[Federal Register Volume 85, Number 113 (Thursday, June 11, 2020)]
[Proposed Rules]
[Pages 35612-35627]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-12535]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 83

[EPA-HQ-OAR-2020-00044; FRL 10010-62-OAR]
RIN 2060-AU51


Increasing Consistency and Transparency in Considering Benefits 
and Costs in the Clean Air Act Rulemaking Process

AGENCY: Environmental Protection Agency (EPA).

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Environmental Protection Agency (EPA) is proposing 
processes that it would be required to undertake in promulgating 
regulations under the Clean Air Act (CAA) to ensure that information 
regarding the benefits and costs of regulatory decisions is provided 
and considered in a consistent and transparent manner. This proposed 
rulemaking addresses, among other things, issues raised in the June 13, 
2018 advance notice of proposed rulemaking, ``Increasing Consistency 
and Transparency in Considering Costs and Benefits in the Rulemaking 
Process,'' and proposes how the concepts described in that advance 
document would be implemented in rulemakings conducted by the EPA using 
its authorities under the CAA. The EPA is proposing to establish 
procedural requirements governing the development and presentation of 
benefit-cost analyses (BCA), including risk assessments used in the 
BCA, for significant rulemakings conducted under the CAA. Together, 
these requirements would help ensure that the EPA implements its 
statutory obligations under the CAA, and describes its work in 
implementing those obligations, in a way that is consistent and 
transparent.

DATES: Comments must be received on or before July 27, 2020.
    Public Hearing: The EPA will hold one or more virtual public 
hearings on this proposed rulemaking. These will be announced in a 
separate Federal Register publication that provides details, including 
specific dates, times, and contact information for these hearings.

ADDRESSES: You may send comments, identified by Docket ID No. EPA-HQ-
OAR-2020-00044, by any of the following methods:
     Federal eRulemaking Portal: https://www.regulations.gov/ 
(our preferred method). Follow the online instructions for submitting 
comments.
    Instructions: All submissions received must include the Docket ID 
No. EPA-HQ-OAR-2020-00044 for this rulemaking. Comments received may be 
posted without change to https://www.regulations.gov/, including any 
personal information provided. For detailed instructions on sending 
comments and additional information on the rulemaking process, see the 
``Public Participation'' heading of the SUPPLEMENTARY INFORMATION 
section of this document. Out of an abundance of caution for members of 
the public and our staff, the EPA Docket Center and Reading Room was 
closed to public visitors on March 31, 2020, to reduce the risk of 
transmitting COVID-19. Our Docket Center staff will continue to provide 
remote customer service via email, phone, and webform. We encourage the 
public to submit comments via https://www.regulations.gov or email, as 
there is a temporary suspension of mail delivery to EPA, and no hand 
deliveries are currently accepted. For further information on EPA 
Docket Center services and the current status, please visit us online 
at https://www.epa.gov/dockets.

FOR FURTHER INFORMATION CONTACT: Leif Hockstad, Office of Air Policy 
and Program Support, Office of Air and Radiation, Environmental 
Protection Agency, Mail Code 6103A,1200 Pennsylvania Avenue NW, 
Washington, DC 20460; (202) 343-9432; email address: 
[email protected].

SUPPLEMENTARY INFORMATION: Organization of this document. The following 
outline is provided to aid in locating information in this preamble.

I. Public Participation
II. General Information
    A. Does this action apply to me?
    B. What is the Agency's authority for taking this action?
    C. What action is the Agency taking?
III. Background
IV. Rationale and Summary of the Proposed Requirements
    A. Preparation of Benefit-Cost Analyses for Significant 
Regulations
    B. Best Practices for the Development of Benefit-Cost Analysis
    C. Requirement for Additional Presentations of BCA Results in 
Rulemakings
V. Additional Considerations and Requests for Comment
    A. Specifying How BCA Results Should Inform Regulatory Decisions
    B. Other Areas of Solicitation for Public Comment
VI. References
VII. Statutory and Executive Order Reviews

I. Public Participation

A. Written Comments

    Submit your comments, identified by Docket ID No. EPA-HQ-OAR-2020-
00044, at https://www.regulations.gov (our preferred method), or the 
other methods identified in the ADDRESSES section. Once submitted, 
comments cannot be edited or removed from the docket. The EPA may 
publish any comment received to its public docket. Do not submit 
electronically any information you consider to be Confidential Business 
Information (CBI) or other information whose disclosure is restricted 
by statute. Multimedia submissions (audio, video, etc.) must be 
accompanied by a written comment. The written comment is considered the 
official comment and should include discussion of all points you wish 
to make. The EPA will generally not consider comments or comment 
contents located outside of the primary submission (i.e. on the web, 
cloud, or other file sharing system). For additional submission 
methods, the full EPA public comment policy, information about CBI or 
multimedia submissions, and general guidance on making effective 
comments, please visit https://www.epa.gov/dockets/commenting-epa-dockets.
    The EPA is temporarily suspending its Docket Center and Reading 
Room for public visitors to reduce the risk of transmitting COVID-19. 
Written comments submitted by mail are temporarily suspended and no 
hand

[[Page 35613]]

deliveries will be accepted. Our Docket Center staff will continue to 
provide remote customer service via email, phone, and webform. We 
encourage the public to submit comments via https://www.regulations.gov. For further information and updates on EPA Docket 
Center services, please visit us online at https://www.epa.gov/dockets.
    The EPA continues to carefully and continuously monitor information 
from the Centers for Disease Control and Prevention (CDC), local area 
health departments, and our Federal partners so that we can respond 
rapidly as conditions change regarding COVID-19.

B. Public Hearing

    The EPA will hold one or more virtual public hearings on this 
proposed rulemaking. These will be announced in a separate Federal 
Register publication that provides details, including specific dates, 
times, and contact information for these hearings. Please note that EPA 
is deviating from its typical approach because the President has 
declared a national emergency. Because of current CDC recommendations, 
as well as state and local orders for social distancing to limit the 
spread of COVID-19, EPA cannot hold in-person public meetings at this 
time.

II. General Information

A. Does this action apply to me?

    This proposed regulation does not regulate the conduct or determine 
the rights of any entity or individual outside the Agency, as this 
action pertains only to internal EPA practices. However, the Agency 
recognizes that any entity or individual interested in EPA's 
regulations may be interested in this proposal. For example, this 
proposal may be of particular interest to entities and individuals 
concerned with how EPA conducts benefit and cost analyses.

B. What is the Agency's authority for taking this action?

    The Agency proposes to take this action under the CAA using 42 
U.S.C. 7601(a)(1). Section 301(a)(1) of the CAA provides authority to 
the Administrator ``to prescribe such regulations as are necessary to 
carry out his functions'' under the CAA. Such authority extends to 
internal agency procedures that increase the Agency's ability to 
provide consistency and transparency to the public in regard to the 
rulemaking process under the CAA. The EPA solicits comment on whether 
additional or alternative sources of authority are appropriate bases 
for this proposed regulation.
    This is a proposed rulemaking of agency organization, procedure or 
practice. This proposed procedural rule would not regulate any person 
or entity outside the EPA and would not affect the rights or 
obligations of outside parties. As a rule of Agency procedure, this 
rule is exempt from the notice and comment requirements set forth in 
the Administrative Procedure Act. See 5 U.S.C. 553(b)(A). Nonetheless, 
the Agency voluntarily seeks comment because it believes that the 
information and opinions supplied by the public will inform the 
Agency's views.
    The D.C. Circuit has explained that ``the critical feature of a 
rule that satisfies the so-called procedural exception [to the APA's 
notice and comment requirements] is that it covers agency actions that 
do not themselves alter the rights or interests of parties . . . .'' 
James A. Hurson Assocs. v. Glickman, 229 F.3d 277, 280 (D.C. Cir. 
2000); National Mining Association v. McCarthy, 758 F.3d 243 (D.C. Cir. 
2014) (holding that EPA's interagency plan for enhanced consultation 
and coordination is a procedural rule because it does not alter the 
rights or interests of parties, although it may alter the manner in 
which the parties present themselves or their viewpoints to the 
Agency); Batterton v. Marshall, 648 F.2d 708 (D.C. Cir. 1980) (``The 
critical question is whether the agency action jeopardizes the rights 
and interests of parties.''). This rule would not regulate the conduct 
or determine the rights of any entity outside the federal government.

C. What action is the Agency Taking?

    This proposed action consists of three elements. First, the 
proposed regulation provides that the EPA will prepare a BCA for all 
future significant proposed and final regulations under the CAA. 
Second, the EPA proposes that the BCA be developed using the best 
available scientific information and in accordance with best practices 
from the economic, engineering, physical, and biological sciences. 
Third, the EPA proposes additional procedural requirements to increase 
transparency in the presentation of the BCA results, while maintaining 
the standard practices of measuring net benefits consistent with E.O. 
12866. Together, these requirements would help ensure that the EPA 
implements its statutory obligations under the CAA in a way that is 
consistent and transparent. In this document, the EPA solicits comment 
on all aspects of this proposal and how it can best be implemented in 
accordance with existing law and prior statements of policy that have 
called for increasing consistency and transparency. Each of the key 
elements of the action is discussed in more detail below, followed by a 
summary of specific solicitations for comment.

III. Background

    As the EPA works to advance its mission of protecting public health 
and the environment, it seeks to ensure that its analyses of regulatory 
decisions provided to the public continue to be rooted in sound, 
transparent and consistent approaches to evaluating benefits and costs.
    The Supreme Court noted in Michigan v. EPA that ``[c]onsideration 
of cost reflects the understanding that reasonable regulation 
ordinarily requires paying attention to the advantages and the 
disadvantages of agency decisions.'' Michigan v. EPA, 135 U.S. 2699, 
2707 (2015). Many environmental statutes, including the CAA, 
contemplate the consideration of costs as part of regulatory decision-
making in many instances. Several of these statutes, including the CAA, 
contain provisions that explicitly require some form of cost 
consideration when establishing a standard. Additionally, several other 
provisions use terminology that in context implicitly direct the EPA to 
consider costs, alone or in conjunction with benefits and other 
factors. For example, section 112(n)(1)(A) of the CAA directs the 
Administrator to ``regulate electric utility steam generating units 
under [section 112], if the Administrator finds such regulation is 
appropriate and necessary.'' ``Read naturally in the present context, 
the phrase `appropriate and necessary' requires at least some attention 
to cost.'' Michigan, 135 S. Ct. at 2707 (2015). Therefore, in light of 
the varying statutory provisions in the CAA that apply to or otherwise 
address cost consideration, the Agency proposes to provide analysis to 
the public that will present all of the benefits and costs in a 
consistent manner for all significant CAA rulemakings.
    Thorough and careful economic analysis is informative for 
developing sound environmental policies. High quality economic analyses 
enhance the effectiveness of environmental policy decisions by 
providing policy makers and the public with information needed to 
systematically assess the likely consequences of various actions or 
options. BCA, a type of economic analysis, can serve an integral 
informative role in the regulatory development process. In general 
terms, a BCA is an evaluation of both the benefits and costs to society 
as a result of a policy and the difference between the two (i.e., the 
calculation of net benefits (benefits minus costs)). It provides 
information about whether a

[[Page 35614]]

policy change has the potential to improve the aggregate well-being of 
society.
    The usefulness of BCA in informing the development of environmental 
regulations has been recognized both within and outside government for 
decades. As discussed below, Presidential Executive Orders and statutes 
have been in place for decades formally requiring the preparation of 
BCA in the development of major Federal regulations, and the courts 
have examined the use of BCA in several regulatory contexts. In 
addition, the usefulness of formal BCA in informing regulatory policy 
debates on protecting and improving public health, safety, and the 
natural environment has been emphasized in the academic literature. For 
example, as explained in seminal work by prominent economists Arrow et 
al. (1996a, 1996b), BCA ``can provide an exceptionally useful framework 
for consistently organizing disparate information, and in this way, it 
can greatly improve the process and, hence, the outcome of policy 
analysis. If properly done, BCA can be of great help to agencies 
participating in the development of environmental regulations . . .'' 
(1996b). Arrow et al. recommend that ``Benefit-cost analysis should be 
required for all major regulatory decisions,'' and that ``the precise 
definition of `major' requires judgment.''
    Benefit-cost analyses have been an integral part of executive 
branch rulemaking for decades. Presidents since the 1970s have issued 
executive orders requiring agencies to conduct analysis of the economic 
consequences of regulations as part of the rulemaking development 
process. President Ford's 1974 Executive Order (E.O.) 11821 required 
government agencies to prepare inflation impact statements before 
issuing major regulations.\1\ These inflation impact statements 
essentially turned into benefit-cost analyses based on the 
understanding that a regulation would not be truly inflationary unless 
its costs to society exceeded the benefits it produced,\2\ and the E.O. 
was renamed as Economic Impact Statements with E.O. 11949 in 1976.\3\ 
President Carter's 1978 E.O. 12044, Improving Government Regulations, 
included formal requirements for conducting regulatory analysis at a 
minimum ``for all regulations which will result in (a) an annual effect 
on the economy of $100 million or more; or (b) a major increase in 
costs or prices for individual industries, levels of government or 
geographic regions.'' \4\ Regulatory analyses under E.O. 12044 were 
required to contain ``a succinct statement of the problem; a 
description of the major alternative ways of dealing with the problem 
that were considered by the agency; an analysis of the economic 
consequences of each of these alternatives and a detailed explanation 
of the reasons for choosing one alternative over the others.''
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    \1\ Executive Order 11821 -- Inflation Impact Statements, 
Federal Register, Vol. 39, No. 231--Friday, November 29, 1974 (pages 
41501-41502).
    \2\ https://obamawhitehouse.archives.gov/omb/inforeg_chap1#tnfrp.
    \3\ Executive Order 11949--Economic Impact Statements, Federal 
Register, Vol. 42, No. 3-- Wednesday, January 5, 1977 (page 1017). 
https://www.govinfo.gov/content/pkg/FR-1977-01-05/pdf/FR-1977-01-05.pdf.
    \4\ Executive Order 12044--Improving Government Regulations, 
Federal Register, Vol. 43, No. 58--Friday, March 24, 1978 (pages 
12659-12670).
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    In 1981, President Reagan issued E.O. 12291, Federal Regulation, 
which imposed the first requirements for conducting formal benefit-cost 
analysis in the development of new major Federal regulations. Among its 
provisions, it explicitly required that: ``(a) Administrative decisions 
shall be based on adequate information concerning the need for and 
consequences of proposed government action; (b) Regulatory action shall 
not be undertaken unless the potential benefits to society for the 
regulation outweigh the potential costs to society; (c) Regulatory 
objectives shall be chosen to maximize the net benefits to society; (d) 
Among alternative approaches to any given regulatory objective, the 
alternative involving the least net cost to society shall be chosen; 
and (e) Agencies shall set regulatory priorities with the aim of 
maximizing the aggregate net benefits to society, taking into account 
the condition of the particular industries affected by regulations, the 
condition of the national economy, and other regulatory actions 
contemplated for the future.'' Under E.O. 12291, major regulations 
included ``any regulation that is likely to result in: (1) An annual 
effect on the economy of $100 million or more; (2) A major increase in 
costs or prices for consumers, individual industries, Federal, State, 
or local government agencies, or geographic regions; or (3) Significant 
adverse effects on competition, employment, investment, productivity, 
innovation, or on the ability of United States-based enterprises to 
compete with foreign-based enterprises in domestic or export markets.'' 
\5\
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    \5\ https://www.archives.gov/federal-register/codification/executive-order/12291.html.
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    In 1993, E.O. 12291 was revoked and replaced by President Clinton's 
E.O. 12866, Regulatory Planning and Review, which is still in effect 
today. E.O. 12866 requires that for all significant regulatory actions 
pursuant to Section 3(f), an agency provide ``an assessment of the 
potential costs and benefits of the regulatory action, including an 
explanation of the manner in which the regulatory action is consistent 
with a statutory mandate . . .'' For regulatory actions meeting 
criteria listed under Section 3(f)(1)--that is, any regulatory action 
that is ``likely to result in a rule that may . . . have an annual 
effect on the economy of $100 million or more or adversely affect in a 
material way the economy, a sector of the economy, productivity, 
competition, jobs, the environment, public health or safety, or State, 
local, or tribal governments or communities''--E.O. 12866 further 
requires that this assessment include a quantification of benefits and 
costs to the extent feasible. In addition, E.O. 12866 states that, to 
the extent permitted by law, agencies ``should assess both the costs 
and the benefits of the intended regulation and, recognizing that some 
costs and benefits are difficult to quantify, propose or adopt a 
regulation only upon a reasoned determination that the benefits of the 
intended regulation justify its costs''; ``in choosing among 
alternative regulatory approaches . . . should select those approaches 
that maximize net benefits (including potential economic, 
environmental, public health and safety, and other advantages; 
distributive impacts; and equity), unless a statute requires another 
regulatory approach''; and that ``[e]ach agency shall base its 
decisions on the best reasonably obtainable scientific, technical, 
economic, and other information concerning the need for, and 
consequences of, the intended regulation.''
    In 1995, the Unfunded Mandates Reform Act of 1995 (UMRA) included 
analytical requirements for all regulatory actions that include federal 
mandates ``that may result in the expenditure by State, local, and 
tribal governments, in the aggregate, or by the private sector, of $100 
million or more (adjusted annually for inflation) in any one year.'' An 
action contains a federal mandate if it imposes an enforceable duty on 
state, local or tribal governments, or the private sector. The 
analytical requirements under UMRA are similar to the analytical 
requirements under E.O. 12866, and thus the same analysis may permit

[[Page 35615]]

compliance with both analytical requirements.
    More recent Executive Orders also reaffirm the requirements and 
principles in E.O. 12866. The former Administration's E.O. 13563, 
issued in 2011 and also still in effect today, reaffirms the 
requirements and other principles and definitions in E.O. 12866 and 
embraces benefit-cost analysis: ``In applying these principles, each 
agency is directed to use the best available techniques to quantify 
anticipated present and future benefits and costs as accurately as 
possible.'' \6\ More recently, this Administration's E.O. 13777, issued 
in 2017, directs agencies to identify regulations that ``impose costs 
that exceed benefits.'' \7\ E.O. 13783, also issued in 2017, similarly 
reaffirms the importance of benefit-cost analysis: ``In order to ensure 
sound regulatory decision making, it is essential that agencies use 
estimates of costs and benefits in their regulatory analyses that are 
based on the best available science and economics.'' \8\
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    \6\ https://obamawhitehouse.archives.gov/the-press-office/2011/01/18/executive-order-13563-improving-regulation-and-regulatory-review.
    \7\ Enforcing the Regulatory Reform Agenda (82 FR 12285, March 
1, 2017).
    \8\ https://www.govinfo.gov/content/pkg/FR-2017-03-31/pdf/2017-06576.pdf.
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    The Office of Management and Budget's (OMB's) Circular A-4 (OMB 
2003), which remains in effect today, provides guidance to Federal 
agencies on the development of regulatory analysis as required under 
E.O. 12866 and a variety of related authorities.\9\ In developing 
Circular A-4, OMB first developed a draft that was subject to public 
comment, interagency review, and external peer review. As summarized in 
E.O. 13783, ``. . . OMB Circular A-4 . . . was issued after peer review 
and public comment and has been widely accepted for more than a decade 
as embodying the best practices for conducting regulatory cost-benefit 
analysis.'' \10\ The document encourages transparency in practices, 
including the expression of costs and benefits in monetary units that 
allow for the evaluation of ``incremental benefits and costs of 
successively more stringent regulatory alternatives'' such that an 
agency can ``maximize net benefits.'' \11\
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    \9\ https://obamawhitehouse.archives.gov/omb/circulars_a004_a-4/. Circular A-4 refines and replaces OMB's ``best practices'' 
document of 1996, which was issued as a guidance in 2000 and 
reaffirmed in 2001. All these versions of the 1996 document were 
superseded by Circular A-4.
    \10\ https://www.govinfo.gov/content/pkg/FR-2017-03-31/pdf/2017-06576.pdf.
    \11\ https://obamawhitehouse.archives.gov/omb/circulars_a004_a-4/.
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    EPA's Guidelines for Preparing Economic Analyses (hereafter, the 
Guidelines) \12\ complements Circular A-4 by providing the Agency with 
more detailed peer-reviewed guidance on how to conduct BCA and other 
types of economic analyses for both environmental regulatory actions 
and non-regulatory management strategies, with the intent of improving 
compliance with E.O. 12866 and other executive orders and statutory 
requirements (e.g., Small Business Regulatory Enforcement Fairness Act 
of 1996 provisions). The Guidelines are updated periodically--building 
on work issued in 1983 (then titled Guidelines for Performing 
Regulatory Impact Analysis), 2000, and most recently in 2010--to 
account for growth and development of economic tools and practices. The 
Guidelines establish a scientific framework for analyzing the benefits, 
costs, and other economic impacts of regulations and policies, 
including assessing the distribution of costs and benefits among 
various segments of the population. In addition to presenting the well-
established scientific foundations for economic analysis, they 
incorporate recent advances in theoretical and applied work in the 
field of environmental economics. Updates of the Guidelines are led by 
the EPA's National Center for Environmental Economics (NCEE) in 
consultation with economists from across the Agency and OMB. All 
chapters undergo an external peer review, either through EPA's Science 
Advisory Board or through independent reviews by external experts, 
prior to be being finalized.\13\
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    \12\ https://www.epa.gov/environmental-economics/guidelines-preparing-economic-analyses.
    \13\ The EPA is in the process of a periodic update of the 
Guidelines. The EPA anticipates that among the changes within this 
update, the current Section 9.2.3.3, ``Impacts on employment'', will 
be replaced with a discussion based on more recent literature and 
feedback from the Economy Wide Modeling Science Advisory Board 
Panel. For more details regarding Chapter 9, see: https://www.epa.gov/sites/production/files/2017-09/documents/ee-0568-09.pdf. 
For more details regarding the update of the Guidelines in general, 
see: https://yosemite.epa.gov/sab/sabproduct.nsf//LookupWebProjectsCurrentBOARD/30D5E59E8DC91C2285258403006EEE00?OpenDocument.
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    Given the history described above pertaining to the use of BCA by 
executive agencies, and given that several statutes, including the CAA, 
include provisions that require some form of cost consideration, the 
federal courts have also developed significant case law regarding 
regulatory cost consideration and the usefulness of BCA. This case law 
addresses when, and if, such use is required or permissible and how it 
may be employed in reasoned decision-making. As a general matter, while 
certain statutory provisions may prohibit reliance on BCA or other 
methods of cost consideration in decision making,\14\ such provisions 
do not preclude the Agency from providing additional information 
regarding a proposed or final rule to the public. For example, while 
the CAA prohibits the EPA from considering cost when establishing 
requisite National Ambient Air Quality Standards (NAAQS) for criteria 
pollutants,\15\ the EPA nonetheless provides Regulatory Impact Analyses 
(RIAs) \16\ to the public for these rulemakings.\17\ The agency 
believes that the information provided as a result of the procedural 
requirements of this proposal, if finalized, would increase 
transparency and consistency across CAA rulemakings; would provide the 
public with additional information in the CAA rulemaking process; and 
would provide the Agency with supplemental information for potential 
use by the Agency when it is appropriate to be considered. Whether the 
Agency utilizes any information produced as a result of these 
procedural requirements would be determined by the statutes and 
regulations governing particular subsequent rulemakings. Any such 
information would be in addition to the information provided by other 
methodologies and analyses as directed by specific CAA statutes and 
regulations.
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    \14\ See, e.g., Whitman v. Am. Trucking Ass'ns, 531 U.S. 457 
(2001) (holding that Section 109(b) of the CAA unambiguously barred 
cost considerations when setting the National Ambient Air Quality 
Standards.
    \15\ Id.
    \16\ A regulatory impact analysis, or ``regulatory analysis'' 
for brevity, as prepared under E.O. 12866, consists of a benefit-
cost analysis and any related cost-effectiveness analyses and 
assessments of economic and distributional impacts (OMB 2003).
    \17\ See, e.g., U.S. EPA, Regulatory Impact Analysis of the 
Proposed Revisions to the National Ambient Air Quality Standards for 
Ground-Level Ozone (2014), https://www3.epa.gov/ttn/ecas/regdata/RIAs/20141125ria.pdf.
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    The Supreme Court has held that agencies may conduct and consider a 
BCA even when a statute does not explicitly require one. In Entergy 
Corp. v. Riverkeeper, Inc., 556 U.S. 208, 222-224 (2009), the Supreme 
Court clarified that neither American Textile Mfrs. Inst. v. Donovan, 
452 U.S. 490 (1981) (American Textile Mfrs.) nor Whitman v. Am. 
Trucking Ass'ns, 531 U.S. 457 (2001) (American Trucking), stands for 
the broad proposition that statutory silence in regard to BCA always 
implies prohibition of BCA. Concluding that the EPA is permitted to use 
BCA in determining the content of regulations promulgated under Clean 
Water Act section 1326(b). The Court reasoned

[[Page 35616]]

``that [CWA] Sec.  1326(b)'s silence is meant to convey nothing more 
than a refusal to tie the agency's hands as to whether cost-benefit 
analysis should be used, and if so to what degree.'' Id. at 222; see 
also id. at 212, 219-20, 226.
    The Supreme Court noted that its decisions in American Trucking and 
American Textile Mfrs. ``do not undermine this conclusion.'' 556 U.S. 
at 223. The Court highlighted that in American Trucking, it had held 
that the text of section 109 of the Clean Air Act, ``interpreted in its 
statutory and historical context . . . unambiguously bars cost 
considerations'' when air quality standards are set pursuant to that 
provision. American Trucking, 531 U.S. at 471, quoted in Entergy Corp., 
556 U.S. at 223. The Entergy Corp. Court further elaborated that 
``[t]he relevant 'statutory context' [in American Trucking] included 
other provisions in the [CAA] that expressly authorized consideration 
of costs, whereas Sec.  109 did not.'' 556 U.S. at 233. The Court 
concluded that American Trucking ``stands for the rather unremarkable 
proposition that sometimes statutory silence, when viewed in context, 
is best interpreted as limiting agency discretion.'' 556 U.S. at 223. 
The Court further noted that in American Textile, the Court had relied, 
in part, on the absence of mention of BCA in the statute to hold that 
the agency was not required to conduct a BCA when setting certain 
health and safety standards. 556 U.S. at 223. ``[U]nder Chevron, that 
an agency is not required to [engage in cost-benefit analysis] does not 
mean that an agency is not permitted to do so.'' Id. Thus, the Supreme 
Court has confirmed that a statute need not have explicitly required 
that the agency conduct a BCA in its decision-making process for the 
agency to do so.
    The Supreme Court additionally acknowledged in Entergy Corp. that 
``whether it is `reasonable' to bear a particular cost may well depend 
on the resulting benefits.'' 556 U.S. at 225-226. This concept was 
further elaborated upon by the Court in Michigan v. EPA, which held, in 
the context of the term ``appropriate and necessary'' contained in 
Section 112(n)(1)(A) of the CAA, that the term required consideration 
of cost. 135 S. Ct. 2699, 2706 (2015). In doing so, the Supreme Court 
stated that ``[o]ne would not say that it is even rational, never mind 
`appropriate,' to impose billions of dollars in economic costs in 
return for a few dollars in health or environmental benefits'', 
concluding that ``[n]o regulation is `appropriate' if it does 
significantly more harm than good.'' Id. at 2707. The D.C. Circuit 
recently echoed this concept in Mingo Logan Coal Co. v. EPA. While the 
D.C. Circuit panel ultimately concluded that the cost issue had been 
forfeited by petitioners, in response to then Judge Kavanaugh's dissent 
which argued that cost consideration should be required, the panel 
stated, ``[i]ndeed, we do not quibble with his general premise--and 
that of the many legal luminaries he cites--that an agency should 
generally weigh the costs of its action against its benefits.'' 829 
F.3d 710, 723 (D.C. Cir. 2016). In general, when cost consideration is 
either required or permitted by the CAA, the courts have not mandated a 
specific type of cost consideration but have granted the Agency broad 
discretion in determining its methodology. Michigan, 135 S. Ct. at 2711 
(``We need not and do not hold that the law unambiguously required the 
Agency, when making this preliminary estimate, to conduct a formal 
cost-benefit analysis in which each advantage and disadvantage is 
assigned a monetary value. It will be up to the Agency to decide (as 
always, within the limits of reasonable interpretation) how to account 
for cost.''); see also Sierra Club v. Costle, 657 F.2d 298, 345 (D.C. 
Cir. 1981) (``[S]ection 111(a) explicitly instructs the EPA to balance 
multiple concerns when promulgating a NSPS.''); id. at 321 (``The text 
gives the EPA broad discretion to weigh different factors in setting 
the standard.''); Lignite Energy Council v. EPA, 198 F.3d 930, 933 
(D.C. Cir. 1999) (``Because section 111 [of the CAA] does not set forth 
the weight that [should be] assigned to each of these factors, we have 
granted the agency a great degree of discretion in balancing them''); 
Husqvarna AB v. EPA, 254 F.3d 195, 200 (D.C. Cir. 2001) (``Section 213 
[of the CAA] . . . simply directs the EPA to consider cost. . . . 
Because section 213 does not mandate a specific method of cost 
analysis, we find reasonable the EPA's choice to consider costs on the 
per ton of emissions removed basis.'').
    Additionally, lower courts have noted the usefulness of BCA and 
have utilized the information provided therein to inform their analysis 
when reviewing agency regulations. Several of these cases utilize 
information from agency-created BCAs and/or RIAs as evidence that an 
agency ignored alternatives or acted in an arbitrary and capricious 
manner when taking action.
    For example, in Advocates for Highway and Auto Safety v. FMCSA, 429 
F.3d. 1136 (D.C. Cir. 2005), the D.C. Circuit relied in part on a BCA 
in invalidating, as arbitrary and capricious, a final rule promulgated 
by Federal Motor Carrier Safety Administration (FMCSA) intended to 
ensure that drivers of commercial motor vehicles received adequate 
training. In its analysis, the D.C. Circuit highlighted an incongruity 
between methods of training shown to be effective and the final rule, 
noting that ``[f]rom a purely economic perspective, the agency's 
disregard of the Adequacy Report [containing a BCA] is baffling in 
light of the evidence in the record.'' Id. at 1146. The D.C. Circuit 
pointed to a training regimen that ``according to the agency's own 
calculations, [would] produce benefits far in excess of costs.'' Id. 
Noting the agency's findings that ``the program's estimated 10-year 
cost of between $4.19 billion to $4.51 billion would yield a benefit 
ranging from $5.4 billion to $15.27 billion, depending on analytic 
assumptions,'' the court concluded that the BCA for the rule ``lends no 
support to FMCSA's position. In the final rule, FMCSA says practically 
nothing about the projected benefits.'' Id.;
    In Public Citizen, Inc. v. Mineta, 340 F.3d 39 (2nd Cir. 2003), the 
Second Circuit determined that a National Highway Traffic Safety 
Administration (NHTSA) rule regarding tire pressure monitoring system 
(TPMS) requirements was arbitrary and capricious, as the NHTSA BCA 
showed that alternatives would be safer and more cost-effective. The 
court stated that it may ``be difficult to weigh economic costs against 
safety benefits. But the difficulty of the task does not relieve the 
agency of its obligation to perform it under [certain vehicle safety 
laws] and State Farm.'' Id. at 58 (citing Motor Vehicles Mfrs. Ass'n v. 
State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983)). The Second Circuit 
observed that NHTSA ``instead, presents us with a rulemaking record 
that does not explain why the costs saved were worth the benefits 
sacrificed.'' Id. The court noted that the BCA ``discloses that the 
added cost for a system that worked all of the time, rather than half 
of the time, was less than $10 per car, and that the adoption of the 
four-tire, 25 percent standard alone was the most cost effective means 
of preventing crashes caused by significantly under-inflated tires.'' 
Id.
    Finally, in NRDC v. EPA, 824 F.2d 1258 (1st Cir. 1987), the First 
Circuit vacated, in part, and remanded rules for long-term disposal of 
high-level radioactive waste under Nuclear Waste Policy Act of 1982 
based in part on the Agency's selection of a 1,000-year design 
criterion rather than a longer-term one. The court determined that it 
was unreasonable agency action to not adopt cheap methods of increasing 
protections. In doing so, the court

[[Page 35617]]

observed that ``[l]ikewise, EPA's Final [RIA] of 40 CFR part 191 
demonstrates that more rigorous site selection could produce sites with 
such impermeable geologic media that compliance with the individual 
protections for a much longer duration would not even require the extra 
cost of `very good' engineered canisters.'' Id. at 1289.
    With this history in mind as a backdrop and following E.O. 13777 
noted above, the EPA is proposing to establish requirements to ensure 
that the EPA consistently assesses the costs and benefits of 
significant CAA rules. The EPA opened a public docket \18\ in April 
2017 to solicit feedback and identify regulations that ``impose costs 
that exceed benefits.'' Among the public comments received, a large 
cross-section of stakeholders stated that the agency either 
underestimated costs, overestimated benefits, or evaluated benefits and 
costs inconsistently in its rulemakings. Per E.O. 13777 and based on 
these public comments, the EPA decided to take further action to 
evaluate opportunities for reform.
---------------------------------------------------------------------------

    \18\ See EPA, Evaluation of Existing Regulations (82 FR 17793). 
All public comments are accessible online in our docket on the 
Regulations.gov website identified by Docket ID No. EPA-HQ-OA-2017-
0190.
---------------------------------------------------------------------------

    In June 2018, the EPA issued an Advance Notice of Proposed 
Rulemaking (ANPRM), ``Increasing Consistency and Transparency in 
Considering Costs and Benefits in the Rulemaking Process'' (83 FR 
27524, June 13, 2018), to solicit public input on potential approaches 
for increasing consistency and transparency in how the EPA considers 
benefits and costs in the rulemaking process. Informed by the public 
comments received on that ANPRM, on May 13, 2019, the Administrator 
issued a memorandum \19\ to EPA's Assistant Administrators announcing 
the intention to propose statute-specific rules that outline how 
consistency and transparency concepts will be implemented in future 
rulemakings. The memorandum outlined the following principles for 
developing these regulatory proposals, consistent with applicable laws 
and regulations: Ensuring that the Agency balances benefits and costs 
in regulatory decision-making; increasing consistency in the 
interpretation of statutory terminology; providing transparency in the 
weight assigned to various factors in regulatory decisions; and 
promoting adherence to best practices in conducting the technical 
analysis used to inform decisions.
---------------------------------------------------------------------------

    \19\ Available at: https://www.epa.gov/environmental-economics/administrator-wheeler-memorandum-increasing-consistency-and-transparency.
---------------------------------------------------------------------------

    This proposed rulemaking is the first statute-specific rulemaking 
in this effort. The EPA is proposing to codify the procedural 
requirements governing the development of BCA, including risk 
assessments used as inputs to the BCA, for significant rulemakings 
conducted under the CAA, and proposes additional procedural 
requirements to increase transparency in the presentation of the 
benefits resulting from significant CAA regulations. Together, these 
requirements would ensure a consistent approach to the EPA's CAA 
benefit-cost analyses under the CAA and would provide transparency by 
requiring the generation of relevant information in all significant 
rulemakings.

IV. Rationale and Summary of the Proposed Requirements

A. Preparation of Benefit-Cost Analyses for Significant Regulations

    The EPA seeks to codify the practice of preparing BCAs in the 
development of future significant CAA regulations. Specifically, EPA 
proposes that all future significant proposed and final regulations 
promulgated under the Clean Air Act be accompanied by a BCA. The EPA 
proposes to define a significant regulation as a proposed or final 
regulation that is determined to be a ``significant regulatory action'' 
pursuant to E.O. 12866 Section 3(f) or is otherwise designated as 
significant by the Administrator. Regulations meeting either of these 
factors are generally those that the EPA anticipates would have the 
largest annual impact on the economy (i.e., greater than $100 million) 
as well as those that are important to analyze for other policy 
reasons. For example, a rule projected to have less than a $100 million 
annual effect on the economy could disproportionately affect a single 
industry, population subgroup, or geographic area. Such rules, or ones 
that are notably novel or significant for other policy reasons, would 
benefit from rigorous analysis to inform the public and decision makers 
about the magnitude and disposition of both their benefits and costs on 
affected entities.

B. Best Practices for the Development of Benefit-Cost Analysis

    In response to the ANPRM, the EPA received comments from a wide 
range of stakeholders emphasizing the importance of conducting BCA in 
accordance with best practices from the economic, engineering, 
physical, and biological sciences. One theme raised by some commenters 
was that there is inadequate adherence to existing EPA and OMB guidance 
for how to conduct BCA. Some commenters pointed to recent CAA 
regulatory BCAs conducted pursuant to E.O. 12866 as examples of a lack 
of transparency or improper analytic assumptions. As one example, some 
commenters contend that some BCAs have double-counted benefits that 
arise from another regulation. The EPA agrees that there is a risk of 
such a misestimation if the pollution concentration levels resulting 
from existing regulations are not carefully accounted for in the 
baseline of the analysis. In other words, this type of double-counting 
can be avoided if the Agency follows the best practices for BCA of 
correctly specifying the baseline. Several commenters recommended that 
the EPA issue binding procedural requirements to ensure transparency 
and consistent adherence to best practices for BCA. This proposed 
rulemaking seeks to ensure consistent adherence to best practices for 
BCA of future CAA regulations by codifying these requirements into 
regulation. The EPA proposes that BCAs for significant proposed and 
final CAA regulations be developed in accordance with the best 
available scientific information and best practices from the economic, 
engineering, physical, and biological sciences. Specifically, the EPA 
proposes to codify into regulation several best practices for the 
conduct and presentation of BCA. In addition, the EPA would require 
that a reasoned explanation be provided for any departures from best 
practices in the BCA, including a discussion of the likely effect of 
the departures on the results of the BCA.
    The proposed requirements itemized in the following subsections are 
among the best practices outlined in existing peer-reviewed OMB and EPA 
guidance documents developed in response to longstanding presidential 
orders discussed above: OMB's Circular A-4 (2003) and its associated 
guidance (2010, 2011a, 2011b),\20\ EPA's Guidelines for Preparing 
Economic Analyses (2010). These guidance documents are grounded in the 
economics literature pertaining to the conduct of BCA. Benefit-cost 
analysis as a discipline is a branch of applied microeconomic welfare 
economics and is summarized in numerous textbooks

[[Page 35618]]

such as Boardman et al. (2018), Farrow (2018), Brent (2006), Mishan and 
Quah (2007), and Hanley and Spash (1996).\21\ This discipline is 
applied routinely to environmental economics issues and the theory of 
BCA and its application can be found in standard environmental economic 
textbooks such as Phaneuf and Requate (2016) and Perman et al. 
(2012).\22\ Specific lists of best practices and guidance for 
practitioners can also be found in articles by Robinson and Hammit 
(2016), Sunstein (2014), Farrow (2013), Farrow and Viscusi (2011), 
Krutilla (2005), and notably in an article on the principles and 
standards by Nobel laureate Kenneth Arrow and a number of prominent 
economists (Arrow et al., 1996).\23\
---------------------------------------------------------------------------

    \20\ Office of Management and Budget, U.S., 2003. Circular A-4: 
Regulatory Analysis. Office of Management and Budget, U.S., 2010. 
Agency Checklist: Regulatory Impact Analysis. Office of Management 
and Budget, U.S., 2011a. Circular A-4, ``Regulatory Analysis'' 
Frequently Asked Questions (FAQs). Office of Management and Budget, 
U.S., 2011b. Circular A-4, ``Regulatory Impact Analysis: A Primer''.
    \21\ Farrow, S. ed., 2018. Teaching Benefit-Cost Analysis: Tools 
of the Trade. Edward Elgar Publishing. Brent, R.J. ed., 2004. 
Applied Cost-Benefit Analysis. Edward Elgar Publishing. Mishan, E.J. 
and Quah, E., 2007. Cost-benefit analysis. Routledge. Hanley, N. and 
Spash, C., 1996. Cost benefit analysis and the environment.
    \22\ Phaneuf, D.J. and Requate, T., 2016. A course in 
environmental economics: Theory, policy, and practice. Cambridge 
University Press. Perman, R., Ma, Y., McGilvray, J. and Common, M., 
2003. Natural resource and environmental economics. Pearson 
Education. Krutilla, K., 2005. Using the Kaldor[hyphen]Hicks tableau 
format for cost-benefit analysis and policy evaluation. Journal of 
Policy Analysis and Management: The Journal of the Association for 
Public Policy Analysis and Management, 24(4), pp.864-875.
    \23\ Robinson, L.A. and Hammitt, J.K., 2013. Skills of the 
trade: Valuing health risk reductions in benefit-cost analysis. 
Journal of Benefit-Cost Analysis, 4(1), pp.107-130. Sunstein, C.R., 
2014. The real world of cost-benefit analysis: Thirty-six questions 
(and almost as many answers). Columbia Law Review, pp.167-211. 
Farrow, S., 2013. How (not) to lie with benefit-cost analysis. The 
Economists' Voice, 10(1), pp.45-50. Farrow, S. and Viscusi, W.K., 
2011. Towards principles and standards for the benefit-cost analysis 
of safety. Journal of Benefit-Cost Analysis, 2(3), pp.1-25.
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    Since best practices for the conduct of BCA inherently require that 
the inputs to analysis reflect the best available information,\24\ the 
EPA is also taking the opportunity in this proposal to require that the 
EPA follow certain best practices regarding the incorporation of 
information as an input to BCA for significant CAA regulations. In 
particular, risk assessments often provide key inputs to the 
development of EPA's health benefit estimates in a BCA, and several 
commenters recommended that additional consistency and transparency be 
applied in the assessment of risks leading to the estimation of 
benefits. Through this rulemaking, the EPA proposes requirements to 
ensure the consistent and transparent use of risk assessments in BCA of 
CAA regulations. These proposed requirements include elements that are 
responsive to recommendations from the National Academies of Sciences, 
Engineering and Medicine (National Academies) and EPA's Science 
Advisory Board (SAB) to improve the utility of risk assessment for use 
in BCAs for CAA regulations. This proposal is also consistent with the 
2007 OMB and OSTP Updated Principles for Risk Analysis,\25\ which also 
builds off of the National Academies and SAB recommendations as well as 
EPA's Risk Characterization Handbook.\26\
---------------------------------------------------------------------------

    \24\ See EPA, Guidelines for Ensuring and Maximizing the 
Quality, Objectivity, Utility and Integrity of Information 
Disseminated by the Environmental Protection Agency (https://www.epa.gov/sites/production/files/2019-08/documents/epa-info-quality-guidelines_1.pdf).
    \25\ https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/memoranda/2007/m07-24.pdf.
    \26\ https://www.epa.gov/risk/risk-characterization-handbook 
(EPA 100-B-00-002, December 2000).
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    Key elements of a Benefit-Cost Analysis. The key elements of a 
rigorous regulatory BCA include: (1) A statement of need; (2) an 
examination of regulatory options; and (3) to the extent feasible, an 
assessment of all benefits and costs of these regulatory options 
relative to the baseline (no action) scenario.
    It will not always be possible to express in monetary units all of 
the important benefits and costs. When it is not, the most efficient 
alternative will not necessarily be the one with the largest quantified 
and monetized net-benefit estimate. In such cases, EPA will exercise 
its subject matter expertise in determining how important the non-
quantified benefits or costs may be in the context of the overall 
analysis. Even when a benefit or cost cannot be expressed in monetary 
units, EPA will try to measure it in terms of its physical units. If it 
is not possible to measure the physical units, EPA will describe 
material benefits or costs qualitatively.
    Statement of Need. Each regulatory BCA should include a statement 
of need that provides (1) a clear description of the problem being 
addressed, (2) the reasons for and significance of any failure of 
private markets or public institutions causing this problem, and (3) 
the compelling need for federal government intervention in the market 
to correct the problem. This statement sets the stage for the 
subsequent analysis of benefits and costs and allows one to judge 
whether the problem is being adequately addressed by the policy. 
Additional discussion of a thorough regulatory statement of need can be 
found in OMB (1993, B. Introduction, The Need for Federal Regulatory 
Action) and EPA (2010, Chapter 3).
    Regulatory Options. The BCA must analyze the benefits and costs of 
regulatory options, or other notable deviations from the proposed or 
finalized option. Where there is a continuum of options (such as 
options that vary in stringency), the BCA must analyze at least three 
options which accomplish the stated objectives of the Clean Air Act 
(unless the BCA explains the rationale for analyzing fewer than three 
options, as further described below) and must explain why they were 
selected: The proposed or finalized option; a more stringent option 
that achieves additional benefits (and presumably costs more) beyond 
those realized by the proposed or finalized option; and a less 
stringent option that costs less (and presumably generates fewer 
benefits) than the proposed or finalized option. Even when a continuum 
of options is not applicable, an analysis of regulatory options 
provides an opportunity to analyze a variety of parameters including 
different compliance dates, enforcement methods, standards by size or 
location of facilities, and regulatory designs (e.g., performance vs. 
technology standards). If fewer than three options are analyzed, or if 
there is a continuum of options and the options analyzed do not include 
at least one more stringent (or otherwise more costly) and one less 
stringent (or otherwise less costly) option than the proposed or 
finalized option, then the BCA must explain why it is not appropriate 
to consider more alternatives. For further discussion, see OMB Circular 
A-4, E. Identifying and Measuring Benefits and Costs, General Issues, 
3. Evaluation of Alternatives.
    Baseline. The baseline in a BCA serves as a basis of comparison 
with the regulatory options considered. It is the best assessment of 
the way the world would look absent the regulatory action. The choice 
of a baseline requires consideration of a wide range of potential 
factors, including exogenous changes in the economy that may affect 
relevant benefits and costs (e.g., changes over time in demographics, 
economic activity, consumer preferences, and technology); impacts of 
regulations that have been promulgated by the agency or other 
government entities; and the degree of compliance by regulated entities 
with other regulations. Accounting for other existing regulations in 
the baseline is especially important in order to avoid double counting 
of the incremental benefits and costs from other existing regulatory 
actions affecting the same environmental condition (e.g., ambient air 
quality). When the EPA determines that it is appropriate to consider 
more than one baseline (e.g., one that

[[Page 35619]]

accounts for another EPA regulation being developed at the same time 
that would affect the same environmental condition), the BCA must 
provide a reasoned explanation for the baselines used in sensitivity 
analyses and must identify the key uncertainties in the forecast(s). 
These proposed requirements for developing a baseline are consistent 
with best practices as outlined in OMB's Circular A-4 (1993) and EPA's 
Guidelines (2010).
    Measuring Benefits and Costs. A BCA evaluates the favorable effects 
of a policy action and the opportunity costs associated with the 
action. It addresses the question of whether the benefits from the 
policy action are sufficient for those who gain to theoretically 
compensate those burdened such that everyone would be at least as well 
off as before the policy. In other words, many regulations can be 
thought of as a requirement to divert resources from activities with a 
higher net return in private markets alone to those with a higher net 
return when all impacts are counted, thus the calculation of net 
benefits (benefits minus costs) helps ascertain the economic efficiency 
of a regulation.
    In keeping with best practices, the appropriate measures of 
benefits and costs to use in a regulatory BCA are social benefits and 
social costs. When assessing a regulation, the social benefits are the 
society-wide positive changes in well-being, and social costs are the 
society-wide opportunities foregone, or reductions in well-being. 
Willingness to pay (WTP) is the correct measure of these changes in 
BCA.\27\ WTP provides a full accounting of an individual's preference 
for an outcome by identifying what the individual would give up to 
attain that outcome. WTP is measured in monetary terms to allow a 
comparison of benefits to costs in the net benefit calculation. If the 
BCA departs from these best practices (e.g., where WTP is hard to 
measure), it must include a robust explanation for doing so. For 
further discussion, see OMB Circular A-4, E. Identifying and Measuring 
Benefits and Costs, General Issues, 2. Developing a Baseline and 
Guidelines (2010/2014), Chapter 5. Baseline.
---------------------------------------------------------------------------

    \27\ Willingness to pay means the largest amount of money that 
an individual or group would pay to receive the benefits (or avoid 
the damages) resulting from a policy change, without being made 
worse off. The principle of WTP captures the notion of opportunity 
cost by measuring what individuals are willing to forgo to enjoy a 
particular benefit. In general, economists tend to view WTP as the 
most appropriate measure of opportunity cost, but an individual's 
``willingness-to-accept'' (WTA) compensation for not receiving the 
improvement can also provide a valid measure of opportunity cost. 
WTP is generally considered to be more readily measurable. Market 
prices provide rich data for estimating benefits and costs based on 
WTP if the goods and services affected by the regulation are traded 
in well-functioning competitive markets. See Hanley and Spash 
(1993), Freeman (2003), Just et al. (2005), and Appendix A of the 
Guidelines (2010/14).
---------------------------------------------------------------------------

    While based on the same underlying conceptual framework, social 
benefits and social costs are often evaluated separately due to 
practical considerations. The social benefits of reduced pollution are 
often attributable to changes in outcomes not exchanged in markets, 
such as improvements in public health or ecosystems. In contrast, the 
social costs generally are measured through changes in outcomes that 
are exchanged in markets. As a result, different techniques are used to 
estimate social benefits and social costs however, in both cases the 
goal is to estimate measures of WTP to provide consistency.
    Methods for Estimating Benefits and Costs. Although the most 
appropriate methods for estimating social costs and social benefits can 
often be regulation-specific, there are best practices for selecting 
these methods. The EPA proposes that all BCAs will rely on such best 
practices and will provide reasoned explanations for methods selected. 
These best practices include the use of a framework that is appropriate 
for the characteristics of the regulation being evaluated. As discussed 
in OMB Circular A-4, a good regulatory analysis cannot be developed 
according to a formula. Conducting high-quality analysis requires 
competent professional judgment. Different regulations may call for 
different emphases in the analysis, depending on the nature and 
complexity of the regulatory issues and the sensitivity of the benefit 
and cost estimates to the key assumptions. For example, the extent to 
which compliance cost is a sufficient measure of social costs will 
depend on whether a regulation is expected to result in changes in 
prices and quantities within and across markets. Other considerations 
when selecting an estimation method include the ability of an 
estimation approach to capture certain types of costs, to adequately 
reflect the geographic and sectoral detail and scope of the rule, and 
to reflect how costs may change over time, among other considerations.
    During the estimation process, analysts must consider how social 
cost and benefit endpoints may be affected by behaviors in the baseline 
and potential behavioral changes from the policy. For example, three 
broad frameworks for estimating social cost--compliance cost, partial 
equilibrium, and general equilibrium--offer different scopes in terms 
of the degree to which behavioral response and other market 
imperfections are included. In general, analysts can improve the 
accuracy of cost estimates by reducing known biases due to the omission 
of potentially important behavioral responses or missing opportunity 
costs. However, adopting more complex approaches can reduce the 
precision of estimates due to data and modeling limitations. A 
compliance cost approach typically identifies the private expenditures 
associated with compliance in the regulated sector(s). Compliance cost 
estimates typically exclude behavioral responses outside of the choice 
of compliance activity and may, therefore, not capture some opportunity 
costs associated with regulations. However, with adequate data, this 
approach can generate highly detailed and relatively precise 
information on compliance options and costs, reflecting the 
heterogeneity of regulated entities. This can provide a reasonable 
estimate of the social cost of a regulation when changes in the 
regulated sector's outputs and input mix are expected to be minimal and 
no large market effects are anticipated. A partial equilibrium analysis 
captures supply and demand responses in the regulated sector due to 
compliance activities and may, therefore, provide a more complete 
estimate of compliance costs in addition to any lost profits and 
consumer welfare due to reductions in output. In other words, 
behavioral responses can have important impacts on both the size and 
distribution of benefits and costs, and therefore can provide a fuller 
picture of the social impact of a particular regulation. Partial 
equilibrium analyses may be extended to consider a small number of 
related sectors in addition to those directly regulated (e.g., upstream 
markets that supply intermediate goods to the regulated sector, or 
markets for substitute or complementary products). A partial 
equilibrium approach is preferred for estimating social cost when the 
regulation will result in appreciable behavioral change, but the 
effects will be confined primarily to a single market or a small number 
of markets. When broader economy-wide impacts are expected as a result 
of the regulation, a partial equilibrium approach will miss these 
effects. In this case, a general equilibrium approach may be more 
appropriate to more adequately estimate social cost.
    A general equilibrium approach, which captures linkages between 
markets across the entire economy, is most likely to add value when 
both relevant relationships among sectors

[[Page 35620]]

and pre-existing market distortions are expected to be significant. 
Market distortions are factors such as pre-existing taxes, 
externalities, regulations, or imperfectly competitive markets that 
move consumers or firms away from what would occur in the absence of 
such distortions. For example, when an environmental regulation affects 
the real wage such that individuals opt to work fewer hours, it can 
exacerbate pre-existing inefficiencies in the labor market due to 
taxes, regulatory barriers, or other market imperfections. This 
represents a welfare cost not captured by compliance cost estimates. 
The impacts of a regulation also may interact with pre-existing 
distortions in other markets, which may cause additional impacts on 
welfare either positively or negatively. In cases such as these, a 
general equilibrium approach may be capable of identifying how the 
costs of complying with a regulation flow through the economy, such as 
through changes in substitution among factors of production, trade 
patterns, and demand for goods and services. These effects are 
partially or wholly missed by compliance cost and partial equilibrium 
approaches. For further discussion, see Guidelines (2010/2014), Chapter 
8, Analyzing Costs, 8.1. The Economics of Social Cost.
    The estimated social benefits reported in a BCA should link 
regulatory requirements to the value that individuals place on the 
beneficial outcomes,\28\ or benefit endpoints, that can be meaningfully 
expected as a result of those requirements. Benefits assessment is, 
therefore, typically a multi-step process. The starting point is 
identifying the changes in environmental contaminants or stressors that 
are likely to result from policy options relative to the baseline. 
These changes are often characterized through air quality modeling. The 
next step is to identify the benefit endpoints that may be affected by 
changes in environmental quality, such as human health improvements, 
ecological improvements, aesthetic improvements, and reduced materials 
damages. The EPA recognizes that the strength of scientific evidence 
for different health or environmental endpoints varies, and that 
strength of scientific evidence should be strongest when the benefits 
are estimated. As further discussed in OMB's M 19-15, this concept is 
referred to as ``fitness for purpose,'' whereby information anticipated 
to have a higher impact must be held to higher standards of 
quality.\29\
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    \28\ As a practical matter, the value of any adverse public 
health or welfare outcomes (sometimes referred to as 
``disbenefits'') resulting from the regulatory requirements are 
usually also included on the benefits side of the ledger in 
regulatory BCAs, although it is theoretically appropriate to include 
them on the cost side. Such adverse outcomes could include adverse 
economic, health, safety, or environmental consequences that occur 
due to a rule (e.g., adverse safety impacts from vehicle emission 
standards) and are not already accounted for in the direct cost of 
the rule.
    \29\ OMB's M-19-15 refers back to OMB's 2002 Guidelines, which 
characterize a subset of agency information as ``influential 
scientific, financial, or statistical information'' that is held to 
higher quality standards. This is scientific, financial, or 
statistical information that ``the agency can reasonably determine . 
. . will have or does have a clear and substantial impact on 
important public policies or important private sector decisions.''
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    The EPA proposes to select the endpoints for which the scientific 
evidence indicates there is (a) a clear causal or likely causal 
relationship between pollutant exposure and effect, and subsequently, 
(b) an anticipated change in that effect in response to changes in 
environmental quality or exposures is expected as a result of the 
regulation under analysis. EPA takes comment on an alternative, 
approach that would select all endpoints for which there is a positive 
WTP conditional on the available scientific literature.
    Once benefit endpoints are identified, decisions must be made about 
whether and how to quantify changes in each endpoint. From among the 
endpoints identified above, the EPA proposes to quantify effects for 
endpoints which scientific evidence is robust enough to support such 
quantification. If the Agency determines that some benefits should be 
discussed only qualitatively, for example, due to limited scientific 
evidence or limited resources for developing concentration response 
functions, the Agency must provide a reasoned explanation for that 
decision. Additional information on choosing and quantifying health 
endpoints is described further below.
    Quantification is then followed by valuation of these endpoints 
when data and methods allow. There are well-defined economic principles 
and well-established economic methods for valuation as detailed in OMB 
and Agency guidance, including Circular A-4 and the EPA Guidelines for 
Preparing Economic Analyses. Finally, the valued endpoints should be 
aggregated to the extent possible and supported by scientific and 
economic practice to provide the basis for characterizing the benefits 
of each policy option.
    In some instances, it may be possible to value bundles of 
attributes or endpoints using reduced-form techniques, such as the 
hedonic property method. Care and professional judgment are necessary 
in determining the appropriateness of bundling of several endpoints 
versus modeling separate endpoints. Even if bundling is thought to be 
appropriate, it can be useful to think through the multi-step process 
above conceptually to: (a) Assess whether there are benefit endpoints 
not reflected in the reduced form valuation estimate that should be 
included through additional analysis, or (b) compare the magnitudes of 
multi-step and reduced-form, revealed-preference benefits estimates so 
that each can provide a check on the reliability of the other.
    In summary, the EPA proposes that, to the extent supported by the 
scientific criteria, as discussed above, as well as practicable in a 
given rulemaking, (1) BCAs will quantify all benefits; (2) BCAs will 
monetize all the benefits by following well-defined economic principles 
using well-established economic methods; and (3) BCAs will 
qualitatively characterize benefits that cannot be quantified or 
monetized. In addition, the EPA proposes that the Agency must explain 
any departure from the best practices for the BCA described in Circular 
A-4; this includes discussing the likely effect of the departures on 
the size of the benefits estimate. More discussion of these best 
practices and estimation methods is provided in Circular A-4 and EPA's 
Guidelines for Preparing Economic Analyses, and the literature cited 
therein.
    Quantifying Health Endpoints in a BCA: Decisions about whether and 
which changes in the health endpoints should be quantified should be 
informed by the Agency's evaluation of the relevant scientific 
literature establishing a link between chemical exposure and health 
endpoint and the nature of the concentration-response function (i.e., 
the amount of change in the frequency or severity of the health 
endpoint expected as the distribution of air quality changes.) In its 
evaluation, the Agency should explicitly state when scientific 
judgments or assumptions were used and their effect on the 
concentration-response function, if known. The Agency would select 
among concentration-response relationships from studies that satisfied 
the following minimum standards: (1) The study was externally and 
independently peer-reviewed consistent with Federal guidance; (2) the 
pollutant analyzed in the study matches the pollutant of interest in 
the regulation; (3) concentration-response functions must be 
parameterized from scientifically robust studies; and (4) when an 
epidemiological study is used, further

[[Page 35621]]

criteria include: (a) It must assess the influence of confounders; (b) 
the study location must be appropriately matched to the analysis; and 
(c) the study population characteristics must be sufficiently similar 
to those of the analysis. When multiple studies satisfy these criteria, 
the EPA would characterize multiple concentration-response functions 
reflecting the full set of studies as a means of providing a broader 
representation of the effects estimate, including high quality studies 
that do not find a significant concentration-response relationship.
    When selecting multiple concentration-response functions, the 
Agency would quantify risks using separate concentration-response 
relationship and, if appropriate, pool, or combine, the results (e.g. 
in a meta-analysis) as means of providing a broader representation of 
the effects estimate. EPA proposes to require that decisions about the 
choice of the number of alternative concentration-response functions 
quantified for each endpoint be based on the extent to which it is 
technically feasible to quantify alternative concentration-response 
relationships given the available data and resources. Decisions should 
also consider the sensitivity of net benefits to the choice of 
concentration-response function. EPA proposes to present results in a 
manner that promotes transparency in the assessment process by 
selecting and clearly identifying concentration-response functions with 
the strongest scientific evidence, as well as evidence necessary to 
demonstrate the sensitivity of the choice of the concentration-response 
function on the magnitude and the uncertainty associated with air 
pollution-attributable effects.
    Once the Agency has identified the concentration-response functions 
to be used for quantifying the selected health endpoints, the Agency 
proposes that the BCA, or related technical support document, must 
characterize:
     The variability in the concentration-response functions 
across studies and models, including plausible alternatives;
     the assumptions, defaults, and uncertainties, their 
rationale, and their influence on the resulting estimates;
     the extent to which scientific literature suggests that 
the nature of the effect may vary across demographic or health 
characteristics;
     the potential variability of the concentration-response 
function over the range in concentrations of interest for the given 
policy;
     the influence of potential confounders on the reported 
risk coefficient;
     the likelihood that the parameters of the concentration-
response differ based on geographic location; and
     attributes that affect the suitability of the study or 
model for informing a risk assessment, including the age of the air 
quality data, and the generalizability of the study population.
    In cases where existing Agency documents (e.g., an Integrated 
Science Assessment for criteria pollutants) provide the causal 
analysis, concentration-response analysis, or the factors indicated 
above to be included in the BCA, the BCA may reference this synthesis. 
Evidence from epidemiologic, experimental, and controlled human 
exposure studies may suggest that certain demographic subgroups are 
subject to risks that differ from the general population; in these 
instances, it may be appropriate to select concentration-response 
relationships that quantify risks among these specific subgroups.
    BCA requires a comparison of expected costs and expected benefits, 
so BCA for CAA regulations must include the determination of expected 
benefits. When feasible, a probability distribution of risk is 
appropriate to use when determining the expected benefits for CAA 
regulations. When it is infeasible to estimate a probability 
distribution, the EPA proposes that measures of the central tendency of 
risk be used. Upper-bound risk estimates must not be used unless they 
are presented in conjunction with lower bound and central tendency 
estimates.
    Uncertainty Analysis. For various reasons, including the reason 
that the future is unpredictable, the benefits and costs of future 
regulatory options are not known with certainty. BCAs should identify 
uncertainties underlying the estimation of both benefits and costs and, 
to the extent feasible, quantitatively analyze those that are most 
influential. Specifically, the EPA must characterize, preferably 
quantitatively, sources of uncertainty in the assessment of costs, 
changes in air quality, assessment of likely changes in health and 
welfare endpoints, and the valuation of those changes. The EPA must 
also present benefit and cost estimates in ways that convey their 
uncertainty. The BCA must include a reasoned explanation for the scope 
of the uncertainty analysis and must specify specific quantitative or 
qualitative methods chosen to analyze uncertainties. Quantitative 
uncertainty analyses may consider both statistical and model 
uncertainty where the data are sufficient to do so. Furthermore, where 
data are sufficient to do so, the BCA must consider sources of 
uncertainty independently as well as jointly. The BCA should also 
discuss the extent to which qualitatively assessed costs or benefits 
are characterized by uncertainty.
    Where probability distributions for relevant input assumptions are 
available, characterize significant sources of uncertainty in the 
assessment, and can be feasibly and credibly combined, the EPA proposes 
that BCAs characterize how the probability distributions of the 
relevant input assumption uncertainty would impact the resulting 
distribution of benefit and cost estimates. The EPA should report 
probability distributions for each health benefit whenever feasible. In 
addition to characterizing these distributions of outcomes, it is 
useful to emphasize summary statistics or figures that can be readily 
understood and compared to achieve the broadest public understanding of 
the findings. If this proposed rulemaking is adopted, there will be 
instances when calculating expected values is not practicable due to 
data or other limitations. In such instances, the EPA would strive to 
present a plausible range of benefits and costs. Additional discussion 
of these best practices related to uncertainty analysis is provided in 
OMB's Circular A-4, Treatment of Uncertainty, and throughout EPA's 
Guidelines for Preparing Economic Analyses Guidelines.
    Principle of Transparency. The EPA proposes that BCA of significant 
CAA regulations include, at a minimum, a detailed and clear explanation 
of:
     The overall results of the BCA. The EPA proposes that the 
benefits, costs, and net benefits of each regulatory option evaluated 
in the BCA be presented in a manner designed to be objective, 
comprehensive, and easily understood by the public.
     How the benefits and costs were estimated, including the 
assumptions made for the analysis. BCAs must include a clear 
explanation of the models, data, and assumptions used to estimate 
benefits and costs, and the evaluation and selection process for these 
analytical decisions. This explanation would also include an 
explanation of procedures used to select among input parameters for the 
benefit and cost models. Such an explanation could include methods used 
to quantify risk and to model the fate and transport of pollutants.
     All non-monetized and non-quantified benefits and costs of 
the action. BCAs must provide available

[[Page 35622]]

evidence on all non-monetized and non-quantified benefits and costs, 
including why they are not being monetized or quantified and what the 
potential impact of those benefits and costs might be on the overall 
results of the BCA.
     The primary sources and potential effects of uncertainty. 
The BCA must present the results of the assessment of the sources of 
uncertainty that are likely to have a substantial effect on the 
results. Any data and models used to analyze uncertainty must be fully 
identified, and the quality of the available data must be discussed.
    Finally, to the extent permitted by law, the EPA proposes to make 
the information (including data and models) that was used in the 
development of the BCA publicly available. If the data and models are 
proprietary, the EPA proposes to make the underlying inputs and 
assumptions used, primary equations, and methodologies available to the 
extent permitted by law, while continuing to protect information 
claimed as confidential business information (CBI), personally 
identifiable information (PII), and other privileged, non-exempt 
information.
    Additional discussion of these best practices related to 
transparency is provided in OMB's Circular A-4, Transparency and 
Reproducibility of Results, and throughout EPA's Guidelines (2010).

C. Requirement for Additional Presentations of BCA Results in 
Rulemakings

    One theme raised by many commenters on the ANPRM was that the EPA 
does not clearly distinguish benefit categories in its regulatory 
documents. These commenters stated that EPA's BCAs generally present 
benefits as an aggregate total, and that insufficient effort is made to 
clearly distinguish between the public health and welfare benefits 
attributable to the specific pollution reductions or other 
environmental quality goals that are targeted by the specific statutory 
provision or provisions that authorize the regulation, and other 
welfare effects of the regulation that are not the primary objective of 
the statutory provision or provisions. For example, some commenters 
pointed to reports that show that for regulations for which a BCA is 
available, the majority of the monetized benefits for CAA regulations 
were attributable to reductions in fine particulate matter 
(PM2.5) even though the regulation did not target 
PM2.5. This issue did not arise with respect to costs in the 
public comments received on the ANPRM.
    While BCA requires a comparison of total social benefits and total 
social costs, commenters state that this comparison does not 
transparently communicate and may also create public confusion about 
the nature and scope of the statutory authority that provides the basis 
for the regulation, if a disproportionate share of social benefits 
arise from changes in environmental and other outcomes unrelated or 
secondary to the statutory objective of the regulation. While the 
Agency did not receive public comments on the presentation of costs, 
this principle of transparency would also apply to considerations of 
cost as contemplated by the statute when in pursuit those environmental 
benefits.
    Following the principle of transparency, the EPA agrees with 
commenters that when presenting the results of a BCA, it is important 
to clearly distinguish between the social benefits attributable to the 
specific pollution reductions or other environmental quality goals that 
are targeted by the statutory provisions that give rise to the 
regulation, and other welfare effects. The disaggregation of welfare 
effects will be important to ensure that the BCA may provide, to the 
maximum extent feasible, transparency in decision making. These other 
welfare effects could include both favorable and adverse impacts on 
societal welfare. Analogous to how a regulation's interactions with 
existing imperfections or distortions in other markets (e.g., due to 
pre-existing taxes) could lead to additional social costs, a regulation 
could ameliorate or exacerbate other pre-existing externalities. For 
example, more stringent vehicle emissions standards could affect 
upstream refinery emissions or reduce the marginal cost of driving due 
to greater fuel efficiency and could lead to an increase in vehicle 
miles traveled that affects road safety, congestion, and other 
transport-related externalities.
    Other welfare effects could also occur as a direct or indirect 
result of the compliance approaches used by regulated entities. For 
example, changes in other environmental contaminants may arise from the 
regulated sources. Likewise, the use of an abatement technology that 
reduces the emissions of HAPs into one medium (e.g., air) may change 
the emissions of another pollutant into the same medium (e.g., coming 
out of the same smokestack) or cause changes in emissions of pollutants 
into another medium (e.g., water) by the regulated sources. Changes in 
other environmental contaminants may also occur as a result of market 
interactions induced by the regulation. For example, a regulation may 
cause consumers or firms to substitute away from one commodity towards 
another, whose increased production may be associated with changes in 
various environmental contaminants or other externalities.
    The welfare effects associated with these changes should be 
accounted for in a BCA to the extent feasible, as it is the total 
willingness to pay for all changes induced by a regulation that 
determines their relative importance in evaluating economic efficiency.
    Disaggregating benefits into those targeted and ancillary to the 
statutory objective of the regulation may cause the EPA to explore 
whether there may be more efficient, lawful and defensible, or 
otherwise appropriate ways of obtaining ancillary benefits, as they may 
be the primary target of an alternative regulation that may more 
efficiently address such pollutants, through a more flexible regulatory 
mechanism, better geographic focus, or other factors. This may be 
relevant when certain benefits are the result of changes in pollutants 
that the EPA regulates under a different section of the CAA or under 
another statute.
    Proposed Requirements: EPA proposes to codify into regulation two 
presentational requirements for the preamble of all future significant 
CAA regulations. First, in order to ensure standardized presentation of 
the summary of the BCA results consistent with E.O. 12866 in CAA 
rulemakings, the EPA proposes to codify into regulation the requirement 
to present a summary in the preamble of the overall BCA results, 
including total costs, benefits, and net benefits. Second, to enhance 
transparency about the extent to which a rule is achieving its 
statutory objectives, the EPA proposes, in addition to a clear 
reporting of the overall results of the BCA, an additional presentation 
in the preamble of the public health and welfare benefits that pertain 
to the specific objective (or objectives, as the case may be) of the 
CAA provision or provisions under which the rule is promulgated. This 
second presentation would include a listing of the benefit categories 
arising from the environmental improvement that is targeted by the 
relevant statutory provision, or provisions and would report the 
monetized value to society of these benefits. If these benefit 
categories cannot be monetized, the EPA is proposing that the Agency 
must report the quantified estimates of these benefits to the extent 
practicable and must provide a qualitative characterization if they 
cannot be quantified. Similarly, if the statute directs or allows the 
Agency to consider

[[Page 35623]]

costs, the EPA proposes to also provide a disaggregation of all 
relevant cost categories to the extent feasible in this section. This 
proposed requirement would serve as supplement to the BCA that is 
developed and presented according to best practices as outlined in 
Section IV.B of this preamble. It does not replace or change any part 
of the RIA or the section of the preamble that summarizes the BCA 
results consistent with E.O. 12866. As discussed in Section V of this 
preamble, the EPA requests comment on alternative ways of increasing 
transparency about the extent to which a rule is achieving its 
statutory environmental objective. Finally, the EPA proposes that the 
presentational requirements described above be provided in the same 
section of the preamble of future CAA significant rulemakings.

V. Additional Considerations and Requests for Comment

A. Specifying How BCA Results Should Inform Regulatory Decisions

    The EPA is proposing that the Agency undertake a BCA for 
significant regulations but is not proposing to specify how or whether 
the results of the BCA should inform significant CAA regulatory 
decisions. For example, the EPA is not proposing to mandate that a 
significant CAA regulation be promulgated only when the benefits of the 
intended action justify its costs. Such a mandate would not be 
appropriate, for example, for regulations promulgated under provisions 
of the CAA that have been read by the courts to prohibit the 
consideration of costs in decision-making. For example, ``[t]he text of 
Sec.  109(b), interpreted in its statutory and historical context and 
with appreciation for its importance to the CAA as a whole, 
unambiguously bars cost considerations from the NAAQS-setting 
process.'' Am. Trucking Ass'ns, 531 U.S. at 471. Thus, such a mandate 
would be improper for the NAAQS-setting process. There are other CAA 
provisions, however, that explicitly require the EPA to take costs into 
consideration in deciding how or whether to regulate. In addition, 
several provisions do not explicitly use the word ``cost'' but use 
terminology that implicitly requires or permits cost consideration. For 
example, terms such as ``reasonable,'' ``appropriate,'' ``necessary,'' 
or ``feasible'' have been interpreted as allowing for or even requiring 
the consideration of cost in decision making. Accordingly, when 
regulating pursuant to a CAA provision that either explicitly or 
implicitly requires or permits consideration of cost, it may be 
appropriate, depending on the statutory provision at issue, to consider 
whether the benefits of a regulation justify the costs in deciding 
whether or how to regulate.
    In this proposal, the EPA solicits comment on how the Agency could 
take into consideration the results of a BCA in future rulemakings 
under specific provisions of the CAA. The EPA also solicits comment on 
approaches for how the results of the BCA could be weighed in future 
CAA regulatory decisions. For example, the EPA solicits comment on 
whether and under what circumstances the EPA could or should determine 
that a future significant CAA regulation be promulgated only when the 
benefits of the intended action justify its costs. The EPA also 
solicits comment on whether and under what circumstances the EPA could 
determine that a future significant CAA regulation be promulgated only 
when monetized benefits exceed the costs of the action.

B. Other Areas of Solicitation for Public Comment

    Applicability. EPA is requesting comment on whether this rulemaking 
should apply only to the subset of CAA significant regulations that are 
determined to be economically significant, which the EPA could define, 
consistent with E.O. 12866 Section 3(f)(1) and OMB Circular A-4, as 
those that are likely to have an effect on the economy (benefits, costs 
or transfers) of $100 million or more in any one year (that is, a 
consecutive twelve-month period) or adversely affect in a material way 
the economy, a sector of the economy, productivity, competition, jobs, 
the environment, public health or safety, or State, local, or tribal 
governments or communities. These economically significant regulations 
are the same set of regulations for which E.O. 12866 requires the 
preparation of a BCA. The EPA also requests comment on whether the 
threshold of $100 million in benefits and/or costs in any given year 
should be adjusted for inflation going forward, and, if so, whether 
such adjustments should be made assuming a base year of 1995 (as is 
done with the $100 million expenditure threshold set forth in the 
Unfunded Mandates Reform Act).The EPA is requesting comment on whether 
certain elements of the proposed action should consider resource 
constraints when being implemented for CAA significant regulations, 
under the reasonable proposition embedded in E.O. 12866 that the 
intensity of the resources dedicated to an analysis should be 
coordinated and consistent with the level of impact of a decision.
    Best Practices for the Development of BCA. The EPA is requesting 
comment whether it is appropriate to codify best practices for the 
development of BCA in this rulemaking and, if so, whether specific 
additional best practices should also be so codified. For example, the 
EPA solicits comment on whether this rulemaking should specify best 
practices related to assumptions about technological change and/or 
learning effects in BCA. The EPA further solicits comment as to whether 
any additional proposed requirements for BCAs would improve BCA 
consistency. EPA solicits comments as to whether non-domestic benefits 
and costs of regulations, when examined, should be reported separately 
from domestic benefits and costs of such regulations, just as this 
proposed rulemaking would provide for a separate presentation of 
benefits limited to those targeted by the relevant statutory provision 
or provisions.
    The EPA is requesting comment as to whether requirements related to 
risk assessments used in BCAs should be applied more broadly than as 
described in the proposed rulemaking and, in particular, whether such 
requirements should apply to all risk assessments used in CAA 
significant rulemakings. For example, should EPA codify into regulation 
the proposed selection criteria for selecting among studies 
characterizing concentration-response relationships and the proposed 
requirement for synthesizing evidence across the literature? The EPA 
also solicits comment on whether to impose additional requirements for 
risk assessments. For example, should the EPA impose requirements for 
best practices related to any weight-of-evidence (WOE) frameworks that 
the Agency uses in the developments of CAA significant rulemakings? 
Should EPA impose additional requirements to ensure consistency and 
transparency in the assessment of bias and uncertainty in risk analyses 
(e.g., requirements relating to the use of quantitative bias analysis, 
or requirements intended for consistency purposes such as requirements 
relating to the use of probabilistic risk analysis for reducing 
uncertainty in risk analysis)? The EPA also solicits comments on 
whether additional requirements within the study selection criteria are 
necessary to ensure a high-quality and appropriately reliable 
characterization of air quality and risk.
    Additional Presentational Requirements to Increase Transparency. 
EPA requests comment on alternative approaches to increasing 
transparency about the extent to which a rule is achieving its 
statutory objectives. In

[[Page 35624]]

particular, EPA solicits comment on whether, instead of, or in addition 
to, the presentational requirements proposed in Section IV.C of this 
preamble, the EPA should require a detailed disaggregation of both 
benefit and cost categories within the table that summarizes the 
overall results of the BCA in the preamble of future significant CAA 
rulemakings. The goal of this disaggregation would be to clarify what 
public health and welfare benefits pertain to the specific statutory 
objective, or objectives, of the CAA provision, or provisions, under 
which the rule is promulgated, but would allow the reader to see this 
information in the same location as the estimates of all the other 
welfare effects, both positive and negative, resulting from the 
regulation. In addition, the EPA solicits comment on whether the EPA 
should require a separate presentation of all factors (e.g., particular 
benefit or cost categories, or other impacts) that are specifically 
listed as factors that the Administrator must consider in making a 
regulatory decision pursuant to the statutory provision(s) under which 
the regulation is being promulgated. This presentation would include a 
presentation of quantitative results for those factors that have been 
quantitatively assessed, and a qualitative discussion of any factors 
that were not quantified.
    Retrospective Analysis. EPA requests comment on whether EPA should 
include a requirement for conducting retrospective analysis of 
significant CAA rulemakings. As discussed in the ANPRM, many previous 
administrations have periodically undertaken programs of retrospective 
review or issued executive orders urging agencies to reassess existing 
regulations and to eliminate, modify, or strengthen those regulations 
that have become outmoded in light of changed circumstances. But for 
the most part retrospective review has not become institutionalized 
practice as has prospective review (such as ex ante benefit-cost 
analysis conducted under Executive Order 12866) within EPA. The EPA 
received many comment letters on the ANPRM voicing support for 
increased retrospective review of Agency rules or programs to be able 
to evaluate the effectiveness of regulations and to design future 
improvements to increase efficiency. In this NPRM the EPA requests more 
specific comments on this issue. In particular, what form should a 
requirement take in the case of CAA regulations? For example, should 
the requirement pertain to analysis of an individual rule or a review 
of the cumulative burden of a set of rules regulating the same or 
related entities? Should it be applicable to all parts of CAA or just 
some provisions? What are the advantages and disadvantages of such a 
requirement? How can the Agency overcome the challenges conducting 
retrospective analysis in cases where the EPA's ability to collect 
information about the costs of compliance is limited or otherwise 
influenced by other statutes?
    Sequence of Rules in Benefit-Cost Analysis. EPA seeks comment on 
how sequencing of rules might affect the estimation of benefits and 
costs.
    Definitions. The EPA is requesting comment on whether there are 
additional terms that it should define to increase consistency and 
transparency in the development of BCA to support CAA rulemaking 
actions.
    Making Information Public. The EPA requests comments as to whether 
the proposed criteria regarding data, assumptions, and study selection 
reflect the Agency's commitment to be consistent and transparent. The 
EPA solicits comment on whether this rule should allow the Agency to 
use models offered by a third party only where the third party makes 
its models and assumptions publicly available (or allows the EPA to do 
so) to the extent permitted by law.

VI. References

    The following is a listing of the documents that are specifically 
referenced in this document. The docket includes these documents and 
other information considered by the EPA, including documents referenced 
within the documents that are included in the docket, even if a 
referenced document is not physically located in the docket. For 
assistance in locating these other documents, please consult the person 
listed under the For Further Information Contact section above.

1. U.S. EPA (U.S. Environmental Protection Agency). Increasing 
Consistency and Transparency in Considering Costs and Benefits in 
the Rulemaking Process; Advance notice of proposed rulemaking. (83 
FR 27524, June 13, 2018).
2. OMB (Office of Management and Budget). (1996). Economic Analysis 
of Federal Regulations Under Executive Order 12866.
3. OMB (Office of Management and Budget). (2003). Circular A-4, 
``Regulatory Analysis.''
4. U.S. EPA (U.S. Environmental Protection Agency). (2010). 
Guidelines for Preparing Economic Analyses.
5. Arrow, K., M. Cropper, G. Eads, R. Hahn, L. Lave, R. Noll, P. 
Portney, M. Russell, R. Schmalensee, V. Smith, and R. Stavins. 
1996a. Benefit-Cost Analysis in Environmental, Health, and Safety 
Regulation: A Statement of Principles. Washington, DC: American 
Enterprise Institute, The Annapolis Center, and Resources for the 
Future.
6. Arrow et al. 1996b. Is There a Role for Benefit-Cost Analysis in 
Environmental, Health, and Safety Regulation? Science 272: 221-222.

VII. Statutory and Executive Order Reviews

    Additional information about these statutes and Executive Orders 
can be found at https://www.epa.gov/laws-regulations/laws-and-executive-orders.

A. Executive Order 12866: Regulatory Planning and Review and Executive 
Order 13563: Improving Regulation and Regulatory Review

    This proposed action is a significant regulatory action that was 
submitted to the OMB for review. Any changes made in response to OMB 
recommendations have been documented in the docket. The EPA does not 
anticipate that this rulemaking will have an economic impact on 
regulated entities. This is a rule of agency procedure and practice.

B. Executive Order 13771: Reducing Regulations and Controlling 
Regulatory Costs

    This proposed action is not expected to be an Executive Order 13771 
regulatory action because it relates to ``agency organization, 
management or personnel.''

C. Paperwork Reduction Act (PRA)

    This proposed action does not contain any information collection 
activities and therefore does not impose an information collection 
burden under the PRA.

D. Regulatory Flexibility Act (RFA)

    I certify that this proposed action would not have a significant 
economic impact on a substantial number of small entities under the 
RFA. This action would not impose any requirements on small entities. 
This action would not regulate any entity outside the federal 
government.

E. Unfunded Mandates Reform Act (UMRA)

    This proposed action does not contain any unfunded mandate as 
described in UMRA, 2 U.S.C. 1531-1538, and does not significantly or 
uniquely affect small governments. The action proposed would impose no 
enforceable duty on any state, local or tribal governments or the 
private sector.

F. Executive Order 13132: Federalism

    This proposed action does not have federalism implications. It 
would not

[[Page 35625]]

have substantial direct effects on the states, on the relationship 
between the national government and the states, or on the distribution 
of power and responsibilities among the various levels of government.

G. Executive Order 13175: Consultation and Coordination With Indian 
Tribal Governments

    This proposed action does not have tribal implications as specified 
in Executive Order 13175. Thus, Executive Order 13175 does not apply to 
this action.

H. Executive Order 13045: Protection of Children From Environmental 
Health Risks and Safety Risks

    The EPA interprets Executive Order 13045 as applying only to those 
regulatory actions that concern environmental health or safety risks 
that the EPA has reason to believe may disproportionately affect 
children, per the definition of ``covered regulatory action'' in 
section 2-202 of the Executive Order. This proposed action is not 
subject to Executive Order 13045 because it does not concern an 
environmental health risk or safety risk.

I. Executive Order 13211: Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution or Use

    This proposed action is not a ``significant energy action'' because 
it is not likely to have a significant adverse effect on the supply, 
distribution or use of energy.

J. National Technology Transfer and Advancement Act (NTTAA)

    This rulemaking does not involve technical standards.

K. Executive Order 12898: Federal Actions To Address Environmental 
Justice in Minority Populations and Low-Income Populations

    The EPA believes that this proposed action is not subject to 
Executive Order 12898 (59 FR 7629, February 16, 1994) because it does 
not establish an environmental health or safety standard.

List of Subjects in 40 CFR Part 83

    Environmental protection, Administrative practice and procedure, 
Reporting and recordkeeping requirements.

Andrew Wheeler,
Administrator.

    For the reasons set forth in the preamble, EPA is proposing to add 
40 CFR part 83 as follows:

PART 83--INCREASING CONSISTENCY AND TRANSPARENCY IN CONSIDERING 
BENEFITS AND COSTS IN CLEAN AIR ACT RULEMAKING PROCESS

Sec.
83.1 What definitions apply to this subpart?
83.2 How do the provisions of this subpart apply?
83.3 What requirements apply to EPA's preparations of Benefit-Cost 
Analyses (BCAs) under the Clean Air Act?
83.4 What additional requirements apply to EPA's presentation of BCA 
results for all significant rules promulgated under the Clean Air 
Act?

    Authority: 42 U.S.C. 7601(a)(1)

Subpart A--Analysis of Air Regulations


Sec.  83.1  What definitions apply to this subpart?

    Baseline means the best assessment of the way the world would look 
absent the proposed or finalized action.
    Benefit-cost analysis (BCA) means an evaluation of the favorable 
effects of a policy action and the opportunity costs, associated with 
the action. It addresses the question whether the benefits for those 
who gain from the action are sufficient to, in principle, compensate 
those burdened such that everyone would be at least as well off as 
before the policy. The calculation of net benefits (benefits minus 
costs) helps ascertain the economic efficiency of a regulation.
    Compliance cost means the private cost that a regulated entity 
incurs to comply with a regulation (e.g., installation and operation of 
pollution abatement equipment).
    Data means the set of recorded factual material commonly accepted 
in the scientific community as necessary to validate research findings 
in which obvious errors, such as keystroke or coding errors, have been 
removed and that is capable of being analyzed by either the original 
researcher or an independent party.
    Expected value is a measure of the central tendency of a set of 
data. It is usually the average or mean of the data. For a variable 
with a discrete number of outcomes, the expected value is calculated by 
multiplying each of the possible outcomes by the likelihood that each 
outcome will occur and then summing all of those values.
    Model means a simplification of reality that is constructed to gain 
insights into select attributes of a physical, biological, economic, or 
social system. A formal representation of the behavior of system 
processes, often in mathematical or statistical terms. The basis can 
also be physical or conceptual.
    Opportunity cost means the value of the next best alternative to a 
particular activity or resource.
    Publicly available means lawfully available to the general public 
from federal, state, or local government records; the internet; widely 
distributed media; or disclosures to the general public that are 
required to be made by federal, state, or local law.
    Regulatory options means, at a minimum:
    (1) The proposed or finalized option;
    (2) A more stringent option which accomplishes the stated 
objectives of the Clean Air Act and that achieves additional benefits 
(and presumably costs more) beyond those realized by the proposed or 
finalized option; and
    (3) A less stringent option which accomplishes the stated 
objectives of the Clean Air Act and that costs less (and presumably 
generates fewer benefits) than the proposed or finalized option.
    Sensitivity Analysis means an analysis that is used to assess how 
the final results or other aspects of an analysis change as input 
parameters change, particularly when only point estimates of parameters 
are available. Typically, a sensitivity analysis measures how a model's 
output changes as one of the input parameters change. Joint sensitivity 
analysis (varying more than one parameter at a time) is sometimes 
useful as well.
    Significant regulation means a proposed or final regulation that is 
determined to be a ``significant regulatory action'' pursuant to 
Section 3(f) E.O. 12866 or is otherwise designated as significant by 
the Administrator.
    Social benefits, or benefits, means the positive changes in 
societal well-being incurred as a result of the regulation or policy 
action.
    Social costs, or costs, means the sum of all opportunity costs, or 
reductions in societal well-being, incurred as a result of the 
regulation or policy action.


 Sec.  83.2  How do the provisions of this subpart apply?

    (a) The provisions of this subpart apply to benefit-cost analyses 
(BCA) prepared for all future significant regulations under the Clean 
Air Act (CAA). Except where explicitly stated otherwise, the provisions 
of this subpart do not apply to any other type of agency action, 
including individual party adjudications, enforcement activities, or 
permit proceedings.
    (b) [Reserved]

[[Page 35626]]

Sec.  83.3  What requirements apply to EPA's preparations of Benefit-
Cost Analyses (BCAs) under the Clean Air Act?

    (a) Except as otherwise provided in paragraph (b) of this section, 
the Agency must develop BCAs of significant CAA regulations in 
accordance with best available scientific information and best 
practices from the economic, engineering, physical, and biological 
sciences, including the following practices.
    (1) In preparing the BCA, the Agency must include:
    (i) A statement of need;
    (ii) An examination of regulatory options; and
    (iii) To the extent feasible, an assessment of all benefits and 
costs of these regulatory options relative to the baseline scenario.
    (2) In preparing the BCA, the Agency must include a statement of 
need that provides: A clear description of the problem being addressed, 
the reasons for and significance of any failure of by private markets 
or public institutions causing this problem, and the compelling need 
for federal government intervention in the market to correct the 
problem.
    (3) In preparing the BCA the Agency must analyze the benefits and 
costs of regulatory options, as well as the benefits and costs of other 
notable deviations from the proposed for which the Agency is soliciting 
comment or the finalized option. Where there is a continuum of options 
(such as options that vary in stringency), the Agency must analyze at 
least three regulatory options (as provided in section XX(a)(3)(i)) and 
explain why these were selected.
    If fewer than three options are analyzed, or if there is a 
continuum of options and the options analyzed do not include at least 
one more stringent and one less stringent option than the proposed or 
finalized option, then the Agency must explain why it is not 
appropriate to analyze more options.
    (4) In preparing the BCA, the Agency must use a baseline that 
appropriately considers relevant factors and relies on transparent and 
reasonable assumptions. The factors for which the Agency must account 
in the baseline include, but are not limited to, the following:
    (i) Exogenous changes in the economy that may affect benefits and 
costs (e.g., changes in demographics, economic activity, consumer 
preferences, or technology);
    (ii) Regulations promulgated by the Agency or other government 
entities; and
    (iii) The degree of compliance by regulated entities with other 
regulations.
    In rulemaking actions where the Agency determines it is appropriate 
to consider more than one baseline (e.g., one that accounts for another 
EPA regulation being developed at the same time that affects the same 
environmental condition), the Agency must provide a reasoned 
explanation for the baselines used and must identify the key 
uncertainties in the forecast(s).
    (5) In preparing the BCA, the Agency must rely on the use of a 
framework that is appropriate for the characteristics of the regulation 
being evaluated and must provide an explanation for the approach 
adopted.
    (6) The Agency must consider how costs and benefits may be affected 
by consumer and producer behavior in the baseline and potential 
behavioral changes from the policy scenarios.
    (7) During the estimation of benefits, the Agency must link 
regulatory requirements to the value that individuals place on the 
change in benefit endpoints that can be meaningfully attributed to 
those requirements. The Agency must select benefit endpoints that the 
scientific evidence indicates there is:
    (i) A clear causal or likely causal relationship between pollutant 
exposure and effect, and subsequently; and
    (ii) An anticipated change in that effect in response to changes in 
environmental quality or exposures expected as a result of the 
regulation under analysis. The Agency must quantify effects for 
endpoints which scientific evidence is robust enough to support such 
quantification.
    (8) The Agency must, to the extent supported by scientific 
literature as well as practicable in a given rulemaking:
    (i) Quantify all benefits;
    (ii) Monetize all the benefits by following well-defined economic 
principles using well-established economic methods; and
    (iii) Qualitatively characterize benefits that cannot be quantified 
or monetized.
    (9) When selecting and quantifying health endpoints in a BCA, the 
Agency must:
    (i) Explain the basis for significant judgments, assumptions, data, 
models, and inferences used or relied upon in the assessment or 
decision;
    (ii) Describe the sources, extent and magnitude of significant 
uncertainties associated with the assessment;
    (iii) When selecting concentration-response relationships from the 
scientific literature, the Agency must select from studies where each 
selected study meets the criteria in paragraphs (b)(8)(iii)(A) through 
(C) of this section.
    (A) The study was externally and independently peer-reviewed 
consistent with Federal guidance;
    (B) The pollutant analyzed in the study matches the pollutant of 
interest in the regulation;
    (C) Concentration-response functions must be parameterized from 
scientifically robust studies;
    (D) When an epidemiological study is used further criteria include 
that the study must assess the influence of confounders, that the study 
location must be appropriately matched to the analysis, and that the 
study population characteristics must be sufficiently similar to those 
of the analysis.
    (iv) When multiple studies satisfy these criteria the Agency must 
characterize multiple concentration-response functions, and, if 
appropriate, combine them as a means of providing a broader 
representation of the effect estimate. The Agency would also include 
studies that meet the criteria above and that do not find a significant 
concentration-response relationship.
    (v) The Agency must base decisions about the choice of the number 
of alternative concentration-response functions quantified for each 
endpoint on the extent to which it is technically feasible to quantify 
alternative concentration-response relationships given the available 
data and resources.
    (vi) The Agency must select and clearly identify concentration-
response functions with the strongest scientific evidence, as well as 
evidence necessary to demonstrate the sensitivity of the choice of the 
concentration-response function on the magnitude and the uncertainty 
associated with air pollution-attributable effects.
    (vii) Once the Agency has identified the concentration-response 
functions to be used for quantifying the selected health endpoints, the 
Agency must characterize, in a BCA or related technical support 
document:
    (A) The variability in the concentration-response functions across 
studies and models, including plausible alternatives;
    (B) The assumptions, defaults, and uncertainties, their rationale, 
and their influence on the resulting estimates;
    (C) The extent to which scientific literature suggests that the 
nature of the effect may vary across demographic or health 
characteristics;
    (D) The potential variability of the concentration-response 
function over the range in concentrations of interest for the given 
policy;
    (E) The influence of potential confounders on the reported risk 
coefficient;

[[Page 35627]]

    (F) The likelihood that the parameters of the concentration-
response differ based on geographic location; and
    (G) Attributes that affect the suitability of the study or model 
for informing a risk assessment, including the age of the air quality 
data, and the generalizability of the study population.
    (viii) When feasible, the Agency must use a probability 
distribution of risk when determining expected benefits. When it is 
infeasible to estimate a distribution, the Agency must use measures of 
the central tendency of risk. Upper-bound risk estimates must not be 
used unless they are presented in conjunction with lower bound and 
central tendency estimates.
    (10) The Agency must identify uncertainties underlying the 
estimation of both benefits and costs and, to the extent feasible, 
quantitatively analyze those that are most influential; and must 
present benefits and cost estimates in ways that convey their 
uncertainty. The Agency must provide a reasoned explanation for the 
scope and specific quantitative or qualitative methods chosen to 
analyze uncertainties.
    (i) To the extent feasible, the Agency must use quantitative 
methods to analyze uncertainties that have the largest potential effect 
on benefits or cost estimates.
    (ii) The Agency must characterize, preferably quantitatively, 
sources of uncertainty in the assessment of costs, changes in air 
quality, assessment of likely changes in health and welfare endpoints, 
and the valuation of those changes.
    (iii) Where data are sufficient to do so, the Agency must consider 
sources of uncertainty both independently and jointly.
    (iv) To the extent feasible, the Agency must also consider, and 
transparently acknowledge, the extent to which qualitatively-assessed 
costs or benefits are characterized by uncertainty.
    (v) Where probability distributions for relevant input assumptions 
are available, characterize significant sources of uncertainty in the 
assessment, and can be feasibly and credibly combined, the Agency must 
characterize how the probability distributions of the relevant input 
assumption uncertainty would impact the resulting distribution of 
benefit and cost estimates.
    (vi) Except as provided in this paragraph, the Agency must provide 
expected-value estimates of benefits and costs as well as distributions 
about each of the estimates. In cases where estimates based on expected 
values are not feasible, the Agency must present a plausible range of 
benefits and costs.
    (11) In presenting the results of the BCA the Agency must include 
the following elements:
    (i) The Agency must present the overall results of the BCA 
(benefits, costs, and net benefits of each regulatory option evaluated 
in the BCA) in a manner designed to be objective, comprehensive, 
reproducible to the extent reasonably possible, and easily understood 
by the public.
    (ii) The Agency must describe how the benefits and costs were 
estimated in the BCA, including the assumptions made for the analysis. 
The Agency must describe the models, data, and assumptions used to 
estimate benefits and costs, and the evaluation and selection process 
for these analytical decisions. The Agency must provide an explanation 
of procedures used to select among input parameters to the benefit and 
cost models, and any methods used to quantify risk and to model fate 
and transport of pollutants.
    (iii) Consistent with the best available scientific information, 
the Agency must discuss non-monetized and non-quantified benefits and 
costs of the action. The Agency must present available evidence on non-
monetized and non-quantified benefits and costs, including explanations 
as to why they are not being monetized or quantified and discussions of 
what the potential impact of those benefits and costs might be on the 
overall results of the BCA.
    (iv) The Agency must assess the sources of uncertainty that are 
likely to have a substantial effect on the results of the BCA and 
present the results of this assessment. The Agency must identify any 
data and models used to analyze uncertainty in the BCA, and the quality 
of the available data shall be discussed.
    (12) To the extent permitted by law, the Agency must ensure that 
all information (including data and models) used in the development of 
the BCA is publicly available. If the data and models are proprietary, 
the Agency must make available, to the extent permitted by law, the 
underlying inputs and assumptions used, equations, and methodologies 
used by EPA, while continuing to provide appropriate protection for 
information claimed as confidential business information (CBI), 
personally identifiable information (PII), and other privileged, non-
exempt information.
    (b) The Agency must provide a reasoned explanation for any 
departures from best practices in the BCA, including a discussion of 
the likely effect of the departures on the results of the BCA.


Sec.  83.4  What additional requirements apply to EPA's presentation of 
BCA results for all significant rules promulgated under the Clean Air 
Act?

    (a) The Agency must provide, in addition to the reporting of the 
overall results of the BCA as specified in Sec.  _._(a)(11)(i), a 
summary in the preamble of the overall BCA results, including total 
costs, benefits, and net benefits.
    (b) The Agency must provide an additional presentation in the 
preamble of the public health and welfare benefits that pertain to the 
specific objective (or objectives, as the case may be) of the CAA 
provision or provisions under which the rule is promulgated.
    (1)This presentation must list the benefit categories arising from 
the environmental improvement that is targeted by the relevant 
statutory provision and report the monetized value to society of these 
benefits.
    (2) If these benefit categories cannot be monetized, the Agency 
must report the quantified estimates of these benefits to the extent 
possible and provide a qualitative characterization if they cannot be 
quantified.
    (c) When the CAA provision or provisions under which the rule is 
promulgated contemplate the consideration of specific costs, the Agency 
must provide a transparent presentation of how those specific costs 
relate to total costs, to the extent possible.
    (d) The presentations specified in paragraphs (a), (b), and (c) of 
this section must be placed in the same section in the preamble of the 
regulation.

[FR Doc. 2020-12535 Filed 6-10-20; 8:45 am]
 BILLING CODE 6560-50-P