An engineer, a mathematician, and an economist find themselves stuck in a 30-foot-deep ditch. Two of them start working away furiously—the engineer is scratching out plans to alter the slope of the ditch to allow them to climb to safety, and the mathematician is calculating the items of clothing needed to create a lifeline to the top of the ditch. All the while, the economist is lounging comfortably in a corner.
“Why aren’t you helping us figure out a way to escape?” the others ask impatiently.
The economist barely lifts an eye in their direction and answers, “It’s easy; we just assume a 30-foot ladder!”
Don’t yell at me; some of my best friends are economists. But this old joke perfectly summarizes the current state of environmental regulation that will be the subject of major litigation, assuming that the administration moves forward with repeal of major rules, including, among others, the Clean Power Plan and Waters of the United States regulations. How does the government do its cost-benefit analyses that justify promulgating or (as is currently in vogue) repealing regulations?
Environmental, health, and safety rules often are tied up in the standards for the value of a human life (a decidedly awkward calculation) and estimates of how many lives could be saved or injuries prevented if that particular rule were in place. These benefits are balanced against the expected costs associated with the regulated community’s efforts to comply with the rule. Those figures get tied up in things like completion of paperwork, employee hours, or perhaps the investment in specific equipment or modification of existing facilities.
As one example, the EPA re-evaluated how the WOTUS rule would affect wetlands. The new administration determined that there would be $500 million less benefit from the rule’s expanded scope than the previous administration had calculated. As another, the EPA crunched the numbers on the Clean Power Plan’s effect on health benefits and determined that the rule as created would have $34 billion fewer in health benefits than the prior administration had calculated. By making different economic assumptions and taking different issues into consideration, the cost-benefit analysis looks vastly different from the analysis performed to promulgate these rules.
Environmental organizations have already announced their intention to challenge these revised benefit analyses as “arbitrary and capricious.” Not unlike the stranded economist in the ditch, groups planning to challenge EPA’s cost-benefit analyses say the agency has simply assumed away large chunks of potential benefits in order to support the proposed regulatory repeals. (EPA also estimated additional expected compliance costs, further supporting its position regarding the onerous nature of the proposed rules.)
Anticipated litigation will shed light on the economic analysis that often flies well under the radar during agency rulemaking. During my time as agency general counsel, I had many confusing and frustrating discussions with OMB officers and internal agency economists. While some benefits calculations were made using government-wide standards, such as the cost of a human life mentioned above, others, by contrast, were based on totally ad hoc analyses using a series of assumptions that resulted from a thought process that was clearly more art than science. For example, in the last administrations, the USDOT issued a series of rules mandated by the MAP-21 transportation law designed to enhance public participation and transparency in infrastructure funding decisions. You tell me: What’s the monetary benefit of a more informed citizenry? What calculation should we assign to greater faith in how and why the government is spending taxpayer dollars? That was the point of the regulation and reflected express congressional intent, but I challenge you to pick a per capita number that can accurately capture the true benefit of those rules.
Environmental regulations are no different. In the context of WOTUS, the preservation of wetlands could be calculated based on generally accepted appraisal standards by assigning a dollar value per acre of land that would be saved or preserved. Beyond that, how should EPA or the Corps calculate the benefit of wetlands preserved in coastal areas in terms of those lands’ ability to enhance flood control or protection from storm surge? Making that one assumption could literally change the agency’s cost-benefit analysis to the tune of billions of dollars. The inclusion or exclusion of that assumption could serve to support political objectives on either end of the political spectrum.
I am not suggesting here that the discipline of cost-benefit analysis is per se arbitrary. Agencies should attempt to reveal to the public (in understandable terms, but that’s another story) how their regulatory actions could impact the conduct of business and how successful they may be in achieving public health and safety objectives. Upcoming litigation will test the extent of the executive branch’s discretion in preparing these calculations as justification for either extending or contracting regulatory oversight. No matter which political party is in control, however, it seems clear that federal agencies will have to prove in court whether there’s really a 30-foot ladder in the ditch.