[Federal Register Volume 68, Number 22 (Monday, February 3, 2003)]
[Notices]
[Pages 5492-5527]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-2542]



[[Page 5491]]

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Part VII





Office of Management and Budget





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Draft 2003 Report to Congress on the Costs and Benefits of Federal 
Regulations; Notice

  Federal Register / Vol. 68, No. 22 / Monday, February 3, 2003 / 
Notices  

[[Page 5492]]


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OFFICE OF MANAGEMENT AND BUDGET


Draft 2003 Report to Congress on the Costs and Benefits of 
Federal Regulations

AGENCY: Office of Management and Budget, Executive Office of the 
President.

ACTION: Notice and request for comments.

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SUMMARY: OMB requests comments on the attached Draft Report to Congress 
on the Costs and Benefits of Federal Regulation. The Draft Report is 
divided into two chapters. Chapter I presents estimates of the costs 
and benefits of Federal regulation and paperwork with an emphasis on 
the major regulations issued between October 1, 2001 and September 31, 
2002. Chapter II requests comments from the public in three areas: (1) 
Guidelines for regulatory analysis; (2) Analysis and management of 
emerging risks; and (3) Improving analysis of regulations to homeland 
security.

DATES: To ensure consideration of comments as OMB prepares this Draft 
Report for submission to Congress, comments must be in writing and 
received by OMB no later than April 3, 2003.

ADDRESSES: We are still experiencing delays in the regular mail, 
including first class and express mail. To ensure that your comments 
are received, we recommend that comments on this draft report be 
electronically mailed to [email protected], or faxed to (202) 
395-7245. Comments on the OMB Draft Guidelines for the Conduct of 
Regulatory Analysis and the Format of Accounting Statements (Appendix 
C) should be e-mailed to [email protected], or faxed, with 
the title ``Comments on Draft Guidelines'' identified in the 
transmittal page, to (202) 395-7245.
    You may also submit comments to Lorraine Hunt, Office of 
Information and Regulatory Affairs, Office of Management and Budget, 
NEOB, Room 10202, 725 17th Street, NW., Washington, DC 20503.

FOR FURTHER INFORMATION CONTACT: Lorraine Hunt, Office of Information 
and Regulatory Affairs, Office of Management and Budget, NEOB, Room 
10202, 725 17th Street, NW., Washington, DC 20503. Telephone: (202) 
395-3084.

SUPPLEMENTARY INFORMATION: Congress directed the Office of Management 
and Budget (OMB) to prepare an annual Report to Congress on the Costs 
and Benefits of Federal Regulations. Specifically, Section 624 of the 
FY2001 Treasury and General Government Appropriations Act, also know as 
the ``Regulatory Right-to-Know Act,'' (the Act) requires OMB to submit 
a report on the costs and benefits of Federal regulations together with 
recommendation for reform. The Act says that the report should contain 
estimates of the costs and benefits of regulations in the aggregate, by 
agency and agency program, and by major rule, as well as an analysis of 
impacts of Federal regulation on State, local, and tribal government, 
small business, wages, and economic growth. The Act also states that 
the report should go through notice and comment and peer review.

John D. Graham,
Administrator, Office of Information and Regulatory Affairs.

Draft 2003 Report to Congress on the Costs and Benefits of Federal 
Regulation

Executive Summary

    This Draft Report to Congress on regulatory policy was prepared 
pursuant to the Regulatory Right-to-Know Act (Section 624 of the 
Treasury and General Government Appropriations Act, 2001), which 
requires such an account each year. It provides a statement of the 
costs and benefits of federal regulations and recommendations for 
regulatory reforms. The report will be published in its final form 
after revisions to this draft are made based on public comment, 
external peer review, and interagency review.
    The major feature of this report is the estimates of the total 
costs and benefits of regulations reviewed by OMB. Major federal 
regulations reviewed by OMB from October 1, 1992 to September 30, 2002 
were examined to determine their quantifiable benefits and costs. The 
estimated annual benefits range from $135 billion to $218 billion while 
the estimated annual costs range from $38 billion to $44 billion.
    OMB seeks public comment on all aspects of this Draft Report. OMB 
is specifically interested in public comment in the following three 
areas:
    [sbull] Guidelines for regulatory analysis. In order to make 
continued improvements in the quality of the regulatory analyses 
prepared by agencies, OIRA initiated in 2002 a process to refine the 
OMB guidelines for regulatory analysis. The OIRA Administrator and a 
member of the Council of Economic Advisers (CEA) are serving as co-
chairs of this effort. OMB and CEA staff have drafted proposed revised 
guidelines which are presented in Appendix C of this report. We are 
requesting comment on these draft guidelines for regulatory analysis.
    [sbull] Analysis and management of emerging risks. An Interagency 
Work Group on Risk Management, co-chaired by the OIRA Administrator and 
the Chairman of the White House Council on Environmental Quality has 
been formed to foster Administration-wide dialogue and coordination on 
the management of emerging risks to public health, safety and the 
environment. To assist in the Work Group's efforts, OMB requests 
comments on current U.S. approaches to analysis and management of 
emerging risks.
    [sbull] Improving analysis of regulations related to homeland 
security. In light of the significant interest in regulations related 
to homeland security, OMB is seeking public comment on how to more 
effectively evaluate the benefits and costs of these proposals, 
including how agencies might better forecast the anti-terrorism 
benefits and the direct and indirect costs of such rules, including 
time, convenience, privacy, and economic productivity.

Chapter I: The Costs and Benefits of Federal Regulations

    Section 624 of the FY 2001 Treasury and General Government 
Appropriations Act, the ``Regulatory Right-to-Know Act,'' \1\ requires 
OMB to submit ``an accounting statement and associated report'' 
including:
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    \1\ 31 U.S.C. 1105 note, Pub. L. 106-554, Section 1(a)(3) [Title 
VI, section 624], Dec. 21, 2000, 114 Stat. 2763, 2763A-161 (see 
Appendix F).
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    (1) An estimate of the total annual costs and benefits (including 
quantifiable and nonquantifiable effects) of Federal rules and 
paperwork, to the extent feasible:
    (A) In the aggregate;
    (B) By agency and agency program; and
    (C) By major rule;
    (2) An analysis of impacts of Federal regulation on State, local, 
and tribal government, small business, wages, and economic growth; and
    (3) Recommendations for reform.\2\
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    \2\ Recommendations for reform are discussed in Chapter II.
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    This chapter presents the accounting statement. It revises the 
benefit-cost estimates in last year's report by updating the estimates 
to the end of fiscal year 2002 (September 30, 2002) and including new 
estimates from Ocotober 1, 1992 to March 31, 1995. Our new estimates 
are now based on the major regulations reviewed by OMB over the last 
ten years. All of the

[[Page 5493]]

estimates presented in this chapter are based on agency information or 
transparent modifications of agency information performed by OIRA. We 
have not provided new information on the impacts of Federal regulation 
on State, local, and tribal government, small businesses, wages, and 
economic growth in this draft report. The 2002 Report issued in 
December 2002 includes discussions of these issues (see pages 41 to 
46). We request public comment and any additional information on these 
impacts for this year's final report.
    We also include in this chapter a discussion of major rules issued 
by independent regulatory agencies, although OMB does not review these 
rules under Executive Order 12866. This discussion is based on data 
provided by these agencies to the General Accounting Office (GAO) under 
the Congressional Review Act.

A. Estimates of the Total Benefits and Costs of Regulations Reviewed by 
OMB \3\
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    \3\ In previous reports, we presented detailed discussions about 
the difficulty of estimating and aggregating the costs and benefits 
of different regulations over long time periods and across many 
agencies. We do not repeat those discussions here. Our previous 
reports are on our Web site at <http://www.whitehouse.gov/omb/inforeg/regpol.html.
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    Table 1 presents estimates by agency of the costs and benefits of 
major rules reviewed by OMB over the period October 1, 2001 to 
September 30, 2002. We reviewed 31 final major rules over that period. 
These 31 rules represent less than ten percent of the 330 final rules 
reviewed by OMB and less than one percent of the 4,153 final rules 
documents published in the Federal Register during this 12-month 
period. However, OIRA believes that the costs and benefits of major 
rules are quantitatively more important than all other rules combined.
    Of the 31 rules, 25 implemented Federal budgetary programs, which 
caused income transfers from one group to another. The remaining six 
regulations were ``social regulations'', requiring substantial 
additional private expenditures and/or providing new social 
benefits.\4\ Four of these six ``social regulations'' imposed mandates 
on State and local entities or the private sector. The other two 
``social regulations'' were enabling regulations that did not impose 
mandates.
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    \4\ Rules that transfer Federal dollars among parties are not 
included because transfers are not social costs or benefits. If 
included, they would add equal amounts to benefits and costs.
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    Of the six ``social regulations,'' we are able to present estimates 
of both monetized costs and benefits for three rules.\5\ We did not 
include the 3 other rules that did not have monetized estimates for 
either costs or benefits or both. Three agencies, DOE, DOT, and EPA 
issued 3 major regulations adding a combined $2.0 billion to $6.5 
billion in annual benefits and $1.6 billion to $2.0 billion in annual 
costs.
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    \5\ We used agency estimates where available. If an agency 
quantified estimates but did not monetize, we used standard 
assumptions to monetize as explained in Appendix A.

  Table 1.--Estimates of the Annual Benefits and Costs of Major Federal Rules, October 1, 2001 to September 30,
                                                      2002
                                           [Millions of 2001 dollars]
----------------------------------------------------------------------------------------------------------------
                  Agency                            Benefits                             Costs
----------------------------------------------------------------------------------------------------------------
Energy...................................  710.......................  636.
Transportation...........................  409 to 944................  749 to 1,206.
Environmental Protection Agency..........  913 to 4,818..............  192.
                                          -----------------------------
      Total..............................  2,032 to 6,472............  1,577 to 2,034.
----------------------------------------------------------------------------------------------------------------

    Table 2 presents an estimate of the total costs and benefits of all 
regulations reviewed by OMB over the ten-year period from October 1, 
1992 to September 30, 2002 that met two conditions.\6\ Each rule 
generated costs or benefits of at least $100 million annually, and a 
substantial portion of its costs and benefits were quantified and 
monetized by the agency or, in some cases, monetized by OMB. The 
estimates are therefore not a complete accounting of all the costs and 
benefits of all regulations issued by the Federal government during 
this period. We have expanded the number of years covered by our 
estimates to ten from the six and half years presented in last year's 
report. We provide estimates of the cost and benefits of social 
regulation (health, safety and environmental regulation) for each rule 
for the periods covering October 1, 1992 to March 31, 1995 and October 
1, 2001 to September 30, 2002 in Appendix A.\7\ OMB has chosen a 10-
year period for aggregation because pre-regulation estimates prepared 
for rules adopted more than ten years ago are of questionable relevance 
today. The estimates of the costs and benefits of Federal regulations 
over the period October 1, 1992 to September 30, 2002 are based on 
agency analyses subject to public notice and comments and OMB review 
under E.O. 12866.
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    \6\ We calculated Table 2 estimates by adding the estimates in 
Table 1 above and the estimates from Table 6 in Appendix A to Table 
8 of the 2002 OMB report.
    \7\ Agency estimates of the cost and benefits of major 
regulations for October 1, 1992 to March 31, 1995 are provided in 
Appendix B. Appendix A contains revised estimates.
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    In last year's report, the aggregate costs of regulations fell 
within the range of the estimated benefits--albeit at the lower end of 
the range. The aggregate benefits reported in Table 2, however, are 
roughly three to five times the aggregate costs and are substantially 
larger than the aggregate benefits reported in our 2002 report. There 
are two reasons for this. First, the additional rules added to cover a 
10-year period included EPA's rule implementing the sulfur dioxide 
limits of the acid rain provisions in the 1990 Amendments to the Clean 
Air Act. This rule adds calculated benefits of over $70 billion per 
year to the aggregate benefits estimate. Second, in reviewing our 
estimates, we inadvertently subtracted incorrect cost estimates for 
EPA's rules establishing National Ambient Air Quality Standards for 
Ozone and Particulate Matter. This correction reduces the aggregate 
cost of the rules covered over the 10-year period by roughly $20 
billion per year.
    It is important to note that four EPA rules--two rules limiting 
particulate matter and NOX emissions from heavy duty highway 
engines, the Tier 2 rule limiting the emissions from light duty 
vehicles, and the Acid Rain rule cited above--account for a substantial 
fraction of the aggregate benefits reported in Table 2. These four EPA 
rules have estimated benefits of $96 to $113 billion per year and costs 
of $8 to

[[Page 5494]]

$8.8 billion per year.\8\ The aggregate benefits and costs for the 
other 103 rules are $38 to $104 billion and $30 to $35 billion, 
respectively. Table 3 provides additional information on aggregate 
benefits and costs for select agency programs.
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    \8\ These four EPA rules will reduce ambient levels of fine 
particulate matter by reducing direct PM emissions and/or the 
emissions of precursor pollutants like SO2 and 
NOX that contribute to the formation of fine PM. Many 
studies show an association between both short- and long-term 
exposure to fine PM and a variety of adverse health effects ranging 
from increases in the frequency of hospital admissions to premature 
mortality. There are, however, important uncertainties associated 
with these benefit estimates. For example key assumptions underlying 
the benefit estimates associated with premature mortality include 
the following: (1) The benefits analysis assumes there is a causal 
association between inhalation of fine particles and such health 
effects as premature mortality at exposure levels near those 
experienced by most Americans on a daily basis. While the biological 
mechanisms for this effect have not yet been definitively 
established, EPA has concluded that the weight of the available 
epidemiological and toxicological evidence supports an assumption of 
causality; (2) The benefits analysis assumes that all fine 
particles, regardless of their chemical composition, are equally 
toxic. This is an important assumption because fine particles from 
power plant emissions are chemically different from those emitted 
from both mobile sources and other industrial facilities. However, 
no clear scientific grounds exist for supporting differential 
effects estimates by particle type; (3) The benefits analysis 
assumes that the concentration-response function for fine particles 
is approximately linear within the range of ambient concentrations 
under consideration. Thus, the estimates include health benefits 
from reducing fine particles in areas that are in attainment with 
the fine particle standard and those that do not meet the standard; 
(4) The benefits analysis assumes that the forecasts for future 
emissions and associated air quality modeling are valid. The EPA's 
analyses are based on peer-reviewed scientific literature and up-to-
date assessment tools. However such models are themselves based on 
an evolving understanding and research continues to provide the data 
necessary for model evaluation; and (5) The valuation of estimated 
reduction in mortality risk is largely taken from studies of the 
tradeoff associated with the willingness to accept risk in labor 
markets. Alternative estimates may, however, be more relevant for 
rules addressing air pollution. Further information on these 
benefits estimates can be found at http://www.epa.gov/air/clearskies/tech_adden.pdf, http://www.whitehouse.gov/omb/inforeg/costbenefitreport1998.pdf, http://www.whitehouse.gov/omb/inforeg/2000fedreg-report.pdf.
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    Based on the information released in previous reports, the total 
costs and benefits of all Federal rules now in effect (major and non-
major, including those adopted more than 10 years ago) could easily be 
a factor of ten or more larger than the sum of the costs and benefits 
reported in Table 2. More research is necessary to provide a stronger 
analytic foundation for comprehensive estimates of total costs and 
benefits by agency and program. OMB's examination of the benefits and 
costs of Federal regulation supports the need for a common-sense 
approach to modernizing Federal regulation that involves the expansion, 
modification, and rescission of regulatory programs as appropriate.

  Table 2.--Estimates of the Annual Benefits and Costs of Major Federal
              Rules, October 1, 1992 to September 30, 2002
                       [Millions of 2001 dollars]
------------------------------------------------------------------------
              Agency                    Benefits             Costs
------------------------------------------------------------------------
Agriculture......................  3,108 to 6,203....  1,649 to 1,679.
Education........................  658 to 816........  363 to 612.
Energy...........................  4,704 to 4,722....  2,473.
Health & Human Services..........  8,733 to 11,724...  3,168 to 3,337.
Housing & Urban Development......  527 to 601........  796.
Labor............................  1,808 to 4,200....  1,057.
Transportation...................  6,150 to 9,465....  4,313 to 6,812.
Environmental Protection Agency..  108,858 to 179,757  23,867 to 27,028.
                                  ---------------------
      Total......................  134,547 to 217,539  37,686 to 43,794.
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Table 3.--Estimates of Annual Benefits and Costs of Major Federal Rules:
    Select Programs and Agencies, October 1, 1992-September 30, 2002
                       [Millions of 2001 dollars]
------------------------------------------------------------------------
              Agency                    Benefits             Costs
------------------------------------------------------------------------
Energy: Energy Efficiency and      4,704 to 4,772....  2,473.
 Renewable Energy.
Health & Human Services: Food and  2,021 to 4,558....  482 to 651.
 Drug Administration.
Labor: Occupational Safety and     1,808 to 4,200....  1,057.
 Health Administration.
Transportation:
    National Highway Traffic       4,330 to 7,645....  2,795 to 5,295.
     Safety Administration.
    Coast Guard..................  68................  1,282.
Environmental Protection Agency:
    Office of Air................  106,010 to 163,893  18,362 to 20,978.
    Office of Water..............  891 to 8,103......  2,424 to 2,937.
------------------------------------------------------------------------

    In order for comparisons or aggregation to be meaningful, benefit 
and cost estimates should correctly account for all substantial effects 
of regulatory actions, including potentially offsetting effects, which 
may or may not be reflected in the available data. We have not made any 
changes to agency monetized estimates other than connecting them to 
annual equivalents. Any comparison or aggregation across rules should 
also consider a number of factors which our presentation does not 
address. To the extent that agencies have adopted different 
methodologies--for example, different monetized values for effects, 
different baselines in terms of the regulations and controls already in 
place, different treatments of uncertainty--these differences remain 
embedded in the table 2. While we have relied in many instances on 
agency practices in monetizing costs and benefits, our citation of or 
reliance on agency data in this report should not be taken as an 
endorsement of all the

[[Page 5495]]

varied methodologies used to derive benefits and cost estimates.

B. Estimates of Benefits and Costs of This Year's ``Major'' Rules

    In this section, we examine in detail the benefits and costs of 
each ``major'' rule, as required by section 624(a)(1)(C). We have 
included in our review those final regulations on which OMB concluded 
review during the 12-month period October 1, 2001 through September 30, 
2002.
    The statutory language that categorizes the rules we consider for 
this report differs from the definition of ``economically significant'' 
in Executive Order 12866 (section 3(f)(1)). It also differs from 
similar statutory definitions in the Unfunded Mandates Reform Act and 
subtitle E of the Small Business Regulatory Enforcement Fairness Act of 
1996--Congressional Review of Agency Rulemaking. Given these varying 
definitions, we interpreted section 624(a)(1)(C) broadly to include all 
final rules promulgated by an Executive branch agency that meet any one 
of the following three measures:
    [sbull] Rules designated as ``economically significant'' under 
section 3(f)(1) of Executive Order 12866;
    [sbull] Rules designated as ``major'' under 5 U.S.C. 804(2) 
(Congressional Review Act); and
    [sbull] Rules designated as meeting the threshold under Title II of 
the Unfunded Mandates Reform Act (2 U.S.C. 1531-1538)
    Of the 31 rules received by OMB, USDA submitted four; the Veterans 
Administration, DOE, EPA, OMB, the Social Security Administration, and 
SBA each submitted one; HHS eight; The Departments of Interior, 
Justice, Defense, and FEMA each submitted two; and DOT five.
Social Regulation
    Of the 31 economically significant rules reviewed by OMB, six are 
regulations requiring substantial additional private expenditures and/
or providing new social benefits. Table 4 summarizes the costs and 
benefits of these rules and provides other information taken from rule 
preambles and agency RIAs. Of the six regulations received by OMB, EPA 
and DOE each submitted one, and DOI and DOT each submitted two. Agency 
estimates and discussion are presented in a variety of ways, ranging 
from a mostly qualitative discussion--for example, the NHTSA light 
truck corporate average fuel economy (CAFE) standard--to a more 
complete benefit-cost analysis, such as DOE's central air conditioner 
rule.
1. Benefits Analysis
    Agencies monetized at least some benefit estimates for five of the 
six rules. In the case of EPA's recreational engines rule, the agency 
provides some monetized benefit estimates, but discusses other benefits 
qualitatively. In one case--NHTSA's tire pressure monitoring systems 
(TPMS) rule--the agency did not monetize all of the quantified 
benefits. In another case--NHTSA's CAFE rule--the agency did not report 
any quantified or monetized benefit estimates.
2. Cost Analysis
    For three of the six rules, agencies provided monetized cost 
estimates. These include DOE's air conditioner rule, NHTSA's TPMS rule 
and EPA's recreational vehicle rule. For the remaining three rules, 
both DOI migratory bird hunting rules and NHTSA's CAFE rule, the 
agencies did not estimate costs.
3. Net Monetized Benefits
    Three of the six rules provided at least some monetized estimates 
of both benefits and costs. Of these, the estimated monetized benefits 
of both the DOE air conditioner rule and the EPA recreational engine 
rule exceed the estimated monetized costs. The magnitude of the net 
benefits varies from $75 million per year for the air conditioner rule 
to as much as $4.6 billion for the recreational engine rule. One rule, 
NHTSA's TPMS rule, has negative net monetized benefits ranging from 
approximately $706 to $862 million per year.
4. Rules Without Quantified Effects
    One rule, NHTSA's CAFE rule, is classified as economically 
significant even though the agency did not provide any quantified 
estimates of their effects.

                    Table 4.--Summary of Agency Estimates for Final Rules 10/01/2001-9/30/02
                                    [As of Date of Completion of OMB Review]
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     Agency              Rule                Benefits                Costs               Other Information
----------------------------------------------------------------------------------------------------------------
DOE              Energy Conservation   $9.1 billion          $7.3 billion          Monetized benefit and cost
                  Standards for         (present value) in    (present value) for   values are obtained from the
                  Central Air           energy savings        purchases between     ``National Energy Savings/
                  Conditions and Heat   between 2006 and      2006 and 2030.        Net Present Value/
                  Pumps.                2030.                                       Shipments'' spreadsheet,
                                                                                    available on DOE's web site:
                                                                                    http://www.eren.doe.gov/buildings/codes_standards/applbrf/central_air_conditioner_3.html DOE
                                                                                    projects a cumulative
                                                                                    reduction in nitrogen oxide
                                                                                    emissions of 119.3 thousand
                                                                                    metric tons (undiscounted)
                                                                                    over the period 2006-2030
                                                                                    and a cumulative reduction
                                                                                    in carbon dioxide equivalent
                                                                                    emissions of 53.8 million
                                                                                    metric tons (undiscounted)
                                                                                    over the period 2006-2030
                                                                                    [DOE Technical Support
                                                                                    Document Appendix M, Table
                                                                                    M.9].
DOI              Early Season          $50 million to $192   Not estimated.......  The analysis was based on the
                  Migratory Bird        million/yr.                                 1996 National Hunting and
                  Hunting Regulations                                               Fishing Survey and the U.S.
                  2002-2003.                                                        Department of Commerce's
                                                                                    County Business Patterns,
                                                                                    from which it was estimated
                                                                                    that migratory bird hunters
                                                                                    would spend between $429
                                                                                    million and $1,084 million
                                                                                    at small businesses [67 FR
                                                                                    54704]. The listed benefits
                                                                                    represent estimated
                                                                                    consumer.
DOI              Late-Season           $50 million to $192   Not estimated.......  The analysis was based on the
                  Migratory Bird        million/yr.                                 1996 National Hunting and
                  Hunting Regulations                                               Fishing Survey and the U.S.
                  2002-2003.                                                        Department of Commerce's
                                                                                    County Business Patterns,
                                                                                    from which it was estimated
                                                                                    that migratory bird hunters
                                                                                    would spend between $429
                                                                                    million and $1,084 million
                                                                                    at small businesses [67 FR
                                                                                    54704]. The listed benefits
                                                                                    represent estimated
                                                                                    consumer.

[[Page 5496]]

 
DOT              Light Truck Average   Not estimated.......  Not estimated.......  ``* * * [T]he agency has been
                  Fuel Economy                                                      operating under a
                  Standard, Model                                                   restriction on the use of
                  Year 2004.                                                        appropriations for the last
                                                                                    six fiscal years. The
                                                                                    restriction has prevented
                                                                                    the agency from gathering
                                                                                    and analyzing data relating
                                                                                    to fuel economy capabilities
                                                                                    and the costs and benefits
                                                                                    of improving the level of
                                                                                    fuel economy. Particularly
                                                                                    since that restriction was
                                                                                    lifted only on December 18,
                                                                                    2001, the agency has been
                                                                                    unable to prepare a separate
                                                                                    economic analysis for this
                                                                                    rulemaking. The agency
                                                                                    notes, however, that the
                                                                                    standard it is setting for
                                                                                    the 2004 model year will not
                                                                                    make it necessary for the
                                                                                    manufacturers with a
                                                                                    substantial share of the
                                                                                    market to change their
                                                                                    product plans.'' [67 FR
                                                                                    16059]
DOT              Tire Pressure         79-124 fatalities     $749-$1,206 million/  Unquantified Benefits: ``The
                  Monitoring Systems    and 5,176- 8,722      yr.                   agency cannot quantify the
                  (TPMS).               injuries prevented                          benefits from a reduction in
                                        per year; $43-$344                          crashes associated with
                                        million per year in                         hydroplaning and overloading
                                        fuel savings and                            vehicles. The primary reason
                                        reduced tire wear.                          that the agency has been
                                                                                    unable to quantify these
                                                                                    benefits is the lack of
                                                                                    crash data indicating tire
                                                                                    pressure and how often these
                                                                                    conditions are the cause or
                                                                                    contributing factors in a
                                                                                    crash. The agency does not
                                                                                    collect tire pressure in its
                                                                                    crash investigations. NHTSA
                                                                                    also has not been able to
                                                                                    quantify the benefits
                                                                                    associated with reductions
                                                                                    in property damage and
                                                                                    travel delays that will
                                                                                    result from fewer crashes or
                                                                                    reductions in the severity
                                                                                    of crashes.'' [67 FR 38739]
                                                                                    Unquantified Costs: ``The
                                                                                    agency anticipates that
                                                                                    there may be other
                                                                                    maintenance costs for both
                                                                                    direct and indirect TPMS.
                                                                                    For example, with indirect
                                                                                    TPMSs, there may be problems
                                                                                    with wheel speed sensors and
                                                                                    component failures. With
                                                                                    direct TPMSs, the pressure
                                                                                    sensors may be broken off
                                                                                    when tires are changed. The
                                                                                    agency requested comments on
                                                                                    this issue in the NPRM, but
                                                                                    received none. Without
                                                                                    estimates of these
                                                                                    maintenance problems and
                                                                                    costs, the agency is unable
                                                                                    to quantify their impact.
                                                                                    The agency also notes that
                                                                                    in order to benefit from the
                                                                                    TPMS, drivers must respond
                                                                                    to a warning by re-inflating
                                                                                    their tires. To accomplish
                                                                                    this, most drivers will
                                                                                    either make a separate trip
                                                                                    to a service station or take
                                                                                    additional time to inflate
                                                                                    their tires when they are at
                                                                                    a service station for fuel.
                                                                                    The process of checking and
                                                                                    re-inflating tires is
                                                                                    relatively simple, and
                                                                                    probably would take from
                                                                                    three to five minutes. The
                                                                                    time it would take to make a
                                                                                    separate trip to a service
                                                                                    station would vary depending
                                                                                    on the driver's proximity to
                                                                                    a station at the time he or
                                                                                    she was notified.'' 67 FR
                                                                                    38741]
EPA              Control of Emissions  $410 million/yr. in   $192 million/yr.....  EPA also lists a variety of
                  From Nonroad Large    reduced engine                              other benefit categories
                  Spark-Ignition        operation costs;                            which it was not able to
                  Engines, and          $900 million to                             quantify or monetize,
                  Recreational          $7.88 billion in                            ranging from infant
                  Engines.              air quality                                 mortality to damage to urban
                                        benefits in                                 ornamental plants. [67 FR
                                        calendar year 2030.                         68328].
----------------------------------------------------------------------------------------------------------------

Transfer Regulations
    Of the 31 economically significant rules reviewed by OMB, Table 5 
lists the 25 that implement Federal budgetary programs. The budget 
outlays associated with these rules are ``transfers'' to program 
beneficiaries. Of the transfer rules, HHS promulgated eight rules, most 
of which implement Medicare and Medicaid policy. Four are USDA rules. 
Of the four, three are crop assistance and disaster aids for farmers 
and one is a food stamp program rule. The Department of Transportation 
issued three transfer rules. The Departments of Defense, Justice, and 
the Federal Emergency Management Administration issued two each. The 
Social Security Administration, Veterans Administration, Small Business 
Administration and Office of Management and Budget each promulgated one 
rule.

[[Page 5497]]



                              Table 5.--Agency Transfer Rules: 10/01/01 to 9/30/02
                                    [As of date of completion of OMB review]
----------------------------------------------------------------------------------------------------------------
 
-----------------------------------------------------------------------------------------------------------------
                                      Office of Management and Budget (OMB)
 
Regulation for Air Carrier Guaranteed Loan Program.
 
                                           Dept. of Agriculture (USDA)
 
2000 Crop Agricultural Disaster and Market Assistance.
2002 Farm Bill Regulations: Sugar Program.
Peanut Quota Buyout Program.
Work Provisions of the PRWORA of 1996 and the Food Stamp Provisions of the Balance Budget Act of 1997.
 
                                                Dept. of Defense
 
CHAMPUS/TRICARE: Partial Implementation of Pharmacy Benefits Programs; NDAA for FY 2001.
TRICARE: Sub-Acute Care Program; Uniform Skilled Nursing Benefit; Home Healthcare Benefit; Medicare Payment
 Methods for Skilled Nursing Facilities.
 
                                    Dept. of Health and Human Services (HHS)
 
Contraception and Infertility Research Loan Repayment Program.
Medicare Program: Revisions to Payment Policies and 5-Year Review and Adjustments to the Relative Value Units
 Under the Physician Fee Schedule for CY 2002.
Medicare Program: Prospective Payment System for Hospital Outpatient Services for CY 2002 and Pro Rata Reduction
 on Transitional Pass-Through Payments.
Medicaid Program: Modification of the Medicaid Upper Payment Limit for Non-State, Government-Owned or Operated
 Hospitals.
Medicare Program: Modifications to Managed Care Rules Based on Payment Provisions in BIPA and Technical
 Corrections.
Medicare Program: Notice of Modification of Beneficiary Assessment Requirements for Skilled Nursing Facilities.
Changes to Hospital Inpatient Prospective Payment Systems and FY 2003 Rate.
Medicaid Managed Care; New Provisions.
 
                                         Social Security Administration
 
Revised Medical Criteria for Determination of Disability Musculoskeletal System and Related Criteria.
 
                                              Department of Justice
 
Claims Under the Radiation Exposure Compensation Act Amendments of 2000.
September 11 Victim Compensation Fund of 2001.
 
                                             Dept. of Transportation
 
Procedures for Compensation of Air Carriers.
Imposition and Collection of Passenger Civil Aviation Security Fees in the Wake of September 11.
Aviation Security Infrastructure Fees.
 
                                             Veterans Administration
 
Diseases Specific to Radiation-Exposed Veterans.
 
                                   Federal Emergency Management Administration
 
Assistance to Firefighters Grant Program.
Disaster Assistance; Federal Assistance to Individuals and Households.
 
                                          Small Business Administration
 
Disaster Loan Program.
----------------------------------------------------------------------------------------------------------------

Major Rules for Independent Agencies
    The congressional review provisions of the Small Business 
Regulatory Enforcement Fairness Act (SBREFA) require the General 
Accounting Office (GAO) to submit reports on major rules to the 
committees of jurisdiction, including rules issued by agencies not 
subject to Executive Order 12866 (the ``independent'' agencies). We 
reviewed the information on the costs and benefits of major rules 
contained in GAO reports for the period of October 1, 2001 to September 
30, 2002. GAO reported that three independent agencies issued eight 
major rules during this period. Two agencies did not conduct benefit-
cost analyses. One agency considered benefits and costs of the rules. 
OIRA lists the agencies and the type of information provided by them 
(as summarized by GAO) in Table 6. The Securities and Exchange 
Commission consistently considered benefits and costs in their 
rulemaking processes while the Federal Communications Commission and 
the Nuclear Regulatory Commission did not prepare benefit-cost 
analyses.
    In comparison to the agencies subject to E.O. 12866, the 
independent agencies provided relatively little quantitative 
information on the costs and benefits of the major rules. As Table 6 
indicates, three of the eight rules included some discussion of 
benefits and costs. Three of the eight regulations had monetized cost 
information; one regulation monetized benefits. It is difficult to 
discern, however, whether the rigor and the extent of the analyses 
conducted by the independent agencies are similar to those of the 
analyses performed by agencies subject to the Executive Order.

                    Table 6.--Rules for Independent Agencies (October, 2001-September, 2002)
----------------------------------------------------------------------------------------------------------------
                                                       Information on
        Agency                     Rule              benefits or costs    Monetized benefits    Monetized Costs
----------------------------------------------------------------------------------------------------------------
FCC...................  Broadcast Services;         No.................  No.................  No.
                         Digital Television.

[[Page 5498]]

 
FCC...................  Ultra-Wideband              No.................  No.................  No.
                         Transmission Systems.
FCC...................  Assessment and Collection   No.................  No.................  No.
                         of Regulatory Fees for
                         Fiscal Year 2002.
FCC...................  Order to Permit Operation   No.................  No.................  No.
                         of NGSO FSS Systems Co-
                         Frequency with GSO and
                         Terrestrial Systems in
                         the Ku-Band Frequency
                         Range; Authorize
                         Subsidiary Terrestrial
                         Use of the 12.2-12.7 GHz
                         Band by Direct Broadcast
                         Satellite Licensees and
                         Their Affiliates; and in
                         Re-Applications of
                         Broadwave USA, PDC
                         Broadband Corporation,
                         and Satellite Receivers,
                         Ltd. in the 12.2-12.7 GHz
                         Band.
NRC...................  Revision of Fee Schedules;  No.................  No.................  No.
                         Fee Recovery for FY 2002.
SEC...................  Books and Records           Yes................  Yes................  Yes.
                         Requirements for Brokers
                         and Dealers Under the
                         Securities Exchange Act
                         of 1934.
SEC...................  Certification of            Yes................  No.................  Yes.
                         Disclosure in Companies'
                         Quarterly and Annual
                         Reports.
SEC...................  Acceleration of Periodic    Yes................  No.................  Yes.
                         Report Filing Dates and
                         Disclosure Concerning Web
                         Site Access to Reports.
----------------------------------------------------------------------------------------------------------------

Chapter II. Developing Better Regulation

    In addition to estimates of the cost and benefits of Federal rules 
and paperwork, the Regulatory Right-to-Know Act requires OMB to publish 
``recommendations for reform.'' In response to this requirement, OMB 
seeks public comment in the following three areas.

A. Guidelines for Regulatory Analysis

    The evaluation of both the benefits and costs of alternative 
options through regulatory analysis helps agency policymakers arrive at 
sound regulatory decisions and also helps the public, Congress, and the 
courts understand those decisions. Although the preparation of such an 
analysis may require significant investments of agency staff and 
resources, carefully completed analyses will result in well-designed 
regulations and larger net benefits to society as a whole. To help 
support the development of better analysis, OMB has provided guidance 
to the agencies since the 1980s on how to conduct regulatory analysis. 
The current OMB guidelines were issued in 1996 as a ``best practices'' 
document and were revised and issued as guidance in 2000.
    In order to make continued improvements in the quality of the 
regulatory analyses prepared by agencies, OIRA initiated in 2002 a 
process to refine these guidance documents. The OIRA Administrator and 
a member of the Council of Economic Advisers (CEA) are serving as co-
chairs of this effort. OMB and CEA staff have drafted proposed revised 
guidelines which are presented in Appendix C. Through these proposed 
guidelines, we seek to establish more uniform analytic guidance for the 
agencies to follow in preparing their regulatory analysis. We will also 
incorporate new insights and recent innovations in what constitutes a 
good analysis. Finally, we expect the guidelines to increase the 
transparency of the analysis of prospective regulations to both 
technical and nontechnical readers.
    While these proposed guidelines include some additional 
requirements on the agencies in performing RIAs, we believe that 
adherence to the proposed revisions will yield improvements in the 
information provided by these analyses. Improved analyses will 
strengthen the regulatory development process, resulting in better 
designed regulations and potentially large net benefits to society as a 
whole.
    The key changes in the proposed guidelines include the following:
    [sbull] The proposal encourages agencies to perform both cost-
effectiveness analysis and benefit-cost analysis of major rules because 
the two techniques offer regulators somewhat different but useful 
perspectives. In addition, however, we recognize that cost-
effectiveness analysis will be feasible in certain situations where a 
benefit-cost analysis may not be feasible.
    [sbull] The proposal recommends that agencies report analytic 
results based on two discount rates--3 percent and 7 percent--for major 
rules whose effects will be felt primarily within this generation 
(i.e., the next 20 or 30 years). If benefits and costs are expected to 
last beyond the current generation, the proposal permits additional 
sensitivity analysis with discount rates as low as 1 percent.
    [sbull] The proposal requires agencies to support rulemakings with 
formal probabilistic analysis of the key scientific and economic 
uncertainties regarding costs and benefits for rules with economic 
effects that exceed more than $1 billion per year. In particular, the 
analysis must present a probability distribution for the estimated 
benefits and costs, unless the benefits and costs are known with a high 
degree of certainty.
    The draft guidelines are being released today for a 60-day public 
comment period as well as independent peer review by leading academic 
experts in the field of regulatory analysis. We also plan to conduct an 
interagency review of the draft guidelines following public and peer 
review comments.
    We will continue to use our current guidance until we complete this 
review process and publish revised guidelines.

B. Request for Comment on U.S. Approaches to Analysis and Management of 
Emerging Risks

    Regulators often must decide on an appropriate course of action to 
protect public health, safety or the environment before science has 
resolved all the key factual questions about a potential hazard. The 
appropriate level of precaution in risk assessment and management is 
complicated by the need to balance efforts to mitigate these potential 
risks with countervailing risks that may arise from other sources. For 
example, policies to facilitate the growth of the diesel-engine market 
may be desirable from a global environmental and energy security 
perspective since diesel offers significant fuel efficiency advantages 
over gasoline-powered vehicles, and would likely lead to less reliance 
on importation of foreign oil and reduce the emission of greenhouse 
gases. However, diesel fuels pose greater risk to public health and 
environment from smog and soot caused by relatively higher emission of 
particles and nitrogen dioxide than conventional gasoline.
    U.S. regulators rely on various science-based precautionary 
approaches in assessing potential hazards and taking protective 
actions. These

[[Page 5499]]

approaches have evolved over time and reflect statutory requirements, 
agency specific policy decisions, and advancements in scientific 
understanding. For purposes of collecting and analyzing current risk 
assessment and management practices in federal agencies, with an 
emphasis on the role of precaution in risk policy and regulation, the 
Administration has formed an Interagency Work Group on Risk Management 
co-chaired by James L. Connaughton, Chairman of the White House Council 
on Environmental Quality and John D. Graham, Administrator, Office of 
Information and Regulatory Affairs, Office of Management and Budget. 
The Work Group includes representatives from the Department of 
Agriculture, the Department of Commerce, the Department of Health and 
Human Services, the Department of Interior, the Environmental 
Protection Agency, and the Office of Science and Technology Policy.
    To assist in the Work Groups efforts, OMB requests comments for the 
next 60 days on current U.S. approaches to analysis and management of 
emerging risks. Specifically, we seek public input on:
    [sbull] Ways in which ``precaution'' is embedded in current risk 
assessment procedures through ``conservative'' assumptions in 
estimation of risk, or through explicit ``protective'' measures in 
management decisions as required by statutory requirements as well as 
agency judgments.
    [sbull] Examples of approaches in human and ecological risk 
assessment and management methods addressed by U.S. regulatory agencies 
(e.g., consumer product safety, drug approval, pesticide registration, 
protection of endangered species) which appear unbalanced.
    [sbull] How the U.S. balances precautionary approaches to health, 
safety and environmental risks with other interests such as economic 
growth and technological innovation.

C. Request for Comment on Improving the Analysis of Regulations Related 
to Homeland Security

    In last year's final Report to Congress, OMB noted that 58 
significant new federal regulations had been enacted in the aftermath 
of September 11th to protect national security and provide post-attack 
assistance. As an integral part of the expedited issuance of these 
rules, OIRA conducted its full regulatory review and coordination 
function under Executive Order 12866. These efforts made sure that all 
the rules related to September 11th received priority attention from 
the appropriate reviewers, and that the Administration's best solutions 
to respond to potential terrorist attacks were implemented.
    Looking to the future, OMB expects additional homeland-security 
proposals from federal agencies covering concerns ranging from airline 
safety and immigration to food safety. For example, USDA and HHS will 
propose new regulations required to implement the Bioterrorism 
Preparedness and Control Act of 2002. Similarly, the Department of 
Homeland Security will face major challenges in developing sensible 
regulations covering many facets of American society. In light of the 
significant interest in these regulations, OMB is seeking public 
comment for the next 60 days on how to more effectively evaluate the 
benefits and costs of these proposals. OMB seeks comment on how 
agencies might assess the probability of future terrorist attacks and 
the likely damages, and the resulting effectiveness of new federal 
regulations in preventing future attacks, reducing America's 
vulnerability, or mitigating the damage of attacks which do occur. OMB 
seeks comment on how agencies might better identify, quantify and weigh 
the direct and indirect costs of such rules, including impacts on time, 
convenience, privacy and economic productivity. OMB also seeks comment 
on how evaluation of such regulation could include auxiliary benefits 
not directly related to the homeland security purpose of the 
regulation. OMB's request for comment is concerned with these issues as 
they apply to future rulemakings and is not intended to address a 
specific rulemaking.

Appendix A.--Calculations of Benefits and Costs: Explanation

    Chapter I presents estimates of the annual costs and benefits of 
selected final major regulations reviewed by OMB between October 1, 
1992 and September 30, 2002. The explanation of the calculations for 
the major rules reviewed by OMB between April 1, 1995 and March 31, 
1999 can be found in Chapter IV of our 2000 report (OMB 2000). Table 
19, Appendix E, of the 2002 Report presents OIRA's estimates of the 
benefits and costs of the 20 individual rules reviewed between April 
1, 1999 and September 30, 2001. All benefit and cost estimates were 
adjusted to 2001 dollars.
    In assembling estimates of benefits and costs, OIRA has:
    (1) Applied a uniform format for the presentation of benefit and 
cost estimates in order to make agency estimates more closely 
comparable with each other (for example, annualizing benefit and 
cost estimates); and
    (2) Monetized quantitative estimates where the agency has not 
done so (for example, converting Agency projections of quantified 
benefits, such as, estimated injuries avoided per year or tons of 
pollutant reductions per year to dollars using the valuation 
estimates discussed below).
    The adoption of a uniform format for annualizing agency 
estimates allows, at least for purposes of illustration, the 
aggregation of benefit and cost estimates across rules. While OIRA 
has attempted to be faithful to the respective agency approaches, 
the reader should be cautioned that agencies have used different 
methodologies and valuations in quantifying and monetizing effects. 
Thus, this aggregation involves the assemblage of benefit and cost 
estimates that are not comparable.

          Table 7.--Estimate of Benefits and Costs of 47 Major Rules October 1, 1992 to March 31, 1995
                                           [Millions of 2001 dollars]
----------------------------------------------------------------------------------------------------------------
          Regulation                 Agency           Benefits            Costs               Explanation
----------------------------------------------------------------------------------------------------------------
Nutrition Labeling of Meat and  USDA--FSIS......               205             25-32  Present value estimates
 Poultry Products.                                                                     amortized over 20 years.
Food Labeling (combined         HHS--FDA........         438-2,637           159-249  Present value estimates
 analysis of 23 individual                                                             amortized over 20 years.
 rules).
Real Estate Settlement          HUD.............           258-332               135  ..........................
 Procedures.
Manufactured Housing Wind       HUD.............                79               511  ..........................
 Standards.
Confined Spaces...............  DOL-OSHA........               540               250  We valued each fatality at
                                                                                       $5 million and each lost-
                                                                                       workday injury at
                                                                                       $50,000. We did not value
                                                                                       non-lost-workday
                                                                                       injuries.

[[Page 5500]]

 
Occupational Exposure to        DOL-OSHA........                92               448  We assumed a 20-year
 Asbestos.                                                                             latency period between
                                                                                       exposure and the onset of
                                                                                       cancer or asbestosis and
                                                                                       valued each death and
                                                                                       each case of asbestosis
                                                                                       at $5 million.
Vessel Response Plans.........  DOT-Coast Guard.                 8               324  Present values amortized
                                                                                       over 30 years. We valued
                                                                                       each barrel of oil not
                                                                                       spilled at $2,000.
Double-Hull Standards.........  DOT-Coast Guard.                15               641  Present values amortized
                                                                                       over 30 years. We valued
                                                                                       each barrel of oil not
                                                                                       spilled at $2,000.
Controlled Substances and       DOT-FHWA........             1,539               114  ..........................
 Alcohol Use and Testing.
Prevention of Prohibited Drug   DOT.............               107                37  Present values amortized
 Use in Transit Operations.                                                            over 10 years.
Stability Control of Medium     DOT-NHTSA.......       1,650-2,539               694  We valued each
 and Heavy Vehicles During                                                             ``equivalent fatality''
 Braking.                                                                              at $3 million.
Oil and Gas Extraction........  EPA.............            35-129                35  First-year costs amortized
                                                                                       costs over 15 years and
                                                                                       added to annual (15th
                                                                                       year) costs.
Acid Rain Permits Regulations.  EPA.............     76,854-77,206       1,109-1,871  We valued SO2 reductions
                                                                                       at $7,300 per ton.
Vehicle Inspection and          EPA.............           219-992               671  We used the estimates of
 Maintenance (I/M).                                                                    and cost and emission
                                                                                       reductions of the new I/M
                                                                                       program compared to the
                                                                                       baseline of no I/M
                                                                                       program. We valued VOC
                                                                                       reductions at $520-$2360
                                                                                       per ton. We did not
                                                                                       assign a value to CO
                                                                                       reductions.
Evaporative Emissions from      EPA.............         243-1,104           161-248  We assumed the VOC
 Light-Duty Vehicles, Light-                                                           emission reductions began
 Duty Trucks, and Heavy-Duty                                                           in 1995 and rise linearly
 Vehicles..                                                                            until 2020, after which
                                                                                       point they remain at the
                                                                                       2020 level. Annualizing
                                                                                       this stream results in an
                                                                                       average of 468,000 tons
                                                                                       per year. We valued these
                                                                                       tons at $520-$2360 per
                                                                                       ton.
Onboard Diagnostic Systems....  EPA.............         421-2,383               226  Emission reductions and
                                                                                       costs amortized over 15
                                                                                       years. We valued VOC
                                                                                       reductions at $520-$2360
                                                                                       per ton and NOX
                                                                                       reductions at $700-$4900
                                                                                       per ton.
Phase II Land Disposal          EPA.............                26           240-272  We valued each cancer case
 Restrictions.                                                                         at $5 million.
Phase-out of Ozone-Depleting    EPA.............       1,260-3,993             1,681  Present values amortized
 Chemicals and Listing of                                                              over 16 years.
 Methyl Bromide.
Reformulated Gasoline.........  EPA.............           184-637       1,085-1,395  Estimates are for Phase
                                                                                       II, which include Phase I
                                                                                       benefits and costs. We
                                                                                       used the benefit
                                                                                       estimates that assume the
                                                                                       enhanced I/M program is
                                                                                       in place. We valued VOC
                                                                                       reductions at $520-$2360
                                                                                       per ton and NOX
                                                                                       reductions at $700-$4900
                                                                                       per ton. We valued each
                                                                                       cancer case at $5
                                                                                       million. We assumed the
                                                                                       phase II aggregate costs
                                                                                       are an additional 25
                                                                                       percent of the Phase I
                                                                                       costs based on EPA's
                                                                                       reported per-gallon cost
                                                                                       estimates.
Acid Rain NOX Title IV CAAA...  EPA.............         661-4,725               372  Values are for Phase II.
                                                                                       We valued NOX reductions
                                                                                       at $350-$2500 per ton.
Hazardous Organic NESHAP......  EPA.............         520-2,360           292-333  We valued VOC emissions at
                                                                                       $520-$2360 per ton and
                                                                                       NOX emissions (which are
                                                                                       a cost in this instance)
                                                                                       at $350-$2500 per ton. We
                                                                                       did not value changes in
                                                                                       CO emissions.
Refueling Emissions from Light- EPA.............           148-673                33  We assumed Stage II
 Duty Vehicles.                                                                        controls will remain in
                                                                                       place and valued VOC
                                                                                       emissions at $520-$2360
                                                                                       per ton.

[[Page 5501]]

 
Non-Road Compression Ignition   EPA.............         412-2,881             29-70  We annualized the NOX
 Engines.                                                                              emissions which yielded
                                                                                       an average annual
                                                                                       emission reduction of
                                                                                       588,000 tons beginning in
                                                                                       2000. We valued NOX
                                                                                       emissions at $700-$4900
                                                                                       per ton.
Bay/Delta Water Quality         EPA.............              2-26            37-248  ..........................
 Standards.
Deposit Control Gasoline......  EPA.............         374-1,480               197  We valued estimates of
                                                                                       combined emission
                                                                                       reductions at $520-$2360
                                                                                       per ton. Present value
                                                                                       cost estimates amortized
                                                                                       over 5 years.
                                                 ------------------------------------
      Total...................                      86,290-106,708      9,506-11,087  ..........................
----------------------------------------------------------------------------------------------------------------


        Table 8.--Estimate of Benefits and Costs of 3 Major Rules, October 1, 2001 to September 30, 2002
                                           [Millions of 2001 dollars]
----------------------------------------------------------------------------------------------------------------
            Regulation                      Agency            Benefits      Costs             Explanation
----------------------------------------------------------------------------------------------------------------
Energy Conservation Standards for   DOE...................          710          636  Present value estimates
 Central Air Conditioners and Heat                                                     amortized over 24 years.
 Pumps.                                                                                We valued NOX emission
                                                                                       reductions at $350-$2500
                                                                                       per ton.
Tire Pressure Monitoring Systems    DOT...................      409-944    749-1,206  We valued each equivalent
 (TPMS).                                                                               fatality (see p. iv of
                                                                                       the Executive Summary of
                                                                                       the Final Economic
                                                                                       Assessment) at $3
                                                                                       million.
Control of Emissions From Nonroad   EPA...................    913-4,818          192  We amortized the benefit
 Large Spark-Ignition Engines, and                                                     estimates in proportion
 Recreational Engines.                                                                 to the estimated NOX
                                                                                       emission reductions. The
                                                                                       lower end of the range
                                                                                       reflects the alternative
                                                                                       approach to valuing
                                                                                       benefits of EPA rules
                                                                                       discussed elsewhere.
                                                           --------------------------
      Total.......................  ......................  2,032-6,472  1,577-2,034
-----------------------------------
Assumptions: 7 percent discount rate unless another rate explicitly identified by the agency. For DOL: $5
 million VSL assumed for deaths averted when not already quantified. Injuries averted valued at $50,000 from
 Viscusi.\9\ All values converted to 2001 dollars. All costs and benefits stated on a yearly basis.
----------------------------------------------------------------------------------------------------------------
\9\ W. Kip Viscusi, Fatal Tradeoffs: Public & Private Responsibilities for Risk. New York, NY, Oxford University
  Press, 1992, p. 65.

Valuation Estimates for Regulatory Consequences \10\
---------------------------------------------------------------------------

    \10\ The following discussion updates the monetization approach 
used in previous reports and draws on examples from this and 
previous years.
---------------------------------------------------------------------------

    Agencies continue to take different approaches to monetizing 
benefits for rules that affect small risks of premature death. As a 
general matter, we continue to defer to the individual agencies' 
judgment in this area. In cases where the agency both quantified and 
monetized fatality risks, we have made no adjustments to the 
agency's estimate. In cases where the agency provided a quantified 
estimate of fatality risk, but did not monetize it, we have 
monetized these estimates in order to convert these effects into a 
common unit.
    The following is a brief discussion of OIRA's valuation 
estimates for other types of effects that agencies identified and 
quantified, but did not monetize. As a practical matter, the 
aggregate benefit and cost estimates are relatively insensitive to 
the values we have assigned for these rules because the aggregate 
benefit estimates are dominated by those rules where EPA provided 
quantified and monetized benefit and cost estimates.
    Injury. For NHTSA's rules, we adopted NHTSA's approach of 
converting nonfatal injuries to ``equivalent fatalities.'' These 
ratios are based on NHTSA's estimates of the value individuals place 
on reducing the risk of injury of varying severity relative to that 
of reducing risk of death.\11\ For the OSHA rules, we monetized only 
lost workday injuries using a value of $50,000 per injury averted.
---------------------------------------------------------------------------

    \11\ National Highway Traffic Safety Administration, The 
Economic Cost of Motor Vehicle Crashes, 1994, Table A-1. http://www.nhtsa.dot.gov/people/economic/ecomvc1994.html.
---------------------------------------------------------------------------

    I. Change in Gasoline Fuel Consumption. We valued reduced 
gasoline consumption at $.80 per gallon pre-tax. This equates to 
retail (at-the-pump) prices in the $1.10-$1.30 per gallon range.
    II. Reduction in Barrels of Crude Oil Spilled. OIRA valued each 
barrel prevented from being spilled at $2,000. This is double the 
sum of the most likely estimates of environmental damages plus 
cleanup costs contained in a published journal article [Brown and 
Savage, ``The Economics of Double-Hulled Tankers,'' Maritime Policy 
and Management, Volume 23(2), 1996, pages 167-175].
    III. Change in Emissions of Air Pollutants. We used estimates of 
the benefits per ton for reductions in hydrocarbon and nitrogen 
oxide emissions derived from recent EPA regulatory analyses, as 
follows (1996$):

Hydrocarbon: $520 and $2360 per ton
Nitrogen Oxide (stationary): $350 and $2500 per ton
Nitrogen Oxide (mobile): $700 and $4900 per ton
Sulfur Dioxide: $7300 per ton

    The estimates for reductions in hydrocarbon emissions were 
obtained from EPA's RIA for the 1997 rule revising the primary NAAQS 
for ozone and fine PM. OIRA has revised the estimates for reductions 
in NOX emissions to reflect a range of estimates from 
recent EPA analyses for several rules and for proposed legislation. 
In particular, OIRA has adopted different benefit transfer estimates 
for NOX reductions from stationary sources (e.g., 
electric utilities) and from mobile sources. EPA believes that there 
are a number of reasons to expect that reductions in NOX 
emissions from utility sources achieve different air quality

[[Page 5502]]

improvements relative to reductions from ground-level mobile 
sources. For example, mobile source tailpipe emissions are located 
in urban areas at ground level (with limited dispersal) while 
electric utilities emit NOX from ``tall stacks'' located 
in rural (remote) locations with substantial geographic dispersal 
(Letter to Don Arbuckle, Deputy Administrator, OIRA from Tom Gibson, 
Associate Administrator, Office of Policy, Economics and Innovation, 
EPA, May 16, 2002.) There remain considerable uncertainties with the 
development of these estimates. The discussion below outlines the 
various EPA analyses serving as the basis for the NOX 
benefit transfer values presented above and discusses the 
uncertainties that attend these estimates.
    Analysis of recent EPA rules yield several estimates for the 
NOX benefits per ton from electric utility sources. (See 
the Regulatory Impact Analyses for the ``NOX SIP Call'' 
and the Section 126 rules, available on the Web at http://www.epa.gov/ttn/ecas/econguid.html. In addition, see Memo to NSR 
Docket from Bryan Hubbell, Senior Economist, Innovative Strategies 
and Economics Group, EPA.) Based on these studies, the upper end of 
the range for the benefits of NOX reductions from 
stationary sources (electric utilities) is $2500 per ton. These 
studies also developed estimates for the benefits associated with 
reductions in SO2 from electric utilities. Based on an 
analysis outlined in a June 20, 2001 EPA memo to the file, 
``Benefits Associated with Electricity Generating Emissions 
Reductions Realized Under the NSR Program,'' we used $7300 per ton 
SO2 emissions for the 1992 EPA Acid Rain rule.
    For mobile sources, EPA recently published the final Tier 2/
Gasoline Sulfur rule RIA (EPA, 1999) and Heavy Duty Engine/Diesel 
Fuel RIA (EPA, 2000). For the Tier 2 rule, which affects light-duty 
vehicles, NOX reductions account for around 90 percent of 
PM precursor emissions and 86 percent of ozone precursor emissions. 
Based on the final Tier 2/Gasoline Sulfur RIA, EPA estimates that 
NOX reductions will yield benefits of $4,900/ton (1996$). 
EPA believes this analysis provides a more appropriate source for 
the NOX benefit transfer value for mobile sources. 
(Letter from Tom Gibson, pp. B2 and B3, May 16, 2002.) Additional 
details on the Tier 2 benefits analysis are available in the Tier 2/
Sulfur Final Rulemaking RIA, available on the Web at http://www.epa.gov/oms/fuels.htm.
    The Heavy Duty Engine/Diesel Fuel benefits analysis examined the 
impacts in 2030 of reducing SO2 emissions by 141,000 tons 
and NOX emissions by 2,750 thousand tons, as well as a 
109,000 ton reduction in direct PM emissions. Based on this 
analysis, EPA estimates a value for NOX reductions of 
$10,200/ton in 2030. (Letter from Tom Gibson, p. B3, May 16, 2002.) 
Complete details of the emissions, air quality, and benefits 
modeling conducted for the HD Engine/Diesel Fuel Rule can be found 
at http://www.epa.gov/otaq/diesel.htm and http://www.epa.gov/ttn/ecas/regdata/tsdhddv8.pdf. Because the Heavy Duty Engine/Diesel Fuel 
estimate includes an adjustment for income growth out to 2030 and 
involves reductions in several PM-related pollutants, OIRA has 
adopted a value of $4900 per ton from EPA's analysis of the Tier 2 
rule as a benefits transfer value for reductions in NOX 
emissions from mobile sources.
    Reductions in the risk of premature mortality dominate the 
benefits estimates in all of these analyses. The size of the 
mortality risk estimates from the underlying epidemiological 
studies, the serious nature of the effect itself, and the high 
monetary value ascribed to prolonging life make mortality risk 
reduction the most important health endpoint quantified in these 
analyses.\12\ Because of the importance of this endpoint and the 
considerable uncertainty among economists and policymakers as to the 
appropriate way to value reductions in mortality risks, EPA has 
developed alternative estimates for its ``Clear Skies'' legislation 
that show the potential importance of some of the underlying 
assumptions. (See ``Human Health and Environmental Benefit Achieved 
by the Clear Skies Initiative'' at http://www.epa.gov/clearskies.) 
OIRA has used this analysis to identify an alternative estimate of 
the benefits from NOX reductions. In its Clear Skies 
analysis, EPA presented alternative benefits estimates of $14 
billion and $96 billion per year in 2020, or a difference in the 
estimates of roughly a factor of seven.\13\ Using this ratio, an 
alternative estimate of the benefits of NOX reductions 
from stationary sources would be $350 per ton from stationary 
sources and $700 per ton from mobile sources.
---------------------------------------------------------------------------

    \12\ There are several key assumptions underlying the benefit 
estimates for reductions in NOX emissions, including:
    1. Inhalation of fine particles is causally associated with 
premature death at concentrations near those experienced by most 
Americans on a daily basis. While no definitive studies have yet 
established any of several potential biological mechanisms for such 
effects, the weight of the available epidemiological evidence 
supports an assumption of causality.
    2. All fine particles, regardless of their chemical composition, 
are equally potent in causing premature mortality. This is an 
important assumption, because fine particles from power plant 
emissions are chemically different from directly emitted fine 
particles from both mobile sources and other industrial facilities, 
but no clear scientific grounds exist for supporting differential 
effects estimates by particle type.
    3. The concentration-response function for fine particles is 
approximately linear within the range of outdoor concentrations 
under policy consideration. Thus, the estimates include health 
benefits from reducing fine particles in both attainment and non-
attainment regions.
    4. The forecasts for future emissions and associated air quality 
modeling are valid.
    5. The valuation of the estimated reduction in mortality risk is 
largely taken from studies of the tradeoff associated with the 
willingness to accept risk in the labor market.
    \13\ The difference between the estimates reflects several 
assumptions, including differences in the estimation and valuation 
of mortality risk and the valuation of a reduction in the incidence 
of chronic bronchitis.
---------------------------------------------------------------------------

    OIRA recognizes that there are potential problems and 
significant uncertainties that are inherent in any benefits analysis 
based on $/ton benefit transfer techniques. The extent of these 
problems and the degree of uncertainty depends on the divergence 
between the policy situation being studied and the basic scenario 
providing the benefits transfer estimate. Examples of other factors 
include sources of emissions, meteorology, transport of emissions, 
initial pollutant concentrations, population density, and population 
demographics, such as the proportion of elderly and children and 
baseline incidence rates for health effects. Because of the 
uncertainties associated with benefits transfer, OIRA decided not to 
include three mobile source rules that are projected to achieve 
substantial reductions in SO2 and PM emissions that OIRA 
included in previous years in the monetized estimates presented in 
Tables 5 and 6 of the 2002 Report.\14\
---------------------------------------------------------------------------

    \14\ These are: Municipal Waste Combustors (1995), Emission 
Standards for New Locomotives (1997) and Emission Standards for Non-
Road Diesel Engines (1998).
---------------------------------------------------------------------------

Adjustment for Differences in Time Frame Across These Analyses

    Agency estimates of benefits and costs cover widely varying time 
periods. The differences in the time frames used for the various 
rules evaluated generally reflect the specific characteristics of 
individual rules such as expected capital depreciation periods or 
time to full realization of benefits. In order to allow us to 
provide an aggregate estimate of benefits and costs, we developed 
benefit and cost time streams for each of the rules. Where agency 
analyses provide annual or annualized estimates of benefits and 
costs, we used these estimates in developing streams of benefits and 
costs over time. Where the agency estimate provided only annual 
benefits and costs for specific years, we used a linear 
interpolation to represent benefits and costs in the intervening 
years.\15\
---------------------------------------------------------------------------

    \15\ In other words, if hypothetically we had costs of $200 
million in 2000 and $400 million in 2020, we would assume costs 
would be $250 million in 2005, $300 million in 2010, and so forth. 
For example, for the Regional Haze rule, EPA provided only an 
estimate of benefits and costs in 2015. To develop benefit and cost 
streams, we used a linear extrapolation of benefits and costs 
beginning in 2009 and scaling up to the reported 2015 estimates.
---------------------------------------------------------------------------

Further Caveats

    In order for comparisons or aggregation to be meaningful, 
benefit and cost estimates should correctly account for all 
substantial effects of regulatory actions, including potentially 
offsetting effects, which may or may not be reflected in the 
available data. We have not made any changes to agency monetized 
estimates. To the extent that agencies have adopted different 
monetized values for effects--for example, different values for a 
statistical life or different discounting methods--these differences 
remain embedded in the tables. Any comparison or aggregation across 
rules should also consider a number of factors which our 
presentation does not address. For example, these analyses may adopt 
different baselines in terms of the regulations and controls already 
in place. In addition, the analyses for these rules may well treat 
uncertainty in different ways. In some cases,

[[Page 5503]]

agencies may have developed alternative estimates reflecting upper- 
and lower-bound estimates. In other cases, the agencies may offer a 
midpoint estimate of benefits and costs. In still other cases the 
agency estimates may reflect only upper-bound estimates of the 
likely benefits and costs. While we have relied in many instances on 
agency practices in monetizing costs and benefits, our citation of 
or reliance on agency data in this report should not be taken as an 
OIRA endorsement of all the varied methodologies used to derive 
benefits and cost estimates.

Appendix B. Agency Estimates of Benefits and Costs

                         Table 9.--Agency Estimates of Benefits and Costs of Major Rules
                                     [October 1, 1992 to September 30, 1993]
----------------------------------------------------------------------------------------------------------------
             Rule                    Agency            Benefits            Costs           Other information
----------------------------------------------------------------------------------------------------------------
Nutrition labeling of meat and  USDA-FSIS         $1.75 billion      $218-272 million  20-year NPV discounted at
 poultry products.                                 (NPV).             (NPV).            7%.
Food Labeling: Use of Nutrient  HHS-FDA           $4.4-$26.5         $1.4-$2.3         HHS-FDA performed one
 Content Claims for Butter.                        billion.           billion plus      analysis for the food
                                                                      $163 million in   labeling requirements
                                                                      costs to          imposed by this rule and
                                                                      Federal           the other 22 HHS-FDA
                                                                      government.       rules in this table
                                                                                        related to food
                                                                                        labeling.
Food Labeling: Declaration of   HHS-FDA           $4.4-$26.5         $1.4-$2.3         HHS-FDA performed one
 Ingredients.                                      billion.           billion plus      analysis for the food
                                                                      $163 million in   labeling requirements
                                                                      costs to          imposed by this rule and
                                                                      Federal           the other 22 HHS-FDA
                                                                      government.       rules in this table
                                                                                        related to food
                                                                                        labeling.
Food Labeling, Declaration of   HHS-FDA           $4.4-$26.5         $1.4-$2.3         HHS-FDA performed one
 Ingredients: Common or Usual                      billion.           billion plus      analysis for the food
 Name Declaration for Protein                                         $163 million in   labeling requirements
 Hydrolysates and Vegetable                                           costs to          imposed by this rule and
 Broth in Canned Tuna ``and/                                          Federal           the other 22 HHS-FDA
 or'' Labeling for Soft Drinks.                                       government.       rules in this table
                                                                                        related to food
                                                                                        labeling.
Food Labeling: Declaration of   HHS-FDA           $4.4-$26.5         $1.4-$2.3         HHS-FDA performed one
 Ingredients for Dairy                             billion.           billion plus      analysis for the food
 Products and Maple Syrup.                                            $163 million in   labeling requirements
                                                                      costs to          imposed by this rule and
                                                                      Federal           the other 22 HHS-FDA
                                                                      government.       rules in this table
                                                                                        related to food
                                                                                        labeling.
Food Labeling: Nutrient         HHS-FDA           $4.4-$26.5         $1.4-$2.3         HHS-FDA performed one
 Content Claims, Definition of                     billion.           billion plus      analysis for the food
 Term Healthy.                                                        $163 million in   labeling requirements
                                                                      costs to          imposed by this rule and
                                                                      Federal           the other 22 HHS-FDA
                                                                      government.       rules in this table
                                                                                        related to food
                                                                                        labeling.
Food Labeling: Label            HHS-FDA           $4.4-$26.5         $1.4-$2.3         HHS-FDA performed one
 Statements on Foods for                           billion.           billion plus      analysis for the food
 Special Dietary Use.                                                 $163 million in   labeling requirements
                                                                      costs to          imposed by this rule and
                                                                      Federal           the other 22 HHS-FDA
                                                                      government.       rules in this table
                                                                                        related to food
                                                                                        labeling.
Food Labeling: Health Claims,   HHS-FDA           $4.4-$26.5         $1.4-$2.3         HHS-FDA performed one
 Zinc and Immune Function in                       billion.           billion plus      analysis for the food
 the Elderly.                                                         $163 million in   labeling requirements
                                                                      costs to          imposed by this rule and
                                                                      Federal           the other 22 HHS-FDA
                                                                      government.       rules in this table
                                                                                        related to food
                                                                                        labeling.
Food Labeling, Reference Daily  HHS-FDA           $4.4-$26.5         $1.4-$2.3         HHS-FDA performed one
 Intakes and Daily Reference                       billion.           billion plus      analysis for the food
 Values (Decision).                                                   $163 million in   labeling requirements
                                                                      costs to          imposed by this rule and
                                                                      Federal           the other 22 HHS-FDA
                                                                      government.       rules in this table
                                                                                        related to food
                                                                                        labeling.
Food Labeling: Health Claims    HHS-FDA           $4.4-$26.5         $1.4-$2.3         HHS-FDA performed one
 and Label Statements, Sodium                      billion.           billion plus      analysis for the food
 and Hypertension.                                                    $163 million in   labeling requirements
                                                                      costs to          imposed by this rule and
                                                                      Federal           the other 22 HHS-FDA
                                                                      government.       rules in this table
                                                                                        related to food
                                                                                        labeling.
Food Labeling: Health Claims    HHS-FDA           $4.4-$26.5         $1.4-$2.3         HHS-FDA performed one
 and Label Statements: Omega-3                     billion.           billion plus      analysis for the food
 Fatty Acids and Coronary                                             $163 million in   labeling requirements
 Heart Disease.                                                       costs to          imposed by this rule and
                                                                      Federal           the other 22 HHS-FDA
                                                                      government.       rules in this table
                                                                                        related to food
                                                                                        labeling.
Food Labeling: Health Claims    HHS-FDA           $4.4-$26.5         $1.4-$2.3         HHS-FDA performed one
 and Label Statements, Dietary                     billion.           billion plus      analysis for the food
 Fat and Cancer.                                                      $163 million in   labeling requirements
                                                                      costs to          imposed by this rule and
                                                                      Federal           the other 22 HHS-FDA
                                                                      government.       rules in this table
                                                                                        related to food
                                                                                        labeling.
Food Labeling: Health Claims,   HHS-FDA           $4.4-$26.5         $1.4-$2.3         HHS-FDA performed one
 Calcium and Osteoporosis.                         billion.           billion plus      analysis for the food
                                                                      $163 million in   labeling requirements
                                                                      costs to          imposed by this rule and
                                                                      Federal           the other 22 HHS-FDA
                                                                      government.       rules in this table
                                                                                        related to food
                                                                                        labeling.
Food Labeling: Health Claims    HHS-FDA           $4.4-$26.5         $1.4-$2.3         HHS-FDA performed one
 and Label Statement,                              billion.           billion plus      analysis for the food
 Antioxidant Vitamins and                                             $163 million in   labeling requirements
 Cancer.                                                              costs to          imposed by this rule and
                                                                      Federal           the other 22 HHS-FDA
                                                                      government.       rules in this table
                                                                                        related to food
                                                                                        labeling.

[[Page 5504]]

 
Food Labeling: Health Claims    HHS-FDA           $4.4-$26.5         $1.4-$2.3         HHS-FDA performed one
 and Label Statements, Dietary                     billion.           billion plus      analysis for the food
 Saturated Fat and Cholesterol                                        $163 million in   labeling requirements
 and Coronary Heart Disease.                                          costs to          imposed by this rule and
                                                                      Federal           the other 22 HHS-FDA
                                                                      government.       rules in this table
                                                                                        related to food
                                                                                        labeling.
Regulation Impact Analysis of   HHS-FDA           $4.4-$26.5         $1.4-$2.3         HHS-FDA performed one
 the Final Rules to Amend the                      billion.           billion plus      analysis for the food
 Food Labeling Regulations.                                           $163 million in   labeling requirements
                                                                      costs to          imposed by this rule and
                                                                      Federal           the other 22 HHS-FDA
                                                                      government.       rules in this table
                                                                                        related to food
                                                                                        labeling.
Food Labeling: Health Claims    HHS-FDA           $4.4-$26.5         $1.4-$2.3         HHS-FDA performed one
 and Label Statements, Folic                       billion.           billion plus      analysis for the food
 Acid and Neural Tube Defects.                                        $163 million in   labeling requirements
                                                                      costs to          imposed by this rule and
                                                                      Federal           the other 22 HHS-FDA
                                                                      government.       rules in this table
                                                                                        related to food
                                                                                        labeling.
Food Labeling: Health Claims    HHS-FDA           $4.4-$26.5         $1.4-$2.3         HHS-FDA performed one
 and Label Statements, Dietary                     billion.           billion plus      analysis for the food
 Fiber and Cardiovascular                                             $163 million in   labeling requirements
 Disease.                                                             costs to          imposed by this rule and
                                                                      Federal           the other 22 HHS-FDA
                                                                      government.       rules in this table
                                                                                        related to food
                                                                                        labeling.
Food Labeling: Health Claims    HHS-FDA           $4.4-$26.5         $1.4-$2.3         HHS-FDA performed one
 and Label Statements, Dietary                     billion.           billion plus      analysis for the food
 Fiber and Cancer.                                                    $163 million in   labeling requirements
                                                                      costs to          imposed by this rule and
                                                                      Federal           the other 22 HHS-FDA
                                                                      government.       rules in this table
                                                                                        related to food
                                                                                        labeling.
Food Labeling, General          HHS-FDA           $4.4-$26.5         $1.4-$2.3         HHS-FDA performed one
 Requirements for Health                           billion.           billion plus      analysis for the food
 Claims for Food.                                                     $163 million in   labeling requirements
                                                                      costs to          imposed by this rule and
                                                                      Federal           the other 22 HHS-FDA
                                                                      government.       rules in this table
                                                                                        related to food
                                                                                        labeling.
Food Labeling, Mandatory        HHS-FDA           $4.4-$26.5         $1.4-$2.3         HHS-FDA performed one
 Status of Nutrition Labeling                      billion.           billion plus      analysis for the food
 and Nutrient Content                                                 $163 million in   labeling requirements
 Revision, Form for Nutrition                                         costs to          imposed by this rule and
 Label.                                                               Federal           the other 22 HHS-FDA
                                                                      government.       rules in this table
                                                                                        related to food
                                                                                        labeling.
Food Labeling, Nutrient         HHS-FDA           $4.4-$26.5         $1.4-$2.3         HHS-FDA performed one
 Content Claims, General                           billion.           billion plus      analysis for the food
 Principles, Petitions,                                               $163 million in   labeling requirements
 Definition of Terms,                                                 costs to          imposed by this rule and
 Definitions of Nutrient                                              Federal           the other 22 HHS-FDA
 Content Claims for the Fat,                                          government.       rules in this table
 Fatty Acid, and Cholesterol.                                                           related to food
                                                                                        labeling.
Food Labeling Regulation        HHS-FDA           $4.4-$26.5         $1.4-$2.3         HHS-FDA performed one
 Implementing the Nutrition                        billion.           billion plus      analysis for the food
 Labeling and Education Act of                                        $163 million in   labeling requirements
 1990, Opportunity for                                                costs to          imposed by this rule and
 Comments.                                                            Federal           the other 22 HHS-FDA
                                                                      government.       rules in this table
                                                                                        related to food
                                                                                        labeling.
Food Labeling--Metric Labeling  HHS-FDA           $4.4-$26.5         $1.4-$2.3         HHS-FDA performed one
 Requirements.                                     billion.           billion plus      analysis for the food
                                                                      $163 million in   labeling requirements
                                                                      costs to          imposed by this rule and
                                                                      Federal           the other 22 HHS-FDA
                                                                      government.       rules in this table
                                                                                        related to food
                                                                                        labeling.
Real Estate Settlement          HUD               $119,014,950       Cost of
 Procedures Act (Regulation                        annually in        duplicate good-
 X), FR-1942.                                      greater            faith
                                                   competition in     estimates:
                                                   title insurance    $56,824,627 per
                                                   business; $89.1-   year; Cost of
                                                   148.5 million      new disclosure
                                                   net benefit        for controlled
                                                   annually in        business
                                                   reducing           arrangements:
                                                   transaction        $48,147,000 per
                                                   costs by           year; Cost of
                                                   packaging          computerized
                                                   services with      loan
                                                   affiliated         originations:
                                                   services.          $3,607,890 per
                                                                      year; Cost of
                                                                      two additional
                                                                      years for
                                                                      storage
                                                                      (discount rate
                                                                      = 6%): $24,305.
Manufactured Housing            HUD               Net Benefit: $300
 Construction and Safety                           million per year
 Standards.                                        present value in
                                                   energy savings;
                                                   $50-160 million
                                                   per year present
                                                   value in reduced
                                                   NOX, SOX, and PM
                                                   emission.

[[Page 5505]]

 
Final frameworks for early-     DOI               Not Estimated....  Not Estimated.
 season migratory bird hunting
 regulations.
Migratory bird hunting, final   DOI               Not Estimated....  Not Estimated.
 frameworks for late-season
 migratory bird hunting
 regulations.
The Family and Medical Leave    DOL-ESA           Not Estimated....  $674 million      Estimate provided by U.S.
 Act of 1993.                                                         annually.         General Accounting
                                                                                        Office (Parental Leave:
                                                                                        Estimated Costs of H.R.
                                                                                        925, the Family and
                                                                                        Medical Leave Act of
                                                                                        1987--GAO/HRD-88-34,
                                                                                        Nov. 10, 1987).
Permit Required Confined        DOL-OSHA          Reduced annually:  $202.4 million    ``OSHA anticipates that
 Spaces.                                           54 fatalities;     annually.         improved worker
                                                   5,931 lost-                          productivity as a result
                                                   workday injury                       of the standard will
                                                   and illness                          help to lower production
                                                   cases; 5,908 non-                    costs and contribute to
                                                   lost-workday                         higher quality output.
                                                   cases.                               Although OSHA did not
                                                                                        quantify these cost
                                                                                        offsets, the Agency
                                                                                        believes they will be
                                                                                        substantial'' (RIA, pp.
                                                                                        I-10, I-13). ``OSHA
                                                                                        anticipates that greater
                                                                                        use of mechanical
                                                                                        ventilation to reduce
                                                                                        atmospheric hazard in
                                                                                        permit spaces may result
                                                                                        in additional release of
                                                                                        hazardous substances to
                                                                                        the air. Incremental
                                                                                        release quantities
                                                                                        related to the permit
                                                                                        space standard are not
                                                                                        determinable at present,
                                                                                        but are expected to be
                                                                                        minor relative to
                                                                                        current overall
                                                                                        releases'' (RIA, pp. I-
                                                                                        17--I-18).
Lead Exposure in Construction.  DOL-OSHA          Near-term avoided  $365-445 million
                                                   annual health      annually plus
                                                   effects; Reduced   one-time start-
                                                   nerve conduction   up costs of
                                                   velocity: 16,199-  $150-$183
                                                   22,831 cases;      million.
                                                   Reduced blood
                                                   ALA-D levels:
                                                   130,056-164,044
                                                   cases; Increased
                                                   urinary ALA:
                                                   60,389-78,676
                                                   cases;
                                                   Gastrointestinal
                                                   disturbances:
                                                   1,135-4,413
                                                   cases; Detected
                                                   blood-lead
                                                   levels above MRP
                                                   trigger: 24,262-
                                                   35,163 cases.
                                                   Long-term
                                                   avoided health
                                                   effects over 10
                                                   years; Fatal/
                                                   nonfatal
                                                   infractions:
                                                   2,164-2,322
                                                   cases; Fatal/
                                                   nonfatal stroke:
                                                   644-698 cases;
                                                   Renal disease:
                                                   1,258-2,157
                                                   cases.
Response Plans for Marine       DOT-USCG          58,838 barrels of  $176,105,666      Timeline of the analysis:
 Transportation-Related                            oil not spilled    (NPV).            1996-2025 Discount Rate:
 Facilities.                                       (NPV).                               7%; $1996.
Vessel Response Plans.........  DOT-USCG          50,312 barrels of  $3,245,869,985    Timeline of the analysis:
                                                   oil not spilled    (NPV).            1996-2025 Discount Rate:
                                                   (NPV).                               7%; $1996.
Light Truck Average Fuel        DOT               Not Estimated....  Not Estimated.
 Economy Standard for Model
 Year 1995.

[[Page 5506]]

 
Water quality standards         EPA               Not Estimated....  Not Estimated...  ``The analysis performed
 regulation: Compliance with                                                            was limited to assessing
 CWA Section 303(C)(2)(B)                                                               only the potential
 Amendments.                                                                            reduction in cancer
                                                                                        risk; no assessment of
                                                                                        potential reductions in
                                                                                        risks due to
                                                                                        reproductive,
                                                                                        developmental, or other
                                                                                        chronic and subchronic
                                                                                        toxic effects was
                                                                                        conducted. However,
                                                                                        given the number of
                                                                                        pollutants, there could
                                                                                        be: (1) Decreased
                                                                                        incidence of systemic
                                                                                        toxicity to vital organs
                                                                                        such as liver and
                                                                                        kidney; (2) decreased
                                                                                        extent of learning
                                                                                        disability and
                                                                                        intellectual impairment
                                                                                        due to the exposure to
                                                                                        such pollutants as lead;
                                                                                        and (3) decreased risk
                                                                                        of adverse reproductive
                                                                                        effects and
                                                                                        genotoxity.'' (57 FR
                                                                                        60848-). ``The
                                                                                        ecological benefits that
                                                                                        can be expected from
                                                                                        today's rule include
                                                                                        protection of both fresh
                                                                                        and salt water
                                                                                        organisms, as well as
                                                                                        wildlife that consume
                                                                                        aquatic organisms * * *
                                                                                        In addition, the rule
                                                                                        would result in the
                                                                                        propagation and
                                                                                        productivity of fish and
                                                                                        other organisms,
                                                                                        maintaining fisheries
                                                                                        for both commercial and
                                                                                        recreational purposes.
                                                                                        Recreational activities
                                                                                        such as boating, water
                                                                                        skiing, and swimming
                                                                                        would also be preserved
                                                                                        along with the
                                                                                        maintenance of an
                                                                                        aesthetically pleasing
                                                                                        environment'' (57 FR
                                                                                        60848-). ``EPA
                                                                                        acknowledges that there
                                                                                        will be a cost to some
                                                                                        dischargers for
                                                                                        complying with new water
                                                                                        quality standards as
                                                                                        those standards are
                                                                                        translated into specific
                                                                                        NPDES permit limits * *
                                                                                        * Revised wasteload
                                                                                        allocations may result
                                                                                        in adjustments to
                                                                                        individual NPDES permit
                                                                                        limits for point source
                                                                                        dischargers, and these
                                                                                        adjustments could result
                                                                                        in increased wastewater
                                                                                        treatment costs or other
                                                                                        pollution control
                                                                                        activities such as
                                                                                        recycling or process
                                                                                        changes. The magnitude
                                                                                        of these costs depends
                                                                                        on the types of
                                                                                        treatment or other
                                                                                        pollution control, the
                                                                                        number and type of
                                                                                        pollutants being
                                                                                        treated, and the level
                                                                                        of control that can be
                                                                                        achieved by technology-
                                                                                        based effluent limits
                                                                                        for each industry.
                                                                                        Similar sources of costs
                                                                                        and the variables
                                                                                        affecting costs may also
                                                                                        apply to indirect
                                                                                        industrial dischargers
                                                                                        to the extent that the
                                                                                        industrial discharger is
                                                                                        a source of toxic
                                                                                        pollutants discharged by
                                                                                        the POTW * * * Nonpoint
                                                                                        sources of toxic
                                                                                        pollutants may also
                                                                                        incur increased costs to
                                                                                        the extent that best
                                                                                        management practices
                                                                                        need to be modified or
                                                                                        applied to more sources
                                                                                        to reflect the revised
                                                                                        water quality standards.
                                                                                        Although there is no
                                                                                        Federal permit program
                                                                                        for nonpoint sources
                                                                                        comparable to that for
                                                                                        point sources, there are
                                                                                        State regulatory
                                                                                        programs to control
                                                                                        nonpoint source
                                                                                        discharges. Monitoring
                                                                                        programs are another
                                                                                        source of potential
                                                                                        incremental costs to
                                                                                        dischargers and
                                                                                        States.'' (57 FR 60848-
                                                                                        ).

[[Page 5507]]

 
Coastal nonpoint pollution      EPA               Not Estimated....  $389,940,000-$59  The RIA identified
 control program development                                          0,640,000         generally the types of
 and approval guidance (EPA,                                          (annualized).     ``off-site benefits''
 NOAA), guidance specifying                                                             that could be related to
 management measures for                                                                water quality
 sources of nonpoint * * *                                                              improvements, including
 Section 6217.                                                                          4 use benefits (in-
                                                                                        stream, near stream,
                                                                                        option value, and
                                                                                        diversionary) and 3 non-
                                                                                        use (intrinsic) benefits
                                                                                        (aesthetic, bequest, and
                                                                                        existence).
Oil and Gas Extraction Point    EPA               $28.2-103.9        Total annualized  ``Other benefits that are
 Source Category, Offshore                         million per year.  BAT and NSPS      quantified, to the
 Subcategory, Effluent                                                costs: 1st year   extent possible, but not
 Limitations Guidelines and                                           = $122 million,   monetized due to lack of
 New Source Performance                                               15th year = $32   appropriate data,
 Standards (Final Rule).                                              million.          include: (1) Human
                                                                                        health risk reductions
                                                                                        associated with
                                                                                        systemics other than
                                                                                        lead, pH-dependent leach
                                                                                        rates, carcinogens for
                                                                                        which there are no risk
                                                                                        factors available,
                                                                                        exposure to pollutants
                                                                                        via sediment or food
                                                                                        chair; (2) ecological
                                                                                        risk reductions; (3)
                                                                                        fishery benefits; and
                                                                                        (4) intrinsic benefits *
                                                                                        * * The non-quantified,
                                                                                        non-monetized benefits
                                                                                        assessed in this RIA
                                                                                        include increased
                                                                                        recreational fishing,
                                                                                        increased commercial
                                                                                        fishing, improved
                                                                                        aesthetic quality of
                                                                                        waters near the
                                                                                        platform, and benefits
                                                                                        to threatened or
                                                                                        endangered species [the
                                                                                        Kemp's Ridley Turtle and
                                                                                        the Brown Pelican] in
                                                                                        the Gulf of Mexico.''
                                                                                        (58 FR 12454-).
Acid Rain Permits, Allowance    EPA               10 million tons/   $894-1,509        SO2 emission reductions
 System, Emissions Monitoring,                     year reduction     million           are expected to: (1)
 Excess Emissions and Appeals                      in SO2 emission    (annualized).     reduce acidification of
 Regulations Under Title IV of                     (mandated by                         surface waters, thereby
 the Clean Air Act Amendments                      Title IV); Cost                      increasing the presence
 of 1990.                                          savings: $689-                       and diversity of aquatic
                                                   973 million                          species; (2) improve
                                                   (annualized).                        visibility by reducing
                                                                                        haze; (3) may improve
                                                                                        human health as lower
                                                                                        SO2 emissions reduce air
                                                                                        concentrations of acid
                                                                                        sulfate aerosols and
                                                                                        thus acute and chronic
                                                                                        exposure to the acid
                                                                                        aerosols that adversely
                                                                                        affect human health may
                                                                                        even affect even
                                                                                        mortality; (4) eliminate
                                                                                        damage to forest soils
                                                                                        and foliage, especially
                                                                                        of high-elevation spruce
                                                                                        trees in the eastern
                                                                                        U.S. and allow recovery
                                                                                        of previously damaged
                                                                                        tree populations; (5)
                                                                                        may reduce damage to
                                                                                        auto paint, reduce
                                                                                        soiling of buildings and
                                                                                        monuments, and thus the
                                                                                        life of some materials
                                                                                        and structures may be
                                                                                        extended and the costs
                                                                                        of maintenance or repair
                                                                                        reduced (RIA, pp. 1-5 to
                                                                                        1-6, and 6-1 to 6-3).
                                                                                        Engineering costs
                                                                                        associated with CEM
                                                                                        retrofit were not
                                                                                        analyzed (RIA, pp. 4-
                                                                                        18). ``The annualized
                                                                                        costs of the
                                                                                        implementation
                                                                                        regulations are
                                                                                        estimated to increase
                                                                                        the annual costs of
                                                                                        generating electricity
                                                                                        by 0.5 to 1.2 percent.''
                                                                                        (58 FR 3590-).

[[Page 5508]]

 
Vehicle Inspection and          EPA               Emission           Continuing        ``These repairs have been
 Maintenance Requirements for                      reductions from    current I/M       found to produce fuel
 State Implementation Plan                         continuing         program: NET      economy benefits that
 (Final Rule).                                     current I/M        COST = $894       will at least partially
                                                   program            million           offset the cost of
                                                   unchanged          ($2000); New I/   repairs. Fuel economy
                                                   (baseline = no I/  M program: NET    improvements of 6.1% for
                                                   M program) in      COST = $541       repair of pressure test
                                                   2000: 116016       million ($2000).  failures and 5.7% for
                                                   tons VOC,                            repair of purge test
                                                   1566395 tons CO                      failures were observed.
                                                   (annual tons in                      Vehicles that failed the
                                                   2000); Emission                      transient short test at
                                                   reductions from                      the established
                                                   new I/M program                      cutpoints were found to
                                                   in 2000                              enjoy a fuel economy
                                                   (baseline = no I/                    improvement of 12.6% as
                                                   M program):                          a result of repairs.''
                                                   420415 tons VOC,                     (57 FR 52950-). ``In
                                                   2845754 tons CO                      conclusion, today's
                                                   (annual tons in                      action may cause
                                                   2000).                               significant shifts in
                                                                                        business opportunities.
                                                                                        Small businesses that
                                                                                        currently do both
                                                                                        inspections and repairs
                                                                                        in decentralized I/M
                                                                                        programs may have to
                                                                                        choose between the two.
                                                                                        Significant new
                                                                                        opportunities will exist
                                                                                        in these areas for small
                                                                                        businesses to continue
                                                                                        to participate in the
                                                                                        inspection and repair
                                                                                        industry. This will mean
                                                                                        shifts in jobs but an
                                                                                        overall increase in jobs
                                                                                        in the repair sector and
                                                                                        a small to potentially
                                                                                        large increase in the
                                                                                        inspection sector,
                                                                                        depending on state
                                                                                        choices.'' (57 FR 52950-
                                                                                        ).
Evaporative emission            EPA               Total VOC          Annual total      ``[Emission] projections
 regulations for gasoline-                         Reduction in       program cost      are made for the year
 fueled and methanol-fueled                        2020: 1,120,000    without fuel      2020 in order to provide
 light duty vehicles, light-                       metric tons.       savings: $130-    benefit predictions for
 duty trucks, and heavy-duty                                          200 million       a fully turned-over
 vehicles--SAN 2969.                                                  ($1992, NPV to    fleet and to factor in
                                                                      the year of the   other known trends, such
                                                                      sale).            as the effects of other
                                                                                        new Clean Air Act
                                                                                        programs. These new
                                                                                        programs include high-
                                                                                        technology inspection
                                                                                        and maintenance and
                                                                                        reformulated gasoline.
                                                                                        Reformulated gasoline
                                                                                        achieving a 25 percent
                                                                                        overall VOC emission
                                                                                        reduction standard is
                                                                                        assumed to be used in 40
                                                                                        percent of the nation.''
                                                                                        (58 FR 16002-). ``[The
                                                                                        cost] estimate does not
                                                                                        include the offsetting
                                                                                        fuel savings.'' (58 FR
                                                                                        16002-).
Control of air pollution from   EPA               4.0 million tons   $16.6 billion     Discount rate: 7% (58 FR
 new motor vehicles and new                        HC, 30.8 million   (NPV) ($1993).    9468-) Timeline: 2005-
 motor vehicle engines,                            tons CO, 2.5                         2020 (58 FR 9468-).``EPA
 regulations requiring on-                         million tons NOX                     has not been able to
 board diagnostic systems on                       (NPV).                               adequately quantify some
 1994 and later model year                                                              potential cost savings
 light-duty vehicles.                                                                   not included in these
                                                                                        estimates. Potential
                                                                                        cost savings can accrue
                                                                                        due to early repairs of
                                                                                        malfunction which, if
                                                                                        left undetected and
                                                                                        unrepaired, could result
                                                                                        in the need for even
                                                                                        more costly repairs in
                                                                                        the future. Also,
                                                                                        improved repair
                                                                                        effectiveness should
                                                                                        reduce the potential for
                                                                                        a part to be
                                                                                        unnecessarily replaced
                                                                                        in attempting to fix a
                                                                                        problem. Repair
                                                                                        facilities should also
                                                                                        benefit from the
                                                                                        availability of generic
                                                                                        tools for accessing and
                                                                                        using the OBD system in
                                                                                        problem diagnosis and
                                                                                        repair. These service
                                                                                        facility benefits could
                                                                                        be passed along to the
                                                                                        consumer in the form of
                                                                                        lower repair costs.''
                                                                                        (58 FR 9468-).
----------------------------------------------------------------------------------------------------------------


[[Page 5509]]


                        Table 10.--Agency Estimates of Benefits and Costs of Major Rules
                                     [October 1, 1993 to September 30, 1994]
----------------------------------------------------------------------------------------------------------------
             Rule                     Agency             Benefits            Costs           Other information
----------------------------------------------------------------------------------------------------------------
Manufactured Home Construction  HUD...............  $63,726,314        $412,106,180       The cost estimates do
 and Safety Standards on Wind                        annually.          annually.          not include costs
 Standards.                                                                                associated with ``out
                                                                                           of pocket expenses
                                                                                           related to
                                                                                           deductibles or non-
                                                                                           covered losses''
                                                                                           (RIA, pp. 1-2). Non-
                                                                                           quantified benefits
                                                                                           include: ``purchasers
                                                                                           will experience less
                                                                                           dislocation caused by
                                                                                           damage to or
                                                                                           destruction of their
                                                                                           manufactured homes.
                                                                                           Fourth, residents who
                                                                                           choose to remain in
                                                                                           their units during
                                                                                           storms will suffer
                                                                                           fewer injuries and
                                                                                           deaths'' (RIA, p. 1)
                                                                                           Discount rate used =
                                                                                           6.64 percent (RIA, p.
                                                                                           8) Basis for public
                                                                                           benefit assessment:
                                                                                           Hurricane Andrew
                                                                                           (RIA, p. 9).
Designate critical habitat for  DOI...............  Net benefit:       .................  Increase employment by
 four endangered Colorado                            $7.92 million.                        710 jobs, increase
 River fishes.                                                                             earnings by $6.62
                                                                                           million, increase
                                                                                           government revenue by
                                                                                           $3.20 million from
                                                                                           1995-2020 (59 FR
                                                                                           13374-).
Occupational Exposure to        DOL-OSHA..........  Reduction in       $361.4 million     Non-quantified
 Asbestos.                                           annual cancer      annually.          benefits include:
                                                     risk: 2.12                            avoided cases of
                                                     cancer deaths in                      asbestosis for
                                                     general                               building occupants
                                                     industry, 40.48                       and others
                                                     cancer deaths in                      secondarily exposed,
                                                     construction                          reduced risks of
                                                     industry, 14.2                        cancer and fires
                                                     cancers among                         (from rages
                                                     building                              contaminated with
                                                     occupants.                            solvent), more rapid
                                                     Reduction in                          building
                                                     asbestosis: 14                        reoccupation, reduced
                                                     cases annually.                       probability of
                                                                                           asbestos-related
                                                                                           lawsuits (RIA, pp 52-
                                                                                           57).
Financial Responsibility for    DOT-USCG..........  525,316 barrels    $451,440,918       Timeline of the
 Water Pollution (Vessels).                          of oil not         (NPV).             analysis: 1996-2025;
                                                     spilled (NPV).                        Discount Rate: 7%;
                                                                                           $1996.
Antidrug Program for Personnel  DOT-FAA...........  $206.64 million    $138.13 million    Timeline of the
 Engaged in Specified Aviation                       (NPV).             (NPV).             analysis: 1994-2003
 Activities.                                                                               (RIA, p. 12); $1992
                                                                                           (RIA, p. 12);
                                                                                           Discount rate = 7%
                                                                                           (RIA, p. 20).
Controlled Substances and       DOT-FHWA..........  Reduced fatal      $93,947,750 in     ......................
 Alcohol Use and Testing.                            accidents: $680    1995, and
                                                     million in 1st     $92,453,950 per
                                                     year, $952         year in 1996 and
                                                     million per year   thereafter.
                                                     in 2nd and
                                                     subsequent
                                                     years. Reduced
                                                     injury cost:
                                                     $152.4 million
                                                     in 1st year,
                                                     $213.4 million
                                                     per year in 2nd
                                                     and subsequent
                                                     years assuming
                                                     the highest
                                                     deterrence
                                                     scenario.
                                                     Reduced property
                                                     damage: $47.5
                                                     million in 1993,
                                                     $66.5 million
                                                     per year from
                                                     1994-2002.
                                                     Reduced traffic
                                                     delays: $3.5
                                                     million in 1993,
                                                     $4.9 million per
                                                     year thereafter
                                                     assuming highest
                                                     deterrence rate;
                                                     Reduced other
                                                     costs of freeway
                                                     accidents: $1.9
                                                     million in 1995
                                                     and $2.7 million
                                                     thereafter.
Light Truck Average Fuel        DOT...............  Not Estimated....  Not Estimated.     ......................
 Economy standards, Model
 Years 1996-1997.
Prevention of Prohibited Drug   DOT...............  $608,520,643       $208,970,087       Timeline: 1995-2004;
 Use in Transit Operations.                          (NPV).             (NPV).             Discount rate: 7%;
                                                                                           $1991.

[[Page 5510]]

 
Land disposal restrictions      EPA...............  0.22 cancer cases  $194-219 million   ``The timeframe to
 phase II, universal treatment                       per year avoided   (annualized).      which these benefits
 standards and treatment                             from                                  are attributable
 standards for organic                               groundwater,                          begins 30 years
 toxicity, characteristic                            0.037 cancer                          following
 wastes, and newly listed                            cases per year                        promulgation of the
 wastes.                                             avoided from                          rule.'' (59 FR 47982-
                                                     air; $20 million                      ). ``However, there
                                                     avoided property                      are some benefits
                                                     value damage                          which the Agency has
                                                     (annualized).                         not attempted to
                                                                                           quantify which are
                                                                                           potentially
                                                                                           attributable to
                                                                                           today's rule. For
                                                                                           example, the agency
                                                                                           has not attempted to
                                                                                           quantify any
                                                                                           potential non-use-
                                                                                           value benefits from
                                                                                           protection of
                                                                                           resources through
                                                                                           treatment of
                                                                                           hazardous wastes.
                                                                                           Furthermore, the risk
                                                                                           analysis performed by
                                                                                           the Agency for
                                                                                           today's rule does not
                                                                                           account for many
                                                                                           other potential
                                                                                           benefits from today's
                                                                                           rule. Ecological risk
                                                                                           reduction from
                                                                                           treatment of wastes
                                                                                           under today's rule
                                                                                           has not been
                                                                                           quantified. Nor do
                                                                                           the Agency's air and
                                                                                           groundwater benefit
                                                                                           estimates account for
                                                                                           karst terrain,
                                                                                           complex flow
                                                                                           situations, or other
                                                                                           factors which could
                                                                                           contribute to
                                                                                           underestimates of
                                                                                           benefits.'' (59 FR
                                                                                           47982-).
Accelerated phase-out of ozone  EPA...............  Ozone depleting    Ozone depleting    Discount rate: 7% (58
 depleting chemicals and                             chemicals: $8-24   chemicals: $12     FR 65018-). Timeline
 listing and phase-out of                            billion (NPV)      billion (NPV);     for methyl bromide
 methyl bromide.                                     Methyl Bromide:    Methyl Bromide:    cost: 1994-2010 (58
                                                     $1.6-6.4 billion   $0.8 billion       FR 65018-). Timeline
                                                     (NPV).             (NPV).             for methyl bromide
                                                                                           benefits: 1994-2001
                                                                                           (58 FR 65018-).
Fuel and fuel additives:        EPA...............  Phase I--          Phase I--Annual    ``Reductions in mobile
 standards for reformulated                          Summertime VOC     costs: $700-940    source emissions of
 gasoline.                                           emission           million.           the air toxics
                                                     reduction: 90-    Phase II--          addressed in the
                                                     140 thousand       (incremental to    reformulated gasoline
                                                     tons per year;     Phase I):          program (benzene, 1,3-
                                                     Reduction in       Increase           butadiene,
                                                     cancer             gasoline           formaldehyde,
                                                     incidence: 16      production cost    acetaldehyde and POM)
                                                     per year           by 1.2 cents/      may result in fewer
                                                     (assuming          gallon during      cancer incidences. A
                                                     enhanced I/M in    the VOC control    number of adverse
                                                     place) or 24 per   period, since      noncancer health
                                                     year (assuming     only the toxics    effects have also
                                                     basic I/M in       standard           been associated with
                                                     place).            changes, and       exposures experience
                                                    Phase II--          there is not       in particular
                                                     (incremental to    expected to be a   microenvironments
                                                     Phase I):          cost for year-     such as parking
                                                     Summertime VOC     round toxics       garages and refueling
                                                     emission           control above      stations. These other
                                                     reduction:         that required      health effects
                                                     approximately      for Phase I; EPA   include blood
                                                     42,000 tons        doesn't expect     disorders, heart and
                                                     Summer time NOx    non-production     lung diseases, and
                                                     emission           related costs,     eye, nose and throat
                                                     reduction:         such as            irritation. Some of
                                                     approximately      distribution       the toxics may also
                                                     22,000 tons        costs,             be developmental and
                                                     Number of cancer   recordkeeping      reproductive
                                                     avoided: 3-4       and reporting      toxicants, while very
                                                     fewer cancer       costs, etc., to    high exposure can
                                                     incidence per      increase           cause effects on the
                                                     year.              isgnificantly      brain leading to
                                                                        relative to        respiratory paralysis
                                                                        Phase I.           and even death. The
                                                                                           uses of reformulated
                                                                                           gasoline meeting the
                                                                                           Phase II standards
                                                                                           will likely help to
                                                                                           reduce some of these
                                                                                           health effects as
                                                                                           well.'' (59 FR 7716-
                                                                                           ). Phase I: The cost
                                                                                           of producing
                                                                                           reformulated gasoline
                                                                                           is expected to
                                                                                           increase by
                                                                                           approximately 3-5
                                                                                           cents per gallon in
                                                                                           1995. (59 FR 7716-).
                                                                                           The cost of testing,
                                                                                           enforcement, and
                                                                                           recordkeeping not
                                                                                           reflected in the
                                                                                           annual cost estimate.
                                                                                           (59 FR 7716-).

[[Page 5511]]

 
Acid Rain NOX Regulations       EPA...............  Phase I: 400,000   Phase I: $77       Qualitative human
 under Title IV of the Clean                         tons NOX reduced   million/year       health benefits:
 Air Act Amendments of 1990.                         Phase II: 1.89     Phase II: $300     Lower ambient levels
                                                     million tons NOX   million/year.      of NOX (and
                                                     reduced.                              associated lower PM
                                                                                           and lower ozone
                                                                                           levels) may mean
                                                                                           fewer lost school
                                                                                           days, fewer
                                                                                           disability days for
                                                                                           children; for all,
                                                                                           less eye irritation
                                                                                           and its associated
                                                                                           acute and chronic
                                                                                           health effects; for
                                                                                           exercising
                                                                                           asthmatics, improved
                                                                                           pulmonary function.
                                                                                           Also ambient
                                                                                           concentrations of
                                                                                           nitrates will be
                                                                                           lower and fewer toxic
                                                                                           nitrogenous compounds
                                                                                           will be formed. (RIA,
                                                                                           pp. 9-1 to 9-4)
                                                                                           Qualitative welfare
                                                                                           effects: reduced
                                                                                           materials damage,
                                                                                           increased visibility
                                                                                           that is associated
                                                                                           with enhanced
                                                                                           enjoyment of vistas
                                                                                           and fewer aircraft
                                                                                           and motor vehicle
                                                                                           accidents. The
                                                                                           potential ecological
                                                                                           effect include
                                                                                           minimizing the
                                                                                           adverse effects of
                                                                                           excess nitrogen
                                                                                           deposition in forest
                                                                                           soils and surface
                                                                                           waters, including the
                                                                                           ``acid pulses'' that
                                                                                           precede fish kills
                                                                                           and consequently,
                                                                                           reduced biodiversity.
                                                                                           (RIA, pp. 9-1 to 9-4)
                                                                                           ``Moreover, EPA
                                                                                           expects that most or
                                                                                           all utility expenses
                                                                                           from meeting NOX
                                                                                           requirements will be
                                                                                           passed along to
                                                                                           ratepayers * * *
                                                                                           Under today's rule
                                                                                           the cost to
                                                                                           ratepayers is very
                                                                                           small, relative to
                                                                                           their current
                                                                                           expenditures on
                                                                                           electricity. The
                                                                                           average increase in
                                                                                           electric rates across
                                                                                           the United States is
                                                                                           estimated to be only
                                                                                           0.03 and 0.13 percent
                                                                                           under Phases I and II
                                                                                           respectively.'' (59
                                                                                           FR 13538-).
Hazardous Organic NESHAP (HON)  EPA...............  HAP reduction:     Total nationwide   ``Thus, the estimates
 for the Synthetic Organic                           510,000 tons/      annual cost:       represent annual
 Chemical Manufacturing                              year; VOC          $230 million/      impacts occurring in
 Industry (SOCMI) and Other                          reduction:         year ($1989); CO   the fifth year.'' (59
 Processes Subject to the                            1,000,000 tons/    emission           FR 19402-). ``As
 Negotiated Regulation for                           year.              increase: 1,900    discussed in section
 Equipment Leaks.                                                       tons/year; NOx     III.B.3 of this
                                                                        emission           preamble, the EPA has
                                                                        increase: 19,000   deferred the final
                                                                        tons/year.         decision regarding
                                                                                           control of medium-
                                                                                           sized storage vessels
                                                                                           at existing sources.
                                                                                           Therefore, emission
                                                                                           reductions for
                                                                                           storage vessels shown
                                                                                           in Table 1, and
                                                                                           consequently the
                                                                                           total, may be
                                                                                           slightly
                                                                                           overstated.'' (59 FR
                                                                                           19402-). ``Because of
                                                                                           the EPA's deferral of
                                                                                           a final decision on
                                                                                           control of medium-
                                                                                           sized storage vessels
                                                                                           at existing sources,
                                                                                           as discussed in
                                                                                           section III.B.3 of
                                                                                           this preamble, the
                                                                                           cost impacts for
                                                                                           storage vessels, and
                                                                                           consequently the
                                                                                           total cost impact,
                                                                                           may be slightly
                                                                                           overstated.'' (59 FR
                                                                                           19402-). ``Market
                                                                                           analyses for a subset
                                                                                           of 21 of the
                                                                                           chemicals estimated
                                                                                           price increases from
                                                                                           0.1 percent to 3.9
                                                                                           percent and quantity
                                                                                           decreases from 0.1
                                                                                           percent to 4
                                                                                           percent.'' (59 FR
                                                                                           19402-).
Control of air pollution from   EPA...............  Without Stage II   Without Stage II   ``It should be noted
 new motor vehicles and new                          controls,          controls, the      that the RIA was
 motor vehicle engines,                              average VOC        average annual     completed prior to
 refueling emission                                  annual emission    cost: -$6          EPA's decision to
 regulations for light-duty                          reductions: over   million (1998-     delay the
 vehicles and trucks and heavy-                      420,000 tons per   2020); With        requirements for LDTs
 duty vehicles.                                      year; With Stage   Stage II and       and to exclude HDVs.
                                                     II phase-out       phasing out at     These controls were
                                                     when ORVR and      2010, the          included in the
                                                     Stage II would     average annual     analysis and were
                                                     cover the same     cost: $2 million   assumed to begin in
                                                     percent of fuel,   (1998-2020);       1998. EPA expects
                                                     average annual     With Stage II      that inclusion of
                                                     emission           and no phase       these items in the
                                                     reduction:         out, the average   analysis has no
                                                     378,000 tons; If   annual cost: $27   significant effect on
                                                     retain Stage H     million (1998-     the results and does
                                                     controls, an       2020); In 1998     not affect the
                                                     incremental        NPV, costs are     conclusions which are
                                                     emission           $102 million,      based on the
                                                     reduction:         $264 million and   analysis.'' (59 FR
                                                     285,000 tons.      $435 million       16262-). ``In the
                                                                        respectively.      cases where costs are
                                                                                           negative, it is
                                                                                           because the value of
                                                                                           the recovery credits
                                                                                           exceeds the hardware
                                                                                           and R, D, & T
                                                                                           costs.'' (59 FR 16262-
                                                                                           ).

[[Page 5512]]

 
Determination of significance   EPA...............  NOX annual         Average annual     ``EPA maintains that
 for nonroad sources and                             reduction in       cost: $29-70       the impact of this
 emission standards for new                          2010: 800,000      million (59 FR     rule on fleet average
 nonroad compression ignition                        tons; NOx annual   31306).            fuel consumption will
 engines at or above 37                              reduction in                          be minimal.'' (59 FR
 kilowatts, control of air                           2025: over                            31306-).
 pollution * * *--SAN 3112.                          1,200,000 tons.
----------------------------------------------------------------------------------------------------------------


                        Table 11.--Agency Estimates of Benefits and Costs of Major Rules
----------------------------------------------------------------------------------------------------------------
              Rule                      Agency             Benefits            Costs          Other information
----------------------------------------------------------------------------------------------------------------
The Family and Medical Leave     DOL-ESA............  Not Estimated....  $674 million       Estimate provided by
 Act of 1993.                                                             annually.          U.S. General
                                                                                             Accounting Office
                                                                                             (Parental Leave:
                                                                                             Estimated Costs of
                                                                                             H.R. 925, the
                                                                                             Family and Medical
                                                                                             Leave Act of 1987--
                                                                                             GAO/HRD-88-34, Nov.
                                                                                             10, 1987).
Double Hull Standards for        DOT-USCG...........  94,172 barrels of  $6,413,027,637     Timeline of the
 Vessels Carring Oil in bulk.                          oil not spilled    (NPV).             analysis: 1996-
                                                       (NPV).                                2025.
FMVSS: Stablity and Control of   DOT-NHTSA..........  Equivalent         Total consumer     Discount rate: 7%.
 Medium and Heavy Vehicles                             fatalities         cost = $560.5
 During Braking.                                       forgone: 415-683   million annually.
                                                       per year;
                                                       Forgone property
                                                       damage: $327-
                                                       394.9 million
                                                       annually.
Bay/Delta water quality          EPA................  $2.1-21.5 million  For the urban      ``Important benefits
 standards.                                            annually in        sector, $4.3       of the water
                                                       economic           million/yr on      quality regulations
                                                       benefits to        average and        include the
                                                       commercial and     $15.8 million/yr   following:
                                                       recretional        during dry         Biological
                                                       fisheries and      years; $28.3       productivity and
                                                       have associated    million/yr on      health for many
                                                       employment gains   average gains      estuarine species
                                                       of an estimated    $165.3 million/    are expected to
                                                       145-1585 full-     yr during dry      increase. The
                                                       time equivalent    years without      decline of species
                                                       jobs annually      water transfers    is expected to be
                                                       (RIA ES-7).        or waterbanks.     reversed and the
                                                                          For agriculture    existence of
                                                                          sector, $27        species unique to
                                                                          million/yr on      the Bay/Delta, such
                                                                          average, $43       as Delta smelt,
                                                                          million/year in    winter-run Chinook
                                                                          the driest 10%     salmon, long fin
                                                                          of years (RIA ES-  smelt, and
                                                                          5) If using        Sacramento
                                                                          sharing approach   splittail, will be
                                                                          (spread water      protected.
                                                                          supply impacts     Populations of a
                                                                          to entities        variety of
                                                                          diverting water    estuarine species
                                                                          from the           are expected to
                                                                          Sacramento and     increase; although
                                                                          San Joaquin        the extent of the
                                                                          River systems), -  population
                                                                          $0.5 million/yr    increases has not
                                                                          average years, -   been determined for
                                                                          $5.5 million/yr    all species, the
                                                                          for dry years      increases are
                                                                          for agricultural   anticipated to
                                                                          sector, -$10.5     benefit the
                                                                          million/yr for     recreational and
                                                                          average years      commercial
                                                                          and -$54 million/  fisheries.'' (60 FR
                                                                          yr for day years   4703-)
                                                                          (RIA ES-6).

[[Page 5513]]

 
Water quality guidance for       EPA................  Given the site-    $64.0-394.6        ``The benefit
 Great Lakes system.                                   specific nature    million ($1996,    analysis is based
                                                       of water quality   annualized).       on a case study
                                                       benefits and the                      approach, suing
                                                       unavailability                        benefits transfer
                                                       of site-specific                      applied sources to
                                                       data across the                       three case studies
                                                       Great Lakes                           . . . The case
                                                       Basin, only case                      studies include:
                                                       study monetized                       (1) the lower Fox
                                                       benefits are                          River drainage,
                                                       estimated in the                      including Green
                                                       RIA. Average                          Bay, located on
                                                       monetized                             Lake Michigan in
                                                       benefits across                       northeastern
                                                       the three case                        Wisconsin; (2) the
                                                       studies                               Saginaw River and
                                                       evaluated are                         Saginaw Bay,
                                                       $0.3 million per                      located on Lake
                                                       year to $6.2                          Huron in
                                                       million per                           Northeastern
                                                       year, with a                          Michigan; and (3)
                                                       midpoint of $2.9                      the Black River,
                                                       million per year                      located on Lake
                                                       (in 1996                              Erie in north-
                                                       dollars);                             central Ohio . . .
                                                       average annual                        EPA did attempt to
                                                       costs across                          calculate longer-
                                                       case studies are                      term benefits to
                                                       also $2.8                             human health,
                                                       million per year                      wildlife, and
                                                       (1996 dollars)..                      aquatic life once
                                                                                             the final Guidance
                                                                                             provisions are
                                                                                             fully implemented
                                                                                             by nonpoint sources
                                                                                             as well as point
                                                                                             sources and the
                                                                                             minimum protection
                                                                                             levels are attained
                                                                                             in the ambient
                                                                                             water.'' (60 FR
                                                                                             15382). ``The three
                                                                                             case studies
                                                                                             combine to account
                                                                                             for nearly 14
                                                                                             percent of the
                                                                                             total cost of the
                                                                                             final Guidance,
                                                                                             nearly 17 percent
                                                                                             of the loadings
                                                                                             reductions, and
                                                                                             from four percent
                                                                                             to 10 percent of
                                                                                             the benefits
                                                                                             proxies (i.e.,.
                                                                                             basin-wide
                                                                                             population,
                                                                                             recreational
                                                                                             angling,
                                                                                             nonconsumptive
                                                                                             recreation, and
                                                                                             commercial fishery
                                                                                             harvest.'' (60 FR
                                                                                             15382). ``In
                                                                                             addition to the
                                                                                             cost estimates
                                                                                             described above,
                                                                                             EPA estimated the
                                                                                             cost to comply with
                                                                                             requirements
                                                                                             consistent with the
                                                                                             antidegradation
                                                                                             provisions of the
                                                                                             final Guidance.
                                                                                             This potential
                                                                                             future cost is
                                                                                             expressed as a
                                                                                             `lost opportunity'
                                                                                             cost for facilities
                                                                                             impacted by the
                                                                                             antigradation
                                                                                             requirements. This
                                                                                             cost could result
                                                                                             in the addition of
                                                                                             about $22 million
                                                                                             each year.'' (60 FR
                                                                                             15381).
Interim Requirements for         EPA................  HC, CO and NOX     $650 million
 Deposit Control Gasoline                              reduction during   (NPV, discount
 Additives, Regulations of                             the 18-month       rate = 7%, 1995-
 Fuels and Fuel Additives.                             interim period:    2000 (59 FR
                                                       700,000 tons (59   54678-)).
                                                       FR 54678-); HC,
                                                       CO and NOX
                                                       reduction after
                                                       the interim
                                                       period: 600,000
                                                       tons per year
                                                       (59 FR 54678-)
                                                       Fuel economy
                                                       savings: 390
                                                       million gallons
                                                       in 1995-2000 (59
                                                       FR 54678-).
----------------------------------------------------------------------------------------------------------------

Appendix C. OMB Draft Guidelines for the Conduct of Regulatory Analysis 
and the Format of Accounting Statements

Preface

    This Circular provides OMB's guidance to federal agencies on the 
development of regulatory analysis as required under Executive Order 
No. 12866 and a variety of related authorities. The Circular also 
provides guidance to agencies on the regulatory accounting 
statements that are required under the Regulatory Right-to-Know Act.
    This draft Circular refines OMB's ``best practices'' document of 
1996 http://www.whitehouse.gov/omb/inforeg/riaguide.html, which was 
issued as a guidance in 2000 http://www.whitehouse.gov/omb/memoranda/m00-08.pdf, and reaffirmed in 2001 http://www.whitehouse.gov/omb/memoranda/m01-23.html. It will replace both 
the 1996 ``best practices'' and the 2000 guidance. Before issuing 
the Circular, this draft will go through a process of peer review, 
public comment and interagency review.

Introduction

    These guidelines are designed to help analysts in the regulatory 
agencies by encouraging good regulatory impact analysis--called 
either ``regulatory analysis'' or ``analysis'' for brevity--and 
standardizing the way benefits and costs of Federal regulatory 
actions are measured and reported.

Why Analysis of Proposed\16\ Regulatory Actions Is Needed

    Regulatory analysis is a tool regulatory agencies use to 
anticipate and evaluate the likely consequences of their actions. It 
provides a formal way of organizing the evidence on the key 
effects--good and bad--of the various alternatives that should be 
considered in developing regulations. The motivation is to (1) learn 
if the benefits of an action are likely to justify the costs or (2) 
discover which of various possible alternatives would be the most 
cost-effective. By choosing actions that maximize net

[[Page 5514]]

benefits, agencies direct resources to their most efficient use.
---------------------------------------------------------------------------

    \16\ We use the term ``proposed'' to refer to any regulatory 
actions under consideration regardless of the stage of the 
regulatory process.
---------------------------------------------------------------------------

    A good regulatory analysis informs the public and other parts of 
the Government as well as the agency conducting the analysis of the 
effects of alternative actions. Regulatory analysis will sometimes 
show that a proposed action is misguided, but it can also 
demonstrate that well-conceived actions are reasonable and 
justified.
    Where all significant benefits and costs can be quantified and 
expressed in monetary units, benefit-cost analysis provides 
decisionmakers with a clear indication of the most efficient 
alternative, that is, the alternative that generates the largest net 
benefits to society ignoring distributional effects. This is useful 
information for the public to receive, even when economic efficiency 
is not the only or the overriding public policy objective.
    It will not always be possible to assign monetary values to all 
of the important benefits and costs, and when it is not, the most 
efficient alternative will not necessarily be the one with the 
largest net-benefit estimate. In such cases, you should exercise 
professional judgment in determining how important the non-
quantifiable benefits or costs may be in tipping the analysis one 
way or the other, but you should not use non-quantifiables as 
``trump cards,'' especially in cases where the measured net benefits 
overwhelmingly favor a particular alternative. When there are other 
competing public policy objectives, as there often are, they must be 
balanced with efficiency objectives.

What Should Go Into a Regulatory Analysis?

    A good regulatory analysis should include the following three 
basic elements:
    (1) A statement of the need for the proposed action.
    (2) An examination of alternative approaches.
    (3) An evaluation of the benefits and costs of the proposed 
action and the main alternatives identified by the analysis.
    To properly evaluate the benefits and costs of regulations and 
their alternatives, you will need to do the following:
    [sbull] Explain how the actions required by the rule are linked 
to the expected benefits. For example, indicate how additional 
safety equipment will reduce safety risks. A similar analysis should 
be done for each of the alternatives.
    [sbull] Identify a baseline. Benefits and costs are defined in 
comparison with a clearly stated alternative. This is normally a 
``no action'' baseline, what the world would be like if the proposed 
rule was not adopted.
    [sbull] Identify the expected undesirable side-effects and 
ancillary benefits of the proposed regulatory action and the 
alternatives. These should be added to the direct costs and benefits 
as appropriate.
    With this information, you should be able to assess 
quantitatively the benefits and costs of the proposed rule and its 
alternatives. When your analysis is complete, you should present a 
summary of the benefit and cost estimates for each alternative, 
sometimes called a ``regulatory accounting statement,'' so that 
readers can evaluate them.
    As you proceed through your regulatory analysis, you should seek 
out the opinions of those who will be directly affected by the 
regulation you are considering as well as the views of those 
individuals and organizations with special knowledge or insight into 
the regulatory issues. Consultation can be useful in making sure 
your analysis addresses all of the relevant issues and that you have 
access to all the pertinent data. Early consultation can be 
especially helpful. You should not limit consultation to the final 
stages of your analytical efforts.
    A good analysis is transparent. It should be possible for anyone 
reading the report to see clearly how you arrived at your estimates 
and conclusions. For transparency's sake, you should state in your 
report what assumptions were used, such as the discount rates or the 
monetary value of a statistical life. It is usually helpful to 
provide a sensitivity analysis to reveal whether, and to what 
extent, the results of the analysis are influenced by plausible 
changes in the main assumptions.
    You will find that you cannot conduct a good regulatory analysis 
according to a formula. The conduct of high-quality analysis 
requires competent professional judgment. Different regulations may 
call for different emphases in the analysis, depending on the nature 
and complexity of the regulatory issues and the sensitivity of the 
benefit and cost estimates to the key assumptions.

I. Why Regulatory Action is Needed

    Before proceeding with a regulatory action, you must demonstrate 
that the proposed action is necessary. Executive Order 12866 states 
that ``Each agency shall identify the problem that it intends to 
address (including, where applicable, the failures of private 
markets or public institutions that warrant new agency action) as 
well as assess the significance of that problem.'' This means that 
you should try to explain whether the action is intended to address 
a significant market failure or to meet some other compelling public 
need such as improving governmental processes or promoting 
distributional fairness, privacy, or personal freedom. If you are 
trying to correct a significant market failure, the failure should 
be described both qualitatively and (where feasible) quantitatively, 
and you should show that a government intervention is likely to do 
more good than harm. For other interventions, you should also 
provide a demonstration of compelling social purpose and the 
likelihood of effective action.
    If your regulatory intervention results from a statutory or 
judicial directive, you should describe the specific authority for 
your action, the extent of discretion available to you, and the 
regulatory instruments you might use.

A. There Is a Market Failure or Other Social Purpose To Address

    The major types of market failure include: externality, market 
power, and inadequate or asymmetric information. Correcting market 
failures is a reason for regulation, but it is not the only reason. 
Other possible justifications include improving the functioning of 
government, removing distributional unfairness, or promoting privacy 
and personal freedom.

1. Externality

    An externality occurs when one party's actions impose 
uncompensated benefits or costs on another. Environmental problems 
are a classic case of externality--for example, the smoke from a 
factory may adversely affect the health of local residents while 
soiling the property in nearby neighborhoods. Common property 
resources that may become congested or overused, such as fisheries 
or the broadcast spectrum, represent a second example. ``Public 
goods,'' such as defense or basic scientific research, provide a 
positive externality, where provision of the good to some 
individuals cannot occur without providing the same benefits free of 
charge to other individuals.

2. Market Power

    Firms exercise market power when they reduce output below what 
would be offered in a competitive industry. They may exercise market 
power collectively or unilaterally. Government action can be a 
source of market power, for example, if regulatory actions exclude 
low-cost imports. Generally, regulations that increase market power 
should be avoided. However, there are some circumstances in which 
government may choose to validate a monopoly. If a market can be 
served at lowest cost only when production is limited to a single 
producer--local gas and electricity distribution services, for 
example--a natural monopoly is said to exist. In such cases, the 
government may choose to approve the monopoly and to regulate its 
prices and production decisions.

3. Inadequate or Asymmetric Information

    Market failures may also result from inadequate or asymmetric 
information. The market will often supply less than the appropriate 
level of information because it is infeasible to exclude people from 
reaping the benefits from the information others have provided even 
though they have not paid for the information. The providers will 
not willingly supply the socially optimal quantity of information, 
unless they are paid for it, and that may not be possible.
    Because information, like other goods, is costly, your 
evaluation will need to do more than demonstrate the possible 
existence of less than optimal or asymmetric information. Even 
though the market may supply a less than an optimal amount of 
information, the amount it does supply may be reasonably adequate 
and therefore not require government regulation. Sellers do have an 
incentive to provide information through advertising that can 
increase sales by highlighting distinctive characteristics of their 
products. Buyers may also obtain reasonably adequate information 
about product characteristics through other channels, for example, 
if a buyer's search costs are low (as when the quality of a good can 
be determined by inspection at the point of sale), if a buyer has 
previously used the product, if the seller offers a warranty, or if 
adequate information is provided by third parties.
    In the case of uncertain information about low-probability high-
consequence events,

[[Page 5515]]

markets may underreact or overreact depending on the rules-of-thumb 
and other mental assumptions that people use to cope with difficult 
issues. Regulators should be aware of such mental quirks and not 
adopt policies based on a misunderstanding of the underlying 
reality.

4. Other Social Purposes

    There are justifications for regulations in addition to 
correcting market failures. A regulation may be appropriate when you 
have a clearly identified measure that can make government operate 
more efficiently. In other cases, regulation may be used to reduce 
unfairness. Regulatory action may also be appropriate to protect 
privacy or to promote civil rights or permit more personal freedom.

B. Showing That Regulation at the Federal Level Is the Best Way To 
Solve the Problem

    Even where a market failure clearly exists, you should consider 
other means of dealing with the failure before turning to 
regulation. Alternatives to regulation include the courts acting 
through the product liability system, antitrust enforcement, 
consumer-initiated litigation, or workers' compensation systems.
    In assessing whether Federal regulation is the best solution, 
you should also consider the possibility of regulation at the State 
or local level. In some cases, the nature of the market failure may 
itself suggest the most appropriate governmental level of 
regulation. For example, problems that spill across State lines 
(such as acid rain whose precursors are transported widely in the 
atmosphere) are probably best addressed by Federal regulation. More 
localized problems, including those that are common to many areas, 
may be more efficiently addressed locally.
    A diversity of regulation may generate gains for the public as 
governmental units compete with each other to serve the public, but 
duplicative regulations can also be costly. Where Federal regulation 
is clearly appropriate, for example, to address interstate commerce 
issues, you should try to examine whether it would be more efficient 
to reduce State and local regulation. For example, the burdens on 
interstate commerce arising from different State and local 
regulations such as compliance costs for firms operating in several 
States, may exceed any advantages associated with the diversity of 
State and local regulation. Your analysis should consider the 
possibility of reducing as well as expanding State and local 
rulemaking.
    The role of federal regulation in facilitating U.S. 
participation in global markets should also be considered. 
Harmonization of U.S. and international rules may require a strong 
Federal regulatory role. Concerns that new U.S. rules could act as 
non-tariff barriers to imported goods should be evaluated carefully.

C. The Presumption Against Economic Regulation

    Government actions can be unintentionally harmful, and even 
useful regulations can impede the efficiency with which markets 
function. For this reason, there is a presumption against certain 
types of regulatory action. In light of both economic theory and 
actual experience, a particularly demanding burden of proof is 
required to demonstrate the need for any of the following types of 
regulations:
    [sbull] Price controls in competitive markets;
    [sbull] Production or sales quotas in competitive markets;
    [sbull] Mandatory uniform quality standards for goods or 
services if the potential problem can be adequately dealt with 
through voluntary standards or by disclosing information of the 
hazard to buyers or users; or
    [sbull] Controls on entry into employment or production, except 
(a) where indispensable to protect health and safety (e.g., FAA 
tests for commercial pilots) or (b) to manage the use of common 
property resources (e.g., fisheries, airwaves, Federal lands, and 
offshore areas).

II. Alternative Approaches To Consider

    Once you have determined that Federal regulatory action is 
appropriate, you will need to consider alternative regulatory 
approaches. Ordinarily, it will be possible to eliminate some 
alternatives through a preliminary analysis, leaving a manageable 
number of alternatives to be evaluated according to the formal 
principles of the Executive Order. The number and choice of 
alternatives selected for detailed analysis is a matter of judgment. 
There must be some balance between thoroughness and the practical 
limits on your analytical capacity. With this qualification in mind, 
you should nevertheless explore modifications of some or all of a 
regulation's attributes or provisions to identify appropriate 
alternatives. The following is a list of alternative regulatory 
actions that you should consider:

A. Different Choices Defined by Statute

    When a statute establishes a specific regulatory requirement and 
the agency plans to exercise its discretion to adopt a more 
stringent standard, you should examine the benefits and costs of 
reasonable alternatives that reflect the range of the agency's 
statutory discretion, including the specific statutory requirement.

B. Different Compliance Dates

    The timing of a regulation may also have an important effect on 
its net benefits. For example, costs of a regulation may vary 
substantially with different compliance dates for an industry that 
requires a year or more to plan its production runs efficiently. In 
this instance, a regulation that provides sufficient lead time is 
likely to achieve its goals at a much lower overall cost than a 
regulation that is effective immediately, although delay would also 
typically lower the value of the benefits.

C. Different Enforcement Methods

    Compliance alternatives for Federal, State, or local enforcement 
include on-site inspections, periodic reporting, and compliance 
penalties structured to provide the most appropriate incentives. 
When alternative monitoring and reporting methods vary in their 
costs and benefits, you should consider promising alternatives in 
identifying the most appropriate enforcement framework. For example, 
in some circumstances random monitoring or parametric monitoring 
will be less expensive and nearly as effective as continuous 
monitoring in achieving compliance.

D. Different Degrees of Stringency

    In general, both the benefits and costs associated with a 
regulation will increase with the level of stringency (although 
marginal costs generally increase with stringency, whereas marginal 
benefits may decrease). You should study alternative levels of 
stringency to understand more fully the relationship between 
stringency and the size and distribution of benefits and costs among 
different groups.

E. Different Requirements for Different Sized Firms

    You should consider setting different requirements for large and 
small firms basing any difference in the standards on perceptible 
differences in the costs of compliance or in the expected benefits. 
The balance of costs and benefits can shift depending on the size of 
the firms being regulated. Small firms may find it more costly to 
comply with regulation, especially if there are large fixed costs 
required for regulatory compliance. On the other hand, it is not 
efficient to place a heavier burden on one segment of a regulated 
industry solely because it can better afford the higher cost; this 
has the potential to load costs on the most productive firms, costs 
that are disproportionate to the damages they create.
    You should also remember that a rule with a significant impact 
on a substantial number of small entities will trigger the 
requirements set forth in the Regulatory Flexibility Act.

F. Different Requirements for Different Geographic Regions

    Rarely do all regions of the country benefit uniformly from 
government regulation and it is also unlikely that costs will be 
uniformly distributed across the country. Where there are 
significant regional variations in costs and/or benefits, you should 
consider the possibility of setting different requirements for the 
different regions.

G. Performance Standards Rather Than Design Standards

    Performance standards are generally superior to engineering or 
design standards because performance standards give the regulated 
parties the flexibility to achieve regulatory objectives in the most 
cost-effective way. This is only possible, of course, if there is 
more than one feasible way to meet the performance standard. In 
general, you should consider setting a performance standard if 
performance can be measured or reasonably imputed and where 
controlling performance provides a scope appropriate to the problem 
the regulation seeks to address. For example, compliance with air 
emission standards can be allowed on a plant-wide, firm-wide, or 
region-wide basis rather than vent by vent, provided this does not 
produce unacceptable local air quality outcomes (such as ``hot 
spots'' from local pollution concentration).

[[Page 5516]]

H. Market-Oriented Approaches Rather Than Direct Controls

    Market-oriented approaches that use economic incentives should 
be explored. These alternatives include fees, penalties, subsidies, 
marketable permits or offsets, changes in liability or property 
rights (including policies that alter the incentives of insurers and 
insured parties), and required bonds, insurance or warranties.

I. Informational Measures Rather Than Regulation

    If intervention is contemplated to address a market failure that 
arises from inadequate or asymmetric information, informational 
remedies will often be the preferred approach. Measures to improve 
the availability of information include government establishment of 
a standardized testing and rating system (the use of which could be 
made mandatory or left voluntary), mandatory disclosure requirements 
(e.g., by advertising, labeling, or enclosures), and government 
provision of information (e.g., by government publications, 
telephone hotlines, or public interest broadcast announcements). A 
regulatory measure to improve the availability of information 
(particularly about the concealed characteristics of products) 
provides consumers a greater choice, than a mandatory product 
standard or ban.
    Specific informational measures should be evaluated in terms of 
their benefits and with a comprehensive view of their costs. Some 
effects of informational measures are easily overlooked. For 
example, the costs of a mandatory disclosure requirement for a 
consumer product will include not only the cost of gathering and 
communicating the required information, but also the loss of net 
benefits of any information displaced by the mandated information, 
the effect of providing too much information that is ignored or 
information that is misinterpreted, and inefficiencies arising from 
the incentive that mandatory disclosure may give to overinvest in a 
particular characteristic of a product or service.
    Where information on the benefits and costs of alternative 
informational measures is insufficient to provide a clear choice 
between them, you should consider the least intrusive informational 
alternative sufficient to accomplish the regulatory objective. For 
example, to correct an informational market failure it may be 
sufficient for government to establish a standardized testing and 
rating system without mandating its use, because competing firms 
that score well according to the system should thereby have an 
incentive to publicize the fact.

III. Analytical Approaches

    Both benefit-cost analysis (BCA) and cost-effectiveness analysis 
(CEA) provide a systematic framework for identifying and evaluating 
the likely outcomes of alternative regulatory choices. A major 
rulemaking should be supported by both types of analysis wherever 
possible. Specifically, you should prepare a CEA for all major 
rulemakings for which the primary benefits are improved public 
health and safety. You should also perform a BCA for major health 
and safety rulemakings to the extent that valid monetary values can 
be assigned to the expected health and safety outcomes. For all 
other major rulemakings, you should carry out a BCA. If some of the 
primary benefit categories cannot be expressed in monetary units, 
you should also conduct a CEA.

A. Benefit-Cost Analysis

    The distinctive feature of BCA is that both benefits and costs 
are expressed in monetary units, which allows you to evaluate 
different regulatory options with a variety of attributes using a 
common measure. This can be especially helpful in choosing the 
appropriate scope for your regulatory intervention. By measuring 
incremental benefits and costs of successively more stringent 
regulatory alternatives, you can identify the alternative that 
maximizes societal net benefits.
    The size of net benefits, the absolute difference between total 
benefits and total costs, is the key to determining whether one 
policy is more efficient than another. That will be achieved at the 
point where the cost of a marginal increment in regulatory 
stringency is just matched by the marginal benefit. The ratio of 
total benefits to total costs is not a meaningful indicator of net 
benefits and should not be used for that purpose. It is well known 
that considering such ratios alone can yield misleading results.
    Even when a benefit or cost cannot be expressed in monetary 
units, you should still try to measure it in terms of its physical 
units, and if it is not possible to measure the physical units, you 
should still describe the benefit or cost qualitatively. When 
important benefits and costs cannot be expressed in monetary units, 
BCA is less useful, and it can even be misleading, because the 
calculation of net benefits in such cases does not provide a full 
evaluation of all relevant benefits and costs.
    You should exercise professional judgment in identifying the 
importance of non-quantifiable factors, where they exist, and assess 
as best you can how they might change the ranking of alternatives 
based on estimated net benefits. Non-quantifiable benefits or costs 
may be important in tipping an analysis one way or the other, but 
you should not use non-quantifiables as ``trump cards,'' especially 
in cases where the measured net benefits overwhelmingly favor a 
particular alternative.

B. Cost-Effectiveness Analysis (CEA)

    Cost-effectiveness analysis provides a rigorous way to identify 
options that achieve the most effective use of the resources 
available without requiring you to monetize all of the relevant 
benefits or costs. Generally, cost-effectiveness analysis is most 
helpful for comparing a set of regulatory actions with the same 
primary outcome (e.g., an increase in the acres of wetlands 
protected) or multiple outcomes that can be integrated into a single 
numerical index (e.g., units of health improvement).
    Cost-effectiveness results based on averages need to be treated 
with great care. They suffer from the same drawbacks as benefit-cost 
ratios. The alternative that exhibits the smallest cost-
effectiveness ratio may not be the one that maximizes net benefits, 
just as the alternative with the highest benefit-cost ratio is not 
always the one that maximizes net benefits. Incremental cost-
effectiveness analysis (discussed below) can help to avoid mistakes 
that can occur when policy choices are based on average cost-
effectiveness.
    CEA can also be misleading when the ``effectiveness'' measure 
does not weight appropriately the consequences of each of the 
alternatives. For example, when effectiveness is measured in tons of 
reduced pollutant emissions, cost-effectiveness estimates will be 
misleading unless the reduced emissions of diverse pollutants result 
in the same health and environmental benefits.
    When you have identified a range of alternatives (e.g., 
different levels of stringency), you should determine the cost-
effectiveness of each option compared with the baseline as well as 
its incremental cost-effectiveness compared with successively more 
stringent requirements. Ideally, your CEA would present an array of 
cost-effectiveness estimates that would allow comparison across 
different alternatives. However, analyzing all possible combinations 
is not practical where there are many options (including possible 
interaction effects). In these cases, you should use your judgment 
to choose reasonable alternatives for careful consideration.
    Accuracy of CEA depends on the consistency of analysis across a 
diverse set of possible regulatory actions. To achieve consistency, 
you need to construct very carefully the two key components of any 
CEA: The cost and the ``effectiveness'' or performance measures for 
the alternative policy options.
    With regard to measuring costs, you should be sure to include 
all the relevant costs to society--whether public or private. 
Rulemakings may also yield cost savings (e.g., energy savings 
associated with new technologies). The numerator in the cost-
effectiveness ratio should reflect net costs, defined as the gross 
cost incurred in meeting the requirements (sometimes called 
``total'' costs) minus any cost savings.
    Where regulation may yield several different beneficial 
outcomes, a cost-effectiveness comparison becomes more difficult to 
interpret because there is more than one measure of effectiveness to 
incorporate in the analysis. To arrive at a single measure you will 
need to weigh the value of disparate benefit categories, but this 
computation raises some of the same difficulties you will encounter 
in BCA. If you can assign a reasonable monetary value to all of the 
regulation's different benefits, then you should do so, but in that 
case you will be doing BCA not CEA.
    When you can estimate the monetary value of some but not all of 
the ancillary benefits of a regulation, but cannot assign a monetary 
value to the primary measure of effectiveness, you should subtract 
the monetary estimate of the ancillary benefits from the gross cost 
estimate to yield an estimated net cost. This net cost estimate for 
the rule may turn out to be negative--that is, the other benefits 
exceed the cost of the rule. If you are unable to estimate the value 
of

[[Page 5517]]

some of the ancillary benefits, the cost-effectiveness ratio will be 
overstated, and this should be acknowledged in your analysis. CEA 
does not yield an unambiguous choice when there are benefits that 
have not been incorporated in the net cost estimates.
    You also may use CEA to compare regulatory alternatives in cases 
where the statute specifies the level of benefits to be achieved.

C. The Effectiveness Metric for Public Health and Safety 
Rulemakings

    The validity of cost-effectiveness analysis depends on the 
application of appropriate ``effectiveness'' or performance measures 
that permit comparison of the regulatory options being considered. 
Agencies currently use a variety of methods for determining 
effectiveness, including number of lives saved, number of equivalent 
lives saved, and number of quality-adjusted life years saved. It is 
difficult for OMB to draw meaningful cost-effectiveness comparisons 
between rulemakings that employ different cost-effectiveness 
measurements. As a result, agencies should provide OMB with the 
underlying data, including mortality and morbidity data, the age 
distribution of the affected population, and the severity and 
duration of disease conditions or trauma, so that OMB can make 
apples-to-apples comparisons between rulemakings that employ 
different measures.

D. Evaluating Distributional Effects

    Both benefit-cost analysis and cost-effectiveness analysis tend 
to focus on economic efficiency. Decision-makers may desire (or be 
required) to consider other values as well such as fairness. Your 
regulatory analysis should provide a separate description of 
distributional effects (i.e., how both benefits and costs are 
distributed among sub-populations of particular concern) so that 
decisionmakers can properly consider them along with the effects on 
economic efficiency. E.O. 12866 authorizes this approach. The 
presentation of distributional effects is especially important when 
you have reason to believe that there will be significant 
disparities in how your regulatory actions may affect different 
groups of people. Effects that fall most heavily on those least able 
to bear the cost should be highlighted for policymakers' attention. 
Actions that benefit small groups at the expense of the larger 
public also deserve special scrutiny.

IV. Identifying and Measuring Benefits and Costs

    This Section provides guidelines for your preparation of the 
benefit and cost estimates required by Executive Order No. 12866 and 
the ``Regulatory Right-to-Know Act.'' The preliminary analysis 
described in Sections I, II and III will help you identify a 
workable number of alternatives for consideration in your analysis 
and an appropriate analytical approach to use.

A. How To Develop a Baseline

1. General Issues

    You need to measure the benefits and costs of a rule against a 
baseline. This baseline should be the best assessment of the way the 
world would look absent the proposed action. The choice of a proper 
baseline may require consideration of a wide range of potential 
factors, including:
    [sbull] Evolution of the market,
    [sbull] Changes in external factors affecting expected benefits 
and costs,
    [sbull] Changes in regulations promulgated by the agency or 
other government entities, and the degree of compliance by regulated 
entities with other regulations.
    You may often find it reasonable to forecast that the world 
absent the regulation will resemble the present. If this is the 
case, however, your baseline should reflect the future effect of 
current programs and policies. For review of an existing regulation, 
a baseline assuming ``no change'' in the regulatory program 
generally provides an appropriate basis for evaluating reasonable 
regulatory alternatives. When more than one baseline is reasonable 
and the choice of baseline will significantly affect estimated 
benefits and costs, you should consider measuring benefits and costs 
against alternative baselines. In doing so you can analyze the 
effects on benefits and costs of making different assumptions about 
other agencies' regulations, or the degree of compliance with your 
own existing rules. In all cases, you must evaluate benefits and 
costs against the same baseline. You should also discuss the 
reasonableness of the baselines used in these sensitivity analyses.
    EPA's 1998 final PCB disposal rule provides a good example. EPA 
used several alternative baselines, each reflecting a different 
interpretation of existing regulatory requirements. In particular, 
one baseline reflected a literal interpretation of EPA's 1979 rule 
and another the actual implementation of that rule in the year 
immediately preceding the 1998 revision. The use of multiple 
baselines illustrated the substantial effect changes in EPA's 
implementation policy could have on the cost of a regulatory 
program. In the years after EPA adopted the 1979 PCB disposal rule, 
changes in EPA policy--especially allowing the disposal of 
automobile ``shredder fluff'' in municipal landfills--reduced the 
cost of the program by more than $500 million per year.
    In some cases, substantial portions of a rule may simply restate 
statutory requirements that would be self-implementing even in the 
absence of the regulatory action. In these cases, you should use a 
pre-statute baseline. If you are able to separate out those areas 
where the agency has discretion, you may also use a post-statute 
baseline to evaluate the discretionary elements of the action.

2. Evaluation of Alternatives

    You should decide on and describe the number and choice of 
alternatives available to you and discuss the reasons for your 
choice. Alternatives that rely on incentives and offer increased 
flexibility are often more cost-effective than more prescriptive 
approaches. For example, user fees and information dissemination may 
be good alternatives to direct command-and-control regulation. 
Within a command-and-control regulatory program, performance-based 
standards generally offer advantages over standards specifying 
design, behavior, or manner of compliance.
    You should carefully consider all appropriate alternatives for 
the key attributes or provisions of the rule. Section II above 
outlines examples of appropriate alternatives.
    Where there is a ``continuum'' of alternatives for a standard 
(for example, the level of stringency), you should generally analyze 
at least three options:
    [sbull] The option serving as a focus for the Agency or program 
office regulatory initiative;
    [sbull] A more stringent option that achieves additional 
benefits (and presumably costs more) beyond those realized by the 
preferred option; and
    [sbull] A less stringent option that costs less (and presumably 
generates fewer benefits) than the preferred option.
    You should choose options that are reasonable alternatives 
deserving careful consideration. In some cases, the regulatory 
program will focus on an option that is near or at the limit of 
technical feasibility or that fully achieves the objectives of the 
regulation. In these cases, the analysis would not need to examine a 
more stringent option. For each of the options analyzed, you should 
compare the anticipated benefits to the corresponding costs. It is 
not adequate to simply compare the Agency's preferred option to a 
``do nothing'' or ``status quo'' option.
    Whenever you can compare the benefits and costs of alternative 
options, you should present them in terms of both total and 
incremental benefits and costs. You must measure total benefits and 
costs against the same baseline. By contrast, you should present 
incremental benefits and costs as differences from the corresponding 
estimates associated with the next less-stringent alternative.\17\ 
It is important to emphasize incremental effects are simply 
differences between successively more stringent alternatives.
---------------------------------------------------------------------------

    \17\ For the least stringent alternative, you should estimate 
the incremental benefits and costs relative to the baseline. Thus, 
for this alternative, the incremental effects would be the same as 
the corresponding totals.
---------------------------------------------------------------------------

    In some cases, you may decide to analyze a wide array of 
options. For example, DOE's 1998 rule setting new energy efficiency 
standards for refrigerators and freezers analyzed a large number of 
options and produced a rich amount of information on their relative 
effects. This analysis--examining more than 20 alternative 
performance standards for one class of refrigerators with top-
mounted freezers--enabled DOE to select an option that produced $200 
more in net benefits per refrigerator than the least attractive 
option.
    You should analyze the benefits and costs of different 
regulatory provisions separately when a rule includes a number of 
distinct provisions. If the existence of one provision affects the 
benefits or costs arising from another provision, the analysis 
becomes more complicated, but the need to examine provisions 
separately remains. In this case, you should evaluate each specific 
provision by determining the net benefits of the proposed regulation 
with and without it.

[[Page 5518]]

    Analyzing all possible combinations of provisions in this way is 
impractical if their number is large and interaction effects are 
widespread. You need to use judgment to select the most significant 
or relevant provisions for such analysis.
    You should also discuss the statutory requirements that affect 
the selection of regulatory approaches. If legal constraints prevent 
the selection of a regulatory action that best satisfies the 
philosophy and principles of Executive Order No. 12866, you should 
identify these constraints and estimate their opportunity cost.

B. How To Develop Benefit and Cost Estimates

1. Some General Considerations

    You should discuss the expected benefits and costs of the 
selected regulatory option and any reasonable alternatives for each 
rule. How is the proposed action expected to provide the anticipated 
benefits and costs? What are the monetized values of the potential 
real incremental benefits and costs to society? To present your 
results, you should:
    [sbull] Include separate schedules of the monetized benefits and 
costs that show the type and timing of benefits and costs and 
express the estimates in this table in constant, undiscounted 
dollars (for more on discounting see part C below).
    [sbull] List the benefits and costs you can quantify, but cannot 
monetize, including their timing.
    [sbull] Describe benefits and costs you cannot quantify.
    [sbull] Identify or cross-reference the data or studies on which 
you base the benefit and cost estimates.
    Similarly, you should discuss the expected cost of the selected 
regulatory option and any reasonable alternatives.
    When benefit and cost estimates are uncertain (for more on this 
see part D below):
    [sbull] You should calculate benefits (including benefits of 
risk reductions) and costs that reflect the full probability 
distribution of potential consequences. Where possible, present 
probability distributions of benefits and include the upper and 
lower bound estimates as complements to central tendency and other 
estimates.
    [sbull] If fundamental scientific disagreement or lack of 
knowledge prevents construction of a scientifically defensible 
probability distribution, you should describe benefits under 
plausible assumptions and characterize the evidence underlying each 
alternative.

2. The Key Concepts Needed To Estimate Benefits and Costs

    ``Opportunity cost'' is the appropriate concept for valuing both 
benefits and costs. The principle of ``willingness-to-pay'' (WTP) 
captures the notion of opportunity cost by measuring what 
individuals are willing to forgo to enjoy a particular benefit. In 
general, economists tend to view WTP as the most appropriate measure 
of opportunity cost, but an individual's ``willingness-to-accept'' 
(WTA) compensation for not receiving the improvement can also 
provide a valid measure of opportunity cost. WTP and WTA are 
comparable measures when the change being evaluated is small and 
especially where there are reasonably close substitutes available. 
WTP is generally considered to be more readily measurable and to 
provide a more conservative measure of benefits. Adoption of WTP as 
the measure of value implies that individual preferences of the 
affected population should be a guiding factor in the regulatory 
decision and that the existing distribution of income is acceptable.
    Market prices provide the richest data for estimating benefits 
based on willingness-to-pay if the goods and services affected by 
the regulation trade in well-functioning free markets. The 
opportunity cost of an alternative includes the value of the 
benefits forgone as a result of choosing that alternative. The 
opportunity cost of banning a product--a drug, food additive, or 
hazardous chemical--is the forgone net benefit (i.e., lost consumer 
and producer surplus \18\) of that product, taking into account the 
mitigating effects of potential substitutes. The use of any resource 
has an opportunity cost regardless of whether the resource is 
already owned or has to be purchased. That opportunity cost is equal 
to the net benefit the resource would have provided in the absence 
of the requirement. For example, if regulation of an industrial 
plant affects the use of additional land or buildings within the 
existing plant boundary, the cost analysis should include the 
opportunity cost of using the additional land or facilities. To the 
extent possible, you should monetize any such forgone benefits and 
add them to the other costs of that alternative. You should also try 
to monetize any costs averted as a result of an alternative and 
either add it to the benefits or subtract it from the costs of that 
alternative.
---------------------------------------------------------------------------

    \18\ Consumers' surplus is the difference between what a 
consumer pays for a unit of a good and the maximum amount the 
consumer would be willing to pay for that unit. It is measured by 
the area between the price and the demand curve for that unit. 
Producers' surplus is the difference between the amount a producer 
is paid for a unit of a good and the minimum amount the producer 
would accept to supply that unit. It is measured by the area between 
the price and the supply curve for that unit.
---------------------------------------------------------------------------

    Estimating benefits and costs when market prices are hard to 
measure or markets do not exist is more difficult. In these cases, 
regulatory analysts need to develop appropriate proxies that 
simulate market exchange. Estimates of willingness-to-pay based on 
observable and replicable behavior generally are the most reliable. 
As one example, analysts sometimes use ``hedonic price equations'' 
based on multiple regression analysis of market behavior to simulate 
market prices for the commodity of interest.\19\ Going through the 
analytical process of deriving benefit estimates by simulating 
markets may also suggest alternative regulatory strategies that 
create such markets.
---------------------------------------------------------------------------

    \19\ The hedonic technique allows analysts to develop an 
estimate of the price for specific attributes associated with a 
product. For example, houses are a product characterized by a 
variety of attributes including the number of rooms, total floor 
area, and type of heating and cooling. If there are enough data on 
transactions in the housing market, it is possible to develop an 
estimate of the implicit price for specific attributes, such as the 
implicit price of an additional bathroom or for central air 
conditioning. This technique can be extended, as well, to develop an 
estimate for the implicit price of public goods that are not 
directly traded in markets. For example, the analyst can develop 
implicit price estimates for public goods like air quality and 
access to public parks by adding measures for these attributes to 
the hedonic price equation for housing.
---------------------------------------------------------------------------

    Other approaches may be necessary when a commodity is not 
directly or indirectly traded in markets. Valuation estimates 
developed using these approaches are less certain than estimates 
derived from market transactions or based on behavior that is 
observable and replicable. While innovative estimation methods are 
sometimes necessary, they increase the need for quality control to 
ensure that estimates conform closely to what would be observed if 
markets did exist.
    Ultimately, the method selected to develop a monetized estimate 
should focus on a value for the specific attribute or end-point of 
interest (for example, lost school-days). As a cautionary note, the 
transfer of a valuation estimate from an unrelated context (say, for 
example, the valuation of lost work-days from labor market studies) 
as a measure of the value of the attribute (lost school-days) may 
yield an incorrect benefits estimate.
    You also need to guard against double-counting, since some 
attributes are embedded in other broader measures. For example, when 
a regulation improves the quality of the environment in a community, 
the value of real estate in the community generally rises to reflect 
the greater attractiveness of living in a better environment. Simply 
adding the increase in property values to the estimated value of 
improved public health would be double counting if the increase in 
property values reflects the improvement in public health. To avoid 
this problem you should separate the embedded effects on the value 
of property arising from improved public health. At the same time, 
of course, valuation estimates that fail to incorporate the 
consequence of land use changes will not capture the full effects of 
regulation.

3. How To Use Market Data Directly

    Economists ordinarily consider market prices as the most 
accurate measure of the value of goods and services to society. In 
some instances, however, market prices may not reflect the true 
value of goods and services. If a regulation involves changes to 
goods or services where the market price is not a good measure of 
the value to society, you should use an estimate that reflects the 
true value to society (often called the ``shadow price''). For 
example, suppose a particular air pollutant damages crops. One of 
the benefits of controlling that pollutant is the value of the 
increase in crop yield as a result of the controls. That value is 
typically measured by the price of the crop. If the price is held 
above the market price by a government program that affects supply, 
however, a value estimate based on this price would overstate the 
true benefits of controlling the pollutant. In this case, you should 
calculate the value to society of the increase in crop yields by 
estimating the

[[Page 5519]]

shadow price, which reflects the value to society of the marginal 
use of the crop. If the marginal use is for exports, you should use 
the world price. If the marginal use is to add to very large surplus 
stockpiles, you should use the value of the last units released from 
storage minus storage cost. If stockpiles are large and growing, the 
shadow price may be low or even negative.

4. Indirect Uses of Market Data

    Some benefits or costs correspond to goods or services that are 
indirectly traded in the marketplace. Their value is reflected in 
the prices of related goods that are directly traded. Examples 
include reductions in health and safety risks, the use-values of 
environmental amenities (for example, recreational fishing or hiking 
and camping), and the value of improved scenic visibility. You 
should use willingness-to-pay measures as the basis for estimating 
the monetary value of such indirectly traded goods. When practical 
obstacles prevent the use of direct ``revealed preference'' methods 
based on actual market behavior to measure willingness-to-pay, you 
may consider the use of alternative ``stated preference'' methods 
based on survey techniques. As discussed below, you may use 
alternative methods where there are practical obstacles to the 
accurate application of direct willingness-to-pay methodologies.
    A variety of methods have been developed for estimating 
indirectly traded goods or services. Examples include estimates of 
the value of environmental amenities derived from travel-cost 
studies, hedonic price models that measure differences or changes in 
the value of land, and statistical studies of occupational-risk 
premiums in wage rates. Under each of these methods, care is needed 
in designing protocols for reliably estimating the value of these 
attributes. For example, the use of occupational-risk premiums can 
be a source of bias because the risks, when recognized, may be 
voluntarily rather than involuntarily assumed,\20\ and the sample of 
individuals upon which premium estimates are based may be skewed 
toward more risk-tolerant people.
---------------------------------------------------------------------------

    \20\ Distinctions between ``voluntary'' and ``involuntary'' are 
arbitrary and should be treated with care. These terms are merely a 
proxy for differences in the cost of avoiding risks.
---------------------------------------------------------------------------

    Many goods that are affected by regulation--such as preserving 
environmental or cultural amenities--are not traded directly in 
markets. These ``non-market'' values arise both from use and non-
use. Estimation of these values is difficult because of the absence 
of an organized market. However, overlooking or ignoring these 
values in your regulatory analysis may significantly understate the 
benefits of regulatory actions.
    a. Use Values--the value an individual derives from directly 
using the resource now (or in the future). Use values are associated 
with activities such as swimming, hunting, and hiking where the 
individual comes into direct contact with the environment. These 
values also include commercial uses of natural resources, such as 
fishing, and consumptive uses, such as clean air and drinking water.
    b. Nonuse Values--the value an individual places on an 
environmental resource even though the individual will not use the 
resources now or in the future. Non-use value includes bequest, 
existence and option values.
    Use values are typically estimated through ``revealed'' 
preference models, which rely on observed behavior. It is important 
that you utilize revealed preference models that adhere to economic 
criteria that are consistent with utility maximizing behavior 
[example of RUM study]. Examining averting or defensive expenditures 
(as distinct from avoided cost of compliance with other regulatory 
requirements) is another way to estimate use values. This approach 
may reveal a minimum willingness to pay, particularly if there is 
reason to believe the market for averting behavior is not in 
equilibrium.

5. Contingent Valuation

    Contingent valuation (CV) methods have become increasingly 
common for estimating indirectly traded benefits. However, the 
reliance of these methods on stated preferences regarding 
hypothetical scenarios and the complexities of the goods being 
valued by this technique raise issues about its accuracy in 
estimating willingness to pay compared to methods based on 
(indirect) revealed preferences. Accordingly, value estimates 
derived from contingent-valuation studies require greater analytical 
care than studies based on observable behavior. For example, the 
contingent valuation instrument must portray a realistic choice 
situation for respondents--where the hypothetical choice situation 
corresponds closely with the policy context to which the estimates 
will be applied. Below we provide a more complete list of important 
criteria that affect the reliability of results from contingent 
valuation surveys. The practice of contingent valuation is rapidly 
evolving, and agencies relying upon this tool for valuation should 
judge the reliability of their estimates using this technique in 
light of advances in the state of the art.
    Some types of goods, such as preserving environmental or 
cultural amenities apart from their use and direct enjoyment by 
people, are not traded directly or indirectly in markets. The 
practical obstacles to accurate measurement are similar to (but 
generally more severe than) those arising with respect to indirectly 
traded goods and services, principally because there are no related 
market transactions to provide data for willingness-to-pay 
estimates.
    For many of these goods, particularly goods providing a 
substantial ``nonuse'' component of value, contingent-valuation 
methods may provide the only analytical approaches currently 
available for estimating values. The absence of observable and 
replicable behavior with respect to the good or service, combined 
with the complex and often unfamiliar nature of the goods being 
valued, argues for great care in the design and execution of 
surveys, rigorous analysis of the results, and a full 
characterization of the uncertainties in the estimates to meet best 
practices in the use of this method. Current ``best practices'' for 
CV surveys include the following:

Sampling, etc.

    [sbull] Probability sampling: this usually requires the guidance 
of a professional sampling statistician;
    [sbull] Low non-response rate: high non-response rates would 
make the results unreliable;
    [sbull] Personal interview: face-to-face and telephone 
interviews may elicit more reliable information.

Survey Instrument Design

    [sbull] Accurate description: adequate information must be 
provided to respondents about the good or amenity they are being 
asked to value;
    [sbull] Reminder of substitute commodities: respondents must be 
reminded of substitute commodities, and this reminder should be 
introduced forcefully and directly prior to the main valuation 
question;
    [sbull] Reminder of alternative expenditure possibilities: 
respondents must be reminded that their willingness to pay would 
reduce their expenditures for other goods;
    [sbull] Deflection of transaction value: the survey should be 
designed to deflect the general ``warm glow'' of giving or a 
particular dislike of the source of the problem being addressed.

Transparency and Replicability of Results

    [sbull] Reporting: CV studies should make clear the definition 
of population sampled, sampling frame used, overall sample non-
response rate, and item non-response rate on all important 
questions; the report should also include the exact wording and 
sequence of questionnaire and other communications to respondents;
    [sbull] Data quality: special care should be taken to ensure 
compliance with OMB's ``Guidelines for Ensuring and Maximizing the 
Quality, Objectivity, Utility, and Integrity of Information 
Disseminated by Federal Agencies' (``data quality guidelines'') 
http://www.whitehouse.gov/omb/fedreg/reproducible.html;
    [sbull] Since there is no economic theory that can describe 
hypothetical behavior, it is important to assure the respondents 
that their decisions are consequential and may influence policy.
    As with all other estimates of benefits and costs, your CV 
results should be consistent with economic theory. First, as price 
increases and the amount of the good is held constant, the number of 
respondents willing to pay a particular price should fall. This is 
akin to negative own-price elasticity for a marketed good. Second, 
respondents should be willing to pay more for a larger amount (or 
higher quality) of the good. This is often referred to as being 
sensitive to scope. If your only test of consistency with economic 
theory is a scope test, it should be an external (split sample) test 
rather than an internal (within sample) test.

6. Benefit Transfer Methods

    In many cases, conducting an original study may not be possible 
due to the time and expense involved. The alternative to an original 
study is the use of benefit transfer methods. Benefit transfer is 
defined as the practice of transferring existing estimates of

[[Page 5520]]

non-market values from the context of study to a new context.
    Although benefit transfer offers a quick, low cost approach for 
establishing values for goods and attributes of goods, you should 
consider it as a last resort option. Several studies have documented 
difficulties in applying benefit transfer methods. If a benefit 
transfer approach is necessary, you should adopt the approach of 
transferring the entire demand function (referred to as benefit 
function transfer) rather than adopting a single point estimate 
(referred to as benefit point transfer). The former approach has 
been shown to yield more precise estimates than the latter approach.
    In conducting benefit transfer, the first step is to specify the 
value to be estimated at the policy site. The analyst should 
identify the relevant measure of the policy change at this initial 
stage. For instance, you can derive the relevant willingness-to-pay 
measure by specifying an indirect utility function. This 
identification allows an analyst to ``zero in'' on key aspects of 
the benefit transfer.
    The next step is to identify appropriate studies to conduct 
benefit transfer. In selecting transfer studies for either point 
transfers or function transfers, you should base your choices on the 
following criteria:
    a. The selected studies should be based on adequate data, sound 
empirical methods and defensible empirical techniques.
    b. The selected studies should document parameter estimates of 
the valuation function.
    c. The study context and policy context should have similar 
populations (e.g., demographic characteristics, target population 
size).
    d. The good, and the magnitude of change in that good, should be 
similar in the study and policy contexts.
    e. The relevant characteristics of the study and the policy 
contexts should be similar. For example, are they similar in the 
following respects?
    [sbull] The reversibility of the policy change
    [sbull] The degree of embedding of other values
    [sbull] The order in which the good is supplied
    [sbull] The functional relationship between the consumer surplus 
and its determinants.
    f. The distribution of property rights should be similar so that 
the analysis uses the same welfare measure. If the property rights 
in the study context support the use of willingness-to-accept (WTA) 
measures while the rights in the policy context support the use of 
willingness-to-pay (WTP) measures, benefit transfer is not 
appropriate.
    g. The availability of substitutes across study and policy 
contexts should be similar.
    Clearly, all of these criteria are difficult to meet. However, 
you should attempt to satisfy as many as possible when choosing 
studies from the existing economic literature. In addition to the 
above criteria, an analyst should keep in mind some of the 
difficulties in transferring benefit estimates or functions from one 
context to another:
    [sbull] Is the policy change irreversible?
    [sbull] Does the order in which the good is supplied affect 
valuation?
    [sbull] Is the embedding problem significant?
    [sbull] Is the assumed functional relationship between the 
consumer surplus measure and its determinants explicit and 
appropriate?
    Finally, you should not use benefit transfer in estimating 
benefits if:
    [sbull] Resources are unique or have unique attributes.
    [sbull] If the study examines a resource that is unique or has 
unique attributes, you should not transfer benefit estimates or 
functions to value a different resource and vice versa. For example, 
if a study values visibility improvements at the Grand Canyons, 
these results should not be used to value visibility improvements in 
urban areas.
    [sbull] There are significant problems with applying an ex ante 
valuation estimate to an ex post policy context. If a policy yields 
a significant change in the attributes of the good, you should not 
use the study estimates to value the change using a benefit transfer 
approach.
    [sbull] You also should not use a value developed from a study 
involving, small marginal changes in a policy context involving 
large changes in the quantity of the good.

7. Methods for Treating Nonmonetized Benefits and Costs

    Sound quantitative estimates of benefits and costs are 
preferable to qualitative descriptions of benefits and costs to help 
decision-makers understand the full effects of alternative actions. 
Although we prefer that agencies use acceptable monetized benefit 
and cost estimates, we recognize that monetizing some of the effects 
of regulations is difficult, and even quantifying some effects may 
not be feasible.

a. What To Do With Benefits and Costs That Are Difficult To Monetize?

    You should monetize quantitative estimates whenever possible. 
Use sound and defensible values or procedures to monetize costs and 
benefits, and ensure that key analytical assumptions are defensible. 
If monetization is impossible, explain why and present all available 
quantitative information. For example, if you can quantify, but 
cannot monetize, improvements in water quality and increases in fish 
populations resulting from water quality regulation, you can 
describe benefits in terms of stream miles of improved water quality 
for boaters and increases in game fish populations for anglers. You 
should describe the timing and likelihood of such effects and avoid 
double-counting of benefits when estimates of monetized and physical 
effects are mixed in the same analysis. You should also apply the 
discounting procedures described above to all quantified effects, 
whether or not you are able to monetize them.

b. What To Do With Benefits and Costs That Are Difficult To Quantify?

    If you are not even able to quantify the effects, you should 
present any relevant quantitative information along with a 
description of the unquantifiable effects. Such descriptions could 
include ecological gains, improvements in quality of life, and 
aesthetic beauty. For cases in which the presence of unquantifiable 
benefits or costs affects a policy choice, you should provide a 
clear explanation of the rationale behind the choice. Such an 
explanation could include detailed information on the nature, 
timing, likelihood, location, and distribution of the unquantified 
benefits and costs. Also, please include a summary table that lists 
all the unquantifiable benefits and costs, ordered by expected 
magnitude, if possible.

8. Monetizing Health and Safety Benefits and Costs

    We expect you to provide a benefit and cost analysis of major 
health and safety rulemakings in addition to a CEA. The BCA provides 
additional insight because (a) it provides some indication of what 
the public is willing to pay for improvements in health and safety 
and (b) it offers additional information on preferences for health 
using a different research design than is used in CEA. Since the 
health-preference methods used to support CEA and BCA have some 
different strengths and drawbacks, it is important that you provide 
decision makers with both perspectives.
    In monetizing health benefits, a willingness-to-pay measure is 
the conceptually appropriate measure as compared to other 
alternatives (e.g., cost of illness or lifetime earnings), in part 
because it attempts to capture pain and suffering and other quality-
of-life effects. Using the willingness-to-pay measure for health and 
safety allows you to directly compare your results to the other 
costs and benefits in your analysis, which will also typically be 
based on willingness to pay.
    If well-conducted, revealed-preference studies of relevant 
health and safety risks are available, you should consider using 
them in developing your monetary estimates. If appropriate revealed-
preference data are not available, you may consider whether valid 
and relevant data from stated-preference studies are available. You 
will need to use your professional judgement when you are faced with 
limited information on revealed preference and substantial 
information based on stated preference studies.
    A key advantage of stated-preference and health-utility methods 
(compared to revealed preference) is that they can be tailored in 
their design to address ranges of probabilities, types of health 
risks and specific populations affected by your rule. In many 
rulemakings there will be no relevant information from revealed-
preference studies. In this situation you should consider 
commissioning a stated-preference study or using values from 
published stated-preference studies. For the reasons discussed in 
the section above IVB5, you should be cautious about using values 
from stated-preference studies and describe in the analysis some of 
the inherent drawbacks of this approach.

a. Nonfatal Health and Safety Risks

    With regard to nonfatal health and safety risks, there is 
enormous diversity in the nature and severity of impaired health 
states. A minor traumatic injury that can be treated effectively in 
the emergency room without hospitalization or long-term care is 
different from a traumatic injury resulting in paraplegia. Severity 
differences also are important in evaluation of chronic diseases. A 
severe bout of bronchitis, though perhaps less frequent, is far more 
painful and debilitating than the more frequent bouts of

[[Page 5521]]

mild bronchitis. The duration of an impaired health state, which can 
range from a day or two to several years or even a lifetime (e.g., 
birth defects inducing mental retardation), need to be considered 
carefully. Information on both the severity and duration of an 
impaired health state are necessary before the task of monetization 
can be performed.
    When monetizing nonfatal health effects, it is important to 
consider two components: (1) The private demand for prevention of 
the nonfatal health effect, to be represented by the preferences of 
the target population at risk, and (2) the net financial 
externalities associated with poor health such as net changes in 
public medical costs and any net changes in economic production. 
Revealed-preference or stated-preference studies are necessary to 
estimate the private demand; health economics data from published 
sources can typically be used to estimate the financial 
externalities of poor health. If you use literature values to 
monetize nonfatal health and safety risks, it is important to make 
sure that the values you have selected are appropriate for the 
severity and duration of health effects to be addressed by your 
rule.
    If data are not available to support monetization, you might 
consider an alternative approach that makes use of health-utility 
studies. Although the economics literature on the monetary valuation 
of impaired health states is growing, there is a much larger 
clinical literature on how patients, providers and community 
residents value diverse health states. This literature typically 
measures health utilities based on the standard gamble, the time 
tradeoff or the rating scale methods. This health utility 
information may be combined with known monetary values for well-
defined health states to estimate monetary values for a wide range 
of health states of different severity and duration. If you use this 
approach, you should be careful to acknowledge your assumptions and 
the limitations of your estimates.

b. Premature Mortality Risks

    The adoption of a monetary value for projected reductions in 
premature mortality is the subject of continuing research and 
discussion within the economics and policy analysis communities. 
Although there is a substantial academic literature on this topic, 
the methods used and resulting estimates vary substantially. The two 
most widely used measures consider the number of statistical lives 
saved and the number of expected years of life saved and their 
associated monetary values. Both of these measures are applicable to 
settings where a rule changes small probabilities of death faced by 
the public.
    The phrase ``statistical life'' is widely used in the technical 
literature but it can be misleading and easily misinterpreted. 
Unlike an identified life, whose name and background are known 
(e.g., a trapped coal miner or patient dying of kidney failure), a 
statistical life refers to the sum of risks experienced by a 
population. For example, if 10,000 people each face a risk of 1 in 
10,000 of immediate death, one statistical life is expected to be 
lost. Statistical lives that are lost are real people but, given the 
background rate of fatal events in the population, it is not 
feasible to determine which actual lives will be saved or lost by a 
specific rule.
    The monetary value of saving a statistical life (VSL) is derived 
by assessing the public's willingness to pay to avert one 
statistical fatality. The bulk of the studies in the literature, 
which address wage premiums for hazardous jobs, are based on 
revealed preference. A small but growing number of stated-preference 
studies have also been used to derive VSLs. The estimates of VSL in 
the literature vary considerably but this is not surprising because 
VSL is not expected to be a universal constant. Economic theory 
predicts that VSLs may vary in different lifesaving contexts 
depending upon factors such as the magnitude of the probabilities 
and the health preferences of the target population.
    You should not use a VSL estimate without considering whether it 
is appropriate for the size and type of risks addressed by your 
rule. Studies aimed at deriving VSL values for middle-aged 
populations are not necessarily applicable to rules that address 
lifesaving among children or the elderly. Moreover, VSL values based 
on fatal cancers or heart attacks are not necessarily relevant to a 
rule that prevents fatal causes of trauma, violence, or infectious 
disease. If you choose to apply a VSL derived in one setting to a 
different setting, you should disclose the salient differences in 
the lifesaving contexts and, where feasible, make appropriate 
quantitative adjustments to the VSL value.
    Since everyone is expected to die sooner or later, it has been 
suggested that the VSL be replaced or augmented by the monetary 
value of a statistical life year (VSLY). The assumption is that the 
public is willing to pay more money for a rule that saves an average 
of 10 life years per person than a rule that saves one life year per 
person. A key assumption implicit in this approach is that public 
willingness to pay for risk reduction is strictly proportional to 
the number of life years at risk. This may not always be the case. 
For example, the elderly may have substantial willingness to pay for 
reductions in their mortality risk precisely because they have 
relatively few life years remaining. Where there is good reason to 
believe that these values are not strictly proportional, you should 
attempt to develop appropriate estimates. In all instances, whether 
or not you are able to develop ideal estimates, agencies should 
consider providing estimates of both VSL and VSLY, while recognizing 
the developing states of knowledge in this area.
    In summary, you should use valid, relevant data and methods to 
assign monetary values to changes in the risk of premature death, 
illness or injury. Some of the key issues include:
    [sbull] Whether the monetary valuations have been shown to be 
appropriately sensitive to the scope of the health change, 
considering probability, severity and longevity.
    [sbull] Whether the specific data and methods used for 
monetization are relevant to the specific health change induced by a 
proposed regulation.
    The valuation of fatal and nonfatal risk reduction is an 
evolving area in terms of research design, methods and results. You 
should utilize valuation methods that you consider appropriate for 
the regulatory circumstances. You should present estimates based on 
alternative approaches, and if you monetize mortality risk 
reduction, you should do so on a consistent basis to the extent 
feasible. You should clearly indicate your methodology and document 
your choice of a particular methodology. If you use different 
methodologies in different rules, you should clearly disclose the 
fact and explain your reasons.

C. What Discount Rate To Use

    Benefits and their associated costs do not always take place in 
the same time period, and when they do not, it is usually incorrect 
simply to add up all of the expected benefits or costs without 
taking account of when they actually occur. If benefits or costs are 
delayed or otherwise separated in time from each other, the 
difference in timing should be reflected in your analysis.
    As a first step, you should present the annual time stream of 
benefits and costs expected to result from the rule, clearly 
identifying when the benefits and costs are expected to occur. The 
beginning point for your stream of estimates should be the year in 
which the final rule will begin to have effects, even if that is 
expected to be some time in the future. In presenting the stream of 
benefits and costs, it is important to measure them in constant 
dollars. That way you avoid the misleading effects of inflation on 
your estimates. If the benefits or costs are initially measured in 
prices reflecting expected future inflation, you can convert them to 
constant dollars by dividing through by an appropriate inflation 
index, one that corresponds to the inflation rate underlying the 
initial estimates of benefits or costs.
    Once these preliminaries are out of the way, you can begin to 
adjust your estimates for differences in timing. This is a separate 
calculation from the adjustment needed to remove the effects of 
future inflation. Whether or not inflation is expected, it is 
generally true that the sooner benefits occur the more valuable they 
are. Resources that are invested will normally earn a positive 
return, so current consumption is more expensive than future 
consumption, because you are giving up that expected return when you 
consume today. Looking at it another way, postponed benefits have a 
cost because people are impatient and generally prefer present to 
future consumption. Also, if consumption continues to increase over 
time, as it has for most of U.S. history, an increment of 
consumption will be less valuable in the future than it would be 
today, because as total consumption increases, its marginal value 
tends to decline. These are all reasons for valuing future costs and 
benefits less than those occurring in the present.
    A discount factor should be used to adjust the estimated costs 
and benefits for differences in timing . The further in the future 
the costs and benefits are expected to occur, the larger is this 
discount factor. The discount factor can be calculated given a 
discount rate. The formula is 1/(1+ the discount rate)\t\ where 
``t'' measures the number of years in the future that the benefits 
or costs are expected to occur. Benefits or costs that have been 
adjusted in

[[Page 5522]]

this way are called discounted present values. Once the estimated 
benefits and costs have been discounted, they can be combined to 
determine the overall value of net benefits.
    OMB's basic guidance on the discount rate is provided in OMB 
Circular A-94. This Circular states that a real discount rate of 7 
percent should be used as a base-case for regulatory analysis. The 7 
percent rate is an estimate of the average before-tax rate of return 
to private capital in the U.S. economy. It is a broad measure that 
reflects the returns to real estate and small business capital as 
well as corporate capital. It approximates the opportunity cost of 
capital and is the appropriate discount rate whenever the main 
effect of a regulation is to displace or alter the use of capital in 
the private sector. OMB revised Circular A-94 in 1992 after 
extensive internal review and following public comment. The average 
rate of return to capital remains near the 7 percent rate estimated 
in 1992. Circular A-94 also recommends using other discount rates to 
show the sensitivity of the estimates to the discount rate 
assumption.
    The effects of regulation do not always fall exclusively on the 
allocation of capital. When regulation primarily affects private 
consumption (e.g., through higher consumer prices for goods and 
services), a lower discount rate may be appropriate. The alternative 
most often used is called the ``social rate of time preference.'' 
This simply means the rate at which ``society'' discounts future 
consumption flows to their present value. Economic distortions, 
including taxes on capital, create a divergence between this social 
rate and the private rate of return to capital. If we take the rate 
that the average saver uses to discount future consumption as our 
measure of the social rate of time preference, then the real rate of 
return on long-term government debt may provide a fair 
approximation. This rate has averaged around 3 percent since the 
mid-1950s.
    For regulatory analysis, you should provide estimates of net 
benefits using both 7 percent and 3 percent. An example of this 
approach is EPA's analysis of its 1998 rule setting both effluent 
limits for wastewater discharges and air toxic emission limits for 
pulp and paper mills. In this analysis, EPA developed its present 
discounted value estimates using real discount rates of 3 and 7 
percent applied to benefit and cost streams that extended forward 
for 30 years. (See EPA, Economic Analysis, October 1997, pages 10-3 
and 10-4.) You should present a similar sensitivity analysis in your 
own work.
    In some instances, if there is reason to expect that the 
regulation will cause resources to be reallocated away from private 
investment in the corporate sector, then the opportunity cost may be 
appreciably greater than the 3 to 7 percent discount rate. For 
example, Tresch suggests that rates in the range of 10 to 25 percent 
may be appropriate to reflect this opportunity cost, depending on 
the sector affected by the regulation. If you are uncertain about 
the nature of the opportunity cost, then you should present benefit 
and cost estimates using a higher discount rate as a sensitivity 
analysis as well as using 3 percent and 7 percent.
    Circular A-94 points out that the analytically preferred method 
of handling timing differences between benefits and costs would be 
to adjust all the benefits and costs to reflect their value in 
equivalent units of consumption.\21\ Due to distortions in the 
economy such calculations require you to value the costs and 
benefits using shadow prices, especially for capital goods. If all 
costs and benefits are measured in terms of consumption equivalents, 
it is appropriate to discount them using the social rate of 
discount. Any agency that wishes to tackle this challenging 
analytical task should check with OMB before proceeding.
---------------------------------------------------------------------------

    \21\ A thorough discussion of this approach to discounting is 
provided in Robert C. Lind (ed.), Discounting for Time and Risk in 
Energy Policy, Baltimore: The Johns Hopkins University Press for 
Resources for the Future, 1982.
---------------------------------------------------------------------------

    When future benefits or costs are health-related, some have 
questioned whether discounting is appropriate. Although some of the 
rationales for discounting money may not seem to be applicable to 
health (e.g., lives saved today cannot be invested in the bank to 
save more lives in the future, although the resources that would 
have been used to save those lives can often be saved with a higher 
pay-off in future lives saved). However, people do prefer health 
gains that occur immediately to identical health gains that occur 
only in the future, which would justify discounting the future 
gains. Also, if future health gains are not discounted while future 
costs are, then the following perverse result occurs: an attractive 
investment today in future health improvement can always be made 
more attractive by delaying the investment. For such reasons, there 
is a professional consensus that future health effects, including 
both benefits and costs, should be discounted at the same rate as 
generally used in both BCA and CEA.
    A common challenge in health-related analyses is to quantify the 
time lag between when a rule takes effect and when the resulting 
physical improvements in health status will be observed in the 
target population. In such situations, you must carefully consider 
the timing of health benefits before present-value calculations are 
performed. It is not reasonable to assume that all of the benefits 
of reducing chronic diseases such as cancer and cardiovascular 
disease will occur immediately when the rule takes effect. For rules 
addressing traumatic injury, this lag period may be short while for 
chronic diseases it may take years or even decades for a rule to 
induce its full beneficial effects in the target population. When a 
time period between exposure to a toxin and increased probability of 
disease is likely (e.g., a so-called latency period), it is also 
likely that there will be a lag between exposure reduction and 
reduced probability of disease. This latter period has sometimes 
been referred to as a ``cessation lag'' and it may or may not be the 
same as the latency period. As a general matter, cessation lags will 
apply only to populations with at least some higher-level exposure 
(i.e., before the rule takes effect). For populations with no such 
prior exposure, such as those born after the rule takes effect, only 
the latency period will be relevant.
    Ideally, your exposure-risk model would allow calculation of 
reduced risk for each year following exposure cessation, perhaps 
incorporating total cumulative exposure and age at the time of 
exposure reduction into the calculation as well. The present value 
calculation of benefits could then reflect an appropriate discount 
factor for each year's risk reduction. Recent analyses of the cancer 
benefits of reducing public exposure to radon in drinking water have 
adopted this approach, supported by formal risk-assessment models 
that allow estimates of how the timing of lung cancer incidence and 
mortality are affected by different radon exposure levels. In many 
cases, you will not have the benefit of such detailed risk 
assessment modeling. You will need to use your professional 
judgement as to the average cessation lag for the chronic diseases 
affected by your rule. In situations where information exists on 
latency but not on cessation lags, it may be reasonable to use 
latency as a proxy for the cessation lag, unless there is reason to 
believe, based on data, modeling, or knowledge of the mechanism of 
action, that the two are different. When the average lag time 
between exposures and disease is unknown, a range of alternative yet 
plausible values for the time lag should be used in your analysis.
    Special ethical considerations arise when comparing benefits and 
costs across generations. Although most people demonstrate in their 
own consumption behavior a preference for consumption now rather 
than in the future, it may not be appropriate for society to 
demonstrate a similar preference when deciding between the well-
being of current and future generations. Future citizens who are 
affected by such choices cannot take part in making them, and 
today's society must act in their interest. One way to do this would 
be to follow the same discounting techniques described above, but to 
supplement the analysis with an explicit discussion of the 
intergenerational concerns and how they will be affected by the 
regulatory decision. Policymakers would be provided with additional 
information when the analysis covers many generations, but without 
changing the general approach to discounting.
    Some have argued, however, that it is ethically impermissible to 
discount the utility of future generations. On this view, government 
should treat all generations equally. Even under this approach, it 
would still be correct to discount future costs and consumption 
benefits, although perhaps at a lower rate than for 
intragenerational analysis. There are two reasons for thinking that 
a nonzero discount rate is the appropriate assumption for 
intergenerational analysis, even when all generations are to be 
treated equally. First, future generations are likely to be 
wealthier than those currently living, so a marginal dollar of 
benefits or costs will be worth less to them than it would be to 
those alive today, at least on average. If that holds true, it is 
appropriate to discount future benefits and costs relative to 
currently consumed benefits and costs even if the welfare of future 
generations is not being discounted. Estimates of the discount rate

[[Page 5523]]

appropriate in this case made in the 1990s ranged from 1 to 3 
percent per annum.\22\
---------------------------------------------------------------------------

    \22\ Approaches to discounting across generations are discussed 
in a recent symposium volume published by Resources for the Future. 
Paul R. Portney and John P. Weyant (eds.), Discounting and 
Intergenerational Equity, Washington, DC: Resources for the Future, 
1999.
---------------------------------------------------------------------------

    A second reason for discounting the benefits and costs accruing 
to future generations at a lower rate is increased uncertainty about 
the appropriate value of the discount rate, the longer the horizon 
for the analysis. Aversion to uncertainty discourages any such long-
term investments. Private market rates provide a reliable reference 
for determining how society values time within a generation, but for 
extremely long time periods no comparable private rates exist. 
Symmetric uncertainty would have the effect of lowering the discount 
factor applied to future costs and benefits. Again the reasonable 
range might be expanded to include rates as low as 1 percent per 
annum.
    If you choose to use a lower discount rate for intergenerational 
analysis, you should still be sure to show the calculated net 
benefits using discount rates of 3 and 7 percent as well. 
Discounting is appropriate whether you are doing a BCA or a CEA. 
Even costs and benefits that are not expressed in monetary units 
should be discounted if they are separated in time. This also 
includes health benefits for reasons discussed above. For example, 
in its 1998 rule, ``Control of Emissions from Nonroad Diesel 
Engines,'' EPA estimated cost-effectiveness by discounting both the 
monetary costs and the emission reduction benefits over the useful 
expected life of the engines at the 7 percent real rate recommended 
in OMB Circular A-94.
    It may be possible in some cases to avoid discounting non-
monetized benefits, if the expected flow of benefits begins as soon 
as the cost is incurred and if it is expected to be constant over 
time. In such cases, annualizing the cost stream is sufficient, and 
further discounting of benefits is unnecessary. As an example, such 
an analysis might produce an estimate of the annualized cost per ton 
of reducing emissions of a pollutant.

D. Treatment of Uncertainty

    The precise consequences (benefits and/or costs) of regulatory 
options are not always known for certain, but the probability of 
their occurrence can often be predicted. The important uncertainties 
connected with your regulatory decisions need to be analyzed and 
presented as part of the overall regulatory analysis. Your analysis 
of uncertainty should consider both the quantifiable risk associated 
with the potential outcomes of alternative regulatory actions (for 
example, the expected change in the distribution of automobile 
accidents that might result from a change in automobile safety 
standards) and the incomplete knowledge or uncertainty about the 
relevant relationships (for example, the uncertain science of how 
some economic activities might affect future climate change).
    The treatment of uncertainty must be guided by the same 
principles of full disclosure and transparency that apply to other 
elements of your regulatory analysis. Any data and models that you 
use to analyze uncertainty should be fully identified. Inferences 
and assumptions used in your analysis should also be identified, and 
your analytical choices should be explicitly evaluated and 
adequately justified. Your presentation should explain how your 
analytical choices have affected your analysis.
    Uncertainty arises from various and fundamentally different 
sources. These include the fundamental unpredictability of various 
natural and social phenomena, but they also include lack of data and 
the lack of knowledge about key relationships resulting from 
limitations in fundamental scientific knowledge (both social and 
natural). The different sources of uncertainty suggest different 
approaches for dealing with it. For example, when the uncertainty is 
due to a lack of data, you might consider deferring the decision, as 
an explicit regulatory alternative, pending further study to obtain 
sufficient data. We recognize that delaying a decision will also 
have costs, as will further efforts at data gathering and analysis. 
You will need to weigh the benefits of delay against these costs in 
making your decision. Formal tools for assessing the value of 
additional information are now well developed in the applied 
decision sciences and can be used to help resolve this type of 
complex regulatory question.
    In some cases, the level of scientific uncertainty may be so 
large that you can only present discrete alternative scenarios 
without assessing the relative likelihood of each scenario 
quantitatively. For example, in assessing the potential outcomes of 
an environmental effect, there may be a limited number of scientific 
studies with strongly divergent results. In such cases, you might 
present results from a range of plausible scenarios, together with 
any available information that might help in qualitatively 
determining which scenario is most plausible.
    Your analysis should include two fundamental components: A 
quantitative analysis characterizing the probabilities of the 
relevant outcomes and an assignment of economic value to the 
projected outcomes. It is essential that both parts be conceptually 
consistent. In particular, the quantitative analysis should be 
conducted in a way that permits it to be applied within a more 
general analytical framework, such as BCA. Similarly, the general 
framework needs to be flexible enough to incorporate the 
quantitative analysis without oversimplifying the results. For 
example, you should address explicitly the implications for benefits 
and costs of any probability distributions developed in your 
analysis.

1. Quantitative Analysis of Uncertainty

    Examples of quantitative analysis, broadly defined, would 
include formal estimates of the probabilities of environmental 
damage to soil or water, the possible loss of habitat, or risks to 
endangered species as well as probabilities of harm to human health 
and safety. There are also uncertainties associated with estimates 
of economic benefits and costs, e.g., the cost savings associated 
with increased energy efficiency. Your analysis should be credible, 
objective, realistic, and scientifically balanced. In your 
presentation, you should delineate its strengths along with any 
lingering uncertainties about its conclusions. You should describe 
the assumptions and the models you used and their impact on the 
overall analysis. You should also discuss the quality of the 
available data used.
    As with other elements of regulatory analysis, you will need to 
balance thoroughness with the practical limits on your analytical 
capabilities. Your analysis does not have to be exhaustive, nor is 
it necessary to evaluate each alternative at every step. In the 
absence of adequate data, you will need to make assumptions. These 
should be clearly identified and consistent with the relevant 
science. Your analysis should provide sufficient information for 
decision-makers to grasp the degree of scientific uncertainty and 
the robustness of estimated probabilities, benefits, and costs to 
changes in key assumptions. For major rules involving threshold 
costs of $1 billion, you should present a formal quantitative 
analysis of the relevant uncertainties.
    In your analysis, you should try to provide some estimate of the 
probability distribution of risks with and without the regulation, 
and you must do this for rules that exceed the $1 billion threshold. 
In characterizing the probability distributions quantitatively, you 
should provide some estimate of the central tendency (e.g., mean and 
median) along with any other information you think will be useful 
such as ranges, variances, specified low-end and high-end percentile 
estimates, and other characteristics of the distribution.
    Your estimates cannot be more precise than their most uncertain 
component. Thus, your analysis should report estimates in a way that 
reflects the degree of uncertainty and not create a false sense of 
precision. Your analysis should not reflect any unstated or 
unsupported preferences, even for such worthy objectives as 
protecting public health or the environment. Unstated assumptions 
can affect the analysis in unsuspected ways, making it difficult for 
decision-makers to evaluate the true magnitude of the uncertainties 
involved.
    Acceptable Analytical Approaches: Whenever possible, you should 
use appropriate statistical techniques to determine a probability 
distribution of the relevant outcomes, and for rules that exceed the 
$1 billion threshold a formal quantitative analysis is required.
    You may consider the following analytical approaches. They 
entail increasing levels of complexity:
    [sbull] Disclose qualitatively the main uncertainties in each 
important input to the calculation of benefits and costs. These 
disclosures should address the uncertainties in the data as well as 
in the analytical results. However, major rules above the $1 billion 
threshold require a formal treatment.
    [sbull] Use a numerical sensitivity analysis to examine how the 
results of your analysis vary with plausible changes in assumptions, 
choices of input data, and alternative analytical approaches. 
Sensitivity analysis is especially valuable when the information is

[[Page 5524]]

lacking to carry out a formal probabilistic simulation. Sensitivity 
analysis can be used to find ``switch points''--critical parameter 
values at which estimated net benefits change sign or the low cost 
alternative switches. Sensitivity analysis usually proceeds by 
changing one variable or assumption at a time, but it can also be 
done by varying a combination of variables simultaneously to learn 
more about the robustness of your results to widespread changes. 
Again, however, major rules above the $1 billion threshold require a 
formal treatment.
    [sbull] Apply a formal probabilistic analysis of the relevant 
uncertainties--possibly using simulation models and/or expert 
judgment as revealed, for example, through Delphi methods. Such a 
formal analytical approach is appropriate for complex rules where 
there are large multiple uncertainties whose analysis raises 
technical challenges, or where the effects cascade, and it is 
required for rules that exceed the $1 billion threshold. For 
example, in the analysis of regulations addressing air pollution, 
there is uncertainty about the effects of the rule on future 
emissions, uncertainty about how the change in emissions will affect 
air quality, uncertainty about how changes in air quality will 
affect health, and finally uncertainty about the economic and social 
value of the change in health outcomes. You should make a special 
effort to portray the probabilistic results--in graphs and/or 
tables--clearly and meaningfully.
    [sbull] New methods may become available in the future. This 
document is not intended to discourage or inhibit their use, but 
rather to encourage and stimulate their development.

2. Assigning Economic Values to Uncertain Outcomes

    Uncertainty affects the values that you assign to the costs and 
benefits of regulatory actions. Because the outcome of regulatory 
action is not certain, but is instead best represented by a 
probability distribution of potential outcomes, the value assigned 
to the expected outcome from this probability distribution may be 
different from that for an expected outcome of the same magnitude 
that is certain to occur. In the financial world, for example, 
riskier instruments must generally earn a higher rate of return, and 
investors receive a higher expected reward for bearing uncertainty. 
This principle can carry over to the analysis of regulations 
depending on who bears the uncertainties from regulatory decisions.
    When reporting benefit and cost estimates, where there is a 
distribution of outcomes, you will often find it useful to emphasize 
summary statistics or figures that can be readily understood and 
compared to achieve the broadest public understanding of your 
findings. It is a common practice to compare the ``best estimates'' 
of both benefits and costs with those of competing alternatives. 
These ``best estimates'' are usually the average or the expected 
value of benefits and costs. Emphasis on these expected values is 
appropriate as long as society is ``risk neutral'' with respect to 
the regulatory alternatives. This, however, may not always be the 
case. For a risk-averse individual, the certainty equivalent of an 
uncertain net benefit stream is less than its expected cash value, 
because the uncertainty itself is valued negatively.

E. Other Key Considerations

1. Other Cost Considerations

    You should include these effects in your analysis and provide 
estimates of their monetary values wherever possible.
    [sbull] Private-sector compliance costs;
    [sbull] Government administrative costs;
    [sbull] Losses in consumers' or producers' surpluses;
    [sbull] Discomfort or inconvenience; and
    [sbull] Loss of time.
    Estimates of costs should be based on credible changes in 
technology over time. For example, a slowing in the rate of 
innovation or of adoption of new technology because of delays in the 
regulatory approval process or the setting of more stringent 
standards for new facilities than existing ones may entail 
significant costs. On the other hand, a shift to regulatory 
performance standards and incentive-based policies may lead to cost-
saving innovations that should be taken into account. The weight you 
give to a study of past rates of cost savings resulting from 
innovation (including ``learning curve'' effects) should depend on 
both their timeliness and their direct relevance to the processes 
affected by the regulatory alternative under consideration. In some 
cases agencies are limited under statute to considering only 
technologies that have been demonstrated to be feasible. In these 
situations, it may also be useful to estimate costs and cost savings 
assuming a wider range of technical possibilities.
    Occasionally, one or more components of the analysis address 
cost savings to one of the parties directly affected by the rule. 
For example, a requirement that manufacturers reduce emissions from 
engines they produce may lead to technologies that improve fuel 
economy. These fuel savings will normally accrue to the purchasers 
of the engines. There is no apparent market failure with regard to 
the market value of fuel saved because one would expect that 
consumers would be willing to pay for increased fuel economy that 
exceeded the cost of providing it. When these cost savings are 
substantial, and particularly when you estimate them to be greater 
than the cost associated with achieving them, it is incumbent on you 
to demonstrate convincingly why the market has not already captured 
these gains. As a general matter, any costs that are averted as a 
result of an alternative should be monetized wherever possible and 
either added to the benefits or subtracted from the costs of that 
alternative.

2. The Difference Between Costs (or Benefits) and Transfer Payments

    Distinguishing between real costs and transfer payments is an 
important, but sometimes difficult, problem in cost estimation. Cost 
and benefit estimates should reflect real resource use. Transfer 
payments are monetary payments from one group to another that do not 
affect total resources available to society. For example, a 
regulation that restricts the supply of a good, causing its price to 
rise, produces a transfer of income from buyers to sellers. The 
reduction in the total value of the supply of the good is a real 
cost to society, but the transfer of income from buyers to sellers 
resulting from the higher price is not. You should not include 
transfers in the estimates of the benefits and costs of a 
regulation.\23\ Instead, address them in a separate discussion of 
the regulation's distributional effects.
---------------------------------------------------------------------------

    \23\ However, transfers from the United States to other nations 
should be included as costs, and transfers from other nations to the 
United States as benefits.
---------------------------------------------------------------------------

    Examples of transfer payments include the following:
    [sbull] Scarcity rents and monopoly profits.
    [sbull] Insurance payments.
    [sbull] Indirect taxes and subsidies.
    [sbull] Distribution expenses.

3. Alternative Assumptions

    If benefit or cost estimates depend heavily on certain 
assumptions, you should make those assumptions explicit and carry 
out sensitivity analyses using plausible alternative assumptions. If 
the value of net benefits changes from positive to negative (or vice 
versa) or if the relative ranking of regulatory options changes with 
alternative plausible assumptions, you should conduct further 
analysis to determine which of the alternative assumptions is more 
appropriate. Because different estimation methods may have hidden 
assumptions, you should analyze estimation methods carefully to make 
any hidden assumptions explicit.

V. Specialized Analytical Requirements

    In preparing analytical support for your rulemaking, you should 
be aware that there are a variety of analytic requirements imposed 
by law and Executive order. In addition to the regulatory impact 
analysis requirements of E.O. 12866, you should also consider 
whether your rule will need specialized analysis of any of the 
following issues.

A. Impact on Small Businesses and Other Small Entities

    Under the Regulatory Flexibility Act (5 U.S.C. chapter 6), 
agencies must prepare a proposed and final ``regulatory flexibility 
analysis'' (RFA) if the rulemaking could ``have a significant impact 
on a substantial number of small entities.'' Your agency should have 
guidelines on how to prepare an RFA and you are encouraged to 
consult with the Chief Counsel for Advocacy of the Small Business 
Administration on expectations concerning what is an adequate RFA. 
Executive Order 13272 (67 FR 53461, August 16, 2002) requires you to 
notify the Chief Counsel for Advocacy of any draft rules that might 
have a significant economic impact on a substantial number of small 
entities. E.O. 13272 also directs agencies to give every appropriate 
consideration to any comments provided by the Advocacy Office.

B. Analysis of Unfunded Mandates

    Under the Unfunded Mandates Act (2 U.S.C. 1532), you must 
prepare a written statement about costs and benefits prior to 
issuing a proposed or final rule (for which

[[Page 5525]]

your agency published a proposed rule) that may result in 
expenditure by State, local, and tribal governments, in the 
aggregate, or by the private sector, of $100,000,000 or more in any 
one year (adjusted annually for inflation). Your analytical 
requirements under Executive Order 12866 are similar to the 
analytical requirements under this Act, and thus the same analysis 
may permit you to comply with both analytical requirements.

C. Information Collection, Paperwork and Recordkeeping Burdens

    Under the Paperwork Reduction Act (44 U.S.C. chapter 35), you 
will need to consider whether your rulemaking (or other actions) 
will create any additional information collection, paperwork or 
recordkeeping burdens. These burdens are permissible only if you can 
justify the practical utility of the information for the 
implementation of your rule. OMB approval will be required of any 
new requirements for a collection of information imposed on 10 or 
more persons and a valid OMB control number must be obtained for any 
covered paperwork. Your agency's CIO should be able to assist you in 
complying with the Paperwork Reduction Act.

D. Information Quality Guidelines

    Under the Information Quality Law, agency guidelines, in 
conformance with the OMB government-wide guidelines (67 FR 8452, 
February 22, 2002), have established basic quality performance goals 
for all information disseminated by agencies, including information 
disseminated in support of proposed and final rules. The data and 
analysis that you use to support your rule must meet these agency 
and OMB quality standards. Your agency's CIO should be able to 
assist you in assessing information quality. The Statistical and 
Science Policy Branch of OMB's Office of Information and Regulatory 
Affairs can provide you assistance.

E. Environmental Impact Statements

    The National Environmental Policy Act (42 U.S.C. 4321-4347) and 
related statutes and executive orders require agencies to consider 
the environmental impacts of agency decisions, including 
rulemakings. An environmental impact statement must be prepared for 
``major federal actions significantly affecting the quality of the 
human environment.'' You must complete NEPA documentation before 
issuing a final rule. The White House Council on Environmental 
Quality has issued regulations (40 CFR 1500-1508) and associated 
guidance for implementation of NEPA, available through CEQ's Web 
site (see NEPANet).

F. Impacts on Children

    Under Executive Order 13045, ``Protection of Children from 
Environmental Health Risks and Safety Risks,'' each agency must, 
with respect to its rules, ``to the extent permitted by law and 
appropriate, and consistent with the agency's mission,'' each agency 
must ``address disproportionate risks to children that result from 
environmental health risks or safety risks.'' For any substantive 
rulemaking action that ``is likely to result in'' an economically 
significant rule that concerns ``an environmental health risk or 
safety risk that an agency has reason to believe may 
disproportionately affect children,'' the agency must provide OMB/
OIRA ``an evaluation of the environmental health or safety effects 
of the planned regulation on children,'' as well as ``an explanation 
of why the planned regulation is preferable to other potentially and 
reasonably feasible alternatives considered by the agency.''

G. Energy Impacts

    Under Executive Order 13211 (66 FR 28355, May 22, 2001), 
agencies are required to prepare and submit to OMB a Statement of 
Energy Effects for significant energy actions, to the extent 
permitted by law. This Statement is to include a detailed statement 
of ``any adverse effects on energy supply, distribution, or use 
(including a shortfall in supply, price increases, and increased use 
of foreign supplies)'' for the action and reasonable alternatives 
and their effects. You need to publish the Statement or a summary in 
the related NPRM and final rule. For further ``Guidance on 
Implementing E.O. 13211,'' see OMB Memorandum 01-27 (July 13, 2001), 
available on OMB's Web site.

VI. Accounting Statement

    You need to provide an accounting statement with tables 
reporting benefit and cost estimates for each major final rule for 
your agency. You should use the guidance outlined above to report 
these estimates. We have included a suggested format for your 
consideration.

Categories of Benefits and Costs

    To the extent feasible, you should quantify all potential 
incremental benefits and costs. You should report benefit and cost 
estimates within the following three categories:
    [sbull] Monetized
    [sbull] Quantified, but not monetized; and
    [sbull] Qualitative, but not quantified.
    These categories are mutually exclusive and exhaustive. 
Throughout the process of listing preliminary estimates of costs and 
benefits, agencies should avoid double-counting. This problem may 
arise if more than one way exists to express the same change in 
social welfare.

Quantifying and Monetizing Benefits and Costs

    Yes, you should develop quantitative estimate and covert them to 
dollar amounts if possible. In many cases, quantified estimates are 
readily convertible, with a little effort, into dollar equivalents.

Treatment of Benefits and Costs Over Time

    You should monetize and quantify effects as real, undiscounted 
streams of estimates for each year over the entire period for which 
you have estimated them. You should also annualize these same 
effects using real discount rates of 3 and 7 percent. The stream of 
annualized estimates should begin in the year the final rule is 
published even if the rule does not take effect immediately. Please 
report all monetized effects in 2000 dollars. You may convert 
dollars expressed in different years to 2000 dollars using the GDP 
deflator.

Treatment of Risk and Uncertainty

    You should provide central tendency or primary estimates as well 
as distributions about the estimates, where such information exists. 
When you provide only upper and lower bounds (in addition to best 
estimates), you should, if possible, use the 95 and 5 percent 
confidence bounds. Although we encourage you to develop estimates 
that capture the distribution of plausible outcomes for a particular 
alternative, detailed reporting of such distributions is not 
required.
    The principles of full disclosure and transparency apply to the 
treatment of uncertainty. Where there is significant uncertainty and 
the resulting inferences and/or assumptions have a critical effect 
on the benefit and cost estimates, you should describe the benefits 
and costs under plausible alternative assumptions. You may add 
footnotes to the table as needed to provide documentation and 
references, or to express important warnings.
    In our discussion in Section I above, we identified some of the 
issues associated with developing estimates of the value of 
reductions in premature mortality risk. Based on this discussion, 
you should present alternative primary estimates where you use 
alternative estimates for valuing reductions in premature mortality 
risk.

Precision of Estimates

    Reported estimates should reflect, to the extent feasible, the 
precision in the analysis. For example, an estimate of $220 million 
implies rounding to the nearest $10 million and thus a precision of 
+/-$5 million; similarly, an estimate of $222 million implies 
rounding to the nearest $1 million and thus, a precision of +/-$0.5 
million.

Separate Reporting of Transfers

    You should report transfers separately and avoid the 
misclassification of transfer payments as costs or benefits. 
Transfers occur when wealth or income is redistributed without any 
direct change in aggregate social welfare. To the extent that 
regulatory outputs reflects transfers rather than welfare gains to 
society, you should identify them as transfers rather than costs or 
benefits. You should also distinguish transfers caused by Federal 
budget actions--such as those stemming from a rule affecting Social 
Security payments--from those that involve transfers between non-
governmental parties--such as monopoly rents a rule may confer on a 
private party. You should use as many categories as necessary to 
describe the major redistributive effects of a regulatory action. If 
transfers have significant effects in addition to distributional 
effects, you should evaluate them also.

Effects on State, Local, and Tribal Governments, Small Business, 
Wages and Economic Growth

    You need to identity the portions of benefits, cost, and 
transfers received by State, local, and tribal governments. To the 
extent feasible, you also should identify the effects of the rule or 
program on small businesses, wages, and economic growth. Note that 
rules with annual costs that are less than one

[[Page 5526]]

billion dollars are likely to have minimal effect on economic 
growth.
[GRAPHIC] [TIFF OMITTED] TN03FE03.017

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[[Page 5527]]

References

    Clemen RT, Making Hard Decisions: An Introduction to Decision 
Analysis, Second Edition, Duxbury Press, Pacific Grove, 1996.
    Drummond MF, O'Brien B, Stoddert GL, Torrance GW, Methods for 
the Economic Evaluation of Health Care Programmes, Second Edition, 
Oxford University Press, New York, 1997.
    Gold MR, Siegel JE, Russell LB, Weinstein MC (eds), Cost-
Effectiveness in Health and Medicine, Oxford University Press, New 
York, 1996.
    Kopp RJ, Pommerehne WW, Schwarz N (eds), Determining the Value 
of Non-Marketed Goods, Kluwer, Boston, MA, 1997.
    Mishan EJ, Cost-Benefit Analysis, 4th Edition, Routledge, New 
York, 1994.
    Morgan MG, Henrion M, Uncertainty: A Guide to Dealing with 
Uncertainty in Quantitative Risk and Policy Analysis, Cambridge 
University Press, New York, 1990.
    Nord E, Cost-Value Analysis in Health Care: Making Sense of 
QALYs, Cambridge University Press, Cambridge, UK, 1999.
    Petitti DB, Meta-Analysis, Decision Analysis and Cost-
Effectiveness Analysis, Oxford University Press, New York, 1994.
    Portney PR, Weyant JP (eds), Discounting and Intergenerational 
Equity, Resources for the Future, Washington, DC, 1999.
    Tolley G, Kenkel D, Fabian R (eds), Valuing Health for Policy: 
An Economic Approach, University of Chicago Press, Chicago, IL, 
1994.
    Tresch, RW, Public Finance: A Normative Theory, Second Edition, 
Academic Press, San Diego, CA, 2002.
    Viscusi WK, Fatal Tradeoffs: Public and Private Responsibilities 
for Risk, Oxford University Press, New York, 1992.

[FR Doc. 03-2542 Filed 1-31-03; 8:45 am]
BILLING CODE 3110-01-P