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Regulation

Trump administration is considering reweighing costs and benefits of EPA regulations

Changes regarding side benefits of rules could curtail agency’s ability to control pollution

by Cheryl Hogue
August 5, 2018 | APPEARED IN VOLUME 96, ISSUE 32

 

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Credit: Rene Paik/agefotostock/Newscom
EPA included side benefits of reduced smog-forming emissions when it calculated costs and benefits of lowering levels of neurotoxic lead in gasoline.

The Trump administration has the Environmental Protection Agency’s hood up and is studying how to slow the engine that drives the agency’s regulatory activities. In response to a broad presidential directive on degregulation, EPA political appointees are asking the public how to rewire an analytical motor that helps determine how strictly—or whether—the agency curbs pollution. Depending on what strategy they settle on, modifications could substantially pare back the agency’s horsepower for controlling pollution and weaken the limits it sets for water, air, and land.

This work revolves around how the agency calculates the dollar value of regulations. Since the Reagan administration in the 1980s, the White House has required federal agencies to calculate the costs and benefits of proposed rules and demonstrate that the benefits will outweigh the costs. This long-standing economics practice isn’t directly at issue. Rather, EPA is focusing on a component of those calculations that critics contend inappropriately weights analyses in favor of regulation.

That analytical part takes into account side benefits of EPA regulations. Specifically, it considers reductions in a pollutant or pollutants that aren’t the target of a regulation. For example, technology designed to strip airborne mercury out of a power plant exhaust stack also removes pollutants that can form fine particulate matter. EPA adds up the economic value of these indirect effects, called cobenefits or ancillary benefits, and includes them in its calculation of the overall benefits of a regulation.

EPA has included cobenefits in cost-benefit calculations for decades. One instance dates to 1985, when EPA reduced the amount of lead, which is neurotoxic, allowed in gasoline. Cars designed for unleaded fuel but run on leaded gasoline not only release lead to the atmosphere but also emit more nitrogen oxides and unburned hydrocarbons. The compounds can form ground-level ozone, commonly called smog, which causes health problems. The agency included the cobenefit of reducing those additional emissions when it did its overall cost-benefit analysis of reducing lead in gasoline, even though the benefits from prevention of neurological harm alone outweighed the cost.

Another example of cobenefits comes from 1987, when EPA started regulating chlorofluorocarbons that deplete Earth’s stratospheric ozone layer, which absorbs ultraviolet radiation from the sun. In this case, the agency didn’t stop at estimating the significant, direct health benefits from people being exposed to less UV radiation because of a more robust ozone layer. EPA also considered that maintaining the ozone layer helps minimize ground-level ozone.

In the field of economics for federal policy-making, “the case is completely clear: Ancillary benefits should count” in cost-benefit analyses, Alan J. Krupnick, an environmental and energy economics expert, says. Krupnick, a senior fellow at the Washington, D.C., think tank Resources for the Future, points out that all federal regulatory agencies—not just EPA—have been required to include cobenefits in their cost-benefit analyses since 2004. That condition was added under President George W. Bush.

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“Why wouldn’t you want a two for one?” Yogin Kothari of the Union of Concerned Scientists’ Center for Science & Democracy says of counting cobenefits. “Who is going to say no to that?”

But some states, portions of the utility industry, and conservative groups contend that consideration of cobenefits can be an accounting gimmick that EPA uses inappropriately to support expensive regulations.

Last year, EPA solicited suggestions on which of its regulations could be repealed, replaced, or modified in response to a directive by President Donald. J. Trump ordering government agencies to slash unnecessary and burdensome regulations. A common theme in responses from industry was concern about how EPA weighs costs and benefits of proposed regulations, the agency says in a June notice soliciting feedback from the public. The issue of cobenefits figured prominently in those comments, EPA says.

Front and center in the arguments against including cobenefits is EPA’s 2012 rule requiring power plants to slash their emissions of mercury, which is toxic to the nervous system. The goal of this regulation is to trim the amount of airborne mercury that eventually ends up in rivers, lakes, and streams; the fish that live in them; and, ultimately, the people who eat those fish—especially children and pregnant women. Coal- and oil-fired power plants are the nation’s largest source of mercury emissions.

By not considering cobenefits, EPA “would create a systematic bias to reject pollution-reducing regulations.”
Randall A. Bluffstone, professor of economics, Portland State University

In its detailed economic analysis of the rule, the agency added up the costs to industry of installing mercury-control technology on exhaust stacks. EPA also summed the health benefits to people from lower emissions of the metal. And it tallied the health benefits from the cuts in fine particulate matter also captured by mercury scrubbers. People’s exposure to fine particulates in air is linked to lung and cardiovascular problems.

EPA’s bottom line was that the benefits of the rule, estimated to be $33 billion to $90 billion per year, outweighed its annual costs of about $10 billion.

Conservative organizations, utilities, and some states cried foul on the regulation. They pointed out that the rule’s benefits from controlling only mercury—EPA’s goal for the rule—were far lower than the estimated costs. According to agency calculations, benefits from reducing mercury emissions added up to between $4 million and $6 million per year. In fact, EPA attributed nearly all the estimated benefits of the rule to improving people’s health by reducing exposure to fine particulates.

Opponents of this regulation contend that the agency’s analysis of the mercury rule should not count the benefits from curbing emissions of particulates. These pollutants are already controlled under another EPA rule, they point out. Thus, the agency shouldn’t include the benefits from curbing particulates under regulations aimed at other pollutants, they argue.

One of those opponents of the mercury regulation is former EPA administrator Scott Pruitt. In his previous job as Oklahoma attorney general, he joined a lawsuit against the regulation. Before he quit as EPA chief in early July, Pruitt issued the call in June for comments from the public about whether and how EPA should change its weighing of costs and benefits when developing regulations. Acting EPA Administrator Andrew Wheeler is expected to continue this effort.

Meanwhile, EPA is preparing to repeal the mercury rule. A lawsuit challenging repeal is inevitable, and changing agency guidelines for economic analysis and consideration of cobenefits would bolster EPA’s position in court, Krupnick says.

Krupnick suspects that the Trump administration wants to craft a regulation establishing that EPA administrators “don’t have to—or maybe aren’t allowed to—consider ancillary benefits in their decisions,” he tells C&EN. If implemented, this change would affect every U.S. government agency, opening up what Krupnick calls an attack on rational cost-benefit analysis.

By not considering cobenefits, EPA “would create a systematic bias to reject pollution-reducing regulations,” Randall A. Bluffstone, an economics professor at Portland State University, wrote to the agency in response to the June notice.

EPA is accepting comments from the public on the cobenefits issue and other aspects of its cost-benefit analysis process through Aug. 13. The agency will take time to digest all the feedback it gets. It could propose changes in coming months.

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