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