[Federal Register Volume 82, Number 249 (Friday, December 29, 2017)]
[Notices]
[Pages 61728-61742]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-28124]


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 Notices
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  Federal Register / Vol. 82, No. 249 / Friday, December 29, 2017 / 
Notices  

[[Page 61728]]



ADMINISTRATIVE CONFERENCE OF THE UNITED STATES


Adoption of Recommendations

AGENCY: Administrative Conference of the United States.

ACTION: Notice.

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SUMMARY: The Administrative Conference of the United States adopted 
five recommendations at its Sixty-Eighth Plenary Session. The appended 
recommendations address Plain Language in Regulatory Drafting; 
Marketable Permits; Agency Guidance Through Policy Statements; Learning 
from Regulatory Experience; and Regulatory Waivers and Exemptions.

FOR FURTHER INFORMATION CONTACT: For Recommendations 2017-3 and 
Recommendation 2017-7, Frank Massaro; for Recommendations 2017-4 and 
2017-5, Gisselle Bourns; and for Recommendation 2017-6, Todd Rubin. For 
each of these actions the address and telephone number are: 
Administrative Conference of the United States, Suite 706 South, 1120 
20th Street NW, Washington, DC 20036; Telephone 202-480-2080.

SUPPLEMENTARY INFORMATION: The Administrative Conference Act, 5 U.S.C. 
591-596, established the Administrative Conference of the United 
States. The Conference studies the efficiency, adequacy, and fairness 
of the administrative procedures used by Federal agencies and makes 
recommendations to agencies, the President, Congress, and the Judicial 
Conference of the United States for procedural improvements (5 U.S.C. 
594(1)). For further information about the Conference and its 
activities, see www.acus.gov. At its Sixty-Eighth Plenary Session, held 
December 14-15, 2017, the Assembly of the Conference adopted five 
recommendations.
    Recommendation 2017-3, Plain Language in Regulatory Drafting. This 
recommendation identifies tools and techniques agencies have used 
successfully to write regulatory documents (including rulemaking 
preambles and guidance documents) using plain language, proposes best 
practices for agencies in structuring their internal drafting 
processes, and suggests ways agencies can best use trainings and other 
informational resources.
    Recommendation 2017-4, Marketable Permits. This recommendation 
provides best practices for structuring, administering, and overseeing 
marketable permitting programs for any agency that has decided to 
implement such a program.
    Recommendation 2017-5, Agency Guidance Through Policy Statements. 
This recommendation, formerly titled Agency Guidance, provides best 
practices to agencies on the formulation and use of policy statements. 
It lists steps that agencies can take to remain flexible in their use 
of policy statements and to encourage, when appropriate, public 
participation in the adoption or modification of policy statements.
    Recommendation 2017-6, Learning from Regulatory Experience. This 
recommendation, formerly titled Regulatory Experimentation, offers 
advice to agencies on learning from different regulatory approaches. It 
encourages agencies to collect data, conduct analysis at all stages of 
the rulemaking lifecycle (from pre-rule analysis to retrospective 
review), and solicit public input at appropriate points in the process.
    Recommendation 2017-7, Regulatory Waivers and Exemptions. This 
recommendation provides best practices to agencies in structuring their 
waiver and exemption procedures for regulatory requirements. It 
encourages transparency and public input by asking agencies to consider 
establishing standards and procedures for approval of waivers and 
exemptions and to seek public comments in developing standards and 
procedures and in approving individual waivers and exemptions.
    The Appendix below sets forth the full texts of these five 
recommendations, as well as a timely filed Separate Statement 
associated with Recommendation 2017-5, Agency Guidance Through Policy 
Statements. The Conference will transmit the recommendations to 
affected agencies, Congress, and the Judicial Conference of the United 
States, as appropriate. The recommendations are not binding, so the 
entities to which they are addressed will make decisions on their 
implementation.
    The Conference based these recommendations on research reports that 
are posted at: https://www.acus.gov/68thPlenary.

    Dated: December 22, 2017.
Shawne C. McGibbon,
General Counsel.

APPENDIX--RECOMMENDATIONS OF THE ADMINISTRATIVE CONFERENCE OF THE 
UNITED STATES

Administrative Conference Recommendation 2017-3

Plain Language in Regulatory Drafting

Adopted December 14, 2017

    For decades, agencies have worked to make regulatory requirements 
more comprehensible to regulatory stakeholders and the public at large, 
including by using ``plain language'' or ``plain writing.'' \1\ Clearly 
drafting and explaining regulations facilitates the core administrative 
law goals of public participation, efficient compliance, judicial 
review, and the protection of rights. Numerous statutory and executive 
requirements direct agencies to draft rules and guidance plainly.
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    \1\ These terms carry the same meaning and are used 
interchangeably here.
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Plain Language Legal Requirements

    The Plain Writing Act of 2010 (PWA) \2\ and Executive Order 13,563 
\3\ require agencies to use plain language in various public-facing 
documents.\4\ Plain writing, as defined by the PWA, is ``writing that 
is clear, concise, well-

[[Page 61729]]

organized, and follows other best practices appropriate to the subject 
or field and intended audience.'' \5\ The Plain Language Action and 
Information Network (PLAIN) \6\ further explains that ``[w]ritten 
material is in plain language if your audience can find what they need, 
understand what they find, and use what they find to meet their 
needs.'' \7\ As such, writing in plain language does not mean 
abandoning complexity or nuance, nor does it mean omitting technical 
terms.\8\ For the purposes of this recommendation, writing that is 
``plain'' conveys the intended meaning in a way that the intended 
audience can easily understand.
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    \2\ Public Law 111-274, 124 Stat. 2861 (2010) (codified at 5 
U.S.C. 301 note).
    \3\ Exec. Order No. 13,563, 76 FR 3821 (Jan. 18, 2011).
    \4\ Executive guidance issued prior to the PWA's enactment also 
directs agencies to use plain language. Executive Order 12,866 
provides that ``[e]ach agency shall draft its regulations to be 
simple and easy to understand.'' Exec. Order No. 12,866 Sec.  2(b), 
58 FR 51,735, 51,737 (Oct. 4, 1993). President Clinton's 1998 Plain 
Language Memorandum further requires agencies to ``use plain 
language in all new documents, other than regulations, that explain 
how to obtain a benefit or service, or how to comply with a 
requirement [the agency] administer[s] or enforce[s],'' as well as 
``all proposed and final rulemaking documents published in the 
Federal Register.'' Memorandum on Plain Language in Government 
Writing, 63 FR 31,885 (June 10, 1998).
    \5\ 5 U.S.C. 301 note sec. 3(3).
    \6\ PLAIN grew out of early, informal agency efforts to share 
plain writing tools and techniques, and has served as a hub for such 
resources since its establishment during the Clinton Administration. 
About Us, Plain Language Action & Information Network, https://plainlanguage.gov/about/.
    \7\ What is Plain Language?, Plain Language Action & Information 
Network, https://plainlanguage.gov/about/definitions/.
    \8\ For guidance on writing plainly without compromising nuance 
or avoiding important technical terms, consult the Federal Plain 
Language Guidelines, a resource compiled by PLAIN, which both the 
PWA and executive guidance direct agencies to use. Plain Language 
Action & Information Network, Federal Plain Language Guidelines 
(Rev. ed. May 2011), http://www.plainlanguage.gov/guidelines/.
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    The PWA requires agencies to use plain language in all ``covered 
documents,'' which are: Documents necessary ``for obtaining any Federal 
Government benefit or service or filing taxes;'' documents that 
``provide information about any Federal Government benefit or 
service,'' such as pamphlets; and documents that provide 
recommendations on ``how to comply with a requirement the Federal 
Government administers or enforces,'' such as guidance documents.\9\ 
Although the PWA does not cover regulations, Executive Order 13,563 
requires them to be ``accessible, consistent, written in plain 
language, and easy to understand.'' \10\ The Office of Management and 
Budget (OMB) interprets the PWA to apply to ``rulemaking preambles,'' 
\11\ because a ``regulation,'' as exempted by the PWA, is a ``rule 
carrying the force of law,'' \12\ but a preamble explains a rule's 
basis and purpose \13\ and is not binding.
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    \9\ 5 U.S.C. 301 note sec. 3(2)(A).
    \10\ Exec. Order No. 13,563 Sec.  1(a), 76 FR 3821, 3821 (Jan. 
18, 2011).
    \11\ Office of Mgmt. & Budget, Exec. Office of the President, 
OMB Mem. M-11-15, Final Guidance on Implementing the Plain Writing 
Act of 2010 5 (2011).
    \12\ See United States v. Mead Corp., 533 U.S. 218, 226-27 
(2001).
    \13\ 5 U.S.C. 553(c).
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    The PWA further directs agencies to: Designate ``senior officials 
to oversee . . . agency implementation''; communicate PWA requirements 
to employees and train them in plain writing; maintain a ``plain 
writing section of the agency's website''; and issue annual compliance 
reports.\14\ Finally, the Act precludes judicial review of agencies' 
compliance with its terms.\15\
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    \14\ Id. Sec.  301 note sec. 4(a).
    \15\ Id. Sec.  301 note sec. 6.
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Agency Plain Language Practices

    The PWA formalized and expanded a decades-long internal 
administrative effort to promote plain language in rules and guidance 
documents.\16\ For instance, many agencies have provided trainings and 
other resources on plain writing since the 1970s \17\--a practice 
codified by the Act.\18\ Some agencies make their trainings and related 
resources publicly available. Trainings may cover the PWA's 
requirements and plain writing techniques, including the use of 
organization and formatting to guide readers through a document; the 
use of bullet points, lists, and other visual aids; and the use of 
simple rather than complex vocabulary, if doing so will not alter the 
intended meaning. Additionally, trainings may focus on meeting the 
needs of the agency's various audiences, such as regulated small 
businesses.
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    \16\ See Cynthia Farina, Mary J. Newhart, & Cheryl Blake, The 
Problem with Words: Plain Language and Public Participation in 
Rulemaking, 83 Geo. Wash. L. Rev. 1358, 1367-79 (2015).
    \17\ Blake Emerson & Cheryl Blake, Plain Language in Regulatory 
Drafting 33 (Dec. 8, 2017) (report to the Admin. Conf. of the U.S.), 
https://www.acus.gov/report/plain-language-regulatory-drafting-final-report.
    \18\ 5 U.S.C Sec.  301 note secs. 4(a)(1)(A), 4(a)(1)(C).
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    Agencies must also designate officials to oversee compliance with 
the Act's requirements, such as by delivering trainings.\19\ Agencies 
may designate plain language officials in a number of different kinds 
of offices, such as media, executive correspondence, or public 
outreach. These officials can provide a valuable coordination function 
when the agency is communicating with the public.\20\ In some agencies, 
plain language officials may be well positioned to support agency staff 
during--not just after--the drafting process.
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    \19\ Id. Sec.  301 note sec. 4(a).
    \20\ Emerson & Blake, supra note 17, at 32-33.
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    Rule and guidance drafting processes may directly incorporate other 
efforts to promote plain writing. Agencies' internal drafting manuals, 
which provide style and formatting guidelines, often encompass plain 
writing techniques. Agencies also have guidelines specifying how 
offices within the agency should coordinate when drafting rules or 
guidance. These practices have important implications for how agencies 
implement plain writing, though divergent approaches may be equally 
successful. For example, one agency's practice is to assign each office 
involved in drafting the responsibility for reviewing documents based 
on its expertise; this can include reviewing documents for plain 
language, in addition to reviewing them for technical sufficiency. In 
this agency, edits or comments on a document marked as within an 
office's assigned responsibilities must be either accepted or resolved 
in consultation with that office. Thus, a regulatory attorney may flag 
text that could be interpreted in multiple ways as an issue of both 
plainness and legal ambiguity. Similarly, program staff, economists, 
and engineers may be responsible for ensuring that text involving their 
areas of expertise is not only accurate, but plain to relevant 
audiences. Other agencies may not assign such formal responsibilities 
to particular offices; rather, the program office originating a rule or 
guidance may be in charge of reviewing the whole of the document and 
working with other participating offices to ensure text is plainly 
written.
    Each of the above practices structures how an agency drafts rules 
and guidance, both of which may inform an agency's audiences of 
regulatory requirements or benefits.\21\ For instance, a final rule may 
target an audience of legal professionals and industry experts who 
expect to see certain terms of art, whereas a guidance document may 
walk a small business through the process of filing financial forms. 
Though it is appropriate to tailor guidance to a specialist audience, 
sometimes tailoring documents to particular specialist audiences runs 
the risk of obscuring or glossing over important information for other 
audiences. In certain circumstances, some commentators have raised 
concerns that guidance may omit salient information, leaving non-
specialist parties at a disadvantage compared to experts.\22\ Crafting 
guidance carefully can ensure it is fully explanatory while remaining

[[Page 61730]]

comprehensible--though this may come at the cost of brevity.\23\
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    \21\ Some envision rulemaking and guidance documents as situated 
along a ``continuum'' ranging from more ``complicated'' documents 
like the rule itself to simpler documents that digest the material 
for non-specialist audiences. Complicated documents can be written 
plainly, but may require greater resource investment.
    \22\ Joshua D. Blank & Leigh Osofsky, Simplexity: Plain Language 
and the Tax Law, 66 Emory L.J. 189, 193 (2017).
    \23\ For a closer examination of guidance practices, see 
Nicholas R. Parrillo, Federal Agency Guidance: An Institutional 
Perspective (Dec. 1, 2017) (report to the Admin. Conf. of the U.S.), 
https://www.acus.gov/report/agency-guidance-final-report.
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    Finally, though agencies have worked to implement plain writing for 
rules and guidance both prior to and since the PWA's enactment, 
challenges remain. Inter- and intra-agency coordination in drafting is 
inherently difficult. Additionally, departing from language that 
external stakeholders expect to see, or that has required significant 
negotiation, may be costly. And, due to ever-present resource 
constraints, agencies must prioritize investing in plain writing when 
audiences will most benefit.
* * * * *
    This Recommendation identifies tools and techniques agencies have 
successfully used to facilitate plain language drafting in rulemaking 
and guidance documents. Additionally, this recommendation proposes best 
practices for agencies' internal drafting processes, makes suggestions 
to maximize the value of trainings and related resources, and notes 
special considerations for drafting rulemaking preambles and guidance 
documents.

Recommendation

Plain Writing Practices in General

    1. Agencies should follow the plain language best practices and 
writing techniques documented in the Federal Plain Language Guidelines.

Agency Internal Drafting Processes

    2. Agencies should consider directing one or more offices involved 
in drafting rules and guidance to review them for plain language.

Agency Plain Language Officials, Trainings, and Related Resources

    3. To improve the accessibility of rules and guidance, agency 
drafting staff should consider soliciting guidance or input from senior 
officials responsible for overseeing an agency's compliance with the 
Plain Writing Act (PWA).
    4. When delivering trainings on plain writing techniques and the 
requirements of the PWA and related executive guidance, agencies should 
ensure appropriate focus on how plain language promotes the core 
administrative law goals of public participation, efficient compliance, 
judicial review, and the protection of rights. Agencies should 
additionally consider offering trainings to their technical experts to 
help them understand their role in the regulatory process and how they 
can draft technical text plainly for both specialist and non-specialist 
audiences.
    5. In their PWA compliance reports, agencies should consider 
highlighting rulemaking preambles and guidance documents that exemplify 
plain language best practices.

Plain Drafting in Rulemaking Documents

    6. To support plain drafting, internal agency rulemaking guidelines 
should include:
    a. A requirement that rule drafters write documents in terms that 
the relevant audience can understand.
    b. Information on plain language techniques and reference materials 
that the agency considers most relevant to its rulemaking practice. 
Such techniques include omitting excess words; using active voice, 
headings and other formatting techniques, such as bullet points, lists, 
Q&As, and other visual aids, to organize documents; and replacing 
complex vocabulary with simple words by, among other things, providing 
examples of substitutions that would be appropriate.
    c. Examples of how the agency's rules, guidance, or other documents 
have implemented these techniques.
    d. In addition to accounting for the needs of each relevant 
audience in any given document, at a minimum:
    i. The preambles to proposed rules should include a summary of the 
rule that non-specialists and the general public can understand. Such 
summaries may be those already required by the Administrative Committee 
of the Federal Register or applicable executive guidance. Other 
subparts of the preamble should include language that is plain for 
specialist audiences if it is not practicable to describe the rule's 
purpose, reasoning, or requirements without legal or technical 
language, although these subparts may benefit from brief introductory 
summaries directed at non-specialists.
    ii. The preambles and text of final rules should be written in 
language that reviewing courts and attorneys inside and outside the 
agency can easily understand.
    7. Agencies should consider including in each notice of proposed 
rulemaking a request for comments on whether the regulation's purposes 
and requirements are clear and understandable. Agencies should also 
consider specifying topics or questions on which the agency would most 
benefit from feedback from non-specialist stakeholders and the general 
public.

Plain Drafting in Guidance Documents

    8. When drafting guidance documents, agencies should tailor the 
guidance to the informational needs and level of expertise of the 
intended audiences. Audiences that are particularly likely to benefit 
from tailored guidance include: Regulated small business; regulatory 
beneficiaries, e.g., benefit recipients, consumers, and protected 
classes; and private compliance offices, e.g., human resources 
departments. For audiences that may find complex technical and legal 
details inaccessible, plain language summaries, Q&As, or related 
formats may be especially helpful.
    9. When drafting guidance documents, agencies should strive to 
balance brevity, usefulness, and completeness. One way to help strike 
this balance is for guidance documents to include citations, 
hyperlinks, or other references or points of contact enabling readers 
to easily locate underlying regulatory or statutory requirements.

Administrative Conference Recommendation 2017-4

Marketable Permits

Adopted December 14, 2017

    Marketable permits are a type of government-created license that 
regulates the level of a particular activity.\1\ Often, they ration the 
use of a resource (for instance, clean air by limiting pollution, 
fisheries by limiting fish catch, or the electromagnetic spectrum by 
allocating it among various uses), but they may also be used to satisfy 
affirmative obligations to engage in an activity (such as requirements 
to produce renewable energy). Marketable permits are distinguishable 
from other regulatory permits in that they can be bought or sold 
independently of any real property or other interest.\2\ Because 
marketable permits are alienable, it is particularly important to 
define their longevity and the privileges conveyed by their ownership, 
so that parties will understand exactly what it is that they are 
purchasing.
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    \1\ See Jason Schwartz, Marketable Permits: Recommendations on 
Application and Management i (Dec. 11, 2017) (report to the Admin. 
Conf. of the U.S.), https://www.acus.gov/report/marketable-permits-final-report.
    \2\ In 2015, the Administrative Conference issued 
recommendations on the design and tailoring of regulatory permits 
generally, which are defined as ``any administrative agency's 
statutorily authorized, discretionary, judicially reviewable 
granting of permission to do something which would otherwise be 
statutorily prohibited.'' Admin. Conf. of the U.S., Recommendation 
2015-4, Designing Federal Permitting Programs, 80 FR 78,164 (Dec. 
16, 2015).

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[[Page 61731]]

    Marketable permitting programs generally fall into one of three 
types.\3\ In ``cap-and-trade'' programs, regulators set a limit, or 
cap, on the total amount of activity that can take place. For example, 
the cap could be total tons of a pollutant, total number of fish that 
can be caught, or total number of airport landing slots. A ``rate-based 
trading'' program is similar, but instead of capping the total amount 
of a regulated activity, agencies limit the relative amount of activity 
per regulated entity or unit of regulated activity. For example, a 
rate-based air pollution permit market may limit the amount of 
pollution power plants can emit per unit of electricity generated, and 
fuel efficiency standards set limits on the acceptable amount of fuel 
required to drive a mile. Finally, in ``credit trading'' systems, 
regulators set a relative goal (e.g., no net emissions increase or no 
net increase in property development), and then any covered entities 
seeking, for example, to increase emissions or develop property must 
purchase offsetting credits that are sold by third parties and verified 
by regulators. Credits can be earned when parties limit their level of 
the regulated activity by more than the required amount. Credit systems 
can also be combined with cap-and-trade or rate-based programs. For 
example, in a greenhouse gas cap-and-trade program, unregulated sources 
may be allowed to reduce their emissions voluntarily and sell verified 
credits on the market. In a property development setting, a party could 
decline to develop a particular parcel of land to generate a credit, 
and then sell that credit to another party.
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    \3\ Many of the examples in this Recommendation are drawn from 
marketable permitting programs in the environmental context because 
a significant amount of the experience and writing to date regarding 
marketable permitting programs stems from the environmental area. 
This is not meant to imply that marketable permits are not suitable 
in other contexts, nor that they are always useful in environmental 
contexts.
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Establishing a Marketable Permitting Program

    Like other agency activities, marketable permitting programs must 
be within the agency's statutory authority. But even when an agency has 
statutory discretion to use a marketable permitting program, such a 
program may not be the most suitable regulatory tool to achieve an 
agency's goal. Marketable permitting programs are more likely to be 
suitable when:
     The agency can clearly define the privileges or 
obligations to be assigned by the program and has the necessary 
information to set the level of regulated activity.
     The agency has sufficient resources to design and 
administer the program and is capable of reevaluating the appropriate 
target level of activity over time.
     The agency finds it difficult or expensive to discern 
compliance costs for individual regulated parties. This often occurs 
when the activity to be regulated is conducted by numerous 
heterogeneous or small sources, or when there are as yet unrealized 
opportunities for significant technological developments by actors 
other than those upon whom the regulatory obligations fall.
     The agency is reasonably confident that a robust market is 
feasible. This requires interest and participation by regulated 
entities that have, or are capable of developing, sufficient knowledge 
to make efficient decisions in the market.
     Regulated parties have sufficiently differing compliance 
costs, such that the savings from trading are likely to be greater than 
transaction costs.
     The agency determines that the overall level of an 
activity is more significant than the identity or location of the 
actors engaging in the activity. Alternatively, a marketable permit 
system could take locational differences into account in its structure, 
by, for example, setting prices so that it costs more to buy permits in 
a place where the marginal benefits of cutbacks are high.\4\
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    \4\ For example, as with sulfur dioxide emissions from the 
Midwest which affect the East Coast and emissions from the East 
Coast which mostly blow out to sea.
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    Marketable permitting programs are less likely to be suitable when:
     The balance of factors listed above is not favorable.
     The risk of unintended consequences from trading, such as 
the potential for localized problems,\5\ is difficult to manage.
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    \5\ See, e.g., Exec. Order No. 12,898, Sec.  1-101, 59 FR 7629, 
7629 (Feb. 16, 1994) (requiring each federal agency to ``identif[y] 
and addres[s], as appropriate, disproportionately high and adverse 
human health or environmental effects of its programs, policies, and 
activities on minority populations and low-income populations''); 
see also Clean Air Act, 42 U.S.C. 7491(a)(1) (2016) (noting with 
respect to ``Class I'' areas (primarily national parks) that 
``Congress hereby declares as a national goal the prevention of any 
future, and the remedying of any existing, impairment of visibility 
in mandatory class I Federal areas which impairment results from 
manmade air pollution.'').
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    Once an agency has decided to create a marketable permitting 
program, it must consider how to establish it. Many agencies have used 
notice-and-comment rulemaking when creating a marketable permitting 
regime.\6\ In a handful of instances, agencies have established 
marketable permitting programs through guidance documents.\7\ Since 
agencies cannot impose legally binding obligations through guidance 
documents,\8\ this latter approach can lead to some uncertainty among 
existing and prospective permittees and even agency officials as to the 
permanence of the program.\9\ While notice-and-comment rulemaking has 
costs, it also has the virtue of soliciting stakeholder input while a 
rule is being shaped.\10\ Public input can be beneficial in determining 
whether a particular activity lends itself to regulation via a 
marketable permitting regime and, if so, how the program should be 
designed so as to best serve the public interest.
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    \6\ Schwartz, supra note 1, at 27.
    \7\ Id.
    \8\ Chrysler Corp. v. Brown, 441 U.S. 281, 301-02 (1979).
    \9\ Schwartz, supra note 1, at 27-28.
    \10\ The Administrative Conference has long advised use of 
notice-and-comment even when it is not legally required. See, e.g., 
Admin. Conf. of the U.S., Recommendation 2012-2, Midnight Rules, 77 
FR 47,801 (Aug. 10, 2012); Admin. Conf. of the U.S., Recommendation 
92-1, The Procedural and Practice Rule Exemption from the APA 
Notice-and-Comment Rulemaking Requirements, 57 FR 30,101 (July 8, 
1992); Admin. Conf. of the U.S., Recommendation 82-2, Resolving 
Disputes Under Federal Grant Programs, 47 FR 30,701 (July 15, 1982).
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Allocating Permits

    Once a marketable permitting program has been established, permits 
will need to be distributed. The initial allocation of permits is 
referred to as the ``primary market'' for permits.\11\ Agencies 
typically develop systems and regulations to allocate and keep track of 
permits and to verify their ultimate retirement, under their authority 
to implement the underlying permitting program.
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    \11\ See Interagency Working Grp. for the Study on Oversight of 
Carbon Mkts., Report on the Oversight of Existing and Prospective 
Carbon Markets Carbon Study 12 (2011) (describing the primary market 
as the entry point for permits, whether entry occurs as a result of 
the government distributing permits directly to market participants, 
auctioning permits, or some combination of the two).
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    Agencies predominantly follow one of two approaches in distributing 
permits: Historical-based allocations and auctions. Historical-based 
allocations distribute permits based on historical use of the regulated 
activity. This method is typically used to avoid disruptions to the 
status quo, to protect returns on past investments, and to ease 
tensions with the regulated industry and gain political support. 
However, it may also reward parties for engaging in activity that the 
agency now wants to curb, increase the risk of monopolies in

[[Page 61732]]

the permit market, reduce the incentive to innovate, and incentivize 
undesirable strategic behavior, like a firm artificially inflating its 
use of a resource ahead of an allocation benchmark to increase its 
share of allocated permits.\12\
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    \12\ T.H. Tietenberg, Emissions Trading: Principles and Practice 
138-39 (2d ed. 2006).
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    By comparison, distributing permits through auctions reduces the 
barriers to entry to the regulated activity. Auctions also tend to 
lower the risk of monopolies and strategic behavior, facilitate price 
discovery, and prevent undue windfalls. However, auctions can be 
challenging to administer, especially for agencies without prior 
experience in doing so, and may require significant resources upfront 
to design and implement.\13\
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    \13\ Peter Cramton & Jesse Schwartz, Collusive Bidding: Lessons 
from the FCC Spectrum Auctions, 17 J. Reg. Econ. 229 (2000).
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    There are also several other, less common ways of conducting 
initial permit allocation that may be useful in certain specialized 
contexts. These include output-based allocations,\14\ allocating 
permits to particular communities,\15\ or allocating permits based on 
other policy objectives.
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    \14\ Often proposed in marketable permitting programs that 
regulate electricity generators, output-based allocation distributes 
permits for pollution based on the amount of electricity produced by 
a given party, as opposed to the historical amount of pollution that 
party generated. This results in awarding permits to some of the 
cleanest producers of electricity, like renewable energy, rather 
than disproportionately to the most heavily polluting producers. 
Project on Alt. Regulation, Marketable Rights: A Practical Guide to 
the Use of Marketable Rights as a Regulatory Alternative 14 (1981).
    \15\ For instance, tradable fish catch shares are sometimes 
allocated directly to native communities to enable them to protect 
their interests.
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    In deciding how to allocate permits, agencies must make two 
additional important decisions. The first is to decide who is eligible 
to purchase permits. Some agencies restrict the buying and selling of 
permits to regulated entities, whereas others allow non-regulated 
parties--such as brokers, speculators, market facilitators, or the 
general public--to purchase permits. Allowing access to the market for 
permits to a wider range of parties can promote market liquidity and 
facilitate efficient price discovery, though it also increases the risk 
of market participants trying to ``corner the market'' (amassing 
permits to control prices). Allowing unregulated parties to buy permits 
and retire them also allows the public to decrease the level of the 
cap.
    The second is whether to hold a pool of permits in reserve for 
future entrants. Once the initial allocation of permits has been made, 
in the absence of competitive markets, permit holders may have an 
incentive to impede purchases from potential new competitors.\16\ 
Agencies have sometimes addressed this barrier to entry by creating a 
reserve pool of permits for new entrants. Some agencies have also 
instituted similar mechanisms for introducing permits into the market 
in the wake of large economic changes or emergencies that heavily drive 
demand for permits.
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    \16\ For example, airlines in possession of valuable landing 
slots have an incentive to retain the slots for possible future 
ridership, rather than deciding to sell the slots to a potential new 
competitor.
---------------------------------------------------------------------------

Overseeing a Marketable Permitting Program

    Once initial permit distribution has occurred, agencies will want 
to ensure that parties comply with any obligations that arise under 
their permits. Monitoring ongoing performance is essential to achieving 
compliance with permit obligations. This includes tracking ownership of 
permits through their lifecycle, tracking the amount of regulated 
activity by permit holders, and verifying that credits represent real 
offsets of regulated activity. Agencies often conduct compliance 
monitoring themselves, but sometimes rely on self-verification by 
regulated parties or use third parties to verify compliance.\17\
---------------------------------------------------------------------------

    \17\ In some marketable permitting programs, monitoring has been 
accomplished by spot checking only a small percentage of permit 
holders. On the other end of the spectrum, some programs require 
extensive measures such as third-party audits of all permits or 
credits annually or every few years.
---------------------------------------------------------------------------

    In the event that regulated parties engage in more of the regulated 
activity than their permits allow, agencies have several enforcement 
tools.\18\ For instance, agencies can require parties to buy additional 
permits until their use is in compliance with the number of permits 
they possess and can require parties to develop plans to ensure future 
compliance. Agencies can also impose sanctions. There is evidence that 
compliant parties are more supportive of enforcement in marketable 
permitting programs because noncompliance by other parties lowers the 
value of their allowances.\19\
---------------------------------------------------------------------------

    \18\ An example of a program that has achieved near perfect 
compliance is the acid rain market. It features a sophisticated 
monitoring system that tracks pollution allowance holdings and 
compares them at the end of the compliance period to total emissions 
registered in an emissions monitoring system. It also includes stiff 
penalties fixed to inflation per excess ton of pollutant discharged 
and imposes a requirement to submit a plan for how excess emissions 
will be offset in future years. Schwartz, supra note 1, at 65.
    \19\ For example, in many fishery and catch share programs, 
fishers are reportedly more cooperative with enforcement officials 
after the introduction of a marketable permitting program, 
recognizing that illegal fishing reduces the value of their quota. 
Tom Tietenberg, Tradable Permits in Principle and Practice, 14 Penn. 
St. Envtl. L. Rev. 251, 260 (2006).
---------------------------------------------------------------------------

    Compliance monitoring and enforcement are important aspects of 
ensuring the integrity of a marketable permitting program. Another 
involves overseeing secondary and derivative markets that may emerge, 
with or without government assistance, following the initial allocation 
of permits. The secondary market for permits involves transactions in 
which permits are bought and sold following their initial entry into 
commerce in the primary market. This is in contrast to derivative 
markets, which are primarily risk management and price discovery 
markets in which actual transfer of permits might not occur.\20\ 
Trading in secondary and derivative markets can be accomplished through 
(1) negotiations between buyers and sellers--which may or may not be 
facilitated by third parties (these are known as over-the-counter 
transactions)--or (2) exchanges, which match buyers and sellers in 
standardized transactions.\21\
---------------------------------------------------------------------------

    \20\ Derivatives are contracts or instruments based on the value 
of another financial or economic interest or property and are used 
for hedging and speculation. A derivative of a marketable permit 
would be a contract or instrument based on the value of the permit. 
Hedging allows the transfer of market risks to parties more capable 
of assuming it. Speculation involves attempting to earn profit by 
anticipating price movements or taking advantage of a perceived 
mispricing. Commonly traded types of derivative contracts include 
futures, options, and swaps.
    \21\ Interagency Working Grp. for the Study on Oversight of 
Carbon Mkts., supra note 11, at 14.
---------------------------------------------------------------------------

    The authority to oversee trading on secondary markets is somewhat 
fragmented, and authority over marketable permit programs is not always 
well defined and would benefit from clarification. The Commodity 
Futures Trading Commission (CFTC) has broad enforcement authority to 
pursue manipulation of the price of a commodity in interstate 
commerce.\22\ It also has the authority to surveil spot trading (sales 
for the immediate delivery of a commodity) conducted on exchanges.\23\ 
However, the CFTC only rarely brings enforcement actions for fraud in 
spot markets. The Federal Trade Commission (FTC)--under its authority 
to act against unfair, anticompetitive, and deceptive practices

[[Page 61733]]

affecting commerce--and the Department of Justice--under its antitrust 
authority--also have some authority over secondary permit markets, 
though they have had limited involvement with marketable permitting 
programs to date. An individual agency's ability to oversee secondary 
markets will depend on its statutory authority, but even when it does 
have such authority, it may lack the expertise or resources to 
routinely monitor trading in these markets.
---------------------------------------------------------------------------

    \22\ See id. at 43 (``Because the CFTC has broad enforcement 
authority to pursue manipulation of a commodity's price in 
interstate commerce, the agency would have the authority to bring 
actions against individuals or entities believed to be involved in 
the price manipulation of allowance and carbon offsets.'').
    \23\ For example, the CFTC oversees trading of permits for the 
Regional Greenhouse Gas Initiative and the acid rain market on 
exchanges like the Chicago Climate Futures Exchange.
---------------------------------------------------------------------------

    Authority to oversee derivative markets is largely vested in the 
CFTC.\24\ It oversees derivatives traded in exchanges, which must 
publish certain kinds of trading information that would allow the CFTC 
to detect fraud and manipulation. The CFTC also has authority to 
oversee over-the-counter transactions. The CFTC's authority over 
derivative markets, and particularly over-the-counter derivative 
transactions, was strengthened by the Dodd-Frank Wall Street Reform and 
Consumer Protection Act.\25\
---------------------------------------------------------------------------

    \24\ Interagency Working Grp. for the Study on Oversight of 
Carbon Mkts., supra note 11, at 44, 51. The Securities and Exchange 
Commission has authority over securities and securities based swaps.
    \25\ See Dodd-Frank Wall Street Reform and Consumer Protection 
Act, Public Law 111-203, 124 Stat. 1376 (2010). Certain activities 
involving derivatives may be exempt from CFTC oversight, but CFTC 
has the statutory authority to eliminate many of those exemptions 
and to provide comprehensive oversight of derivatives in permit 
markets. Schwartz, supra note 1, at 76.
---------------------------------------------------------------------------

    Agencies with authority to oversee permit markets have various 
tools to combat fraud, manipulation, and price volatility, all of which 
can undermine economic efficiency and erode confidence in permit 
markets. Fraud and manipulation can be addressed through various 
mechanisms, such as position limits, accountability triggers, market 
surveillance, and reporting requirements. Position limits can be used 
to ensure that no single party or combination of parties can control 
the supply of permits to the point of dictating prices. Position 
accountability triggers, which require permit holders wishing to exceed 
a certain threshold of permits to submit to additional reporting and 
oversight, can likewise be used to prevent hoarding of permits. 
Effective surveillance of markets and robust reporting requirements 
also discourage fraudulent activity.
    Price volatility can occur in marketable permitting programs even 
without fraudulent activity, particularly in smaller, less robust 
markets with fewer participants, due to unexpected increases in demand 
or the costs of compliance. Volatility increases the risk of 
noncompliance and decreases confidence in the market system. Tools to 
address volatility include circuit breakers, which limit how much 
prices can rise or fall in a given period, and safety valves, which can 
set maximum or minimum prices or release reserve credits into the 
market in case of emergencies or demand spikes. Another way to reduce 
volatility is to issue permits with different durations. Finally, by 
defining a broader program that covers more entities under a single 
market, agencies can diversify the portfolio of permit seekers, 
reducing the risk of unexpectedly high cost in an isolated sector. Any 
individual regulated sector can experience unexpected compliance costs 
as economic conditions change; a broader market offers more 
flexibility, better absorbs price volatility, and so increases 
certainty for regulated parties and investors.
    Because permit markets rely heavily on the decisions of both the 
agency and permit buyers, facilitating the flow of information is an 
extremely important part of a marketable permitting program. Making 
data on permit transactions, prices, and holdings publicly available 
can help the agency and the public assess the efficacy of the program. 
It also enables smooth operation of the permit markets by enabling 
permit buyers to better evaluate the value of the permits. Having clear 
communication policies for announcing policy changes or enforcement 
actions that could influence the market prevents pre-publication leaks 
and information asymmetries that could unjustly benefit some parties 
and undermine the permit market.
* * * * *
    This Recommendation does not address whether agencies should 
increase or reduce their usage of marketable permitting programs or 
speak to the substantive areas in which such programs may be desirable. 
Rather, the Administrative Conference acknowledges that agencies have 
been directed to consider marketable permits, consistent with statutory 
authorization and any applicable statutory requirements, as one 
possible mode of regulation and seeks to identify the key 
considerations in assessing marketable permits as a potential 
alternative.\26\ This Recommendation highlights best practices that 
agencies should consider in designing a marketable permitting program.
---------------------------------------------------------------------------

    \26\ Exec. Order No. 12,866, 58 FR 51,735 (Oct. 4, 1993). Other 
examples of regulatory tools drawing on economic incentives include 
fees, penalties, subsidies, changes in liability rules or property 
rights, required bonds, insurance, and warranties. Office of Mgmt. & 
Budget, Exec. Office of the President, OMB Circular A-4, Regulatory 
Analysis (2003).
---------------------------------------------------------------------------

Recommendation

Establishing a Marketable Permitting Program

    1. When designing a marketable permitting program, agencies should 
carefully consider whether such a program will best achieve their 
policy objectives, and, if so, whether the agency's goals would be 
better served by using a cap-and-trade, rate-based, or credit trading 
system or a combination of the above.
    2. Agencies should establish and publish clear guidelines 
containing all of the features of marketable permit programs, including 
expectations as to the longevity of marketable permits and the precise 
obligations or authorizations that they convey.
    3. Agencies should generally consider using notice-and-comment 
rulemaking when creating a marketable permitting regime, both in order 
to reduce uncertainty as to the permanence of the program and to gather 
public input that may prove beneficial in shaping the program.
    4. Agencies should consider whether to allow non-regulated parties 
to buy and sell permits. Allowing a broader range of parties to trade 
permits can promote market liquidity and facilitate efficient price 
discovery but may increase opportunities for manipulation in thin 
markets.
    5. Agencies should explore agreements with other appropriate 
agencies and authorities to allocate responsibilities for developing 
standards or policies, where appropriate. These actions may include 
addressing compliance enforcement and market manipulation.

Overseeing a Marketable Permitting Program

    6. As with other types of permitting programs, when designing a 
marketable permitting program, agencies should include mechanisms to 
ensure compliance with the program. Agencies should monitor performance 
by tracking ownership of permits, tracking regulated activity, and 
verifying that credits represent real offsets from regulated activity. 
Depending on feasibility and efficiency, agencies should consider 
verifying compliance directly, making use of self-verification, or 
engaging third parties to verify compliance. Self-verification tends to 
be a useful option when verification procedures can be standardized or 
when legal remedies are available to aid in enforcement. If an

[[Page 61734]]

agency chooses to use third-party credit verifiers, it should set 
standards to ensure that they are qualified, insured, and free from 
conflicts of interest.
    7. As with other types of permitting programs, in designing a 
marketable permitting program, agencies should require noncompliant 
parties to come into compliance and should include sanctions with 
sufficient deterrent effect to discourage noncompliance.
    8. Agencies should coordinate with other appropriate agencies and 
authorities to identify which oversight tools are appropriate to 
prevent fraud and manipulation.
    9. Agencies should address extreme price volatility by creating 
broad markets, issuing permits with different durations, or using 
circuit breakers, safety valves, or reserve pools, as necessary. 
Agencies should also consider using reserve pools to facilitate new 
parties entering the market.

Information Management

    10. Subject to other agency priorities and applicable legal 
requirements, including the Paperwork Reduction Act (PRA) and e-
Government Act, agencies should collect data on the operation of 
marketable permitting programs and consider periodically assessing both 
the policy effectiveness and economic efficiency of existing marketable 
permitting programs. Agencies should be cognizant that some of the data 
collected may be confidential and protected against disclosure by law.
    11. To the extent practicable, agencies should release data on 
permit transactions, prices, holdings, compliance rates, and other data 
to help the public gauge a market's policy effectiveness and to help 
parties make efficient decisions in the market.
    12. Agencies that manage marketable permitting programs should 
coordinate with other agencies and authorities that have expertise to 
improve marketable permitting programs.
    13. In order to minimize information asymmetries, agencies should 
develop communication policies for announcing policy changes or 
enforcement actions that could influence the market.

Administrative Conference Recommendation 2017-5

Agency Guidance Through Policy Statements

Adopted December 14, 2017

    General statements of policy under the Administrative Procedure Act 
(hereinafter policy statements) are agency statements of general 
applicability, not binding on members of the public, ``issued . . . to 
advise the public prospectively of the manner in which the agency 
proposes to exercise a discretionary power.'' \1\ Interpretive rules 
are defined as rules or ``statements issued by an agency to advise the 
public of the agency's construction of the statutes and rules which it 
administers.'' \2\ Both policy statements and interpretive rules are 
exempt from the APA's requirements for the issuance of legislative 
rules (including notice and comment) \3\ and are often referred to as 
``guidance'' or ``guidance documents'' (although usage varies). This 
Recommendation, however, covers only policy statements, not 
interpretive rules; nevertheless, many of the recommendations herein 
regarding flexible use of policy statements may also be helpful with 
respect to agencies' use of interpretive rules.
---------------------------------------------------------------------------

    \1\ Attorney General's Manual on the Administrative Procedure 
Act 30 n.3 (1947).
    \2\ Id.
    \3\ 5 U.S.C. 553(b)(A).
---------------------------------------------------------------------------

    Over the years, the Conference has issued several recommendations 
pertaining to policy statements. Recommendation 76-5 states that 
agencies should provide for public participation in the formulation of 
policy statements (and of interpretive rules) depending on the impact 
of the statement in question and the practicability of 
participation.\4\ Recommendation 92-2 recognizes the value of policy 
statements but expresses concern about policy statements ``that are 
intended to impose binding substantive standards or obligations upon 
affected persons'' notwithstanding the legal requirement that they be 
nonbinding on the public, and it advises agencies to establish flexible 
procedures that allow members of the public a fair opportunity to argue 
for approaches different from those set forth in a policy statement.\5\ 
The Conference has now decided, twenty-five years after Recommendation 
92-2, to update its recommendations on the formulation and use of 
policy statements in light of current administrative experience.\6\
---------------------------------------------------------------------------

    \4\ Admin. Conf. of the U.S., Recommendation 76-5, Interpretive 
Rules of General Applicability and Statements of General Policy, 41 
FR 56,769 (Dec. 30, 1976). Additional prior Conference 
recommendations pertaining to policy statements and agency guidance 
more broadly, apart from others referenced specifically in this 
preamble, include Recommendation 2015-3, Declaratory Orders, 80 FR 
78,163 (Dec. 16, 2015); and Recommendation 2014-3, Guidance in the 
Rulemaking Process, 79 FR 35,992 (June 25, 2014).
    \5\ Admin. Conf. of the U.S., Recommendation 92-2, Agency Policy 
Statements, 57 FR 30,103 (July 8, 1992).
    \6\ The Conference commissioned a study that resulted in 
interviews with 135 individuals across agencies, industry, and non-
governmental organizations (NGOs), which are the basis for this 
Recommendation. See Nicholas R. Parrillo, Federal Agency Guidance: 
An Institutional Perspective (Oct. 12, 2017) (report to the Admin. 
Conf. of the U.S.), https://www.acus.gov/report/agency-guidance-final-report.
---------------------------------------------------------------------------

    Policy statements are important instruments of administration 
across numerous agencies, and are of great value to agencies and the 
public alike. Compared with adjudication or enforcement, policy 
statements can make agency decisionmaking faster and less costly, 
saving time and resources for the agency and the regulated public. They 
can also make agency decisionmaking more predictable and uniform and 
shield regulated parties from unequal treatment, unnecessary costs, and 
unnecessary risk, while promoting compliance with the law.\7\ Compared 
with legislative rules, policy statements are generally better for 
dealing with conditions of uncertainty and often for making agency 
policy accessible, especially to regulated parties who lack counsel. 
Further, the provision of policy statements often takes less time and 
resources than legislative rulemaking, freeing up the agency to, for 
instance, take other action within its statutory mission. In pursuit of 
benefits such as these, agencies may use policy statements to bind some 
agency employees to the approach of the policy statement,\8\ so long as 
such employees are not bound in a manner that forecloses a fair 
opportunity for the public or employee to argue for approaches 
different from those in the policy statement or seek modification of 
the policy statement.\9\
---------------------------------------------------------------------------

    \7\ See id. at 28-30; see also Admin. Conf. of the U.S., 
Recommendation 71-3, Articulation of Agency Policies, 38 FR 19,788 
(July 23, 1973) (``Agency policies which affect the public should be 
articulated and made known to the public to the greatest extent 
feasible. To this end, each agency which takes actions affecting 
substantial public or private interests, whether after hearing or 
through informal action, should, as far as is feasible in the 
circumstances, state the standards that will guide its determination 
in various types of agency action, either through published 
decisions, general rules or policy statements other than rules.'').
    \8\ See Recommendation 92-2, supra note 5; Office of Mgmt. & 
Budget, Exec. Office of the President, Final Bulletin for Agency 
Good Guidance Practices, 72 FR 3432, 3436 (Jan. 25, 2007) 
(``[A]gency employees should not depart from significant agency 
guidance documents without appropriate justification and supervisory 
concurrence.''); id. at 3437 (``[W]hile a guidance document cannot 
legally bind, agencies can appropriately bind their employees to 
abide by agency policy as a matter of their supervisory powers over 
such employees without undertaking pre-adoption notice and comment 
rulemaking.'').
    \9\ See Final Bulletin for Agency Good Guidance Practices, supra 
note 8, 72 FR at 3440.
---------------------------------------------------------------------------

    Despite their usefulness to both agencies and the public, policy 
statements are sometimes criticized for coercing members of the public 
as if they were legislative rules,

[[Page 61735]]

notwithstanding their legally nonbinding status. Recommendation 92-2 
defined this problem in terms of an agency's intent to use policy 
statements to bind the public, which may imply that the problem is one 
of agency bad faith. While agency intent to make a policy statement 
binding, if shown, would deserve criticism and correction, a focus on 
intent is often inadequate for understanding and addressing the 
phenomenon of binding policy statements. This Recommendation 
supplements Recommendation 92-2 by addressing other reasons why members 
of the public may feel bound by what they perceive as coercive 
guidance.
    There are several kinds of reasons why members of the public 
sometimes find they have no practical escape from the terms of a policy 
statement. First are those that are not of the making of an agency or 
its officials. Specifically, modern regulatory schemes often have 
structural features that tend to lead regulated parties to follow the 
policy statement's approach even if in theory they might be legally 
free to choose a different course, because the costs and risks 
associated with doing so are simply too high. This is often the case if 
statutes or regulations (a) require a regulated party to obtain prior 
approval from an agency to obtain essential permissions or benefits; 
(b) subject a regulated party to repeated agency evaluation under a 
legal regime with which perfect compliance is practically unachievable, 
incentivizing the party to cultivate a reputation with the agency as a 
good-faith actor by following even non-binding guidance; or (c) subject 
the regulated party to the possibility of enforcement proceedings that 
entail prohibitively high costs regardless of outcome, or can lead to 
sanctions so severe that the party will not risk forcing an 
adjudication of the accusation. Meanwhile, a policy statement can 
operate on beneficiaries of a statute or legislative rule as if it were 
a legislative rule by effectively depriving them of the statute or 
legislative rule's protection. This can occur if the policy statement 
promises to treat regulated parties less stringently than the statute 
or legislative rule requires, effectively freeing those parties to 
shift their behavior in a direction that harms beneficiaries. 
Similarly, in its focus on regulatory beneficiaries and regulated 
parties, an agency policy statement may induce conduct harmful to other 
interested parties.
    Second, there are a number of reasons why agencies themselves may 
naturally tend to be somewhat inflexible with respect to their own 
policy statements. Even though these reasons are more within an 
agency's or its officials' control than those discussed above, this 
lack of flexibility may often stem from causes other than agency 
intent. Officials who behave inflexibly may be seeking to balance the 
importance of being flexible against stakeholder demands to honor 
other, competing values that officials would be remiss to ignore. For 
example, if one regulated firm argues for a different approach from 
that in a policy statement and the agency approves, this may prompt 
other firms to criticize the agency for not keeping a level playing 
field among competitors; may cause other firms to lose faith in the 
agency's consistency and predictability, which may render them less 
likely to trust and cooperate with the agency; and may open the agency 
to accusations of favoritism from non-governmental organizations 
(NGOs), the media, and congressional overseers.
    In principle, one way an agency might reconcile these 
understandable pressures would be to prepare and disseminate written 
reasons when it approves an approach different from that in a policy 
statement, thereby making the same reasoning available to all similarly 
situated parties going forward. This transparency helps level the 
playing field, makes agency behavior more predictable, and diminishes 
concerns about favoritism. But agencies might still find inflexibility 
the easier course and adopt it by default, because reason-giving 
requires agency resources.\10\ Besides this, there are additional 
organizational reasons for inflexibility: Some agency offices, by 
reason of their usual day-to-day business, are socialized to be less 
receptive to stakeholder requests than others; higher-level officials 
have institutional reasons to back the decisions of their subordinates; 
and the distinction between binding and nonbinding policies is counter-
intuitive for many officials, at least without substantial training.
---------------------------------------------------------------------------

    \10\ Another difficulty with giving reasons is a potential 
tension with agency policies on the protection of confidential 
business or personal information. This Recommendation is not 
intended to alter existing agency policies on such protection.
---------------------------------------------------------------------------

    These various pressures tend to give at least some policy 
statements a quasi-binding character in fact regardless of their legal 
status. That said, there are important steps that agency officials can 
take to mitigate these legislative-rule-like effects of policy 
statements by stating that they are not binding \11\ and by remaining 
flexible in their use of such statements by offering members of the 
public a fair opportunity to argue for other approaches. What steps to 
take and when is the focus of paragraphs 4 through 8 of this 
Recommendation. Agencies should also, in appropriate circumstances, use 
appropriate tools to enable public participation in the formulation of 
policy statements before these statements are adopted. This is the 
focus of paragraphs 9 through 11 of this Recommendation.
---------------------------------------------------------------------------

    \11\ See, e.g., About Guidance Documents, U.S. Food & Drug 
Admin., https://www.fda.gov/RegulatoryInformation/Guidances/default.htm#about (``Guidance documents represent FDA's current 
thinking on a topic. They do not create or confer any rights for or 
on any person and do not operate to bind FDA or the public. You can 
use an alternative approach if the approach satisfies the 
requirements of the applicable statutes and regulations.'').
---------------------------------------------------------------------------

    First, flexibility often requires managerial initiative and 
resources to foster and maintain. This Recommendation identifies 
concrete organizational measures that agencies may take to foster 
flexibility: Low-cost measures that agencies should take at a minimum 
and additional measures with higher cost that agencies should consider 
in light of resource limitations and competing priorities.
    In addition, public participation at the time of a policy 
statement's adoption may be of value to the agency, regulated parties, 
regulatory beneficiaries, and other interested parties. Such public 
participation may be especially valuable to parties that lack the 
opportunity and resources to participate in the individual adjudicatory 
or enforcement proceedings to which a policy may apply.
    Choosing a level and means of public participation that is 
appropriate to a policy statement's likely impact and is practicable 
requires consideration of several factors. Given the complexity of 
these factors and their tendency to vary with context, it is 
appropriate to make decisions about whether or how to seek public 
participation on policy statements on a document-by-document or agency-
by-agency basis.\12\ A government-wide requirement for inviting written 
input from the public on policy statements is not recommended, unless 
confined to the most extraordinary documents.\13\ This is

[[Page 61736]]

a function both of the complex cost-benefit considerations noted above 
and the fact that broad mandates for written public input on policy 
statements can result in two additional unintended consequences. First, 
a broad mandate applied to a resource-strapped agency may cause the 
agency to fail to process and incorporate comments and instead leave 
many policy statements in published ``draft'' form indefinitely, which 
may at least partly defeat the purpose of participation and cause 
stakeholder confusion. Second, a broad mandate may so legitimize policy 
statements in the eyes of the agency that such statements could end up 
largely supplanting legislative rulemaking.
---------------------------------------------------------------------------

    \12\ Some agencies have adopted procedural rules requiring 
solicitation of written input from the public for large and well-
defined categories of their policy statements, whereas others have 
undertaken such solicitations on a decentralized, ad hoc basis. 
Parrillo, supra note 6, at 167-68.
    \13\ The Office of Management and Budget's Good Guidance 
Practices calls for pre-adoption public comment on ``economically 
significant'' guidance documents, but this appears to cover only a 
very small number of documents. See id. at 167-71 (citing Final 
Bulletin for Agency Good Guidance Practices, supra note 8, 72 FR at 
3439-40).
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Recommendation

Policy Statements Should Not Bind the Public

    1. An agency should not use a policy statement to create a standard 
binding on the public, that is, as a standard with which noncompliance 
may form an independent basis for action in matters that determine the 
rights and obligations of any member of the public.
    2. An agency should afford members of the public a fair opportunity 
to argue for lawful approaches other than those put forward by a policy 
statement or for modification or rescission of the policy statement.
    3. Although a policy statement should not bind an agency as a 
whole, it is sometimes appropriate for an agency, as an internal agency 
management matter, and particularly when guidance is used in connection 
with regulatory enforcement, to direct some of its employees to act in 
conformity with a policy statement. But the agency should ensure that 
this does not interfere with the fair opportunity called for in 
Recommendation 2. For example, a policy statement could bind officials 
at one level of the agency hierarchy, with the caveat that officials at 
a higher level can authorize action that varies from the policy 
statement. Agency review should be available in cases in which 
frontline officials fail to follow policy statements in conformity with 
which they are properly directed to act.

Minimum Measures To Avoid Binding the Public

    4. A policy statement should prominently state that it is not 
binding on members of the public and explain that a member of the 
public may take a lawful approach different from the one set forth in 
the policy statement or request that the agency take such a lawful 
approach. The policy statement should also include the identity and 
contact information of officials to whom such a request should be made.
    5. A policy statement should not include mandatory language unless 
the agency is using that language to describe an existing statutory or 
regulatory requirement, or the language is addressed to agency 
employees and will not interfere with the fair opportunity called for 
in Recommendation 2.
    6. The agency should instruct all employees engaged in an activity 
to which a policy statement pertains to refrain from making any 
statements suggesting that a policy statement is binding on the public. 
Insofar as any employee is directed, as an internal agency management 
matter, to act in conformity with a policy statement, that employee 
should be instructed as to the difference between such an internal 
agency management requirement and law that is binding on the public.

Additional Measures To Avoid Binding the Public

    7. In order to avoid using policy statements to bind the public and 
in order to provide a fair opportunity for other lawful approaches, an 
agency should, subject to considerations of practicability and resource 
limitations and the priorities described in Recommendation 8, consider 
additional measures, including the following:
    a. Promoting the flexible use of policy statements in a manner that 
still takes due account of needs for consistency and predictability. In 
particular, when the agency accepts a proposal for a lawful approach 
other than that put forward in a policy statement and the approach 
seems likely to be applicable to other situations, the agency should 
disseminate its decision and the reasons for it to other persons who 
might make the argument, to other affected stakeholders, to officials 
likely to hear the argument, and to members of the public, subject to 
existing protections for confidential business or personal information.
    b. Assigning the task of considering arguments for approaches other 
than that in a policy statement to a component of the agency that is 
likely to engage in open and productive dialogue with persons who make 
such arguments, such as a program office that is accustomed to dealing 
cooperatively with regulated parties and regulatory beneficiaries.
    c. In cases where frontline officials are authorized to take an 
approach different from that in a policy statement but decline to do 
so, directing appeals of such a refusal to a higher-level official who 
is not the direct superior of those frontline officials.
    d. Investing in training and monitoring of frontline personnel to 
ensure that they (i) understand the difference between legislative 
rules and policy statements; (ii) treat parties' ideas for lawful 
approaches different from those in a policy statement in an open and 
welcoming manner; and (iii) understand that approaches other than that 
in a policy statement, if undertaken according to the proper internal 
agency procedures for approval and justification, are appropriate and 
will not have adverse employment consequences for them.
    e. Facilitating opportunities for members of the public, including 
through intermediaries such as ombudspersons or associations, to 
propose or support approaches different from those in a policy 
statement and to provide feedback to the agency on whether its 
officials are giving reasonable consideration to such proposals.

Priorities in Deciding When To Invest in Promoting Flexibility

    8. Because measures to promote flexibility (including those listed 
in Recommendation 7) may take up agency resources, it will be necessary 
to set priorities for which policy statements are most in need of such 
measures. In deciding when to take such measures the agency should 
consider the following, bearing in mind that these considerations will 
not always point in the same direction:
    a. An agency should assign a higher priority to a policy statement 
the greater the statement's impact is likely to be on the interests of 
regulated parties, regulatory beneficiaries, and other interested 
parties, either because regulated parties have strong incentives to 
comply with the statement or because the statement practically reduces 
the stringency of the regulatory scheme compared to the status quo.
    b. An agency should assign a lower priority to promoting 
flexibility in the use of a policy statement insofar as the statement's 
value to the agency and to stakeholders lies primarily in the fact that 
it is helpful to have consistency independent of the statement's 
substantive content.

Public Participation in Adoption or Modification of Policy Statements

    9. When an agency is contemplating adopting or modifying a policy 
statement, it should consider whether to solicit public participation, 
and, if so, what kind, before adopting the statement. Options for 
public participation include outreach to selected stakeholder 
representatives,

[[Page 61737]]

stakeholder meetings or webinars, advisory committee proceedings, and 
invitation for written input from the public with or without a 
response. In deciding how to proceed, the agency should consider:
    a. Existing agency procedures for the adoption of policy 
statements, including any procedures adopted in response to the Office 
of Management and Budget's Final Bulletin for Agency Good Guidance 
Practices (2007).
    b. The factors listed in Recommendation 8.
    c. The likely increase in useful information available to the 
agency from broadening participation, keeping in mind that non-
regulated parties (regulatory beneficiaries and other interested 
parties) may offer different information than regulated parties and 
that non-regulated parties will often have no opportunity to provide 
input regarding policy statements other than at the time of adoption.
    d. The likely increase in policy acceptance from broadening 
participation, keeping in mind that non-regulated parties will often 
have no opportunity to provide input regarding policy statements other 
than at the time of adoption, and that policy acceptance may be less 
likely if the agency is not responsive to stakeholder input.
    e. Whether the agency is likely to learn more useful information by 
having a specific agency proposal as a focal point for discussion, or 
instead having a more free-ranging and less formal discussion.
    f. The practicability of broader forms of participation, including 
invitation for written input from the public, keeping in mind that 
broader participation may slow the adoption of policy statements and 
may diminish resources for other agency tasks, including the provision 
of policy statements on other matters.
    10. If an agency does not provide for public participation before 
adopting or modifying a policy statement, it should consider offering 
an opportunity for public participation after adoption. As with 
Recommendation 9, options for public participation include outreach to 
selected stakeholder representatives, stakeholder meetings or webinars, 
advisory committee proceedings, and invitation for written input from 
the public with or without a response.
    11. An agency may make decisions about the appropriate level of 
public participation document-by-document or by assigning certain 
procedures for public participation to general categories of documents. 
If an agency opts for the latter, it should consider whether resource 
limitations may cause some documents, if subject to pre-adoption 
procedures for public participation, to remain in draft for substantial 
periods of time. If that is the case, agencies should either (a) make 
clear to stakeholders which draft policy statements, if any, should be 
understood to reflect current agency thinking; or (b) provide in each 
draft policy statement that, at a certain time after publication, the 
document will automatically either be adopted or withdrawn.
    12. All written policy statements affecting the interests of 
regulated parties, regulatory beneficiaries, or other interested 
parties should be promptly made available electronically and indexed, 
in a manner in which they may readily be found. Written policy 
statements should also indicate the nature of the reliance that may be 
placed on them and the opportunities for reconsideration or 
modification of them or the taking of different approaches.

Separate Statement for Administrative Conference Recommendation 2017-5 
by Senior Fellow Ronald M. Levin

Filed December 20, 2017

    The accompanying Recommendation observes that ``[t]his 
Recommendation . . . concerns only policy statements, not interpretive 
rules; nevertheless, many of the recommendations herein regarding 
flexible use of policy statements may also be helpful with respect to 
agencies' use of interpretive rules.'' This remark is well taken as far 
as it goes, but in another respect it is notably cautious. Other 
governmental bodies that have adopted procedures or guidelines 
regarding the same general subject during the past two decades have 
each used only one framework to address all guidance--that is, both 
policy statements and interpretive rules.\1\
---------------------------------------------------------------------------

    \1\ See, e.g., Prohibition on Improper Guidance Documents, (DOJ, 
Nov. 16, 2017), https://www.justice.gov/opa/press-release/file/1012271/download; Final Bulletin for Agency Good Guidance Practices, 
72 FR 3432 (OMB, Jan. 25, 2007); FDA Good Guidance Practices, 21 CFR 
10.115 (2017) (issued Sept. 19, 2000).
---------------------------------------------------------------------------

    In adopting the Recommendation, the Assembly of the Administrative 
Conference was generally sympathetic to the stance taken by the groups 
just mentioned, but it concluded that it did not have enough 
information to take a firm stand. The research for its project had 
focused primarily on policy statements. Thus, the Assembly opted for a 
relatively narrow recommendation for the present, but it also adopted a 
``sense of the Conference'' resolution envisioning a follow-up study 
that would lay the groundwork for a subsequent recommendation on 
interpretive rules. The Assembly's caution is understandable, but I 
will use this separate statement to emphasize that its ancillary 
resolution has pointed in the right direction.
    The basic problem that Recommendation 2017-5 seeks to redress is 
that regulated persons sometimes feel that they have no choice other 
than to comply with a policy statement's position, even if they 
disagree with it. The Recommendation seeks to mitigate that problem by 
suggesting ways in which an agency can give those persons a fair 
opportunity to ask the agency to reconsider and perhaps change its 
position. At the same time, the Recommendation's solutions are made 
``subject to considerations of practicability and resource 
limitations,'' so as to avoid deterring agencies from giving advice 
that the public desires.
    Essentially the same analysis can also be applied to interpretive 
rules: The relative proportion of law and policy in the document has 
little or nothing to do with either the agency's interest in giving 
advice or the private party's interest in being able to induce the 
agency to reconsider it. Moreover, in practice, law and policy blend 
together in many guidance document; thus, procedures that speak to one 
and not the other are bound to prove somewhat artificial.
    Why, then, wouldn't one urge agencies to apply the same principles 
to interpretive rules? It may be thought that, in contrast to its 
handling of policy statements, an agency will naturally treat an 
interpretive rule as binding, because it concerns binding law. But that 
is a non-sequitur. An agency should, of course, be free to state and 
act on its position that a statute or regulation, as construed in an 
interpretive rule, is binding. However, the very purpose of issuing 
such a rule is to specify which of various imaginable readings of the 
statute or regulation the agency considers correct. Persons who may 
believe that a different interpretation is correct should have what 
Recommendation 2017-5 calls a ``fair opportunity'' to try to persuade 
the agency to adopt their preferred view--just as the Recommendation 
contemplates with respect to policy statements. For an agency to assert 
that, because the underlying text is binding, the interpretation that 
the agency happens to have chosen must also be binding is to beg the 
question that ought to be the subject of that dialogue.
    The Assembly was mindful that opinions have differed on the 
question of whether, for procedural purposes, interpretive rules can be 
binding in a sense that policy statements cannot be.

[[Page 61738]]

As just suggested, I myself believe the answer is no, but some agency 
lawyers think otherwise. Ultimately, however, that divergence in 
opinion should not prevent the Conference from moving forward with a 
recommendation in the next phase of its inquiry. As with most 
Conference pronouncements, the principal goal should be to articulate 
recommended practices, not to opine about the law.
    I hope that a project of the kind contemplated by the sense of the 
Conference resolution will be pursued in the near future. I trust that 
it will culminate in broad recognition that most, if not all, of the 
advice in the present Recommendation can and should be applied to 
interpretive rules as well.

Administrative Conference Recommendation 2017-6

Learning From Regulatory Experience

Adopted December 15, 2017

    Making sound regulatory decisions demands information and analysis. 
Several Administrative Conference recommendations encourage agencies to 
gather data when making new rules and when reviewing existing rules.\1\ 
These recommendations reinforce analytic demands imposed on agencies by 
legislation,\2\ executive orders,\3\ and judicial decisions.\4\
---------------------------------------------------------------------------

    \1\ See, e.g., Admin. Conf. of the U.S., Recommendation 2014-5, 
Retrospective Review of Agency Rules, 79 FR 75,114 (Dec. 17, 2014); 
Admin. Conf. of the U.S., Recommendation 85-2, Agency Procedures for 
Performing Regulatory Analysis of Rules, 50 FR 28,364 (July 12, 
1985); Admin. Conf. of the U.S., Recommendation 79-4, Public 
Disclosure Concerning the Use of Cost-Benefit and Similar Analyses 
in Regulation, 44 FR 38,826 (June 8, 1979).
    \2\ See, e.g., Data Quality Act, Public Law 106-554, 515, 114 
Stat. 2763A-153 (2001).
    \3\ See, e.g., Exec. Order No. 12,866, Sec.  5, 58 FR 51,735, 
51,739 (Oct. 4, 1993) (``[T]o . . . improve the effectiveness of 
existing regulations . . . each . . . agency will periodically 
review its existing significant regulations to determine whether any 
such regulations should be modified or eliminated so as to make the 
agency's regulatory program more effective in achieving the 
regulatory objectives.''); Exec. Order No. 13,563, Sec.  6, 58 FR 
3821, 3822 (Jan. 21, 2011) (requiring agencies to ``consider how 
best to promote retrospective analysis of rules that may be 
outmoded, ineffective, insufficient, or excessively burdensome, and 
to modify, streamline, expand, or repeal them in accordance with 
what has been learned''); Exec. Order No. 13,771, Sec.  2, 82 FR 
9339 (Feb. 3, 2017) (requiring the repeal of two existing 
regulations for each new regulation proposed, and leaving in place 
prior analytical requirements); Exec. Order No. 13,777, Sec.  3, 82 
FR 12,285, 12,286 (Mar. 1, 2017) (requiring the establishment of 
regulatory reform task forces that ``shall evaluate existing 
regulations . . . and make recommendations to the agency head 
regarding their repeal, replacement, or modification, consistent 
with applicable law'').
    \4\ See, e.g., Motor Vehicle Mfrs. Ass'n v. State Farm Mut. 
Auto. Ins. Co., 463 U.S. 29, 43, 52 (1983) (explaining that the 
agency must show that its action was the result of ``reasoned 
decisionmaking'' consistent with ``the evidence before the 
agency'').
---------------------------------------------------------------------------

    Agencies need information about the problems that new rules will 
address, such as the risks involved and their causes. But agencies also 
need information about potential solutions to these problems. What 
possible alternative rules or rule designs might help solve the 
problems? How effective are these alternatives likely to be in 
addressing the underlying problems? Are there constraints, barriers, or 
unanticipated consequences that arise in the use of these different 
alternatives? In terms of understanding possible alternatives and how 
well they might work in practice, agencies benefit from having 
information from experience with different solutions. Learning from 
experience is the focus of this recommendation.

Learning From Regulatory Experience

    No uniform or tidy formula exists as to how agencies should 
generate, gather, and analyze the data necessary to support sound 
regulatory decisions. A variety of well-accepted and widely-used 
methods exist from which agencies may choose, with the appropriate 
choices often varying agency by agency and even from situation to 
situation. Practical considerations such as resource and data 
availability will affect the choices agencies make about the methods of 
learning used to support regulatory decisionmaking.\5\ Still, it is 
possible to identify some of the main methods for learning that 
agencies should consider using at different stages of the rulemaking 
lifecycle. These methods, which are not necessarily mutually exclusive, 
can be used before or after a rule is adopted, and they may be 
considered on occasion as part of the final rule itself, which might be 
structured to facilitate future learning by agency officials.
---------------------------------------------------------------------------

    \5\ A general discussion of factors to consider in choosing 
methods and measurements in regulatory learning can be found in Cary 
Coglianese, Measuring Regulatory Excellence, in Achieving Regulatory 
Excellence 291-305 (Cary Coglianese ed., 2017) [hereinafter 
Coglianese, Measuring Regulatory Excellence].
---------------------------------------------------------------------------

    Variation is the key to agency learning. In this context, 
``variation'' can refer to differences among jurisdictions \6\ or 
across time,\7\ with some jurisdictions or time periods having in place 
a version of a rule and others having in place a different version of 
the rule (or no applicable rule at all). It can also refer to 
differences among regulated entities or people within the same 
jurisdiction, with some entities or people subject to a version of a 
rule and others subject to a different version of the rule (or no 
applicable rule at all).
---------------------------------------------------------------------------

    \6\ Cross-sectional analysis means analysis of data collected 
across at least two groups or jurisdictions, with one that is 
subject to the intervention (such as regulation) and one that is 
not. See Cary Coglianese, Empirical Analysis and Administrative Law, 
2002 U. Ill. L. Rev. 1111, 1117-19.
    \7\ Longitudinal analysis is a research design that involves 
repeated observations of the same subjects over a period, where 
variation in the intervention occurs over time (i.e., data before 
and after an intervention is introduced). See Cary Coglianese, 
Measuring Regulatory Performance: Evaluating the Impact of 
Regulation and Regulatory Policy, Organization for Econ. Co-
Operation and Dev. [OECD] Expert Paper No. 1 39 (Aug. 2012) 
[hereinafter Coglianese, Measuring Regulatory Performance].
---------------------------------------------------------------------------

    An agency can learn from all of these kinds of variation. For 
example, a regulation that goes into effect in 2017 leaves the agency 
with two distinct time periods to compare: The years before 2017, and 
2017 and beyond. A rule that applies in jurisdictions X and Y but not 
in jurisdictions A and B leaves the agency with the ability to compare 
outcomes in X and Y with those in A and B, assuming the jurisdictions 
are comparable or that differences can be statistically controlled. The 
agency can then learn whether outcomes are improved in those time 
periods or jurisdictions with the regulatory obligation. However, 
agencies must be careful not to assume automatically that any 
differences in outcomes that they observe have been caused by the 
intervention of the regulation. Other factors that correlate with the 
observed outcomes might also vary across the same time periods or 
jurisdictions.

Using Observational or Randomized Methods To Learn From Experience

    To learn from experience, agencies should seek methods that allow 
them to draw valid inferences about whether a particular regulatory 
intervention causes (or will cause) improvements in the desired 
outcomes. Concern about the validity of such causal inferences 
generally takes two forms. The first of these--external validity--
refers to the extent to which the inferences from a study situated 
within a particular time period or setting can apply to other time 
periods or settings. In other words, an agency should consider to what 
extent the results of a study focused on entities or individuals in one 
period or setting are generalizable to entities or individuals in other 
times or settings. The second type of validity--internal validity--
refers to the extent to which the outcomes observed in a study can be 
said to have been caused by the intervention rather than by potential

[[Page 61739]]

confounders.\8\ In other words, an agency should consider whether what 
might appear to be a relationship between a regulation and changes in 
outcomes truly derives from the regulation. For example, if a study 
shows that accidents from a particular industrial process have declined 
following the adoption of a regulation intended to reduce those 
accidents, concern about internal validity would lead agency officials 
to consider the possibility that the observed decline might have arisen 
from market or technological factors that led to changes in the 
relevant industrial processes around the same time as the regulation 
but which came about for reasons entirely unrelated to the regulation. 
An agency may wish to learn whether the observed decline came from the 
regulation or from other factors so as to know whether to redesign the 
regulation if further improvements are warranted.
---------------------------------------------------------------------------

    \8\ In this context, ``confounders'' refer to changes in 
outcomes that may appear to have been caused by the regulation but 
are actually caused by other factors. See Coglianese, Measuring 
Regulatory Performance, supra note 7 and accompanying text.
---------------------------------------------------------------------------

    To isolate the true effects of a regulation on relevant outcomes, 
such as risk reduction, agencies can use randomized approaches or 
observational approaches. Both of these approaches have advantages and 
disadvantages, and choosing between them will depend on a variety of 
contextual factors.
    Randomized approaches promise to generate results with a high level 
of internal validity because, by making a random assignment of 
individuals or entities subject to a regulatory intervention, any other 
factors that might lead to changes in the relevant outcomes should be 
distributed randomly between the group subject to the regulatory 
intervention and the comparison group. Of course, randomized methods 
can also have their limitations. There is always a question as to 
whether the results of a randomized experiment are externally valid. 
For example, a perfectly designed randomized experiment may indicate 
that exposure to an intervention generates particular outcomes in a 
laboratory setting but may not mean that those same outcomes will occur 
outside of the laboratory. In addition, the results of randomized 
methods may lack validity if individuals, knowing that their behaviors 
are part of a randomized experiment, behave differently from how they 
would otherwise act. Researchers try to limit this particular threat to 
validity by using double-blind, or even just single-blind, study 
designs.\9\ However, it is possible that, in many regulatory contexts, 
regulated parties will know they are subject to a randomized study and 
may engage in strategic behavior that may skew the results of the 
study.
---------------------------------------------------------------------------

    \9\ ``Blindness'' in this context means subjects are not aware 
of whether they are in the treatment or comparison group. ``Double 
blindness'' means neither the subjects nor the researchers know 
which subjects received the treatment, and which received the 
placebo. See Michael Abramowicz et al., Randomizing Law, 159 U. Pa. 
L. Rev. 929, 948-50 (2011).
---------------------------------------------------------------------------

    In addition to these methodological challenges, randomized study 
methods may present legal, policy, and ethical concerns. From a legal 
standpoint, subjecting similar parties to different rules may be 
thought to raise concerns under the Equal Protection Clause of the 
Constitution or the arbitrary-and-capricious standard of the 
Administrative Procedure Act.\10\ Of course, an agency might present a 
legally valid argument that the rational basis, or non-arbitrary 
reason, for its action is to generate information necessary to make an 
informed decision.\11\ From a policy standpoint, if some entities are 
subject to regulation and others are not, an agency may well risk 
artificially distorting a market, depending on what a rule requires or 
how the study is designed. From an ethical standpoint, if a rule 
specifically sets up an experiment with the idea that, after the 
experiment, the agency may change the rule, a concern may exist if some 
regulated entities will by then have invested heavily in capital-
intensive equipment required by the rule. Another concern might be with 
varying levels of health or safety protection to different members of 
the public. In the absence of countervailing considerations, legal, 
policy, and ethical challenges such as these may mean that regulatory 
agencies should use randomized study methods only under limited 
circumstances.
---------------------------------------------------------------------------

    \10\ See 5 U.S.C. 706(2)(A).
    \11\ See Abramowicz et al., supra note 9, at 968.
---------------------------------------------------------------------------

    If randomized study methods are either unavailable or inadvisable, 
agencies can use a broad range of opportunities to learn from 
observational studies. Sometimes these studies are called ``natural 
experiments,'' as they seek to draw inferences based on variation that 
naturally arises over time or across settings in the absence of 
randomization. For this reason, observational studies lack some of the 
methodological advantages of randomization. Internal validity is 
generally a more present concern with observational studies, as other 
factors may confound a study's results. In other words, other factors 
may also vary naturally with the intervention under study and affect 
the observed outcomes. An example of a potential confounding factor is 
when an intervention is accepted voluntarily; those individuals or 
entities who voluntarily choose to adopt a new practice may be 
different from the individuals or entities to whom a mandatory 
requirement would apply.
    The possibility of such confounding factors should be accounted for 
when conducting observational studies and can be effectively addressed 
by using various methods that attempt to mimic statistically what 
occurs with randomization.\12\ Assuming the potential threats to 
internal validity can be addressed, observational studies may in some 
circumstances lead to results with stronger external validity than 
randomization. As a general matter, observational studies will also not 
raise the same legal, policy, or ethical concerns as randomization. 
With observational studies, the agency is either exploiting natural 
variation that would have arisen from the rule anyway or allowing for 
learning from other existing variation, such as state-by-state 
variation.
---------------------------------------------------------------------------

    \12\ Examples of such statistical methods include: difference-
in-differences, propensity score matching, instrumental variables, 
and regression discontinuity. See Coglianese, Measuring Regulatory 
Performance, supra note 7, at 39-42.
---------------------------------------------------------------------------

Opportunities for Learning From Experience Throughout the Rulemaking 
Lifecycle

    Agencies have opportunities to learn from experience throughout the 
rulemaking lifecycle. For example, one stage of this cycle occurs 
before a rule is adopted, as agencies are focused on a problem to be 
addressed and are considering potential regulatory solutions. Learning 
from experience at this early stage can help inform an agency of how a 
rule should be designed. Another stage of the cycle lies with the 
design of the rule itself. At this stage, as an agency writes a rule, 
it may design it in a way that can facilitate the type of variation 
needed to promote learning. Finally, yet another stage arises after the 
agency has promulgated the rule. At this stage, agencies can consider 
actions, such as waivers, that can facilitate learning from experience.

Learning Before Adopting a Rule

    Prior to adopting a rule, an agency should gather information using 
appropriate methods to help inform the regulatory action it plans to 
take. An agency may wish to consider randomized or observational 
methods.
    Randomized Methods. Agencies can analyze existing peer-reviewed 
studies

[[Page 61740]]

that incorporate a randomized design. They can also initiate or support 
new pilot programs that produce randomized study data. For example, if 
an agency were trying to determine whether a certain default rule 
related to saving for retirement should be required of all employers 
offering 401(k) plans, it might, if consistent with applicable law, 
seek the cooperation of some large employers to see whether they would 
assign randomly some of their employees to a company policy that 
requires them to opt into a retirement savings plan and other employees 
to a company policy that defaults employees into the plan but then 
allows them to opt out. Such action would be voluntary by the company 
but random (and effectively involuntary) by the individual. The agency 
might be able to learn better which default rule will yield greater 
savings and then use these results to inform a decision about a 
regulation that would apply to all companies.
    Observational Methods. Agencies can also undertake observational 
studies prior to creating new rules. An agency might, for example, 
employ a cross-sectional research design by looking at variation in 
existing policies at the state level (or perhaps in other countries), 
taking to heart Justice Louis Brandeis's observation that ``a . . . 
state may, if its citizens choose, serve as a laboratory; and try novel 
social and economic experiments without risk to the rest of the 
country.'' \13\ In fact, Congress has, on numerous occasions, directed 
agencies to analyze state-by-state variation to help determine optimal 
policies.\14\
---------------------------------------------------------------------------

    \13\ New State Ice Co. v. Liebmann, 285 U.S. 262, 311 (1932) 
(Brandeis, J., dissenting).
    \14\ See, e.g., Energy Policy Act of 2005, Public Law 109-58, 
139, 119 Stat. 594, 647 (2005) (``[T]he Secretary . . . shall 
conduct a study of State and regional policies that promote cost-
effective programs to reduce energy consumption (including energy 
efficiency programs) that are carried out by utilities that are 
subject to State regulation.'').
---------------------------------------------------------------------------

Designing a Rule To Facilitate Learning

    An agency can write a rule to facilitate future learning or to 
enable it later to take advantage of variation that stems naturally 
from the rule.\15\ Again, an agency may wish to consider randomized or 
observational methods.
---------------------------------------------------------------------------

    \15\ These features can facilitate retrospective review. See 
Admin. Conf. of the U.S., Recommendation 2014-5, Retrospective 
Review of Agency Rules, 79 FR 75,114 (Dec. 17, 2014).
---------------------------------------------------------------------------

    Randomized Methods. When appropriate, an agency might consider 
structuring a rule to allow for learning through a randomized 
method.\16\ This could entail writing a rule in such a way that some 
entities or people that fall within the agency's regulatory scope are 
subject to one version of the rule and some are subject to another 
version of the rule or not subject to the rule at all. The agency's 
decision as to who falls within each category could be made on a random 
basis. For example, Michael Abramowicz, Ian Ayres, and Yair Listokin 
use as an example a test of speed limits in which the posted limits on 
different roads are randomly increased or decreased.\17\ Drivers on 
these roads are informed of the regulatory intervention (i.e., the 
speed limit on that road) without necessarily knowing that they are 
participating in a randomized experiment. Although this example falls 
outside the realm of federal rulemaking, agencies at the federal level 
may have similar ways to structure the timing or application of a rule 
using randomization. Assuming any potential methodological, legal, 
ethical, and policy concerns about randomization can be addressed, 
there may be some circumstances in which randomization will be an 
appropriate way for an agency to generate variation that will 
facilitate learning from experience.
---------------------------------------------------------------------------

    \16\ See generally Abramowicz et al., supra note 9.
    \17\ See id. at 951.
---------------------------------------------------------------------------

    Observational Methods. For the reasons discussed above, agencies 
will generally find it more feasible to use observational approaches 
than randomized ones. In any rulemaking, there will be variation from 
observing the world before the rule went into effect and comparing it 
to the world after the rule has taken effect. Further, in the case of a 
rule that an agency has rescinded, there will be variation in three 
conditions: the world before the rule went into effect; The world in 
which the rule was in effect; and the world after the rule was 
rescinded. Such variation can present rich opportunities for 
observational studies, especially when a satisfactory baseline or 
control group can be identified. Agencies may well decide, at the 
outset when promulgating a new rule, to commit to setting up a 
longitudinal study. In doing so, they would need to collect data from 
regulated parties before the rule goes into effect and then collect 
data once the rule has taken effect, keeping in mind potential 
confounders and using statistical techniques to control for them.\18\
---------------------------------------------------------------------------

    \18\ See Admin. Conf. of the U.S., Recommendation 2014-5, ] 7, 
Retrospective Review of Agency Rules, 79 FR 75,114, 75,116-17 (Dec. 
17, 2014).
---------------------------------------------------------------------------

    Additionally, agencies may consider deliberately introducing or 
allowing for some non-random variation in response to a rule by 
allowing for flexibility by states in the implementation of the rule. 
For example, variation can occur if the agency sets a federal minimum 
standard and permits states to exceed that standard. Agencies then can 
commit to using the resulting state-by-state variation to compare firms 
separated by a very short distance in neighboring states that have 
adopted different rules. Using the statistical technique known as 
regression discontinuity, the agency may be able to approximate 
randomization (i.e., the ``assignment'' of firms to a state with one 
rule versus another would be effectively random).\19\
---------------------------------------------------------------------------

    \19\ See Jonah B. Gelbach & Jonathan Klick, Empirical Law and 
Economics, in The Oxford Handbook of Law and Economics (Francisco 
Parisi ed., 2017).
---------------------------------------------------------------------------

Learning After Promulgating a Rule

    An agency can also use either randomized or observational methods 
to take advantage of variation once a rule has been put into place.
    Randomized Methods. An agency might choose, only if appropriate, 
after taking into account all legal, ethical, practical, and fairness 
considerations, to vary the application of a rule on a randomized basis 
to learn from variation.\20\
---------------------------------------------------------------------------

    \20\ In 2004, the Securities and Exchange Commission (SEC) 
varied the application of its ``Uptick Rule.'' See Order Suspending 
the Operation of Short Sale Price Provisions for Designated 
Securities and Time Periods, Exchange Act Release No. 50,104, 69 FR 
48,032 (Aug. 6, 2004). Market observers characterized the SEC's 
conclusion to be that the rule did not substantially increase market 
efficiency. The SEC rescinded the rule. See Zachary Gubler, 
Regulatory Experimentation 42 (Nov. 17, 2017) (report to the Admin. 
Conf. of the U.S.), https://www.acus.gov/report/regulatory-experimentation-final-report.
---------------------------------------------------------------------------

    Observational Methods. In addition to varying the application of a 
rule on a randomized basis, agencies can achieve variation once the 
rule is in place by considering conditional waivers and exemptions. For 
example, if a regulated entity can present some evidence to suggest 
that it can meet the purpose of the regulation using an alternative 
approach, the agency might grant a waiver to that entity with the 
condition that the entity uses that alternative approach.\21\ After 
granting a certain number of waivers, the agency could then test the 
effectiveness of its rule by comparing entities that have selected 
different approaches. The agency would likely find it necessary to use 
statistical techniques to control for potential confounders. Over time, 
these kinds of

[[Page 61741]]

studies may provide the agency with retrospective information that 
justifies amending an existing rule. Fairness, legal, and ethical 
concerns might be minimized when using conditional waivers if the 
agency permits all regulated entities to seek a waiver based on 
presentation of evidence and the agency widely publicizes its waiver 
availability.\22\
---------------------------------------------------------------------------

    \21\ See Admin. Conf. of the U.S., Recommendation 2017-7, 
Regulatory Waivers and Exemptions, 82 FR ___(approved Dec. 15, 
2017); see also Aaron Nielson, Waivers, Exemptions, and 
Prosecutorial Discretion: An Examination of Agency Non-Enforcement 
Practices 30 (Nov. 1, 2017) (report to the Admin. Conf. of the 
U.S.), https://www.acus.gov/report/regulatory-waivers-and-exemptions-final-report.
    \22\ See Admin. Conf. of the U.S., Recommendation 2017-7, 
Regulatory Waivers and Exemptions, 82 FR ___(approved Dec. 15, 
2017).
---------------------------------------------------------------------------

    Table 1 summarizes the main methods of learning discussed in the 
preceding sections.

          Table 1--Examples of Methods for Regulatory Learning
------------------------------------------------------------------------
                                   Randomized           Observational
------------------------------------------------------------------------
Learning before adopting a     Randomized    Pilot
 rule.                         voluntary pilot       programs where
                               programs.             intervention is not
                                                     assigned randomly
                                                     (such as with
                                                     voluntary
                                                     programs).
                               Studies       Analysis of
                               that rely on          regulatory
                               randomization.        approaches in
                                                     different
                                                     jurisdictions,
                                                     including
                                                     countries.
Designing a rule to            Randomized    Rules that
 facilitate learning.          assignment of         allow for state
                               different             implementation and
                               regulatory            variation (e.g.,
                               obligations.          cooperative
                                                     federalism).
                                                     Analysis of
                                                     temporal
                                                     differences (i.e.,
                                                     ``before and
                                                     after''
                                                     comparisons).
                                                     Creation of
                                                     regulatory
                                                     thresholds that
                                                     will facilitate
                                                     later comparisons
                                                     of entities above/
                                                     below a threshold.
Learning after promulgating    Randomized    Granting of
 a rule.                       application of        waivers or
                               rules in              exemptions that
                               appropriate           allow for the
                               circumstances.        adoption of
                                                     alternative
                                                     approaches that can
                                                     be studied.
------------------------------------------------------------------------

Common Issues in Learning From Experience

    As noted, each stage of the rulemaking lifecycle allows agencies to 
learn from variation. Agencies can learn from both randomized and 
observational methods, keeping in mind the virtues and challenges of 
each. Whichever method an agency chooses, at least two additional 
issues should be considered: Data collection and public input.

Data Collection

    Collecting data is essential. Only with information can agencies 
hope to learn from analyzing regulations. When collecting data, though, 
agencies must be mindful of the Paperwork Reduction Act (PRA), which 
can constrain their ability to send a survey instrument to ten or more 
parties.\23\ As part of agencies' data collection efforts, it may be 
helpful for agencies to work closely with the Office of Information and 
Regulatory Affairs to ensure proper use of available flexibility in 
accordance with the PRA and the Office of Management and Budget's 
implementing regulations.
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    \23\ See 44 U.S.C. 3502(3)(A)(i).
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Public Input

    Best practices generally call for some opportunity for the public 
to learn about and comment on the design and results of studies an 
agency undertakes. For pre-rule learning, the notice-and-comment 
process provides the required minimum process by which agencies should 
engage the public, but there are other methods of public input that 
might be useful, even at the pre-rule stage, for public input beyond 
just notice and comment.\24\ If an agency is planning to revise a rule, 
a subsequent notice-and-comment rulemaking will provide an additional 
opportunity for public input. If an initial rule provides for its 
expiration on a certain date, that may also help ensure that the public 
has the opportunity to offer input on a future notice-and-comment 
rulemaking to keep or modify the rule. Even rules not subject to 
notice-and-comment procedures can benefit from subsequent opportunities 
for public comment.\25\
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    \24\ See, e.g., Admin. Conf. of the U.S., Recommendation 2017-2, 
Negotiated Rulemaking and Other Options for Public Engagement, 82 FR 
31,039 (July 5, 2017); Admin. Conf. of the U.S., Recommendation 
2013-5, Social Media in Rulemaking, 78 FR 76,269 (Dec. 17, 2013).
    \25\ Admin. Conf. of the U.S., Recommendation 95-4, Procedures 
for Noncontroversial and Expedited Rulemaking, 60 FR 43,110 (Nov. 8, 
1995).
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    But even in situations in which the agency does not undertake a new 
notice-and-comment rulemaking or otherwise leaves a rule ``as is,'' the 
agency may benefit from outside input on the systematic learning effort 
it has undertaken, whether through a peer review process, advisory 
committees, public hearings or meetings, or just a supplemental 
solicitation of comments. The decision as to which approach to use to 
solicit public input will turn on numerous factors, including resource 
constraints.\26\
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    \26\ See Gubler, supra note 20, at 54.
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Recommendation

    1. Agencies should seek opportunities to collect data to learn the 
most effective way to design their rules and analyze the effects of 
their rules. They can learn from experience at one or more stages of 
the rulemaking process, from pre-rule analysis to retrospective review. 
Before adopting a rule, agencies can learn from pilot projects, 
demonstrations, and flexibility among states or regulated entities. 
After promulgating a rule, agencies may, where legally permissible, use 
waivers and exemptions to learn. As agencies seek out such learning 
opportunities, they should give due regard for legal, ethical, 
practical, and fairness considerations.
    2. When agencies analyze variation to learn more about the 
effectiveness of policy options, they should make every effort to 
collect data and conduct reliable analysis. Only where appropriate, 
agencies should consider creating variation through a randomized 
control trial.
    3. To inform the learning process, agencies should consider 
soliciting public input at various points in the rulemaking lifecycle. 
This can include input on the design and results of any learning 
process. In addition to the public input required under 5 U.S.C. 
553(c), agencies should consider, as time and resources permit, the use 
of supplemental requests for public comment, peer review, advisory 
committee deliberation, or public hearings or meetings.
    4. When gathering data, agencies and the Office of Management and 
Budget (OMB) should seek to use flexibilities within the Paperwork 
Reduction Act

[[Page 61742]]

and OMB's implementing regulations (e.g., a streamlined comment period 
for collections associated with proposed rules) when permissible and 
appropriate.
    5. Agencies, as appropriate, should seek legal authority from 
Congress to take advantage of this recommendation.

Administrative Conference Recommendation 2017-7

Regulatory Waivers and Exemptions

Adopted December 15, 2017

    Individuals and entities regulated by federal agencies must adhere 
to program-specific requirements prescribed by statute or regulation. 
Sometimes, however, agencies prospectively excuse individuals or 
entities from statutory or regulatory requirements through waivers or 
exemptions.\1\ The authority to waive or exempt regulated parties from 
specific legal requirements affords agencies much-needed flexibility to 
respond to situations in which generally applicable laws are a poor fit 
for a given situation.\2\ Emergencies or other unforeseen circumstances 
may also render compliance with statutory or regulatory requirements 
impossible or impracticable.\3\ In such instances, requiring strict 
adherence to legal requirements may not be desirable.\4\ This is 
particularly true when the recipient of a waiver or exemption 
demonstrates that it intends to engage in conduct that will otherwise 
further the agency's legitimate goals.
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    \1\ Agencies may also retrospectively decline to bring an 
enforcement action once a legal violation has already occurred. This 
recommendation, however, is confined to the agency practice of 
prospectively waiving or exempting regulated parties from legal 
requirements.
    \2\ The terms ``waiver'' and ``exemption'' carry various 
meanings in agency practice. For the purposes of this 
recommendation, when Congress has expressly authorized an agency to 
excuse a regulated party from a legal requirement, the term 
``waiver'' is used. If an agency is implicitly authorized by 
Congress to excuse a regulated party from a legal requirement, 
``exemption'' is used. These definitions stem from the report 
underlying this recommendation. See Aaron L. Nielson, Waivers, 
Exemptions, and Prosecutorial Discretion: An Examination of Agency 
Nonenforcement Practices (Nov. 1, 2017) (report to the Admin. Conf. 
of the U.S.), https://acus.gov/report/regulatory-waivers-and-exemptions-final-report. Some agencies may also derive authority to 
grant waivers or exemptions from presidential delegations under 
Article II of the Constitution. That category of waivers and 
exemptions is outside the scope of this recommendation.
    \3\ See, for example, the Stafford Act, 42 U.S.C. 5141, 
authorizing any federal agency charged with the administration of a 
federal assistance program in a presidentially declared major 
disaster to modify or waive administrative conditions for assistance 
if requested to do so by state or local authorities.
    \4\ Of course, agencies cannot issue waivers or exemptions 
unless authorized by law, and even when authorized by law, agencies 
must not issue them in an arbitrary fashion.
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    Yet, waiving or exempting a regulated party from a statutory or 
regulatory requirement also raises important questions about 
predictability, fairness, and protection of the public. For instance, 
when an agency decides to waive legal requirements for some but not all 
regulated parties, the decision to grant a waiver or exemption may 
create the appearance--or perhaps even reality--of irregularity, bias, 
or unfairness. Waiving or exempting a regulated party from a legal 
requirement, therefore, demands that agencies simultaneously consider 
regulatory flexibility, on the one hand, and consistent, non-arbitrary 
administration of the law, on the other.
    Agencies' authority to waive or exempt regulated parties from legal 
requirements may also intersect with other principles of administrative 
law. When agencies frequently issue waivers or exemptions because a 
regulation is outdated or ineffective, for example, amending or 
rescinding the regulation may be more appropriate in some 
circumstances, despite the necessary resource costs.\5\ Such revisions 
can enhance efficiency and transparency. The requisite notice-and-
comment procedures can also foster public participation and informed 
decisionmaking.
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    \5\ See Admin. Conf. of the U.S., Recommendation 2014-5, 
Retrospective Review of Agency Rules, ] 5, 79 FR 75,114, 75,116 
(Dec. 17, 2014) (identifying petitions from stakeholder groups and 
members of the public and poor compliance rates as factors to 
consider in identifying regulations that may benefit from amendment 
or rescission).
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    The following recommendations offer best practices and factors for 
agencies to consider regarding their waiver and exemption practices and 
procedures. They are not intended to disturb or otherwise limit 
agencies' broad discretion to elect how to best use their limited 
resources.

Recommendation

Scope of Waiver and Exemption Authority

    1. When permitted by law, agencies should consider creating 
mechanisms that would allow regulated parties to apply for waivers or 
exemptions by demonstrating conduct that will achieve the same purpose 
as full compliance with the relevant statutory or regulatory 
requirement.
    2. When consistent with the statutory scheme, agencies should 
endeavor to draft regulations so that waivers and exemptions will not 
be routinely necessary. When an agency has approved a large number of 
similar waivers or exemptions, the agency should consider revising the 
regulation accordingly. If eliminating the need for waivers or 
exemptions requires statutory reform, Congress should consider 
appropriate legislation.

Exercising Waiver or Exemption Authority

    3. Agencies should endeavor, to the extent practicable, to 
establish standards and procedures for seeking and approving waivers 
and exemptions.
    4. Agencies should apply the same treatment to similarly situated 
parties when approving waivers and exemptions, absent extenuating 
circumstances.
    5. Agencies should clearly announce the duration, even if 
indefinite, over which a waiver or exemption extends.

Transparency and Public Input in Seeking and Approving Waivers and 
Exemptions

    6. Agencies should consider soliciting public comments before 
establishing standards and procedures for seeking and approving waivers 
and exemptions.
    7. Agencies should endeavor, to the extent practicable, to make 
standards and procedures for seeking and approving waivers and 
exemptions available to the public.
    8. Agencies should consider soliciting public comments before 
approving waivers or exemptions.
    9. Agencies should provide written explanations for individual 
waiver or exemption decisions and make them publicly available to the 
extent practicable and consistent with legal or policy concerns, such 
as privacy. Further, agencies should consider providing written 
explanations of representative instances to help illustrate the types 
of activities likely to qualify for a waiver or exemption.

[FR Doc. 2017-28124 Filed 12-28-17; 8:45 am]
 BILLING CODE 6110-01-P