 86, at 161-
    62.
        342. See Jacobs, supra note 340, at 84 (``It could be argued that
    what sustainability demands is not simply a constant level of
    environmental capacity but a constant per capita or per person
    level.''); Richard Baldwin, Does Sustainability Require Growth?, in The
    Economics of Sustainable Development, supra note 266, at 51, 52 (``The
    simple fact is that current population growth rates, if they were
    maintained, would lead to an unsustainable world population.'').
        343. See Gregory D. Fullem, The Precautionary Principle:
    Environmental Protection in the Face of Scientific Uncertainty, 31
    Willamette L. Rev. 495, 500-01 (1995); Alexandre Kiss, The Rights and
    Interests of Future Generations and the Precautionary Principle, in The
    Precautionary Principle and International Law: The Challenge of
    Implementation 19, 27 (David Freestone & Ellen Hey eds., 1996); Bernard
    A. Weintraub, Science, International Environmental Regulation, and the
    Precautionary Principle: Setting Standards and Defining Terms, 1 N.Y.U.
    Envtl. L.J. 173, 177-78 (1992). For a discussion of the status of the
    precautionary principle in international environmental law, see 1
    Sands, supra note 234, at 208-13.
        344. See supra text accompanying notes 252-253.
        345. These issues are explored briefly in Revesz, supra note 319,
    at 330-31.
        346. In this context, the principle of sustainable development has
    the same features as the maximin principle.
        347. See supra text accompanying notes 314-316.
        348. See supra text accompanying notes 281-286.
        349. Other objections to growth discounting are discussed at supra
    text accompanying notes 308-311.
        350. See supra Part II.E.
        351. See supra text accompanying notes 319-320.
        352. See supra text accompanying notes 316-317.
        353. See supra text accompanying note 317.
                                   __________
               Statement of Bernard Melewski, Adirondack Council
        Good Morning. My name is Bernard C. Melewski. I am counsel and
    legislative director of the Adirondack Council. I would like to thank
    the chairman, and the members of the committee for the opportunity to
    be here with you this morning and to provide testimony regarding the
    reauthorization of the Clean Air Act.
        I would like to begin with a brief explanation of the Adirondack
    Park, the role of the Adirondack Council in New York, and why we are
    particularly interested in the topic of acid rain and in the Clean Air
    Act.
        The Adirondack Park is the largest park of any kind in the
    contiguous United States. It is nearly three times the size of
    Yellowstone National Park and covers one fifth of the State of New York
    making it equal in size to the State of Vermont. The Adirondack Park is
    roughly six-million acres of public and private land containing the
    largest assemblage of Old Growth forest east of the Mississippi River.
    The Adirondacks include the headwaters of five major drainage basins.
    Lake Champlain and the Hudson, St. Lawrence, Mohawk and Black rivers
    all draw water from the Adirondack Park. Within the Park are more than
    2,800 lakes and ponds, and more than 1,500 miles of rivers fed by an
    estimated 30,000 miles of brooks and streams. The Park contains 46
    mountain peaks more than 4,000 feet tall. Forty-five percent of the
    Park is publicly owned Forest Preserve protected as ``Forever Wild'' by
    the New York State Constitution since 1895. One million acres of these
    public lands are classified as Wilderness.
        The Adirondack Council was founded in 1975; it is a private, not-
    for-profit organization dedicated to enhancing the natural and human
    communities of the Park through research, education, advocacy and legal
    action. Our main offices are located within the Adirondack Park, with a
    satellite office in Albany, New York, the State capitol.
        The Council receives moral and financial support from its more than
    18,000 members and from private foundations. The Council's national and
    regional member organizations include the Natural Resources Defense
    Council, The Wilderness Society, National Audubon Society, National
    Parks and Conservation Association, Citizens Campaign for the
    Environment and the Association for the Protection of the Adirondacks.
        Our interest in The Clean Air Act and the problem of acid rain is
    long held. We were active contributors to the dialogue on acid rain in
    New York State in the early years of the 1980s, and helped craft the
    first acid rain law in the country which was adopted in 1984. The New
    York law identified both sulfur dioxide and nitrogen oxide as
    precursors to acid rain, sought limits on total emissions from
    utilities sited within the State and even proposed an innovative
    trading mechanism that Congress would adopt nationwide in the Clean Air
    Act Amendments of 1990.
        The Adirondack Council was also an active participant in the
    national debate that led to the adoption of the acid rain program in
    Title IV of the Clean Air Act Amendments 8 years ago. Our publication,
    ``Beside the Stilled Waters,'' which was produced and distributed in
    cooperation with our member organizations, brought the problem of acid
    rain to the attention of the nation and to Congress.
        The enactment of Title IV of the Clean Air Act Amendments of 1990,
    known as the Acid Rain Program, were not without controversy. Congress
    adopted an innovative ``cap and trade'' program, modeled after the New
    York legislation, which would abandon the so-called ``command and
    control'' approach to regulation, in favor of a free wheeling pollution
    allowance trading program that would provide utilities with the
    flexibility to make compliance strategies part of their long-term
    business planning. Both the need for and the cost of the program were
    hotly debated.
        The Adirondack Council was among the critics. We raised concern
    that the cap on total emissions might not be low enough to protect
    sensitive areas. We used our membership on EPA's advisory committee to
    seek changes as the agency developed regulations to implement Title
    Four. Among other issues, the Adirondack Council felt that too many
    credits were in the system and that EPA was not pushing to require the
    most modern monitoring systems. Together with the Natural Resources
    Defense Council, we reluctantly sought changes in Federal court.
    (Environmental Defense Fund, et al. V. Browner, No. 93-1203 and
    Consolidated Cases).
        I am pleased to say that years of good-faith negotiation with the
    USEPA and the affected industry resulted in very positive changes to
    the program. The Adirondack Council formally withdrew our legal
    challenge to the regulatory program just a few weeks ago.
        Over the past year, the program of Title Four has been hailed as a
    new beginning in cost-effective air regulation that puts the market to
    work to the benefit of the health and welfare of millions of Americans.
    Emission trading has been heralded as the solution to pollution
    reduction within the United States and indeed the globe.
        We are here to say that before we run to embrace trading in other
    pollutants and in other markets, we need to take a hard look at the
    results of the great sulfur experiment.
        We remember well that day when a deputy administrator for the
    Environmental Protection Agency grandly pronounced in a press release
    that the regulations implementing the new Clean Air Act Amendments
    would mean ``the end to acid rain in the Adirondacks.''
        Certainly that was the intention of the Senate and the House. But
    wisely, Congress ordered in 1990 that a series of reports be prepared
    over the next few years, that would advise you of the projected results
    of the acid rain program.
        The wisdom of requiring these reports at that time is now apparent.
    Until recently, we had some doubt that the members of the Senate would
    ever see them.
        The first report was due in 1993, from the Environmental Protection
    Agency (ordered under sec. 404, Title IV appendix B of the 1990 CAAA)
    and was entitled the Acid Deposition Standard Feasibility Study Report
    to Congress. The report, dated October, 1995, was finally released in
    1996, in partial settlement of the lawsuit brought by the Natural
    Resources Defense Council, the Adirondack Council and the State of New
    York.
        The report concluded that the pollution reductions accompanying the
    1990 Clean Air Act Amendments would not be sufficient to allow recovery
    of certain sensitive ecosystems (including the Adirondacks) and that
    many would continue to get worse. The report was particularly
    compelling for New Yorkers because it revealed that despite the
    reductions expected from the 1990 Amendments the loss of nearly 50
    percent of its lakes and acidification of most streams in the
    Adirondack Park could be expected.
        The second of two reports to Congress, the report of the National
    Acid Precipitation Assessment Program (NAPAP) was due in 1996, and was
    finally submitted to Congress as you left for the August recess in 1998
    (ordered under Sec. 901J of the 1990 CAAA). It too was released under
    the threat of litigation from the State of New York. Despite its May
    1998 title, the document would not be realistically available to the
    public until a year later (May, 1999), almost 9 months after its
    transmission to Congressional committees.
        In short summary, the NAPAP report peer reviewed, confirmed and
    substantially elaborated upon the findings of the earlier report to
    Congress submitted by the EPA.
        We believe that a fair reading of the two reports to Congress lead
    to two very clear conclusions:
        First, that the mechanism of a national cap in emissions coupled
    with the pollution allowance trading program has been an outstanding
    success. All facilities are in compliance and there is every reason to
    believe that the target level of emissions will be reached. The
    administrative and implementation costs of the program are less than a
    traditional regulatory approach. The actual cost of the program is
    substantially less than projected at the time of adoption.
        According to EPA's 1998 Compliance report for the Acid Rain
    Program, all 713 utility boilers and turbines affected by the
    SO2 and NOx regulations met their emissions goals for 1998
    as they have for every year since the program's inception. The simple,
    efficient design of the program, coupled with large automatic penalties
    for exceedences and the diligence of EPA administrators and the
    regulated community are all factors in this success. We can look
    forward to similar results when Phase II of the program, which will
    include many more power plants, begins.
        The administrative and implementation costs are far below those
    associated with traditional regulatory approaches because in many ways
    the program is self-implementing. Devices known as Continuous Emissions
    Monitors (CEMS) count each ton of pollution as it is emitted from the
    smokestack. At the end of each year a utility must have enough credits
    (either initially allocated or purchased) to cover those emissions. The
    accounting of allowance holdings and trading is in a database
    maintained by EPA.
        The compliance costs of the program are proving to be far below
    those estimated when Title IV was adopted. EPA estimated that the fully
    implemented program would cost four billion dollars a year; industry
    estimates were much higher. According to the Massachusetts Institute of
    Technology, compliance costs have so far been less than $1 billion per
    year. Again, the design of the program helped achieve these relatively
    low compliance costs. Other factors, such as rail transportation
    improvements that reduced the cost of transporting low-sulfur coal were
    crucial here as well. Projections (by EPA and ICF Resources) of what
    new SO2 and NOx reductions would cost beyond those called
    for in Title Four indicate that deep new reductions could be achieved
    at or near the initial $4 billion estimate.
        While we hold no special expertise in the field of the health
    effects of air pollution, a brief review of the literature reveals some
    interesting facts. EPA studies (Human Health Benefits from Sulfate
    Reductions Under Title IV of the Clean Air Act, 1995) indicate that
    every dollar spent on reducing sulfate emissions can result in tens of
    dollars in savings in health care costs. With asthma cases on the rise
    nationwide we need to be aware that even brief exposure to relatively
    low levels of sulfur dioxide has been repeatedly shown to trigger
    asthma attacks.
        The market for trading allowances is improving as well. Each year
    there are more trades between utilities occurring and the value of each
    allowance is rising steadily. In fact, the Adirondack Council is a
    market participant.
        Over the past 2 years, we have acquired thousands of pollution
    allowance credits, most of them donated as a community good will
    gesture by utilities in New York. Unlike most other holders of
    allowances, it is our intention to retire all credits we may obtain by
    transferring them to a retirement account we maintain with USEPA. The
    Adirondack Council has permanently retired one-ton of sulfur dioxide on
    behalf of thousands of individuals around the nation, including New
    York Governor George Pataki.
        The Second major finding of the two reports is that despite the
    success of the regulatory scheme, the overall cap in emissions is too
    high to accomplish the primary goal, which was to protect sensitive
    resource areas from the harmful effects of acid rain. The national cap
    on emissions of sulfur-dioxide from power plants must be cut. The
    reports agree that nitrogen oxide emissions are a significant
    contributor to acid rain and must be addressed.
        The NAPAP report also confirms that acid rain is not just an
    Adirondack problem.
        The damage that sulfur and nitrogen pollution causes is far from a
    regional issue. It is an issue of national, even international
    importance. Excess nitrogen in waters and in soils--``nitrogen
    saturation''-can be found in the Northeast and in West Virginia's
    Allegheny Mountains, Tennessee's Great Smoky Mountains, Colorado's
    Front Range of the Rockies and even as far west as the San Bernardino
    and San Gabriel Mountains of California. High levels of nitrogen
    deposition are causing nitrate to leach into stream water from these
    watersheds. This nitrate leaching acidifies streams and strips base
    cations from soils. In snow covered areas the flush of nitric acid
    stored in the snowpack is the leading cause of ``acid pulses'' which
    are responsible for fish kills during spring thaws.
        NAPAP found that high elevation areas in the Northeast and the
    Appalachians are bathed in acidic cloud water for extended periods of
    time. Sulfuric acid from sulfur dioxide emissions is the significant
    cause of the widespread loss of red spruce trees in these areas. The
    mechanism for the die back is the leaching of calcium from the spruce
    needles and aluminum from the soils by the acidic fog which makes the
    trees susceptible to frost and winter injury.
        The coastal estuaries of the entire east coast suffer from airborne
    inputs of nitrogen that can make up nearly 40 percent of the total
    nitrogen loaded into their systems. In estuary systems such as the Long
    Island Sound, Narragansett Bay, the Chesapeake Bay and Tampa Bay in
    Florida, nitrogen-based pollution is overloading the water with
    nutrients. This causes ``eutrophication''--an overabundance of algae.
    When algae dies and decays, it depletes the water of precious oxygen
    needed by all aquatic animals. This condition is known as hypoxia.
    These blooms are associated with fin fish kills, shellfish kills and
    human illness.
        NAPAP also concluded that areas of the United States that are not
    seeing damage now are likely to in the future due to an effect known as
    soil acidification. Over the long term, acidic deposition is slowly
    leaching away key soil nutrients like calcium and magnesium (known as
    base cations) that are essential for plant growth. This nutrient
    depletion is occurring in high and mid elevation forests in New
    England, New York and the Southern Appalachians. NAPAP cited studies
    concluded that 50 9 percent of the commercial pine forest soil in all
    of the southeast has low enough reserves of these chemicals to warrant
    concern.
        Acid deposition, whether from sulfur or from nitrogen based
    pollution, not only leads to base depletion, but also the release of
    toxic compounds from soils to living things. For example, the release
    of aluminum from soils rapidly accelerates when pH drops below 5. The
    release of aluminum interferes with plant biochemistry. It is also the
    leading cause of fish mortality in affected lakes. In other words, it
    is not the acidity directly, but the aluminum toxicity that is
    responsible for the damage. This effect is very wide-spread. NAPAP
    cited studies conducted in the Shenendoah National Park show that fish
    species richness, population density, condition, age distribution, size
    and survival rate were all reduced in streams no longer able to
    neutralize acidity. Another NAPAP study of streams in the Adirondacks,
    Catskills and Northern Appalachians in Pennsylvania showed that
    episodic acidification ``acid pulses'' had long term adverse effects on
    fish populations including significant fish mortality.
        Lake acidification, whether from sulfur or nitrogen is also
    implicated in the increase in mercury concentrations found in fish.
    Acidity leads to greater conversion of mercury from its less toxic
    elemental form to methyl mercury, which is much more toxic. Fish
    consumption warnings due to mercury contamination are common in many
    States and are on the rise. The bio-accumulation of mercury in some
    species of fish in New York has reached levels of grave concern to
    human health. In the western mountains of the Adirondack Park and in
    the Catskill Mountain reservoirs of New York City's water supply, the
    levels of mercury in fish exceed that which is safe for human
    consumption, and fishermen are urged to limit eating perch and bass.
    The acid rain problem is now a public health problem.
        The cost to Americans from acid rain is not just the loss of
    pristine lakes in one of its greatest parks, or the almost
    imperceptible die out of sensitive species of trees, or even the haze
    that obscures the views of our national parks, it is also in the loss
    of our great monuments.
        Acid rain is also falling on the District of Columbia. Acid rain is
    eating away at the marble of the Capitol building and that of many of
    the great monuments on the mall. The Lincoln memorial corrodes more
    every year. So it is with buildings and monuments throughout the
    Capitol, so numerous and so obvious that until recently you could
    obtain an illustrated walking tour guide to the acid rain damage to our
    nations capitol, thoughtfully provided free of charge. (Acid Rain and
    our Nation's Capital, US Dept. Of Interior / US Geological Survey.
    1997)
        The monuments to the fallen on the great battle sites of the Civil
    War, Gettysburg and Vicksburg, lose their inscriptions and carved
    features from the acid bath they endure each rainy day. The Statute of
    Liberty simply slowly melts away, day by day. This is why the fight to
    stop acid rain has been joined by many of the nation's prestigious
    organizations dedicated to historic preservation.
        . The findings of the reports to Congress have been seconded by
    other studies that have found similar results; Environment Canada, in
    its 1997 report ``Towards a National Acid Rain Strategy,'' said that
    reducing sulfur emissions significantly beyond the current Clean Air
    Act requirements in both countries would be needed for all of eastern
    Canada to be protected from acid rain. In southern Canada, an area the
    size of France and Britain combined continues to receive harmful levels
    of acid deposition. As many as 95,000 lakes in the region will remain
    damaged.
        A study recently released by Trout Unlimited that was conducted by
    the University of Virginia found that without deep additional
    deposition reductions, up to 35 percent of Virginia trout streams would
    become ``chronically acidic'' and would no longer support trout
    populations. The study further estimated that thousands of trout stream
    miles in the Southern Appalachians may be lost to acidification.
        Just a week ago the journal Nature, perhaps the most respected
    journal of its kind, published the broadest geographical study of acid
    rain to date. Written by 23 scientists, all of them top acid rain
    researchers, and taking samples from roughly 200 sites, the study again
    confirmed and elaborated on the disturbing findings of earlier works.
    How much more does Congress need to hear before it takes additional
    action?
        The disturbing and overwhelming evidence of the destruction of the
    streams, lakes and forests on public lands protected by our State
    constitution as forever wild, the contamination of fish in otherwise
    pure waters and the pollution of our coastal estuaries has raised grave
    concern in New York State. Our entire Congressional delegation co-
    sponsors legislation introduced by Senators Moynihan and Schumer
    (S.172), and in the House by Congressmen Boehlert and Sweeney (HR 25)
    that seeks further emission reductions.
        In the past 2 years, the Office of the Attorney General of the
    State of New York has sought legal redress via other provisions of the
    Clean Air Act. Most recently, Attorney General Elliot Spitzer announced
    his intention in the coming weeks to bring suit against 17 utilities in
    five States to redress what he considers to be violations of the Clean
    Air Act that result in illegal emissions of acid rain precursors.
        In our State legislature, bills have been repeatedly introduced and
    passed (A.889) by the Chairman of the Environmental Conservation
    Committee (Richard Brodsky, D, Scarsdale) that would discourage the
    trade or sale of pollution allowances by New York utilities to upwind
    sources of acid rain. In July of this year, the State Senate
    unanimously passed a similar bill (S.4917) sponsored by his Senate
    counterpart (Carl Marcellino, R, Oyster Bay).
        The States that are most adversely affected by the damage from acid
    rain need to see clear movement by Congress to adjust the sulfur
    program and deal with the companion problem of the long-range transport
    of nitrogen oxides. The failure of the Senate and the House to act will
    result in more interstate litigation, and new efforts State-by-State to
    interfere with the free-market attributes that have led to the
    effectiveness of the program thus far. The better alternative is to
    fulfill the original intent of Congress to solve the acid rain problem
    by taking action soon.
        We respectfully suggest that the Senate take prompt action to:

          Build on the successful sulfur dioxide cap-and-trade
    program by creating a third phase of reductions further along the
    current time line. All of the advantages of the current program can be
    preserved in a predictable, flexible, and cost-effective manner while
    reducing sulfur-dioxide emissions by an additional 50 percent.
          Create a new cap-and-trade program for nitrogen-oxide
    emissions from utility smokestacks that mirrors the successful program
    already in place for sulfur. This cap and trade program should reduce
    nitrogen emissions from utilities nationwide by approximately 70
    percent of 1990 levels, resulting in a substantial and beneficial cut
    that is also reasonably achievable.

        To put this recommendation in perspective, we would like to address
    the subject of the ongoing battle over new air regulations issued last
    September by the USEPA, which at this time is the subject of
    litigation.
        USEPA has proposed a 22-State voluntary utility cap and trade
    program for nitrogen emissions as the preferred response for State
    compliance with its new ozone program.
        The EPA ozone proposal, which is only summer seasonal, will not
    address in any significant way, the acid rain problem. The acid rain
    dilemma is the total loading of nitrogen to sensitive areas. For high
    elevation areas the main concern stems from the buildup of nitrogen in
    the snow pack and the subsequent ``acidic pulse'' to aquatic systems in
    the spring of the year. Year-round controls will be necessary to
    address the nitrogen problem. Furthermore, only nationwide reductions
    will address the problems outside of the twenty-two State region
    covered by EPA's plan.
        Congress can level the competitive playing field for the utility
    industry by enacting national controls which will permit an expanded
    allowance trading market that will be more efficient and cost
    effective. The Congressional Budget Office has reached similar
    conclusions. In a report on the proposed nitrogen/ozone rules this
    summer. (Factors Affecting the Relative Success of EPA's NOx Cap-and-
    trade Program, June 1998), the CBO identified similar benefits that
    would result if Congress provided additional statutory authority to
    EPA.
        Finally, we respectfully recommend:

          Congress should provide additional resources to the
    monitoring and research networks that, on a shoe-string budget, have
    provided the nation's research scientists with invaluable data on the
    actual state of affairs on the ground and in the air. The level of
    scientific certainty and confidence on acid rain has improved
    substantially since 1990, but existing research activities should be
    expanded.

        The need for additional action on acid rain is not just a New York
    perspective. In May of 1998, the Conference of New England Governors
    and Eastern Canadian Premiers issued a joint call for action that
    recommended additional reductions in utility emissions of
    SO2 and NOx. Earlier this year, the Adirondack Council was
    privileged to be joined by national, State and regional organizations
    representing hundreds of thousands of Americans concerned about the
    health of our forests, the productivity of our coastal bays, the
    improvement of our fisheries and the protection of our heritage, in a
    public letter to Congress asking that the acid rain program be
    revisited.
        Mr. Chairman, this nation committed itself to the task of ending
    the destruction of acid rain almost a decade ago. We think it is time
    to finish the job. Thank you again.
                                     ______

      Responses by Bernard Melewski to Additional Questions from Senator
                                     Baucus
        Question 1. The Clean Air Act has been highly successful, but there
    is still a lot of work to be done. Do you believe that there will be
    any effects on the nation's health and the environment if we do not go
    beyond the current clean air policies established in the 1990 Clean Air
    Act Amendments?
        Response. Yes. There have been numerous government-produced
    analyses that project the trends in human and environmental health with
    full implementation of the 1990 CAAA used as a baseline that the
    Subcommittee has access to and has presumably examined. Most notable of
    these is the 1998 NAPAP Biennial Report to Congress, The 1995 USEPA
    Acid Deposition Standard Feasibility Study, and the exhaustive research
    conducted by USEPA during promulgation of its update of the National
    Ambient Air Quality Standards for ozone and particulates. Numerous
    studies by the States and academia have also examined what the likely
    impacts of failing to move beyond current clean air policies will be.
        According to these sources we may look forward to the following
    brief and incomplete list of consequences: A doubling of the number of
    acidified lakes in the Adirondacks, a large increase in the proportion
    of episodically acidified streams throughout the Appalachians, a
    reduction in the growth rate and health of forests in the east from
    soil nutrient depletion, an increase in the number of water bodies with
    mercury contaminated fish, continuing agricultural crop loss and damage
    from ozone exposure, continuing eutrophication of coastal estuaries,
    continuing degradation of historic buildings and monuments.
        We may experience acid rain related damage in parts of the country
    that were believed to be unaffected such as the Rocky Mountains and
    other western ranges, and areas currently affected may get worse due to
    long term exposure to acid deposition rates that are still too high for
    the environment to absorb.
        In regards to human health effects, the existing record of the
    Committee from its hearings on USEPA's proposed NAAQS revisions for
    ozone and fine particulates amply demonstrates the disturbing effects
    we can expect if we do not ``go beyond the current clean air policies''
    as your question inquires. It is noteworthy, however, that the NAAQS
    revisions that USEPA ultimately promulgated have been blocked in the
    courts for reasons including the ruling that USEPA overextended its
    congressionally delegated powers and that.Congress delegated too much
    power to USEPA in the first place. I find it curious that Congress had
    the opportunity to block the NAAQS revisions during its review of
    USEPA's promulgation process, but did not do so, yet now Congress
    allows the courts to block the NAAQS revisions through its own
    inaction.

        Question 2. What are the primary mobile and stationary sources
    responsible for the impacts of acid rain and ozone pollution? What role
    does EPA's proposed sulfur standard for gasoline have in potential
    solutions?
        Response. Acid rain and ozone pollution are caused by two precursor
    pollutants; sulfur dioxide and oxides of nitrogen. Sulfur dioxide plays
    no role in the formation of ozone but is an important source of acid
    rain and fine particulate pollution. There are many anthropogenic
    sources of sulfur dioxide, the principle one being fossil fuel powered
    electric generating plants, which account for over two-thirds of US
    emissions. The 1990 Clean Air Act Amendments have resulted in a
    significant reduction in sulfur dioxide emissions from these plants,
    but they remain the largest source category. If Congress decides to
    make deeper cuts in emissions of sulfur dioxide, as we believe they
    should, the logical source to seek reductions Tom is still electric
    generators.
        The principal precursor for ozone, and a significant contributor to
    acid rain, are emissions of oxides of nitrogen, or NOx. About one-third
    of US anthropogenic NOx emissions come from the same electric
    generators that account for so much sulfur dioxide emissions. The other
    primary source of NOx, accounting for more than one-third of emissions,
    is the transportation sector. If Congress decides to make deeper cuts
    in emissions of NOx, as we believe they should, both electric
    generation and transportation sources will need to be addressed.
        EPA's proposed sulfur standard for gasoline is a necessary step in
    reducing NOx emissions from the transportation sector. Sulfur in
    gasoline fouls the catalytic converters installed on vehicles to reduce
    NOx emissions. It is important to note that in order to cut NOx
    emissions by the amount that acid rain and ozone science indicates is
    necessary to reduce environmental and health effects, no one action
    alone will suffice. Significant reductions are needed from electric
    generators and transportation sources beyond current clean air
    policies.
                                   __________
       Statement of William F. Tyndall, Vice President of Environmental
                         Services, Cinergy Corporation
        Good morning. Thank you for inviting me to testify before you on
    reauthorization of the Clean Air Act.
        My name is Bill Tyndall. Since August 1998, I have been Vice
    President of Environmental Services for Cinergy Corporation, an
    electric utility company based in Cincinnati, Ohio that provides power
    to 1.4 million electricity customers and 470,000 gas customers in Ohio,
    Indiana and Kentucky. Prior to joining Cinergy, I served Representative
    John Dingell and other Committee Democrats as minority counsel to the
    House Commerce Committee and advised them on air quality issues. Still
    earlier, I was a senior policy advisor in EPA's Office of Air and
    Radiation. Still prior to that, I served in EPA's Office of General
    Counsel, where I worked on new source review and other stationary
    source issues under the Clean Air Act.
        Thus, I am speaking to you today as someone who has spent nearly 10
    years addressing air policy issues from a variety of perspectives. I am
    also speaking to you on behalf of the Edison Electric Institute, an
    association that represents investor-owned electric utilities such as
    Cinergy. I will be addressing what I see as the successes and the
    problems of the Clean Air Act as amended by Congress in 1990.
        The Clean Air Act has proved effective at reducing air pollution in
    this country. Since the Act was adopted in 1970, emissions of the
    ``criteria'' air pollutants--sulfur oxides such as sulfur dioxide
    (SO2), particulate matter, ozone, carbon monoxide, nitrogen
    dioxide and lead and their precursors (such as nitrogen oxides (NOx))
    have fallen dramatically. While emissions of these pollutants from all
    industrial sectors have decreased, I will focus on those from power
    plants, a source category that is the focus of a large number of
    control programs under the Act. Consistent with the overall trend in
    emission reductions, emissions from power plants have fallen
    significantly since the Clean Air Act was adopted, and continue to
    decline as a result of the Title IV program for electric utilities
    adopted in 1990.
        According to the Environmental Protection Agency, utility emissions
    of NOx, which had been 6.7 million tons in 1990, declined to about 6.2
    million tons by the year 1997. By 2000, EPA projects that power plant
    NOx emissions will have declined by 2.1 million tons annually.
        Between 1970 and 1997, SO2 emissions resulting from fuel
    combustion by electric utilities declined by over 4 million tons a year
    (from a peak in 1980 of 17.5 million tons to 13.1 million tons in
    1997). Once the second phase of the Title IV program is fully
    implemented, we project further significant declines in SO2
    emissions, to less than 10 million tons annually.
        Electric utility particulate matter emissions have also declined
    substantially--by almost an order of magnitude (from 1.8 million tons
    in 1970 to 0.3 million tons in 1997).3 Virtually all coal-fired boilers
    in this country are now equipped with advanced particulate controls,
    including electrostatic precipitators (ESPs) and baghouses.
        These emission reductions are even more remarkable when one
    considers that they have occurred during a period of substantial
    economic growth. This economic growth triggered concomitant growth in
    electricity production and use. For example, between 1970 and 1996,
    electric utilities experienced a greater than 120 percent growth in
    sales, from 1392 billion kilowatt-hours to 3084 billion kilowatt-hours.
    Nevertheless, the utility industry implemented control programs that
    substantially reduced emissions from all of their facilities--both new
    and existing.
        But reducing emissions has not come cheaply. Information provided
    to the government by electric utilities on FERC Form No. 1 indicates
    that utilities and, as a result, their customers spent over $32 billion
    for air pollution control facilities between 1976 and 1996. Additional
    billions of dollars are being spent as the industry implements the
    second phase of the Title IV program. Utilities also bear the
    substantial, additional costs of operating and maintaining these
    pollution control facilities.
        As even EPA recognizes, the costs associated with Clean Air Act
    compliance have increased over time. EPA estimates that annual costs to
    electric utilities for Clean Air Act compliance, which were $1.5
    billion in 1985, had risen to $1.9 billion by 1990. The 1990 Clean Air
    Act Amendments increased these costs substantially. The SO2
    emission reduction program in Title IV alone has been estimated to
    increase the cost to electric utilities by up to $2.1 billion annually
    once it is fully implemented. There is every reason to believe that
    utility costs will continue to increase. Cinergy alone faces capital
    costs of up to $700 million for control of NOx emissions.
        While I am on the subject of costs, let me point to one program
    that has helped to keep these costs--although high--lower than they
    would otherwise have been. I am referring, of course, to the market-
    based approach to reducing SO2 emissions that is found in
    Title IV of the Act. Title IV has been a great success, with 100
    percent compliance and substantial cost savings due to the flexibility
    of the program. Given the experience with Clean Air Act Title IV, I
    urge Congress to consider market-based approaches, as opposed to the
    traditional command-and-control approach to environmental regulation,
    whenever it considers reform or refinement of Clean Air Act emission
    reduction programs.
        However, to call the Title IV SO2 trading program a
    panacea is not correct either. Its success cannot be extrapolated to
    trading of NOx under EPA's SIP call, for example. Most of the
    SO2 trading cost savings have come about as a consequence of
    lower prices of western low-sulfur coal and its transportation. A
    similar low-cost fuels fix is not available for NOx. In addition, the
    SO2 program, unlike EPA's NOx SIP call, was designed in such
    a way as to maximize opportunities for trading. The SO2
    program was phased in over 10 years, while the NOx SIP call controls
    are due in less than 4 years. Furthermore, the SO2 program
    required only a 50 percent reduction while the NOx SIP call requires an
    85 percent reduction, which virtually mandates one type of emission
    control technology across most of the affected facilities. To maximize
    opportunities for NOx trading, the system should be modified to
    alleviate these problems.
        While the Clean Air Act has been successful in terms of producing
    improved air quality, I would now like to focus on some aspects of the
    Act that, in my opinion, have made producing that improvement more
    burdensome and costly than necessary. In this regard, the Act features
    many programs that are directed toward the same pollutants from the
    same sources. This can result in increased administrative burdens to
    States and the regulated community, reduced compliance flexibility,
    greater difficulty in responding to changing market forces, and less
    cost-effective control requirements.
        Let me illustrate my concern by referring to the many programs that
    are currently aimed at controlling NOx emissions from power plants. The
    statutory bases for controlling NOx emissions include the National
    Ambient Air Quality Standards (NAAQS) for ozone (of which NOx is a
    precursor) (CAA Sec.  109), programs required to provide for the
    ``attainment and maintenance'' of the NAAQS (CAA Sec. Sec.  110, 172, &
    181-185), the Title IV existing source NOx reduction program (CAA Sec.
    407), the new source performance standard (``NSPS'') program for NOx
    emissions from new sources (CAA Sec. Sec.  111), the visibility
    improvement program (CAA Sec. Sec.  169A & 169B), the new source review
    (``NSR'') program (CAA Sec. Sec.  165, 172 & 173), and a number of
    other programs.
        For example, the Clean Air Act requires areas that do not attain
    the ozone NAAQS to implement ``reasonably available control
    technology'' for NOx emissions from major sources such as power plants
    (CAA Sec.  172(c)(1)), and to have an overall plan for making
    reasonable, further reductions in NOx emissions in order to attain and
    maintain the standard (CAA Sec.  110(a)(2)). The 1990 Clean Air Act
    Amendments added a number of specific NOx emission control requirements
    for power plants located in ozone nonattainment areas (CAA Sec.  182).
        In addition, new power plants are required to meet new source
    performance standards, and can be built only after being subjected to
    either ``prevention of significant deterioration'' (in attainment
    areas) (CAA Sec.  165) or nonattainment review (in nonattainment areas)
    (CAA Sec.  173). The same requirements apply to existing plants that
    are ``modified'' to create new capacity to emit air pollution beyond
    their original capacity. Title IV of the 1990 CAAA requires revision of
    the new source performance standards for NOx applicable to power plants
    (CAA Sec.  407(c)).
        Sections 169A and 169B of the Act require States to develop
    programs, pursuant to regulatory guidance issued by EPA, to address
    visibility concerns in the national parks. EPA just issued regulations
    in July of this year providing criteria for these State programs. These
    programs could address, among other things, NOx emissions from power
    plants.
        The 1990 Amendments added an important new program addressing NOx
    emissions from existing power plants--the Title IV program. These new
    provisions impose NOx emission limits on existing power plants covered
    by the Title IV acid rain provisions (CAA Sec.  407(b)). These limits
    have been imposed in two phases, the second of which must be
    implemented by the year 2000.
        EPA's implementation of these numerous, overlapping requirements
    that address NOx emissions from new and existing power plants has added
    to the complexity and cost of industry compliance efforts. For example,
    in 1997, EPA used the NAAQS provisions of the Act to promulgate a new
    ambient standard for ozone that was more stringent than the existing
    standard--the standard that serves as the basis for the specific NOx
    control programs Congress wrote into Subpart 2 of Title I of the Act in
    1990. EPA has indicated that the new ozone NAAQS would be implemented
    largely through NOx controls. But while Congress specified a detailed
    program for reducing ozone levels in Subpart 2 of the Act--a program
    that addresses NOx as well as VOC (``volatile organic compound'')
    emissions--the Agency indicated that it would not rely on that program
    when implementing the new NAAQS. The United States Court of Appeals for
    the District of Columbia Circuit understood the problems these
    inconsistencies posed and held that any new standard could not be
    implemented other than through the Congressional ozone reduction
    program.
        At the same time that EPA has revised the ozone NAAQS, EPA has
    sought to use its Clean Air Act authority to review the adequacy of
    State Implementation Plans to develop a program for further NOx
    reductions for power plants in 22 States throughout the Eastern United
    States. This program is referred to as EPA's NOx SIP call rule. In many
    cases, the power plants affected by these NOx reduction requirements
    are far removed from the ozone nonattainment areas.
        NOx reduction requirements could also be imposed on specific power
    plants in response to petitions filed by Northeastern States under
    Sec.  126 of the Act. EPA has issued a rule which includes findings
    that would result in the automatic grant of these Sec.  126 petitions,
    thereby triggering a 3-year compliance schedule, if States do not
    respond to EPA's NOx SIP call rule by November of this year. EPA has,
    however, temporarily stayed this rule while it undertakes additional
    rulemaking to ``de-link'' the Sec.  126 rule from the SIP call rule,
    thereby abandoning the Agency's earlier conclusion that the Sec.  126
    program should proceed only after States had an opportunity to consider
    additional control programs pursuant to the SIP call rule.
        The utility industry is therefore confronted with numerous programs
    that address the same pollutant. Each program has potentially different
    implementation schedules. Each program raises different questions for a
    company's compliance planning. As you can imagine, this mix of programs
    and implementation schedules makes compliance planning exceedingly
    difficult and compliance itself unnecessarily expensive.
        One key problem is that the differing programs may demand different
    technologies. A utility that invested in low NOx burners to meet its
    Title IV NOx requirements, for example, may also have to add Selective
    Catalytic Reduction (SCR) or Selective Non-catalytic Reduction
    (``SNCR''), or even switch to an alternative fuel such as natural gas,
    depending upon the schedule for and stringency of future requirements.
    The choice of technology is influenced not only by the stringency of
    and schedule for future requirements, but also by the nature of the
    implementation scheme. For example, will trading or banking of NOx
    emission credits be allowed, and under what conditions? These changing
    and uncertain requirements are both frustrating and costly for
    regulated industry and States.
        Furthermore, because one program is not allowed to work before
    another is implemented, it is unclear that all of these overlapping
    programs are necessary from an environmental standpoint. For example,
    the detailed Congressional ozone control program contained in Subpart 2
    of Title I reduced the number of ozone nonattainment areas by 62
    percent (from 100 to 38) between 1991 and 1998.1 But EPA did not permit
    that program to come to fruition before adopting a new ozone NAAQS that
    would be implemented through a different program--under Subpart 1
    instead of Subpart 2 of the Act. It is questionable that adoption of
    this new program will speed or enhance public health protection, but it
    certainly complicates planning for sources possibly subject to two
    NAAQS implementation programs.
        Furthermore, while the previous discussion has addressed those
    portions of the Clean Air Act that concern power plant NOx emissions,
    the Clean Air Act contains numerous other programs addressing electric
    utilities that a company must consider in formulating its overall
    compliance strategy. I am providing with this testimony a chart that
    illustrates the myriad of new requirements that electric utilities face
    under the Clean Air Act regarding their emissions of SO2 and
    NOx over the next decade. These include monitoring, reporting and
    control requirements for sulfur dioxide (SO2) emissions;
    additional SO2 emission reduction requirements under a
    possible short-term SO2 ambient standard and a revised
    PM2.5 standard; possible SO2 and NOx limitations
    as part of regional haze programs; and revised new source review
    requirements. Other regulatory programs that electric utilities may
    face include possible regulation of mercury emissions and possible
    future regulatory requirements targeting CO2 emissions.
        A company must also consider the possibility that legislation to
    restructure the electric utility industry could include new air quality
    programs. Because the system of air quality regulation is already so
    complex and burdened by a large number of programs addressing both new
    and existing power plants, I simply urge that restructuring legislation
    is not the place for more air quality legislation.
        In sum, a company must evaluate its compliance plans in light of
    all of these programs--a daunting task given the continued regulatory
    uncertainty regarding many of them. The result could be commitments to
    expensive control technologies today for certain substances, which
    would be rendered useless during the next decade if new regulatory
    requirements dictate another compliance strategy, such as a switch to
    natural gas.
        Finally, all of these difficulties are compounded by EPA's changing
    interpretations of key provisions of the Clean Air Act. For example,
    all of the regulatory programs discussed previously are being developed
    or implemented at the same time that EPA has proposed to change the
    Clean Air Act rule defining when an existing source is ``modified'' to
    such an extent that it must meet new source requirements, including
    NSPS and preconstruction permitting requirements under the PSD and
    nonattainment programs.
        The Clean Air Act modification rule is perhaps the most complex and
    least understood of the Clean Air Act programs. EPA and the States have
    issued volumes of dense and sometimes conflicting guidance regarding
    the program. Indeed, EPA has recognized the confusing, cumbersome and
    byzantine nature of the NSR modification rules and is working with
    various stakeholders including industry and States to develop an
    appropriate fix.
        This effort to develop a fix to the modification rule on which all
    can agree is critical, because EPA's recent efforts to reform this
    program have created tremendous confusion about the nature of repairs
    and activities that can be allowed at existing plants. Let me explain.
    Historically, EPA has stated Congress ``did not intend to make every
    activity at a source subject to new source requirements,'' and that the
    Clean Air Act modification rule ``in no way intends to discourage
    physical or operational changes that increase efficiency or reliability
    or lower operating costs, or improve other operational characteristics
    of the unit.'' By contrast, EPA explained in its July 1998 proposed
    revisions to the modification rule that the proposed rule changes would
    target activities undertaken ``to increase reliability, lower operating
    costs, or improve operational characteristics of the unit,'' even if
    doing so would not result in any increase in the unit's emission rate.
        This proposed change in the modification rule would strike at the
    heart of efforts to maintain the competitiveness of American industry
    in an international marketplace. For the utility industry, the proposed
    new approach to the modification rule would hinder the industry's
    efforts to optimize the reliability, efficiency and safety of its
    generating units at a time of declining electricity reserve margins. By
    discouraging such efficiency gains it is contrary to the
    Administration's goals of reducing greenhouse gases. Before proceeding
    with this rulemaking, therefore, it is critical that EPA take time to
    pursue the discussions with States, industry, and other stakeholders
    and that EPA take their concerns into account. EPA must adopt a
    modification rule that is clear and understandable, and that avoids
    unnecessary administrative and regulatory costs.
        The electric utility industry recognizes that it has a
    responsibility to produce and supply the power this nation needs in an
    environmentally responsible manner. Its voluntary establishment and
    participation in the Climate Challenge program in partnership with the
    Department of Energy is evidence of its commitment to meeting that
    responsibility. This program will lead to 170 million tons of
    greenhouse gas reductions in the year 2000.
        There are a variety of ways to achieve emissions reduction goals
    for this industry, while continuing to ensure a reliable and affordable
    delivery of electricity. EEI is working to develop new innovative
    approaches to dealing with these challenges. While I cannot speak for
    the entire industry, Cinergy strongly believes that Congress needs to
    replace the myriad of emission control programs aimed at utilities with
    a comprehensive approach that establishes a single set of reasonable
    reduction requirements with adequate lead times and market-based
    implementation mechanisms. This can be done in a manner that is
    consistent with the air quality and public health goals established in
    the Clean Air Act and that is more efficient, economic and provides
    more regulatory certainty than the existing piecemeal, uncoordinated
    approach that I have described today. And, along with such innovative
    solutions, we also need a significant increase in public/private
    partnerships for research and development to identify the next
    generation of technology alternatives, and create incentives that will
    move us to even cleaner forms of electric generation in the future. But
    this will put this issue squarely before this Committee since it cannot
    be done without Congressional action.
        With fair and clear environmental goals, appropriate timeframes,
    and flexible implementation, utilities can best determine a future
    course for their companies, be it pollution control installation or
    fuel switching or a combination that will give us the environmental
    solution we are striving to attain.

                                   __________
           Statement of Mike Benoit, Cement Kiln Recycling Coalition
    Introduction
        Chairman Inhofe, Senator Graham and Members of the Subcommittee,
    good morning. Thank you for inviting me to testify at today's hearing
    on reauthorization of the Clean Air Act. My name is Mike Benoit. I am
    Executive Director of the Cement Kiln Recycling Coalition (CKRC), a
    trade association representing cement producers that recover energy
    from hazardous wastes along with companies that provide equipment and
    services to cement manufacturers. As I'm sure you know, cement is the
    key ingredient in concrete which is an essential building material that
    is integral to our nation's infrastructure. In the United States, there
    are 118 cement plants located in 37 States. 52 of those plants use
    energy-bearing wastes as alternative fuels to fire their high-
    temperature cement kilns. Of those 52, 17 cement plants in 10 States
    recover energy from over 1,000,000 tons per year of regulated
    industrial waste materials in their high-temperature kilns, resulting
    in energy savings equivalent to roughly 22 trillion Btu per year, or
    the equivalent of more than 6 billion kilowatt-hours.
        Today, this Subcommittee undertakes the difficult task of preparing
    for the reauthorization of the Clean Air Act. The statute is one of the
    most complex in U.S. environmental law and surely would benefit from
    some improvements. In that regard, there are some general principles
    that we hope will guide the Subcommittee as it proceeds. For example,
    regulatory action under the Act should:

        adequately consider costs and risk reduction benefits; be derived
    from sound scientific principles that advance technological
    development;
        be based upon consistent application and defensible interpretation
    of the law; be implemented and enforced in a manner designed to ensure
    predictability, fairness, and compliance; and
        accommodate and encourage energy recovery technologies that reduce
    air pollution.

        Our industry is subject to extensive regulation pursuant to the
    Clean Air Act. CKRC's member companies have very recently become
    subject to EPA's National Emission Standards for Hazardous Air
    Pollutants (NESHAPS): Final Rule for Hazardous Air Pollutants for
    Hazardous Waste Combustors (HWCs), or as it is called, the HWC Maximum
    Achievable Control Technology (MACT) rule, which was promulgated on
    September 30, 1999. (64 Fed. Reg., 52827, September 30, 1999) Our 6
    years of experience with the development of the HWC MACTrule is the
    topic of my testimony today and is presented here as a case study that
    we hope can shed some light upon possible improvements to the Act, and
    to Section 112 in particular.
        EPA did many strange and unprecedented things in the HWC rule.
    Unfortunately, many of them were aimed at achieving regulatory outcomes
    that could not be obtained by following the letter and spirit of
    Section 112 of the Clean Air Act. EPA focused on and pursued objectives
    that are plainly not authorized by the Clean Air Act as the Agency
    inappropriately invoked its RCRA authority or simply acted arbitrarily
    to go far beyond the provisions of Section 112 and its own internal
    precedents in previous CAA rulemakings. For reasons that will become
    clear, EPA became preoccupied with the competitive structure of the
    market for hazardous waste combustion and relied upon numerous
    unauthorized policy objectives which, ultimately, overwhelmed the
    regulatory process and led to the extraordinary decisions found in the
    final HWC rule.
        Before proceeding further, however, we would particularly like to
    thank you, Mr. Chairman, along with Senators Hutchison, Graham, and
    Wyden for taking a particular interest in the oversight of the HWC MACT
    rule.
    General Background
        It is important to understand the nature of energy recovery in
    cement kilns and the environmental benefits that accrue. Under its RCRA
    Land Disposal Restriction rules EPA has mandated that certain
    categories of wastes must be burned--either in industrial furnaces
    (such as cement kilns), industrial boilers, or incinerators. EPA has
    also ruled that burning wastes in these types of combustion units is
    Best Demonstrated Available Technology (BDAT) for reducing or
    eliminating the hazards associated with those wastes. Cement kilns that
    recover energy from hazardous waste use these regulated materials as
    fuel--a one-for-one substitute for coal. More simply, kilns that
    recover energy from wastes are taking materials that EPA has said must
    be burned and converting them to productive use as a fuel in the cement
    manufacturing process. This technology yields many benefits:
          The nation's consumption of fossil fuel is reduced since
    less coal is burned; thus we're conserving our energy resources.
          Air pollution is significantly decreased because cement
    kilos replace fossil fuel with waste materials that EPA says must be
    burned. If cement kilns didn't or couldn't recover energy from these
    wastes, they would simply have to be burned elsewhere and the kilns
    would burn coal instead.
          Recovering energy from wastes in cement kilns reduces the
    amount of total combustion. That lowers emissions of carbon dioxide
    (C02) and thus lowers emissions of greenhouse gases. Because of their
    chemical make-up, the waste materials burned in cement kilns also
    generate far lower emissions of sulfur oxides and nitrogen oxides (SOx
    and NOx).
        The waste materials are put to productive use manufacturing
    Portland cement, the key ingredient in concrete, which is a critical
    construction material and absolutely essential to building and
    repairing our nation's infrastructure.
        Air pollutants from cement kilns that recover energy from hazardous
    waste have been fully regulated since 1991. The members of CKRC
    recognize and accept that managing hazardous waste brings with it an
    obligation to society and that the public is well-served by our
    industry's excellent track record of compliance with comprehensive
    regulations designed to protect health and the environment.
        Waste-burning cement kilns are subject to USEPA's 1991 Boiler and
    Industrial Furnace (BIF) Rule pursuant to the Resource Conservation and
    Recovery Act (RCRA). The BIF rules govern all aspects of processing,
    transporting, storing, and burning hazardous waste-derived fuels, and
    include stringent standards governing emissions of hazardous air
    pollutants. Upon promulgation in 1991, EPA lauded the BIF rule as fully
    protective of human health and the environment. In early 1993, EPA
    vigorously argued before the D.C. Circuit Court of Appeals that the BIF
    rules are fully protective. Since that time, there has been a massive
    amount testing of cement kiln emissions and extensive analysis of the
    risks associated with those emissions. Our industry has spent over $180
    million complying with the BIF rule. We also have invested over $25
    million on scientific, EPA-approved emissions testing and conducted at
    least 10 comprehensive risk assessments costing over $9 million. In
    addition, EPA and several State environmental agencies have conducted
    their own risk assessments. In every case, the emissions from cement
    kilns (including all those substances regulated as hazardous air
    pollutants (HAPs) by the HWC MACT rule) have been shown to be in
    compliance with the BIF rules and to pose no unacceptable risk to the
    surrounding communities. USEPA has possessed all of this data and
    information for several years.
        Just 2 weeks ago, on September 30, 1999, our industry became
    subject to yet more EPA regulations when the Agency published the
    Hazardous Waste Combustor (HWC) Maximum Achievable Control Technology
    (MACT) Rule pursuant to Section 112 of the Clean Air Act (CAA). CKRC
    was deeply involved in monitoring this 6-year rulemaking and we
    provided extensive data and other technical information to EPA to
    assist the Agency in its regulatory development process.
    History of HWC MACT Rulemaking
        As you are aware, before EPA issued any MACT rules, the Agency
    prepared a response to the Congressional directives of Section 1 1 2(e)
    of the Clean Air Act by developing its Source Category Ranking System
    (SCRS) to evaluate the comparative risks posed by facilities. (58 Fed.
    Reg., 63941, December 3, 1993) Congress had instructed that ``The
    Administrator should regulate first those categories or subcategories
    that he determines, based on the listed factors, present the greatest
    threat to public health.'' (H.R. Rep. No. 101-490, at 330 (1990) In its
    December 1993 schedule for promulgation of MACT rules based on its
    SCRS, EPA deferred regulating HWCs until November 15, 1997 or later.
    (58 Fed. Reg. at 63952-53) In contrast, EPA identified 45 other source
    categories as higher-risk than HWCs and scheduled them for MACT
    standard issuance by 1994.
        EPA has thus concluded that HWCs, including cement kilns, are
    relatively low-risk sources of HAP emissions. That's not surprising
    since, as explained above, HAP emissions from cement kilns were already
    regulated under fully protective comprehensive RCRA standards. Despite
    this fact, the recently promulgated MACT standards for HWCs are
    unnecessarily stringent, very complex, and overly burdensome. The HWC
    MACT rule is about five times longer than other MACT rules. And the HWC
    MACT rule holds the record for the highest cost EPA has ever justified
    to meet a MACT standard. The semi-volatile metals emission standard for
    cement kilns has a cost effectiveness of $500,000 per metric ton of
    pollutants removed--almost 60 times higher than the average acceptable
    cost effectiveness in all previous MACT rules!
        These extreme outcomes beg the question ``Why did EPA do this?''
    It's a long story that will be fleshed-out below; but the short answer
    is that the Agency has been fixated on the competitive features of the
    thermal treatment market. In fact, in statements to the press in 1996,
    the Administrator explained that the HWC MACT rule would be designed to
    ``level the playing field for hazardous waste incinerators.'' She also
    vowed to stop ``allowing the competing cement kilns to undercut the
    commercial incinerators'' in pricing. (See attached Appendix H. p.34 of
    CKRC's comments on the proposed HWC MACT rule, August 19, 1996.)
        There obviously exists no statutory authority of any kind for EPA
    to interfere in waste management markets. And Section 112 of the CAA
    clearly instructs EPA to accommodate the technological differences
    among various source categories in setting MACT standards, even to the
    point of subcategorizing within a single source category. Nonetheless,
    in the HWC MACT rule, EPA was determined to carry out the
    Administrator's goals even if it had to override the clear directives
    of Section 112. The best example of this is that, after EPA established
    an SVM MACT floor level for incinerators of 240 micrograms/dscm, the
    Agency went to extreme measures to ``justify'' setting an identical,
    but relatively much more stringent 240 microgram/dscm SVM beyond the
    MACT floor standard for cement kilns. Voila! The HWC rule now contains
    uniform numerical standards for very different technologies and EPA has
    created the so-called ``level playing field'' the Administrator called
    for in 1996. As testament to the 'success' of the Agency's 'creation,'
    in a July 1999 briefing for Senate staff, EPA noted that the HWC MACT
    rule would leave cement kilns ``. . .worse off due to the decline in
    market share and revenues, while commercial incinerators are projected
    to be better off due to the increase in prices, market share, and
    overall revenues.'' (See attached Overview of Hazardous Waste Combustor
    NESHAP Rule for Congressional Committees, July 1999) In the process,
    the intent of Congress was undermined.
        As you know, Congress, including members of this Subcommittee,
    became aware in early 1998 of some of EPA's novel interpretations of
    Section 112 in the HWC rule and began conducting aggressive oversight
    over EPA's rulemaking process. Members of this Subcommittee were
    particularly concerned about the fate of energy recovery in cement
    kilns and the possibility that ``if the [HWC MACT] rule is not
    sufficiently flexible, it may discourage this form of recycling.''
    These Senators also asked EPA ``to demonstrate that the proposed
    [cement kiln semi-volatile metal] MACT standard actually reduces risk
    over and above a MACT standard set at the floor.'' (See attached April
    15, 1999 letter to USEPA from Senators Graham and Hutchison.) In all,
    members of the Senate EPW Committee sent four detailed letters to EPA
    over an eleven-month period and, in too many instances, the Agency
    either declined to respond or failed to respond substantively to the
    oversight inquiries (See attached letters from U.S. Senate to USEPA and
    EPA responses).
        The many major flaws in the HWC MACT rule may prove instructive as
    this Subcommittee considers reauthorization of the CAA. CKRC believes
    its experience with the HWC MACT rule is unique and we hope this
    testimony may prove helpful in identifying provisions of the statute
    (particularly Section 1 12) that should be considered for amendment.
    Specific Issues
        The HWC MACT rule suffers from several defects that have their
    roots in three main areas: risk reduction/economic impact, scientific/
    technological basis, and jurisdiction. Also, the rule's implementation
    requirements are unduly complex and burdensome. Finally, the rule has
    no provisions designed to accommodate, encourage, or even recognize the
    environmentally beneficial recovery of energy from waste materials in
    existing industrial processes. In fact, it actually penalizes energy
    recovery technologies and seems designed to reduce the capacity of
    cement kilns to recover energy from hazardous wastes.
                A. Risk Reduction/Economic Impact
        Section 112 of the CAA authorizes EPA to set emissions standards
    that ``shall not be less stringent, and may be more stringent than. . .
    the average emission limitation achieved by the best performing 12
    percent of existing sources. . . '' Such ``more stringent'' standards
    are called 'Beyond the MACT Floor Standards' or, simply 'Beyond the
    Floor' (BTF) standards. However, unlike MACT floor standards, BTF
    standards are subject to certain restrictions provided in Section
    112(d)(2) wherein the Administrator must take into consideration ``the
    cost of achieving such emission reduction, and any non-air quality
    health and environmental impacts and energy requirements. . . '' In
    establishing MACT floor standards, Congress did not obligate EPA to
    consider costs and other factors. However, EPA is obligated to justify
    additional stringency beyond the MACT floor level. EPA has interpreted
    the provisions of Section 1 12 noted above as requiring that the Agency
    make a finding that a BTF standard is ``cost effective''. In past MACT
    rulemakings, EPA has been very sparing in promulgating beyond-the-floor
    standards. In the HWC MACT rule, on the other hand, EPA has published
    several BTF standards, some with cost effectiveness levels that exceed
    what has previously passed as cost effective by a factor of almost 60!
        Because it is a clear example of what we believe is an abuse of the
    intent of the CAA, CKRC has been particularly concerned about the BTF
    standard EPA set for emissions of semi-volatile metals (SVM) from
    cement kilns. (In hazardous waste combustors, due to the nature of the
    waste materials burned, a majority of SVM emissions are lead and the
    balance is cadmium.) In the final rule, EPA set a MACT floor SVM
    standard of 650 micrograms/dry standard cubic meter (dscm) for cement
    kilns. but decided to promulgate a much more stringent BTF standard of
    240 micrograms/dscm. EPA's decision to set a BTF SVM standard for
    cement kilns was the subject of significant oversight by members of the
    Senate EPW committee. (See attached letters.) In the final analysis,
    EPA was completely unmoved by this committee's oversight and its
    frequently expressed concerns about the flawed analytical process, the
    lack of justification, and the possible negative consequences on energy
    recovery.
        As noted above, in its past rulemakings, EPA has justified the
    establishment of BTF standards by finding them to be cost effective.
    Logic dictates that, implicit in such a finding, there should be some
    measurable environmental or public health benefit gained relative to
    the incremental costs of complying with a significantly more stringent
    standard. Historically, EPA has calculated the cost effectiveness of
    BTF standards in terms of dollars per ton of pollutant removed. In its
    previous decisions to promulgate BTF MACT standards, EPA's Of flee of
    Air and Radiation (OAR) generally has found acceptable cost
    effectiveness levels in the range of roughly $5,000-$14,000 per
    megagram (metric ton) of pollutant removed, with an average level of
    about $8,500 per metric ton. (See attached report, A Review of Economic
    Factors to use in PSD BACT Economic Analysis, Iowa Department of
    Natural Resources, p. 11, July 1998.) Cost effectiveness figures above
    that level generally have been found by OAR to be unacceptable. But the
    HWC MACT rule was not written by OAR, it was written by the Office of
    Solid Waste and Emergency Response (OSWER). For the BTF SVM standard
    for cement kilns in the HWC MACT rule, OSWER found acceptable a cost
    effectiveness of $500,000 per metric ton! That's almost 60 times more
    expensive than the average acceptable cost effectiveness levels in
    previous MACT rules!
        In the final rule, EPA acknowledges ``the relatively poor cost
    effectiveness of this standard'' (64 Fed. Reg., 52882, September 30,
    1999). The folly of EPA's acceptance of such an exorbitant economic
    impact on the cement industry becomes even more egregious in light of
    the complete lack of risk reduction gained by setting the more
    stringent BTF SVM standard. Although EPA frequently told stakeholders
    in this rulemaking that its decisions were being driven by concerns
    about children's health, in a June 7, 1999 letter to Senator Hutchison,
    EPA conceded that ``we do not project a reduction in the numbers of
    children with blood lead levels the [sic] exceed the Centers of Disease
    Control and Prevention intervention level.'' (See attached letter from
    USEPA to Senator Hutchison)
        Nonetheless, in the final HWC MACT rule EPA continues to claim that
    the beyond-the-floor SVM standard for cement kilns ``supports our
    Children's Health Initiative.'' (64 Fed. Reg., 52882, September 30,
    1999) In the final rule, EPA states that its ``characterization of
    risks from lead focuses on the reductions in blood levels themselves
    and EPA's goal of reducing blood lead levels in children to below 10
    micrograms per deciliter.'' (64 Fed. Reg., 53003, September 30, 1999)
    But, later, EPA describes the results of its analysis of the ``excess
    incidence of elevated blood lead'' attributable to HWCs and observes
    that ``a small reduction (0.4 cases per year) is attributable to cement
    kilns.'' (64 Fed. Reg., 53008, September 30, 1999)
        So, while EPA claims to have made its decision to go beyond-the-
    floor to improve the health of children, the Agency ultimately reveals
    that the benefit to children's health produced by the cement kiln BTF
    SVM standard is a decrease in the incidence of elevated blood lead
    levels of 0.4 cases per year. That's 0.4 cases out of the entire US
    population of over 250 million people! Surely all of us who support
    investments in the health needs of children should be dismayed by EPA's
    investment of 6 years in a regulation that will cost Americans millions
    of dollars to produce such a paltry result. In its comments on the HWC
    MACT rule, CKRC submitted a report to EPA showing that the literature
    contains abundant EPA and Centers for Disease Control and Prevention
    data that proves, by a wide margin, the most significant source of
    elevated blood levels in children is caused by exposure to lead-based
    paints in older housing. The dollars of additional cost that EPA has
    imposed on our industry with its BTF SVM standard would yield much
    greater public health benefits if applied to remediation of those lead-
    based coatings.
        Combining OSWER's outrageous cost effectiveness findings with the
    results of its risk analysis reveals that the 240 microgram/dscm SVM
    standard for cement kilns is the single most expensive beyond-the-floor
    MACT standard ever promulgated by EPA. And the societal benefits gained
    are an incredibly miniscule and practically unmeasurable decrease in
    the incidence of elevated blood lead levels. By contrast, it's
    interesting to note that in 1995 OAR published a final MACT rule for
    secondary lead smelters. In that rule, OAR promulgated a MACT floor
    emission standard for lead of 2000 micrograms/dscm, almost 10 times
    higher than the cement kiln SVM standard. And, because secondary lead
    smelters also are subject to regulation under RCRA, EPA examined the
    risk factors and specifically concluded in the secondary lead smelter
    rule that the standard of 2000 micrograms/dscm was fully protective of
    human health and the environment and, therefore, the Agency's RCRA
    obligations were satisfied.
        These are examples of the inconsistent and extreme results that can
    ensue when EPA is allowed to arbitrarily mix the authorities of
    different statutes and employ unauthorized policies to arrive at
    decisions that contravene Congressional intent. Clearly, the abuses
    found in the HWC MACT rule demonstrate that any reauthorization of the
    Clean Air Act ought to include a significant revision of Section 1 12,
    especially as it relates to beyond-the-floor MACT standards. Absent
    specific guidance from Congress regarding acceptable economic impacts
    and risk reduction targets, and without tight limitations on the
    Agency's rulemaking procedures, the spirit and intent of the Clean Air
    Act can and will be undermined.
                B. Science and Technology
        As cited above, Section 1 12 of the Clean Air Act specifies that
    emissions standards for existing sources ``. . . shall not be less
    stringent, and may be more stringent than the average emission
    limitation achieved by the best performing 12 percent of existing
    sources. . . '' Emissions standards that are not ``less stringent'' are
    generally referred to as ``MACT Floor'' standards. ``More stringent''
    standards are called ``Beyond-the-Floor'' standards. In accordance with
    the statute, both types of emissions standards are technology-based
    standards. This is as opposed to risk-based standards that EPA is
    authorized to promulgate under other statutes, such as RCRA.
        In its previous MACT rulemakings for industrial source categories,
    EPA has developed MACT floor standards by assessing the performance of
    the various control technologies employed to control emissions of
    hazardous air pollutants (HAPs). Typically, this involves assembling an
    inventory of the technologies in existence followed by analysis of a
    body of data that describes the performance of those technologies. As
    specified by the CAA, EPA is supposed to use the analysis to determine
    ``the average emission limitation achieved by the best performing 12
    percent of existing sources.'' For example, EPA evaluates the
    performance of a control technology designed to capture emissions of a
    particular HAP by analyzing data that describes the emissions capture
    rate of specific air pollution control devices (APCDs) or other
    technologies. By following what is supposed to be a very prescriptive
    process, EPA then determines which APCDs represent the ``best
    performing 12 percent'' and establishes the MACT floor emissions
    standard at that level of performance. Clearly, an important part of
    Congress's intent in the CAA and in Section 1 12, is to create pressure
    on industry to upgrade its air pollution control systems and processes
    and, thereby, advance the scientific development of more effective
    technologies to reduce air pollution. Stated simply, Congress intended
    the CAA to be a science-based, technology-forcing statute.
        In the HWC MACT rule, EPA claims to have followed the prescribed
    procedure for establishing MACT floor levels for the various HAPs at
    issue in this rulemaking (dioxins/furans, mercury, metals, chlorine and
    hydrogen chloride). But, in many cases, OSWER went beyond the
    established procedure previously developed and implemented by OAR and
    employed unprecedented and highly questionable techniques to set the
    MACT floor levels for HWCs. For example, to set emissions standards for
    metals, EPA identified what it refers to as ``feedrate reduction'' of
    metals as a 'control technology' that is uniquely available to
    hazardous waste combustors. The Agency evaluated this ``control
    technology'' by lumping all units in each subcategory together, hand-
    picking the individual combustion units that just happened to have the
    lowest metals feedrates, and then anointing them as ``best
    performers.'' Basically, EPA 'discovered' that the way to control
    emissions from HWCs is to cause them to reduce the amount of waste they
    can burn--even though HWC's that burn hazardous waste are playing a
    critical role in managing that waste! That type of 'emissions control'
    doesn't come close to advancing the scientific development of more
    effective pollution control technologies and has nothing whatsoever to
    do with the ``best performing'' technologies.
        Some additional context is needed to fully appreciate the
    implication of this decision by EPA. In several of its RCRA rules, EPA
    has acknowledged that, other than combustion, there are no known
    technologies to separate metals from certain combustible hazardous
    waste streams. In fact, EPA mandates that these types of wastes must be
    combusted in regulated HWCs. One way or another, these materials must
    be burned in a regulated unit such as an incinerator, a cement kiln, or
    a boiler. (Recall that, in its RCRA rules, EPA has specified combustion
    as the Best Demonstrated Availability Technology for these waste
    streams, in full recognition of the fact that they usually contain
    metals.)
        So this ``control technology'' (i.e., feedrate reduction) contrived
    by OSWER amounts to little more than a device for rewarding those
    facilities that burn less hazardous waste and penalizing those that
    (for whatever reason) burn more waste. Thus, the practical effect of
    implementing feedrate reduction as a control technology is to force
    facilities to burn less waste--in the case of cement kilns, to reduce
    their energy recovery capacity and burn more coal. If fully extended to
    a manufacturing process such as an oil refinery, this type of logic
    implies that the ``best performing'' oil refinery would be the one that
    feeds no crude oil to the unit. EPA's approach would mean that the best
    performing refineries are the ones out of business. There simply is no
    legitimate rationale in the Clean Air Act for this type of approach to
    setting MACT standards and, in fact, the approach used by OSWER in the
    HWC MACT rule is wholly without precedent in other CAA MACT
    rulemakings.
        The real travesty here is that, by defining feedrate reduction as a
    technology, EPA has shredded Congressional intent and made a mockery of
    bona fide air pollution control technologies. In the HWC rule, the
    Agency has ignored the intent of the CAA to promote scientific
    development of air pollution control technologies by declaring that a
    legitimate and proper solution to the problem of controlling air
    emissions is as simple as just feeding less material into a process.
    Because if you don't put it in, it won't come out. What a discovery!
    What a great leap forward! Played out to its full extent, EPA's logic
    in the HWC MACT rule would mean that shutting down industry could best
    solve America's air pollution problems.
        In the HWC MACT rule, EPA cites the provisions of Section 112
    (d)(2)(A) that allow ``substitution of materials or other
    modifications'' as its authority for using feedrate reduction as a
    control technology. EPA argues that cement kilns can comply with the
    more stringent BTF SVM standard simply by using less hazardous waste
    for energy recovery and ``substituting'' it with coal--thus increasing
    both the total amount of combustion and overall emissions of air
    pollutants. OSWER claims this is consistent with the spirit and intent
    of the CAA. But the Agency never explains why feedrate reduction has
    never been used by OAR in any other CAA rule.
        CKRC would like to suggest that this Subcommittee and, eventually,
    Congress take steps in the reauthorization of the CAA to require that
    EPA implement the Act using only legitimate scientific rationales. EPA
    should be prevented from conjuring-up unprecedented techniques to
    justify emissions standards that are more stringent than could ever be
    derived by conventional data analysis as applied to bona fide air
    pollution control technologies. In particular, Congress should ensure
    that reducing inputs to processes can never be claimed as a ``control
    technology,'' especially in the case of energy recovery applications
    that result in a decrease in air pollution. Finally, Congress should
    require that EPA not attempt to abuse its CAA authority to try to
    manipulate competitive markets.
                                c. jurisdiction
        The EPA office traditionally charged with implementing the CAA is
    the Office of Air and Radiation (OAR). Aside from the Phase I and Phase
    II MACT rules affecting combustion of hazardous waste, all other MACT
    rulemakings promulgated by EPA (including several relating to other
    types of waste combustion) have been or are being developed by OAR. The
    HWC MACT rule (in its various phases) is the only one that has been or
    will be developed by OSWER.
        As we have seen, this jurisdictional anomaly proved instrumental in
    creating a mechanism for EPA to circumvent CAA authority and the intent
    of Congress and, by invoking supposed ``RCRA concerns,'' enabled the
    Agency to promote its unauthorized policy objectives relating to the
    hazardous waste combustion market. CKRC is convinced that the HWC MACT
    rule would not suffer from its unusual defects had the regulatory
    development process been in control of the more experienced Office of
    Air and Radiation. It has been common knowledge that this rulemaking
    produced a huge donnybrook between OAR and OSWER and that the arguments
    were, in part, related to OSWER's disregard for precedent established
    by OAR in implementing the CAA. Historically, in its development of
    other MACT rules, OAR has at the very least exercised some restraint in
    its interpretation of the statute and achieved a degree of regulatory
    consistency across its CAA rulemakings. Surely we know of no cases
    where OAR attempted to use the CAA to affect the competitive structure
    of markets. Unfortunately, the HWC MACT rule became a vehicle for OSWER
    to inject the Agency's biases into the thermal treatment market and,
    apparently, the Office felt unconstrained by either the CAA or Senate
    oversight in pursuing that objective.
        In its reauthorization of the CAA, this subcommittee should
    consider adding provisions that will prevent this kind of abuse in
    EPA's implementation of the Act. Congressional intent would be better
    served by the creation of some type of barrier to preclude EPA from
    claiming ``joint statutory authority'' to develop CAA regulations, or
    to use CAA regulations as an outlet for unauthorized policy
    initiatives, particularly those that run counter to the intent of the
    Act.
    Implementation and Compliance
        Ultimately, the efficacy of any regulatory action is tied to its
    implementation. Successful implementation is the means by which
    compliance with a rule is achieved and maintained and by which
    environmental gains are realized.
        The HWC MACT rule, as noted above, is extraordinarily complex,
    almost punitively so. Its complexity is not linked to positive
    environmental or public health outcomes; but only encumbers the
    implementation of the rule. It is regulatory burden that has been laid-
    on for its own sake. Early in the HWC rulemaking, in 1996, EPA
    conducted several public meetings during which it touted the extent to
    which the rule would be designed to simplify and consolidate many
    requirements of the existing RCRA rules that governed hazardous waste
    combustors. EPA claimed that the discomfort and expense of the
    stringent standards the Agency intended to develop would be offset by
    more efficient, less redundant, and simpler implementation
    requirements. EPA did not fulfill its commitment. What we got instead
    are much more stringent standards and much more complicated
    implementation requirements.
        In its deliberations about CAA reauthorization, Congress should
    take into consideration that the current statute does not adequately
    compel EPA to use common sense in its rulemakings. EPA apparently needs
    Congressional guidance to force the Agency to more substantively bind
    itself to issuing common sense, uncomplicated implementation procedures
    and requirements. Congress should impress upon EPA the need to
    implement CAA rules in a way that encourages and even hastens
    compliance among the regulated community. Congress should let EPA know
    that successful implementation, pursued by cooperative and interactive
    means, would produce a higher rate of compliance at less burden and
    lower cost. Congress should charge EPA with the obligation to rely much
    more on assistance than on enforcement to ensure compliance and give
    the Agency the tools necessary to carry out that task.
    Energy Recovery
        Since the mid-1980's, the US cement industry has productively used
    millions of tons of hazardous waste as fuel in cement kilns. Congress
    has made clear in other statutes (e.g., RCRA) that it is
    environmentally preferable to recycle the value of waste materials than
    to destroy or dispose of them. The benefits provided by recovering
    energy from wastes in existing manufacturing processes that were
    enumerated at the beginning of this testimony are real. Fossil fuels
    are conserved. Air pollution is significantly decreased. And waste is
    converted to a productive asset. It is clearly a win-win proposition.
        But the commercial hazardous waste incinerator operators didn't see
    it that way. Until the early 1990's they had enjoyed a near-monopoly in
    the hazardous waste combustion market. Their reaction to what they
    perceived as emerging competition from cement kilns was to aggressively
    lobby EPA to increase the regulatory burden on their cement industry
    competitors, thus increasing their costs and, as a hoped-for byproduct,
    reducing their presence in the hazardous waste thermal treatment
    market. Their mantra was ``level the playing field,'' despite the well-
    known fact that cement kilns were newly subject to the BIF rules, which
    were far more comprehensive than the RCRA Subpart O standards for
    incinerators. The incinerator companies, primarily via their trade
    association, the Environmental Technology Council (ETC), finally began
    to see their lobbying efforts gain traction in the early days of the
    current Administration. After several closed-door meetings with
    incinerator operators early in her tenure, Administrator Browner seized
    upon ETC's rhetoric and initiated her ``Hazardous Waste Combustion
    Strategy'' in May 1993. That immediately resulted in EPA abandoning its
    vigorous defense of the RCRA BIF rules in the D.C. Circuit and produced
    an out-of-court settlement with ETC that, among other things, committed
    the Agency to issue tighter regulations on cement kilns that recover
    energy from hazardous waste. (See CKRC Comments on the Proposed HWC
    MACT Rule, Appendix H. August 19, 1996)
        In its zeal to regulate cement kilns with much tighter emissions
    standards in the HWC MACT rule, EPA acted as though it was
    unconstrained by the CAA from making decisions that were specifically
    aimed at reducing the capacity cement kilns to recover energy from
    hazardous wastes. As cited above, the Administrator set EPA upon a
    course to use the HWC rule to stop ``allowing competing cement kilns to
    undercut the commercial incinerators.'' And that's just what the Agency
    did. It established exotically expensive beyond-the-floor standards and
    then specified that cement kilns could achieve compliance with those
    standards by ``feedrate reduction,'' i.e., by burning less waste for
    energy recovery. (Because EPA mandates that the waste must be burned,
    if cement kilns burn less waste, incinerators will burn more waste.) In
    its formal comments on the proposed rule, CKRC aggressively challenged
    EPA's decision and, in oversight communications, members of this
    Subcommittee also emphatically objected to the Agency's approach. In
    response, EPA claimed on the one hand that it was not obligated to
    consider the HWC MACT rule's impact on energy recovery capacity; and,
    on the other hand, that it rejected our industry's data and information
    as incorrect (i.e., not in conformance with EPA's analysis).
        It ought not to be so easy for EPA to completely disregard the
    important environmental ramifications of recovering energy from
    millions of tons of waste. We believe the CAA should be amended to
    specifically support and encourage energy recovery and other recycling
    activities that have been shown to directly benefit air quality and
    reduce greenhouse gas emissions. EPA should be barred from taking any
    regulatory action under the Clean Air Act that impairs, reduces, or
    otherwise adversely affects energy recovery technologies that have
    demonstrable environmental (and economic) benefits. Conversely, the CAA
    should require that EPA take affirmative steps to promote and encourage
    such technologies. CKRC hopes this Subcommittee will be inclined to
    fill this void in the Clean Air Act.
    Conclusion
        The Subcommittee today has a rare opportunity to begin afresh its
    analysis of the Clean Air Act as it contemplates reauthorization. Our
    recent experience with the MACT program dictates that Congress should
    be vigilant of several points in dealing with this section of the Act.
    First, Congress should make clear the findings necessary to go beyond
    the MACT floor in setting emissions standards. While CKRC believes the
    law already adequately requires EPA to make cost and other findings to
    justify standards more stringent than the floor, Congress should take
    the opportunity of reauthorization to make the importance of cost and
    risk considerations even clearer to the Agency. Second, Congress must
    make clear that reducing feed to a process is not a control technology
    or a gauge of the best-performing sources, that it does not amount to
    an application of sound science, and that it does not promote
    technological advancement in accordance with the intent of the Clean
    Air Act. Third, Congress should take steps to guard against the MACT
    program being used as a thinly veiled attempt to reallocate market
    share or make production decisions for the regulated community. Fourth,
    Congress should remind the Agency that neither the regulated community
    nor the environment are served if rules are implemented in inflexible
    ways. Rather, common sense in implementation makes compliance more
    likely and less expensive, and better protects human health and the
    environment. And finally, Congress should ensure that the CAA
    accommodates and encourages proven energy recovery technologies and
    prohibits EPA from actions harmful to the perpetuation or expansion of
    those technologies.
        Thank you again for this opportunity to testify before the
    Subcommittee. I look forward to answering any questions you may have.
                                     ______

                     Cement Kiln Recycling Coalition (CKRC)
                                   appendix h
    CKRC's Concerns with the underlying policy choices and motivations
            which give direction to the proposed rule
        As these comments demonstrate, it is obvious that EPA's proposal is
    based upon many legal, policy and technical choices that are
    unprecedented and of questionable validity (if not plainly illegal or
    invalid). At every opportunity, EPA has chosen a path that will lead to
    exceedingly stringent, onerous and expensive requirements for cement
    kilns that burn hazardous waste. It is apparent that this has been a
    result-oriented process. That is, EPA's prime motivation has been to
    impose great additional costs on cement kilns, and EPA has crafted MACT
    and RCRA legal, technical and policy choices to support this pre-
    ordained result.
        As shown below, prior to May, 1993, EPA had steadfastly defended
    the current BIF rules as fully protective of human health and the
    environment and had stated several times that they are sufficiently
    conservative to allay any rational concerns over ``indirect'' exposure
    risks. Moreover, EPA Regions and the State of Texas have recently
    confirmed these points. Also R-VII RA letter of 7/17/95 to Ms. Mary
    King: ``EPA believes the requirements of the BIF rule are protective of
    human health and the environment.''
        Rather, two related rationales quite clearly are driving the
    proposed cement kiln standards. They are in fact the only rationales
    that can provide a cohesive logical explanation for what would
    otherwise be irrational Agency behavior:
        1. EPA is being driven from the top to make hazardous waste
    combustion a more expensive and less attractive option in a misdirected
    attempt to force U.S. industry to reduce its generation of hazardous
    waste (``waste minimization'' or ``source reduction''); and
        2. Among the competing forms of hazardous waste combustion, EPA's
    leadership has most obviously favored commercial incineration interests
    against cement kilns. EPA's leadership is in fact attempting to aid the
    incinerators by ``leveling the playing field'' vis-a-vis cement kilns
    on the pricing front.
        As we will show below, these twin driving rationales are beyond
    EPA's legal authority. When EPA's stated MACT and RCRA legal and policy
    choices are seen in this light, it makes them all the more
    fundamentally flawed and unacceptable. EPA is simply trying to achieve
    its unauthorized goals of source reduction and playing-field leveling
    by stretching its MACT and RCRA legal theories to unacceptable lengths.
        First, we will present a brief review of EPA's development of rules
    and policies. Second, we will review the evidence of EPA's favoritism
    toward commercial incinerator interests. Third, we will show that the
    most basic activities and policies that appear to be driving EPA's
    proposal are contrary to law, and they taint all the basic MACT and
    RCRA legal positions articulated by EPA in support of its proposal.
    2. EPA Political Preferences for Commercial Incinerators
                a. Competition Between Cement Kilns and Commercial
                        Incinerators
        Many types of common industrial wastes are accepted and safely
    treated by both cement kilns and commercial incinerators. They are in
    competition for a significant amount of the same ``market share'' for
    treatment of this waste. Cement kilns have an inherent market
    advantage, as cement kilns use HWDF as a replacement for fossil fuel
    that would otherwise have to be purchased, and cement kilns obtain most
    of their revenues from their cement product that is sold in commerce. A
    commercial incinerator makes no product, however, and burns hazardous
    waste for purposes of destruction rather than as a valuable fuel
    replacement.
        Cement kilns can readily pass on the savings to their industrial
    waste generating customers. For many types of industrial hazardous
    waste, the industrial generator can save a significant amount on its
    waste treatment costs, and the wastes will be treated equally if not
    more effectively, by sending them to a cement kiln as opposed to a
    commercial incinerator facility.
        There are thus great benefits to the burning of hazardous waste in
    cement kilns. The environment benefits because the kilns provide
    capacity to safely treat many of the nation's industrial hazardous
    wastes. The nation's precious and limited natural resources benefit
    because fossil fuels that would otherwise be burned are replaced by the
    energy-bearing HWDF. American industry benefits economically by having
    an option to meet its environmental legal requirements that is far less
    expensive than the commercial incineration option. Moreover, the option
    of cement kilns burning waste benefits conditionally exempt small
    quantity generators (CESQGs) since an economical and environmentally
    safe alternative to disposal is offered.
        The fact that cement kilns provide such a superior economical and
    environmental alternative to commercial incinerators has led to a
    situation in which cement kilns have far surpassed commercial
    incinerators in capturing markets for many types of hazardous wastes in
    the last few years. This has in turn caused some leading commercial
    incineration companies to engage in aggressive tactics to attack cement
    kilns burning hazardous waste.
                b. AFRTT, ETC. and Their Allies
        One such organization is the ``Association For Responsible Thermal
    Treatment'' (``AFRTT''). AFRTT has hired three formerly elected
    officials to serve as ``co-chairs'' to spearhead those anti-cement kiln
    efforts. One of the three co-chairs, and most visibly active, is James
    J. Florio, recently the Governor of New Jersey. AFRTT, its member
    companies (principally Rollins Environmental Services, Inc., the
    nation's largest commercial incineration company), and other
    associations of commercial incinerator companies have initiated a
    vicious and wholly unprincipled.war against cement kilns on many fronts
    for several years, and the war has intensified greatly in the last 2
    years.
        Simply put, AFRTT has used the regulatory arena in which to fight
    its market battles. The cement industry has burned more hazardous waste
    than the commercial incineration industry in the past 2 years.
    Consequently, the incinerators interests have used environmental issues
    in an inaccurate manner in an attempt to re-gain market share.
        The more traditional litigation arm for the commercial incinerator
    companies is now known as the Environmental Technology Council
    (``ETC''). This litigating association's name was changed to ETC in
    1994. Before that, ETC was called the Hazardous Waste Treatment Council
    (``HWTC'') for a number of years.
        One tactic AFRTT, ETC/HWTC, and Rollins have long employed is to
    help create and/or support so-called ``citizens groups'' to publicly
    front the incinerators' competitive efforts to oppose cement kilns that
    burn HWDF and to provide the incinerators' ``standing'' to sue in
    Federal courts.
        For instance, the American Lung Association received two AFRTT
    ``grants'' of $110,000 and $150,000 in 1994 and 1995. Even though
    cement kilns burn hazardous waste just as safely and efficaciously as
    commercial incinerators, and are more stringently regulated, the
    American Lung Association (ALA) has used the AFRTT grants to direct
    funds to local chapters for the purpose of opposing cement kilns
    burning hazardous waste. Not surprisingly, ALA has never initiated a
    similar program to oppose commercial incinerators burning hazardous
    waste.
        There can be no question that these ``citizen'' groups have been
    formed to oppose the burning of hazardous waste in cement kilns, and
    that issues of relative stringency of environmental standards are
    secondary if not irrelevant concerns to these groups. A leader of one
    of the most vocal of these groups--the Huron Environmental Activist
    League (HEAL)--has stated in a newsletter to similar groups that HEAL
    ``was formed in 1991 to oppose the burning of hazardous waste at the
    Lafarge cement plant in Alpena.'' Attachment 2. This HEAL leader
    utilized the imagery of war and the emerging militia movement in the
    United States to bolster the troops' morale:
        When it crystallized for me that this cement kiln incineration war
    was not going to be a short ``firelight'' but instead a protracted,
    grinding and dirty conflict that would change boys into men and girls
    into women in a hurry and those who wouldn't or couldn't grow up,
    including myself, would be casualties upon whose forgotten bones some
    other warrior someday might raise the flag of victory . . . at that
    point, I promised myself that I would not become a casualty. I had
    already lost much and some of what I lost is sadly irrevocable.
        The war is no longer isolated local or regional ``nimby''
    skirmishes. It is a civil war. Government ``for the people'' is at
    stake, and we all have to survive locally to get the job done on the
    national front.
        In Michigan the war is raging.
        (emphasis added).
        This ``war'' has been a coordinated campaign by the citizens
    militia and the commercial incineration interests, and the coordination
    has manifested itself in national litigation and rulemaking efforts, as
    well as in local campaigns. In the same document on the status of the
    war, the HEAL leader further stated:
        With every local battle won the entire theater of war shifts in our
    favor. In the last year and a half there have been victories that would
    have been unthinkable 4 years ago . . . like the eight non-compliant
    BIFs losing interim status as a result of the Citizens Petition, Holnam
    abandoning their plans to burn in Montana, the vacating of Tier III and
    the suspension of burning in Alpena, the imminent fall of waste-burning
    at National Cement in Lebec, California, the EPA Roundtables and the
    CKD Report to Congress, the ARTT[AFRTT]/Lung Association grants, and on
    and on.
        The reference to ``BIFs losing interim status as a result of the
    Citizens Petition'' refers to one such coordinated effort. On January
    31, 1994, HEAL, Desert Citizens, Adans, and the commercial
    incinerators' ETC (then HWTC) filed a ``Petition For Administrative
    Action to Cease Hazardous Waste Burning'' with EPA against several
    cement kilns that were then burning or proposing to burn HWDF. This
    petition did not seek to impose any particular standards on such kilns.
    Rather, as its title indicated, it was simply aimed at stopping the
    kilns from burning hazardous waste.\5\ EPA granted the relief the
    petitioners sought in some cases and denied it in others.
        \5\ The petition did not attempt to stop kilns from applying for a
    permit to burn hazardous waste under RCRA, but inasmuch as this permit
    process takes many years, each location where the petition was
    successful would be sure to stop hazardous waste burning for a long,
    indefinite time.
        The reference to the ``vacating of Tier III'' refers to the result
    of litigation efforts by citizens groups and the ETC (then HWTC) in
    Horsehead. In that case, the groups jointly sought review of EPA's BIF
    Rules that regulate the burning of hazardous waste by cement kilns and
    other types of furnaces and boilers.
        The reference to the ``ARTT[AFRTT]/Lung Association grants'' refers
    to the fact that the commercial hazardous waste incinerator interests
    have sometimes even openly and directly funded citizens groups who will
    oppose cement kilns burning hazardous waste fuel--in addition to
    providing them legal representation through commercial incineration
    industry staff and outside counsel.
                c. Political Favoritism to Incinerators at Top Levels of
                        EPA
        It has become obvious over the last 3 years that at the highest
    political levels of EPA, there is great favoritism and access for the
    commercial incinerator interests in their war against cement kilns. One
    good example is EPA's process in issuing its recent ``determination''
    for cement kiln dust (CKD). 60 Fed. Reg. 7366, February 7,1995. For
    groups whose primary interest is simply to stop the burning of
    hazardous waste in cement kilns, it is entirely logical that they would
    push for full Subtitle C regulation of CKD in an uncompromising manner.
    As EPA has found, the costs of such controls would be exceedingly
    burdensome and oppressive, and many if not most cement kilns now
    burning HWF would likely be forced to quit doing so if full Subtitle C
    regulation over CKD were imposed. Id. Even if a kiln could afford to
    absorb such wholly unnecessary costs, it would (to the great
    satisfaction of the commercial hazardous waste incineration industry)
    substantially drive up the costs of sending hazardous wastes to cement
    kilns for safe and effective treatment.
        When EPA originally published the CKD Report and solicited public
    comment for the CKD Regulatory Determination, the agency properly held
    a round of meetings between EPA personnel and various interest groups.
    At the cement industry meeting with EPA, EPA personnel stated in no
    uncertain terms that after the deadline for public comment--March
    8,1994--EPA would have no further meeting with any interested parties
    in the CKD Regulatory Determination.
        This policy was breached almost immediately when EPA Assistant
    Administrator Laws met with an anti-cement kiln group organized and
    promoted by the commercial incinerators industry shortly after March 8.
    Cement industry counsel protested this meeting in a letter to EPA
    counsel on March 14, 1994. (Attachment 3). Cement industry counsel
    asked whether EPA had changed its policy and said that if so, ``we
    would certainly appreciate the opportunity to meet.'' To this day, EPA
    has never responded to the cement industry's March 14,1994 letter.
        CKRC later learned that there were two such meetings in March. The
    EPA summaries of such meetings (Attachment 4) show that the cement kiln
    enemies raised not only CKD issues but also lobbied hard for tough new
    MACT emission standards for cement kilns at their meetings.
        The AFRTT political connection with EPA leadership has continued to
    alarm CKRC. On May 9,1994, former Congressman and former Governor Jim
    Florio (now AFRTT co-chair) sent EPA Administrator Browner a ``Dear
    Carol'' letter explaining why--in his view--a recent U.S. Supreme Court
    decision required EPA to regulate CKD under RCRA Subtitle C. Attachment
    5. Mr. Florio's letter was on his new law firm's letterhead and nowhere
    in the letter did Mr. Florio disclose that he had recently become co-
    chair of AFRTT.\6\
        \6\As shown In our counsel's letter to Ms. Browner of May 11, 1994
    (Attachment 6), we believe Mr. Florio's legal views were totally
    incorrect.
        On October 20, Mr. Florio wrote another letter to Ms. Browner.
    (This time he at least made clear he was writing on behalf of AFRTT.)
    He urged the Administrator to meet with him to discuss AFRTT's goal of
    providing for -''more appropriate environmental regulation of the
    cement kiln industry.'' (Attachment 7).
        CKRC wrote Ms. Browner on November 30, 1994 to express its concern
    over this new AFRTT attempt at an ex parse communication on the CKD
    issue. Attachment o. CKRC reiterated that EPA personnel had stressed
    there could be no more Meetings after the close of the comment period
    on March 8, 1994, and asked whether she was planning to meet with Mr.
    Florio. CKRC stressed that out of fairness, she should meet with the
    cement industry if she met with AFRTT. Neither Ms. Browner nor anyone
    else in EPA has ever responded to CKRC's November 30,1994 letter.
        On December 21, 1994, CKRC obtained a copy of an AFRTT press
    release. In that release, AFRTT announced that its representatives had
    met with Assistant Administrator Laws on December 21,1994. The release
    makes clear that AFRTT continued to press its CKD points as well as
    many MACT points with Mr. Laws during flus meeting. Attachment 9.
        On December 23, 1994, CKRC wrote yet another letter to Ms. Browner.
    Attachment 10. CKRC expressed its disappointment that she had never
    answered CKRC's November 30 letter and spoke of CKRC's ``grave
    concern'' over the obvious pattern that was developing of EPA giving
    preferential ex parse treatment to the commercial incinerator interests
    while totally ignoring CKRC's letters and requests for meetings.
        The situation portrayed in CKRC's letter to Ms. Browner of December
    23 turned out to be much worse than CKRC initially realized. Not only
    did Ms. Browner's staff arrange for Mr. Florio and his AFRTT people to
    meet with Mr. Laws on December 23, they also arranged for two
    additional ex parse to press EPA to regulate CKD from kilns that burn
    HWDF under full Subtitle C on the very same day! MACT issues were also
    prominent on the agenda for these meetings.
        One meeting was with a group of citizens promoted (and partially
    funded) by AFRTT that met with Mr. Laws. (In the war-time missive
    discussed above, the HEAL leader closed by saying: ``Hope to bring back
    good news from the D.C. meeting with Elliott Laws.'' Attachment 2.)
    Another meeting was a contingent from Rollins Environmental Services,
    Inc., a prime member of both ETC and AFRTT and unquestionably the most
    vicious attacker of cement kilns that burn HWDF. Rollins met with
    Deputy Administrator Hansen. The EPA summaries of such meetings are
    attached at Attachment 11.
        To this day, neither Ms. Browner nor anyone else at EPA has ever
    responded to CKRC's letter of December 23. Thus, EPA personnel had told
    CKRC representatives that after March 8, 1994 (the close of the public
    comment period on the CKD determination), there would be absolutely no
    more meetings with any interest groups to discuss the pending
    determination. The incinerator interests nevertheless were granted at
    least five separate meetings (possibly more) with high-level EPA
    personnel to influence EPA to take action on CKD that was extremely
    adverse to the cement industry and to conduct further MACT propaganda
    activities. CKRC's letters of protest and requests for rebuttal
    meetings went totally unanswered (and are unanswered to this day), and
    CKRC never obtained a single meeting with EPA during this period.
        Another example of this anti-cement kiln coordination between
    commercial incinerators and citizen groups--and EPA's blatant
    political-level favoritism toward the incinerators and their cohorts--
    is the Horsehead settlement agreement described above. Even though they
    lost the one major issue they actually litigated in Horsehead the
    commercial incinerator interests were able to ``negotiate'' a
    Settlement Agreement with EPA to resolve several issues that were
    withdrawn from oral argument at the eleventh hour. Even though CKRC was
    a party in Horsehead and the Settlement Agreement has a significant
    detrimental effect on the cement industry, CKRC was never invited to or
    even informed about the closed-door meetings leading up to the
    Settlement Agreement, EPA never had similar meetings with CKRC, and EPA
    never even gave CKRC the opportunity to comment on the Settlement
    Agreement before it was filed with the court.
                d. EPA's Assistance to AFRTT In Playing-Field Leveling
        Another example of the EPA leadership's siding with the commercial
    incinerators relates to the so-called ``leveling of the playing
    field.'' First, through all of their dozens of political contacts and
    ex parse meetings, the AFRTT forces appear to have convinced the
    Administrator that commercial incinerators are more stringently
    regulated than cement kilns under current EPA rules. As shown above,
    nothing could be further from the truth. EPA's Director of the Office
    of Solid Waste recently confirmed this in a letter to AFRTT of May
    30,1996.
        Yet on July 28, 1995, the Administrator appeared on the MacNeil/
    Lehrer News Hour on the Public Broadcast System television network. On
    that show, she stated:
        Let me explain what's happened in this country. We have one set of
    standards for hazardous waste incinerators. We have another, weaker set
    of standards for cement kilns, boilers, industrial furnaces--which are
    also burning hazardous waste. I think we should have tough standards
    for both. That's exactly what my rule would do. What David sought to do
    today in his amendment--which he lost would have been to prohibit me
    from setting tough standards on these facilities that are burning
    hazardous waste. Why should there be two different standards, a lesser
    standard for some?
        The Administrator was openly challenged by Congressman McIntosh
    (the ``David'' referred to in her statement), but she continued to
    insist that cement kilns were subject as a ``lower standard'' than
    incinerators.
        A well-known AFRTT slogan is that EPA should ``level the playing
    field'' in the economic competition between commercial incinerators and
    cement kilns. This slogan in part is used to argue (absolutely falsely)
    that EPA's standards for cement kilns are not as comprehensive and
    stringent as those for commercial incinerators, and that if EPA would
    force even more stringent standards on cement kilns, somehow the
    ``playing field'' of the competition would become ``level.''
        More pointedly, behind the AFRTT ``playing field'' pitch is the
    desire to force greater costs upon cement kilns that burn hazardous
    waste. The desired result would be that much greater costs would force
    some of the AFRTT's cement kiln competitors to stop burning hazardous
    waste. For those that continued to burn, the point is that greatly
    increased compliance costs would translate into higher prices for
    generators and work to level the market pricing playing field to
    AFRTT's advantages.
        EPA's Administrator has apparently been influenced by AFRTT's
    pitches. As reported in news accounts, Ms. Browner explained that her
    current proposal for cement kilns ``will level the playing field for
    hazardous waste incinerators.'' BNA Daily Environment Reporter, March
    21, 1991, at A-33. Ms. Browner also vowed to stop ``allowing the
    competing cement kilns to undercut the commercial hazardous waste
    incinerators'' in pricing. Id.
        Another news account stated:
        In a conference call with reporters, Browner said that the new
    emission limits would level the playing field among hazardous waste
    incinerators and hazardous waste-burning cement kilns.
        BNA Daily Environmental Reporter, March 22,1996, at A-29.
        Certainly AFRTT has publicly recognized and thanked EPA's
    Administrator for her support. In a letter of May 23, 1996 to suppliers
    and customers, the President of Rollins (AFRTT's prime member) reviewed
    AFRTT's long-standing campaign to level the playing field in the market
    place vis-a-vis cement kilns. (Attachment 13.) The Rollins President
    made the following statements:
        Thanks in part to AFRTT's issues advocacy work in Washington, D.C.
    and nationwide, EPA Administrator Carol Browner recently proposed tough
    new emissions standards for all hazardous waste combustion devices,
    including cement kilns, under the Clinton Administration's National
    Combustion Strategy. The Administrator has acknowledged AFRTT's
    [AFRTT's] work as being the most important catalyst for quick issuance
    of this important proposal.
        The Rollins letter also mentions several ``AFRTT Accomplishments.''
    Among those listed are:
          Issuance of EPA's proposal for Maximum Achievable Control
    Technology (MACT) standards for hazardous waste combustors; and
          Building of significant credibility with EPA through
    several years of meetings with EPA Administrator Browner and other
    senior EPA officials coupled with AFRTT's visible support for EPA
    initiatives.
        Moreover, AFRTT co-chair James Florio commended the Administrator
    for her close team-work with AFRTT, according to this news report:
        ``The EPA has done an excellent job in putting together this
    proposed rule which advances environmental protection while at the same
    time balancing the economic burden of regulation,'' Jim Florio, ARTT
    [AFRTT] co-chair and former New Jersey Governor, said in a March 20
    statement. ``Carol Browner, in particular, is to be commended for her
    leadership within the administration on moving this proposal ahead.''
        In prepared statements both ARTT [AFRTT] and EPA mentioned proposed
    amendments to EPA's fiscal 1996 appropriations bill that would have
    limited EPA' ability to implement the 1993 combustion strategy, of
    which this proposed rule is one component. The riders were strongly
    supported by the cement kiln industry. BNA Daily Environmental
    Reporter, March 21,1996, at A-35
        Another example of EPA's bias toward the commercial incinerators is
    worth mentioning. CKRC filed a rulemaking petition with EPA respecting
    hazardous waste fuel issues on February 10, 1994. The petition sought
    EPA clarification on some issues that are very important to the cement
    industry. To this days despite requirements in RCRA and EPA's own
    regulations the only acknowledgment CKRC has ever received is a
    ``Return Receipt Requested'' green card. By contrast, the Hazardous
    Waste Treatment Council (now ETC) filed an anti-cement kiln petition
    with EPA 10 days earlier--on January 31, 1994. By April 4, 1994, EPA
    had taken final action on that petition that gave the commercial
    incinerators much of the relief (against cement kilns) that they had
    requested.

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