EPA’s New Cost-Benefit Rule Is A Big Win For Everyone

While the Environmental Protection Agency is used to drawing fire for its regulatory proposals, one of its latest proposed rules should draw something else: bipartisan support. The rule, which focuses on the cost-benefit analysis of environmental regulations, has been endorsed by administrations of both parties and strikes a tone of transparency and fiscal common sense we could use at the moment. After all, it only makes sense that the EPA propose rules that carefully and systematically weigh benefits against costs.  

The groundwork for EPA’s proposal began in earnest with President Trump’s 2017 Executive Order 13777 that asked federal agencies to review their regulations and identify those where their costs exceed their intended benefits. A year later, the EPA issued a notice that it would pursue a benefit-cost analysis and in 2019 issued a memorandum from Administrator Andrew Wheeler to make sure that its benefit-cost analysis was transparent and consistently applied through best practices. 

With a proposed rule in hand, the EPA opened itself for public comment, even though it wasn’t required to do so. The thinking? EPA regulations make up over three-quarters of monetized costs and benefits due to significant federal regulations and account for almost $2 trillion in costs to the American economy. The public has an enormous interest in the future of EPA rulemaking. EPA’s transparency and openness about its benefit-cost rule was the right move for everyone.

The notion of benefit-cost analysis in environmental rulemaking is nothing new, of course. President Reagan’s Executive Order 12291 mandated the use of benefit-cost analysis to ensure consistency and objectivity in the regulatory process. President Clinton modified the calculation of benefits with his own order (12866) that required benefits to “justify” costs, but not necessarily exceed them, broadening the use of quantifiable benefits. George W. Bush kept Clinton’s order intact, but refined the framework for benefit-cost analyses with guidance from the Office of Management and Budget. 

Barack Obama further adjusted Clinton’s order with his own order (13563) that expanded the use of values in the benefit-cost analysis that were “difficult or impossible to quantify, including equity, human dignity, fairness, and disruptive impacts.” While each administration left its own fingerprints on regulatory benefit-cost analysis, there has been broad consensus for at least 40 years, starting with Ronald Reagan’s tenure, that the overall approach is the smart one.

The reason for such consensus is clear enough. When federal agencies make rules, the data used should be transparent, easily understood by the public, and be part of a process that’s consistently applied. While that’s true for all agencies, it’s especially important for the labyrinthine EPA and for massive federal rules such as the Clean Air Act.

EPA’s new rule does several important things. First, it requires a benefit-cost analysis to rely on the best available scientific information and on the best practices from a diverse field of study. If circumstances dictate the EPA does not follow best practices, the agency must give a reasoned explanation of why it took an alternate approach. This provides flexibility while also ensuring accountability.

Second, the rule offers “retrospective review” so that EPA can look back on old regulations to examine whether the projected benefits and costs in the rulemaking were accurate. This helps answer questions about whether previous projections were inflated or undervalued, adds yet another layer of accountability, and instills greater confidence about current and future rules. Retrospective review, for example, can help clear out accumulated regulations that have negatively affected economic development and job growth. As the Progressive Policy Institute argues, “regulatory” pebbles in an “economic” stream add up quickly, stifling the flow of “growth and opportunity.”

In the end, all stakeholders benefit from a close examination of new and past rules. As former Obama administration regulatory guru Cass Sunstein explains, there is much to like about what the current EPA is doing, especially if the agency follows through on applying the rule fairly. If EPA “shows it works” as the rule asks, we can all be assured of improved accountability, consistency, and transparency in the regulatory process. Those are goals worthy of broad, bipartisan support.

Timothy Doyle is principal and general counsel at Guidepost Strategies and previously served as vice president of policy and general counsel at the American Council on Capital Formation. He covers a broad range of public policy, legal, and regulatory issues on corporate governance, environment, and energy.