Air Pollution: Information Contained in EPA's Regulatory Impact Analyses
Can Be Made Clearer (Letter Report, 04/14/97, GAO/RCED-97-38).
GAO reviewed the Environmental Protection Agency's (EPA) 23 regulatory
impact analyses (RIA) supporting air quality regulations, focusing on
whether the RIAs clearly describe: (1) key economic assumptions subject
to uncertainty and the sensitivity of the results to these assumptions;
(2) the extent to which benefits and costs were quantified for the
proposed regulatory action; and (3) the extent to which alternative
approaches were considered.
GAO noted that: (1) while certain key economic assumptions, such as the
discount rate and the value of human life, can have a significant impact
on the results of benefit-cost analyses and are important to the
regulations being proposed, eight of the RIAs did not identify one or
more of these assumptions; (2) furthermore, in the RIAs that identified
key economic assumptions, the rationale for the values used was not
always explained; (3) for example, one RIA assumed a value of life that
ranged from $1.6 million to $8.5 million and another, prepared in the
same year, assumed a value of life that ranged from $3 million to $12
million; (4) in neither instance did the RIAs provide a clear
explanation of the rationale for the values that were selected; (5) even
though EPA's guidance suggests that RIAs account for any uncertainties
in the values of key assumptions by conducting sensitivity analyses,
which show how benefit and cost estimates vary depending on what values
are assumed, 13 RIAs used only a single discount rate; (6) all 23 RIAs
assigned dollar values to the estimated costs of proposed regulations,
however, 11 of the RIAs assigned dollar values to the estimated
benefits; (7) according to EPA officials, assigning dollar values to
potential benefits is difficult because of the uncertainty of scientific
data and the lack of market data on some of these effects; (8) all of
the RIAs contained some quantitative or qualitative information on the
expected benefits, such as a reduced incidence of mortality and illness;
(9) while the number and the types of alternatives considered in the 23
RIAs were not always clear, GAO's examination indicated that six of the
RIAs compared a single alternative, which was the regulatory action
being proposed, to the baseline, which was the situation likely to occur
in the absence of regulation, the status quo; (10) the remainder
compared two or more alternatives to the baseline; (11) resource
constraints and the specific requirements of authorizing legislation,
which sometimes limits EPA's options, were factors influencing the
extent to which alternatives were considered; (12) ten of the RIAs GAO
examined did not include executive summaries, even though these
summaries can be a significant benefit to decisionmakers; and (13) EPA
officials acknowledged that some of the RIAs did not include executive
summaries and agreed that executive summaries, by providing easily acce*
--------------------------- Indexing Terms -----------------------------
REPORTNUM: RCED-97-38
TITLE: Air Pollution: Information Contained in EPA's Regulatory
Impact Analyses Can Be Made Clearer
DATE: 04/14/97
SUBJECT: Environmental law
Federal regulations
Cost effectiveness analysis
Economic analysis
Air pollution control
Environmental research
IDENTIFIER: EPA National Recycling and Emissions Reduction Program
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Cover
================================================================ COVER
Report to Congressional Committees
April 1997
AIR POLLUTION - INFORMATION
CONTAINED IN EPA'S REGULATORY
IMPACT ANALYSES CAN BE MADE
CLEARER
GAO/RCED-97-38
Improving EPA's Regulatory Impact Analyses
(160341)
Abbreviations
=============================================================== ABBREV
EPA - Environmental Protection Agency
OMB - Office of Management and Budget
RIA - regulatory impact analyses
Letter
=============================================================== LETTER
B-275777
April 14, 1997
The Honorable John H. Chafee
Chairman
The Honorable Max Baucus
Ranking Minority Member
Committee on Environment and
Public Works
United States Senate
The Honorable Tom Bliley
Chairman
The Honorable John D. Dingell
Ranking Minority Member
Committee on Commerce
House of Representatives
The Environmental Protection Agency (EPA) has been required to
perform benefit-cost analyses, or regulatory impact analyses (RIA),
to support its regulatory actions since 1971. The analyses are
expected to conform to guidelines developed by the Office of
Management and Budget (OMB) and EPA to implement executive orders
requiring them. Generally, the guidelines describe the major
components that should be contained in the analyses, such as a
statement of the need for a regulation and a description and
estimation of the benefits and costs for regulatory alternatives,
including the results of sensitivity analyses to characterize the
effects of uncertainties. The guidelines allow EPA considerable
flexibility in preparing RIAs. Specifically, the guidelines
stipulate that the scope and precision of analysis depend on the
quality of underlying data, the scientific understanding of the
problems to be addressed through regulation, resource constraints at
EPA, and the specific requirements of the authorizing legislation.
The guidelines also recommend that the scope and precision of the
analysis should be proportionate to the importance and complexity of
the issues being addressed.
This report, which describes the results of our review of 23 RIAs
supporting air quality regulations, is addressed to you because of
your jurisdiction for the Clean Air Act. These RIAs were prepared by
EPA's Office of Air and Radiation and issued between November 1990,
the effective date of the Clean Air Act Amendments of 1990, and
December 1995.\1 Specifically, our review focused on whether the RIAs
clearly describe (1) key economic assumptions subject to uncertainty
and the sensitivity of the results to these assumptions, (2) the
extent to which benefits and costs were quantified for the proposed
regulatory action, and (3) the extent to which alternative approaches
were considered. This report also follows up on our previous
recommendation that RIAs include executive summaries highlighting the
analytical results important to decisionmakers.
--------------------
\1 Although EPA's other program offices are also responsible for
preparing RIAs, we limited our review to the RIAs prepared by the
Office of Air and Radiation because this office is primarily
responsible for implementing the requirements of the 1990 amendments.
RESULTS IN BRIEF
------------------------------------------------------------ Letter :1
While certain key economic assumptions, such as the discount rate and
the value of human life, can have a significant impact on the results
of benefit-cost analyses and are important to the regulations being
proposed, eight of the RIAs did not identify one or more of these
assumptions.\2 Furthermore, in the RIAs that identified key economic
assumptions, the rationale for the values used was not always
explained. For example, one RIA assumed a value of life that ranged
from $1.6 million to $8.5 million and another, prepared in the same
year, assumed a value of life that ranged from $3 million to $12
million. In neither instance did the RIAs provide a clear
explanation of the rationale for the values that were selected. Even
though EPA's guidance suggests that RIAs account for any
uncertainties in the values of key assumptions by conducting
sensitivity analyses, which show how benefit and cost estimates vary
depending on what values are assumed, 13 RIAs used only a single
discount rate.
All 23 RIAs assigned dollar values to the estimated costs of proposed
regulations; however, 11 of the RIAs assigned dollar values to the
estimated benefits. According to EPA officials, assigning dollar
values to potential benefits is difficult because of the uncertainty
of scientific data and the lack of market data on some of these
effects. All of the RIAs contained some quantitative or qualitative
information on the expected benefits, such as a reduced incidence of
mortality and illness.
While the number and the types of alternatives considered in the 23
RIAs were not always clear, our examination indicated that six of the
RIAs compared a single alternative, which was the regulatory action
being proposed, to the baseline, which was the situation likely to
occur in the absence of regulation--the status quo. The remainder
compared two or more alternatives to the baseline. Resource
constraints and the specific requirements of authorizing legislation,
which sometimes limit EPA's options, were factors influencing the
extent to which alternatives were considered.
Ten of the RIAs we examined did not include executive summaries, even
though these summaries can be a significant benefit to
decisionmakers. In an April 1984 report, we recommended that RIAs
include executive summaries that identify (1) all benefits and
costs--even those that cannot be quantified; (2) the range of
uncertainties associated with the benefits and costs; and (3) a
comparison of all feasible alternatives.\3 EPA officials acknowledged
that some of the RIAs did not include executive summaries and agreed
that executive summaries, by providing easily accessible information,
can be useful to decisionmakers.
--------------------
\2 A discount rate is used to convert future benefit or cost
estimates to their present value.
\3 Cost-Benefit Analysis Can Be Useful in Assessing Environmental
Regulations, Despite Limitations (GAO/RCED-84-62, Apr. 6, 1984).
BACKGROUND
------------------------------------------------------------ Letter :2
The Clean Air Act Amendments of 1990 required EPA to issue a series
of new or stricter regulations to address some of the more serious
air pollution problems, including acid rain, toxic air pollutants,
motor vehicle emissions, and stratospheric ozone depletion. In view
of the estimated billions of dollars in annual costs to implement
these and other requirements, the Congress required EPA to report on
the benefits and costs of the agency's regulatory actions under the
1990 amendments, as well as under previous amendments to the act.
Specifically, section 812 of the 1990 amendments required EPA to (1)
conduct an analysis of the overall impacts of the Clean Air Act on
public health, the economy, and the environment, (2) report on the
estimated benefits and costs of the regulations implemented under
clean air legislation enacted prior to 1990; and (3) biennially
update its estimates of the benefits and costs of the Clean Air Act,
beginning in November 1992. In May 1996, EPA drafted a report that
examined the benefits and costs of the 1970 and 1977 amendments to
the act. EPA is currently in the process of compiling its first
prospective study evaluating the benefits and costs of the 1990
amendments.
Section 812 also required GAO to report on the benefits and costs of
the regulations issued to meet the requirements of the 1990
amendments.\4 In a February 1994 report, we described the
methodologies that EPA had used and the progress that the agency was
making.\5
In addition, since 1971 a series of executive orders and directives
by OMB have required EPA and other federal agencies to consider the
benefits and costs associated with individual regulations. In
February 1981, President Reagan issued Executive Order 12291, which
required federal agencies, including EPA, to prepare RIAs that
identify the benefits, costs, and alternatives for all proposed and
final major rules that the agencies issued.\6 Subsequently, in
September 1993, President Clinton issued Executive Order 12866
replacing Executive Order 12291 and directing federal agencies,
including EPA, to assess benefits, costs, and alternatives for all
economically significant regulatory actions.\7
OMB and EPA have developed guidelines for conducting the benefit-cost
analyses required by these executive orders.\8 While describing the
components to be included in these analyses, the guidance affords
EPA's program offices considerable flexibility in preparing RIAs.
Specifically, EPA's guidance stipulates that the level and precision
of analyses in RIAs depend on the quality of the data, scientific
understanding of the problem to be addressed through regulation,
resource constraints, and the specific requirements of the
authorizing legislation. This guidance also states that the amount
of information and sophistication required in benefit-cost analyses
depend on the importance and complexity of the issue being
considered.
The recently enacted Small Business Regulatory Enforcement Fairness
Act of 1996 provides that before a rule can take effect, the agency
preparing it must submit to GAO and make available to the Congress,
among other things, a complete copy of any cost-benefit analysis of
the rule. This act also provides for congressional review of major
rules issued by federal agencies, including EPA, and the potential
disapproval of such rules by the enactment of a joint resolution.\9
--------------------
\4 This reporting requirement was recently repealed.
\5 Air Pollution: EPA's Progress in Determining the Costs and
Benefits of Clean Air Legislation (GAO/RCED-94-20, Feb. 11, 1994).
\6 Under Executive Order 12291, a major rule was defined as any
regulation that was likely to result in (1) an annual effect on the
national economy of $100 million or more; (2) a major increase in
costs or prices for consumers, industries, or governments; or (3)
significant adverse effects on competition, employment or
investments, productivity, innovation, or the international
competitive position of U.S. firms.
\7 Under Executive Order 12866, a significant regulatory action is a
substantive action by an agency that is likely to result in a
regulation that may (1) 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; (2) create a serious inconsistency or
otherwise interfere with an action taken or planned by another
agency; (3) materially alter the budgetary impact of entitlements,
grants, user fees, or loan programs, or the rights and obligations of
recipients thereof; or (4) raise novel legal or policy issues arising
out of legal mandates, the President's priorities, or the principles
set forth in the executive order. A regulatory action that meets the
first of these criteria is considered economically significant.
\8 Besides revoking Executive Order 12291, Executive Order 12866
revoked the guidelines OMB issued under the earlier order. However,
according to EPA, in the absence of new agency guidance on preparing
benefit-cost analyses under Executive Order 12866, EPA has continued
to use the principles incorporated in its Executive Order 12291
guidance. EPA intends to revise its guidance in the near future.
EPA is also currently relying on guidance issued by OMB in January
1996, which describes best practices for preparing economic analyses
called for in Executive Order 12866.
\9 Under the act, a major rule is one that OMB finds has resulted in
or 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
the ability of U.S.-based enterprises to compete with foreign-based
enterprises in domestic and export markets.
EXTENT TO WHICH ECONOMIC
ASSUMPTIONS WERE IDENTIFIED,
EXPLAINED, AND SUBJECTED TO
SENSITIVITY ANALYSIS
------------------------------------------------------------ Letter :3
Eight of the RIAs that we examined did not clearly identify the
values assigned for key economic assumptions, such as the discount
rate and value of human life, used to assess the economic viability
of the regulations. Furthermore, we found that in the RIAs that
identified key economic assumptions the rationale for the values used
was not always explained. While EPA's guidance suggests that RIAs
account for uncertainties in such values by conducting sensitivity
analyses that show how benefit-cost estimates vary depending on what
values are assumed, many RIAs used only a single value and did not
always provide a clear explanation. Appendix I summarizes the
results of our examination of the economic assumptions used in the 23
RIAs.
Five of the 23 RIAs did not indicate whether the estimated future
benefits and costs were discounted. The discount rate can have a
significant effect on the estimated impact of an environmental
regulation. For example, most environmental regulations impose
immediate costs, while the benefits are realized in the future. In
such a case, a lower discount rate has a more positive effect on
future benefits, thus enhancing the regulation's perceived value.
Conversely, using a higher discount rate makes benefits that occur in
the future appear less valuable. Not clearly indicating the discount
rate used in benefit-cost analyses makes it more difficult for
decisionmakers to assess the desirability of a proposed regulation.
EPA's guidelines recognize that there may be uncertainties about
which discount rates should be used. Moreover, EPA's Director of the
Office of Economy and Environment stated that there are uncertainties
associated with choosing discount rates for conducting benefit-cost
analyses. As a result, EPA's guidance suggests the use of
sensitivity analyses to show how benefit and cost estimates are
affected by different discount rates. Of the 18 RIAs that clearly
identified the discount rates used, 5 showed the sensitivity of their
estimates to different rates ranging from 2 to 10 percent. Thirteen
of the RIAs used a single rate.\10
Although 14 RIAs indicated that the reduction in mortality was an
expected benefit, five did not indicate the value placed on a human
life. Of the nine RIAs that indicated the value placed on a human
life, eight included sensitivity analyses to indicate how their
benefit estimates were affected by different values assumed for a
life. Assigning a relatively high value for human life can have a
significant positive effect on estimated benefits. However, for the
nine RIAs that assumed a value for a human life, the ranges used were
not always explained. For example, one RIA assumed a value of human
life that ranged from $1.6 million to $8.5 million, and another,
prepared in the same year, assumed a value of human life that ranged
from $3 million to $12 million. In both instances, the RIAs did not
provide a clear explanation of the rationale for the values that were
used.
--------------------
\10 Nine of these RIAs assumed either a 7-percent or 10-percent real
discount rate. This difference in assumptions may be due to
different guidance by OMB on discount rates. Under Executive Order
12291, OMB's preferred real discount rate was 10 percent. In its
January 1996 guidance for Executive Order 12866, OMB has lowered its
preferred rate to 7 percent. That guidance also notes that agencies
may present sensitivity analyses using various discount rates.
EPA'S VIEWS ON ECONOMIC
ASSUMPTIONS
---------------------------------------------------------- Letter :3.1
Because of the agency's concern about the use of different values for
key assumptions and the extent to which sensitivity analyses were
used to account for uncertainties about the appropriate values for
these assumptions, EPA recently formed an Economic Analysis
Consistency Task Group under the direction of the Regulatory Policy
Council to develop information on the causes of inconsistencies in
the agency's RIAs. The Council is chaired by EPA's Deputy
Administrator.
In addition, EPA officials explained that the authorizing legislation
for some environmental regulations is often a key determinant in the
thoroughness of the agency's benefit-cost analyses. For example,
they said that health-based national ambient air quality standards
issued by the agency are not based on costs or other economic
considerations. However, costs may be considered when developing and
implementing control strategies for these standards. Although
benefit-cost analyses are completed for these regulations, they do
not directly impact the regulatory decision-making process.
Therefore, the level of analysis and the number of alternatives
analyzed could be more limited.
Time constraints imposed by statutory and court-ordered deadlines and
shortages of resources and staff also restrict EPA's ability to
conduct comprehensive benefit-cost analyses. Given the limited
resources and staff available for completing economic analyses, EPA
officials stated that they assign a higher priority to benefit-cost
analyses supporting regulations facing imminent deadlines,
regulations expected to have greater economic impacts on society, and
those for which the economic analysis has the highest potential to
affect the regulatory alternative selected.
EXTENT TO WHICH BENEFITS AND
COSTS WERE QUANTIFIED
------------------------------------------------------------ Letter :4
OMB's and EPA's guidelines encourage EPA to quantify, to the extent
feasible, all potential regulatory benefits and costs in monetary
terms, but the guidance recognizes that assigning reliable monetary
values to some benefits may be difficult, if not impossible. When
benefits and costs cannot be described in monetary terms, the
guidance recommends that RIAs include quantitative and qualitative
information on the benefits and costs associated with the proposed
regulations. The benefits mentioned in the guidance include reduced
mortality, reduced morbidity, improved agricultural production,
reduced damage to buildings and structures, improved recreational
environments, improved aesthetics, and improvements in ecosystems.
Our review of the 23 RIAs indicated that while all of them assigned
dollar values to the costs of proposed regulations, 11 assigned
dollar values to estimated benefits. EPA acknowledges that assigning
monetary values to projected benefits is more difficult than
assigning values to the costs of regulatory actions. According to
EPA officials, the uncertainty of the science and inadequacy of other
data often prevent the agency from estimating dollar benefits. For
example, EPA's guidance recognizes that assigning a monetary value to
reduced health risks, a potentially significant benefit, is difficult
because of uncertainties about the precise relationship between
different pollution levels and corresponding health effects and the
appropriate monetary values to be assigned to reductions in mortality
and reduced risks of individuals' experiencing serious illnesses.
Estimating the monetary value of improvements in ecosystems, another
potentially significant benefit, is even more complex.
Although some RIAs did not assign dollar values to benefits, all 23
of the RIAs we examined contained other quantitative or qualitative
information on the benefits of the proposed regulations. When
benefits cannot be assigned dollar values, quantifying the benefits,
such as a reduced incidence of deaths and illnesses, helps clarify
the impact of proposed regulations. For example, an RIA for the
National Recycling and Emissions Reduction Program's regulation
estimated that 76,500 fewer cases of skin cancer and 1,400 fewer
deaths from skin cancer would occur because of the regulation.
Qualitative information is also helpful to decisionmakers because it
gives them a more complete understanding of the overall benefits of
regulations. Nineteen of the RIAs discussed qualitative benefits,
such as increased crop yields, improvements in ecosystems, and
reduced damage to buildings and other structures.
Recognizing the difficulties associated with assigning dollar values
to benefits, EPA's guidelines state that cost-effectiveness analyses
can assist decisionmakers in comparing the desirability of various
regulatory alternatives. We found that 20 of the RIAs we examined
included the results of cost-effectiveness analyses, such as the cost
per ton of reduced emissions.
EXTENT TO WHICH ALTERNATIVE
APPROACHES WERE CONSIDERED
------------------------------------------------------------ Letter :5
OMB's and EPA's guidelines require EPA to identify and discuss in
RIAs the regulatory and nonregulatory alternatives for mitigating or
eliminating the environmental problems being addressed and to provide
the reasoning for selecting the proposed regulatory action over other
alternatives. While EPA's guidance recommends that RIAs consider
four major types of alternatives--voluntary actions, market-oriented
approaches, regulatory approaches within the scope of the authorizing
legislation, and regulatory actions initiated through other
legislative authority--it states that the number and choice of
alternatives to be selected for detailed benefit-cost analyses is a
matter of judgment. While it was not always clear how many
alternatives or what types of alternatives were considered, our
examination of the 23 RIAs indicated that 6 of them compared a single
alternative, which was the regulatory action being proposed, to the
baseline, which was the situation likely to occur in the absence of
the regulation--the status quo. All other RIAs compared two or more
alternatives to the baseline. Figure 1 shows the results of our
examination of the number of alternatives that EPA considered in the
23 RIAs.
Figure 1: Number of
Alternatives Considered in the
23 RIAs
(See figure in printed
edition.)
Source: GAO's analysis of data in EPA's RIAs.
A major goal of RIAs is to develop and organize information on
benefits and costs to clarify trade-offs among alternatives. EPA's
guidance states that RIAs should provide decisionmakers with a
comprehensive assessment of the implications of alternatives. EPA
officials acknowledged that it is not always clear in the RIAs which
alternatives were actually analyzed. They stated that some
alternatives are excluded before the benefit-cost analyses are
performed because of noneconomic reasons, such as statutory language
that precludes EPA from using certain approaches.
EXTENT TO WHICH EXECUTIVE
SUMMARIES WERE USED
------------------------------------------------------------ Letter :6
In our 1984 report, we recommended that future RIAs prominently
include executive summaries that (1) clearly recognize all benefits
and costs, even those that cannot be quantified; (2) identify a range
of values for benefits and costs subject to uncertainty, as well as
the sources of uncertainty; and (3) compare all feasible
alternatives. While 13 of the 23 RIAs that we examined included
executive summaries, some of these RIAs only briefly discussed the
types of information that we recommended they contain. For example,
the executive summary for the RIA on the regulation for national
emissions standards for coke ovens contained a limited discussion of
the uncertainties underlying the analysis, and the executive summary
for the RIA on the operating permits program's regulation included
only two sentences on the three alternatives that EPA considered.
In contrast, the executive summary for the RIA supporting the
regulation on phasing out ozone-depleting chemicals presented a
relatively thorough discussion of the results of the benefit-cost
analysis. For example, it included a range of cost estimates,
qualitative and quantitative benefit estimates, discussions of
scientific and economic uncertainties, and estimated benefits and
costs for baseline conditions and three alternatives. The prominent
display of this type of information in the executive summary makes it
easier for decisionmakers to locate the information they need without
searching through hundreds of pages in the body of the RIAs.
EPA officials acknowledged that some of the RIAs did not include
executive summaries and agreed that executive summaries that include
information such as descriptions of the difficulties in assigning
dollar values to benefits, uncertainties of the data, and regulatory
alternatives are useful. However, they stated that time constraints
and limited resources and staff often determine whether they prepare
executive summaries and the amount of detail that is included when
summaries are done.
CONCLUSIONS
------------------------------------------------------------ Letter :7
We believe that improvements in the presentation and clarity of
information contained in EPA's RIAs would enhance their value to both
agency decisionmakers and the Congress in assessing the benefits and
costs of proposed regulations. EPA's guidelines state that the goal
of RIAs is to provide decisionmakers with well-organized,
easily-understood information on the benefits and costs of major
regulations and to provide decisionmakers with a comprehensive
assessment of the implications of alternative regulatory actions.
However, many of the RIAs we reviewed did not clearly identify key
economic assumptions, the rationale for using these assumptions, the
degree of uncertainty associated with both the data and the
assumptions used, or the alternatives considered. Not clearly
displaying this information makes it difficult for decisionmakers and
the Congress to appreciate the range and significance of the benefit
and cost estimates presented in these documents.
RECOMMENDATIONS
------------------------------------------------------------ Letter :8
To help EPA decisionmakers and the Congress better understand the
implications of proposed regulatory actions, we recommend that the
EPA Administrator, ensure that RIAs identify the (1) value, or range
of values, assigned to key assumptions, along with the rationale for
the values selected; (2) sensitivity of benefit and cost estimates
when there are major sources of uncertainty; and (3) alternatives
considered, including those not subjected to benefit-cost analyses.
AGENCY COMMENTS
------------------------------------------------------------ Letter :9
We provided a draft of this report to EPA and OMB for review and
comment. We obtained comments from EPA officials, including the
Director, Office of Economy and Environment, and representatives of
the Office of Air and Radiation. EPA officials stated that the
information in the report was accurate and agreed with the
recommendations in the report. They provided specific comments on a
number of issues, which we have incorporated into the report,
including a clarification of the objectives of the Economic Analysis
Consistency Task Group. According to EPA officials, this group is in
the process of identifying key issues associated with benefit-cost
analyses that offer the potential for greater consistency in the
agency's RIAs. Among the issues being considered are the valuation
of reductions in the risk of mortality, discount rates and baselines,
intergenerational issues, and distribution effects. Additionally,
they emphasized that greater consistency in addressing key issues in
the RIAs would enhance their usefulness for EPA's decisionmakers.
EPA views this as an ongoing process and anticipates that it will
result in revisions to the agency's guidelines for preparing economic
analyses. OMB did not provide comments on the draft report.
---------------------------------------------------------- Letter :9.1
We conducted our work from February 1996 through February 1997 in
accordance with generally accepted government auditing standards. A
detailed discussion of our scope and methodology is contained in
appendix II. We are sending copies of this report to the
Administrator, EPA; the Director, Office of Management and Budget;
and other interested parties. Copies are also available to others on
request.
Please call me at (202) 512-4907 if you or your staff have any
questions. Major contributors to this report are listed in appendix
III.
Peter F. Guerrero
Director, Environmental
Protection Issues
ECONOMIC ASSUMPTIONS USED IN THE
ENVIRONMENTAL PROTECTION AGENCY'S
REGULATORY IMPACT ANALYSES
=========================================================== Appendix I
Value of life
Discount rates (dollars in
Regulatory impact analysis (RIA) (percent)\a millions)\b
---------------------------------------- ------------------ ------------------
RIA and Economic Impact Analysis for 3, 7, and 10 $1.6 -$8.5
Proposed Emission Standards and
Guidelines for Municipal Waste
Combustors
RIA and Regulatory Flexibility Act 10 Not applicable
Screening for Outer Continental Shelf
Air Regulations
RIA and Regulatory Flexibility Act 10 Not applicable
Screening for Operating Permits
Regulations
RIA for National Emissions Standards for 10 $1.6 -$8.5
Hazardous Air Pollutants for By-Product
Coke Oven Charging, Door Leaks, and
Topside Leaks
RIA for Regulating Hazardous Air Not clearly Not clearly
Pollution Emissions From New and indicated indicated
Existing Sources\c
RIA and Regulatory Flexibility Analysis 10 $1.58
of the Enhanced Monitoring Program
RIA and Regulatory Flexibility Analysis Not clearly $2 -$10
of Proposed Effluent Guidelines and indicated
National Emissions Standards for
Hazardous Air Pollutants for the Pulp,
Paper, & Paperboard Industry
RIA for the Sacramento Non-attainment 7 or 10 Not clearly
Area, South Coast Non-attainment Area, indicated
and Ventura County--Federal
Implementation Plans\c
RIA for the National Emissions Standards Not clearly Not clearly
for Hazardous Air Pollutants for Source indicated indicated
Categories: Organic Hazardous Air
Pollutants From Synthetic Organic
Chemical Manufacturing Industry and
Other Processes Subject to the
Negotiated Regulations for Equipment
Leaks\c
RIA for the Petroleum Refinery National Not clearly $3 -$7
Emissions Standards for Hazardous Air indicated
Pollutants
RIA and Regulatory Flexibility Analysis 7 Not applicable
for the Interim Detergent Registration
Program and Expected Detergent
Certification Program
Final RIA on Reformulated Gasoline 10 Not applicable
Final RIA for Control of Vehicular 10 Not applicable
Evaporative Emissions
Final RIA for Refueling Emission 7 Not applicable
Regulation for Light Duty Vehicles and
Trucks and Heavy Duty Vehicles
RIA and Regulatory Support Document: 7 Not clearly
Control of Air Pollution Emission indicated
Standards for New Non-Road Spark-
Ignition Engines at or Below 19
Kilowatts\c
RIA for Compliance With Section 604 of 2, 4, and 10 $3 -$12
Clean Air Act for the Phaseout of Ozone-
Depleting Chemicals
RIA for the National Recycling and 2 $3 -$12
Emission Reduction Program (1)
RIA for the National Recycling and 2, 4, and 7 $3 -$12
Emission Reduction Program (2)
RIA of the Final Acid Rain 3 Not clearly
Implementation Regulations\c indicated
RIA of the Rule Requiring Labeling of 2 and 7 $3 -$12
Products Containing or Manufactured With
Ozone-Depleting Substances
RIA of Nitrogen Oxides Regulations-- Not clearly Not applicable
1993 indicated
RIA of Nitrogen Oxides Regulations-- 5.38 Not applicable
1995
RIA for EPA's High-Level Waste Standards 2 Not applicable
--------------------------------------------------------------------------------
\a These are real discount rates, which exclude the effects of
inflation.
\b Nine of these RIAs did not identify reduced mortality as a benefit
associated with a proposed regulation. Therefore, assigning a
monetary value for a human life was not applicable.
\c The RIA indicated that the qualitative benefits of the regulation
would include reductions in mortality rates; nonetheless, the RIA did
not indicate the value of life.
Source: GAO's analysis of data in EPA's RIAs.
SCOPE AND METHODOLOGY
========================================================== Appendix II
We examined 23 RIAs issued by the Office of Air and Radiation between
November 1990, the effective date of the Clean Air Act Amendments of
1990, and December 1995. Eighteen of these RIAs supported
regulations that were estimated to cost $100 million or more annually
and therefore were considered economically significant. Five RIAs
supported regulations that were considered major or significant by
the Environmental Protection Agency (EPA) because of their potential
impact on costs and prices for consumers, the international
competitive position of U.S. firms, or the national energy strategy
or because they were statutorily required by the 1990 amendments. To
determine the number of the RIAs, we interviewed officials from EPA's
Office of Policy, Planning, and Evaluation and Office of Air and
Radiation, which has four program offices--the offices of Air Quality
Planning and Standards, Mobile Sources, Atmospheric Programs, and
Radiation and Indoor Air--and examined EPA's database of completed
RIAs. Although EPA's other program offices are also responsible for
preparing RIAs, we limited our review to the RIAs prepared by the
Office of Air and Radiation because this office is primarily
responsible for implementing the requirements of the 1990 amendments.
We reviewed Executive Orders 12866 and 12291 and EPA's and the Office
of Management and Budget's guidance on the preparation of RIAs under
these executive orders. From those documents, we identified the key
components of RIAs and reviewed the 23 selected RIAs for their
handling of these components. We also discussed issues affecting the
clarity of RIAs with officials of the Office of Air and Radiation and
Office of Policy, Planning, and Evaluation.
MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix III
RESOURCES, COMMUNITY, AND ECONOMIC
DEVELOPMENT DIVISION
William F. McGee, Assistant Director
Charles W. Bausell, Jr., Adviser
Harry C. Everett, Evaluator-in-Charge
Kellie O. Schachle, Evaluator
Kathryn D. Snavely, Evaluator
Joseph L. Turlington, Evaluator
*** End of document. ***