Law and the Environment : Environmental Lawyer & Attorney : Foley Hoag Law Firm : Boston, Washington D.C.

E&E Daily reported this week that Congressional Democrats are opposing the Regulatory Accountability Act of 2011. H.R. 3010 would codify a requirement for cost-benefit analysis of major regulations in the Administrative Procedures Act. According to the report, John Conyers, ranking member on the House Judiciary Committee stated that the RAA

would amend the Administrative Procedure Act in ways that would effectively halt agency rulemaking and undermine public health and safety rules.

Excuse me?

The guts of the RAA would be to:

·         Require cost-benefit analysis for all rules expected to cost more than $100,000,000

·         Require cost-effectiveness for rules going beyond statutory minimum requirements – If EPA wants to impose rules that would cost more than the minimum requirements necessary to implement a statutory requirement, it must demonstrate that the marginal cost of the increased stringency is outweighed by the marginal benefit.

·         Set some limits on agency promulgation of guidance. I am particularly taken with the provision that would authorize the Administrator of the Office of Information and Regulatory Affairs to “issue guidelines for use by the agencies in the issuance of major guidance and other guidance.” My Massachusetts readers will recall the effort by NAIOP to require that our MassDEP issue “Guidance on Guidance”, setting ground rules on the use of guidance. The NAIOP ground rules are fairly similar to those in the RAA.

I’m sorry. I am not a political consultant, but I still don’t get the Democrats’ opposition to this. There is definitely stuff in the RAA that is easy not to like. That’s fine, but when Democrats oppose cost-benefit analysis, it just sounds dumb. It plays into the anti-regulatory crowd’s hands. It suggests that there isn’t a regulation out there that Democrats don’t like and that Democrats don’t care whether regulations actually benefit society.

My advice, for what it’s worth? The Democrats should take up the mantle of cost-benefit analysis. Challenge the GOP to demonstrate that they are not simply using cost-benefit analysis as a cudgel to stop all regulations, by making clear that the Democrats regard cost-benefit analysis, not as a way to end regulation, but as a valuable tool to make sure the regulatory process works as it should.

I remain an optimist.

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Does anyone remember cost benefit analysis? As I recall, it was an economic tool that many in the academic and business communities wanted to use to discipline EPA’s more grandiose regulatory efforts. EPA has now used it for years; it routinely provides analyses showing that the benefits of its rules far exceed the costs that they impose.

As I have previously pointed out, that really shouldn’t be the end of the story, because unless EPA goes farther, and performs rigorous cost-effectiveness analysis, we could still be wasting big bucks. Even if a regulation provides $100B in benefits for only $90B in costs, wouldn’t we want to know if a different regulatory structure could obtain $90B in benefits for only $10B in costs? While that might be a hypothetical, it’s not a totally unreasonable one. Nonetheless, at least EPA is doing some C-B analysis and I think it likely that most, if not all, of EPA’s rules do result in greater benefits than costs.

These musings were triggered by the announcement by EPA yesterday that it would not be revising the coarse particulate matter, or PM₁₀, standard, the result of which will apparently be to allow dust emissions from farming operations to escape federal regulation. I don’t have a view on the merits of tougher PM₁₀ regulation. Based on a quick review of EPA’s technical analysis, it appears to be a close question. Either way, though, I’m confident that Congressional opposition to a more stringent PM10 standard stems from a new development – opposition to cost-benefit analysis from those opposed to environmental regulation. 

The new approach, seen in the North Carolina legislation on which I commented earlier this year, opposes costly regulation, regardless of its benefits. The rhetoric is that this is not the time to impose new regulations, because the economy cannot afford it – as though there is a time when people can afford to get cancer or heart disease. 

So, where are we today? Environmentalists support environmental regulation, looking only at the benefits it provides. Others oppose environmental regulation, looking only at the costs it imposes. Altogether, a sad state of affairs.

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I’ve spent a lot time in this space arguing for increased use of cost-benefit analysis and cost-effectiveness analysis before environmental regulations are promulgated. As difficult as it can be, there’s simply no avoiding it. If we don’t do so explicitly, we do so implicitly – and I vote for explicitness, every time.

The opposition to cost-benefit analysis usually comes from the left, based on concerns that the cost-benefit requirement will hamstring regulators and that the benefits will be understated. The right is normally seen as a fan of cost-benefit analysis.  Now, however, the notion of cost-benefit analysis is being challenged from the right – though I doubt that they would acknowledge it. North Carolina has just passed a law prohibiting until July 1, 2012 promulgation of new regulations that would cost more than $500,000, unless they either result from “a serious and unforeseen threat to the public health, safety, or welfare,” or they are required by federal or state statute or federal regulation. 

Do the North Carolina legislature and Governor Perdue realize that they have just said that cost-benefit analysis doesn’t matter? We don’t want any new regulations if they cost $500,001, even if they have $10 million in benefits? My economist friends must be going nuts, though at least the scorn heaped upon them is now equally balanced on the right and left.

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As almost everyone knows by now, EPA finally issued its long-awaited final rule on Boilers, Commercial and Industrial Solid Waste Incinerators (CISWI), and Sewage Sludge Incinerators (SSI) yesterday. The rule is too complicated even to summarize here. EPA has a useful fact sheet for that purpose.

I’d like to focus on a few broader issues. The rule has widely been seen as the Obama administration’s first formal acknowledgment of the anti-regulation political climate currently sweeping Washington. Indeed, the Times began its story as follows:

Responding to a changed political climate and a court-ordered deadline, the Obama administration issued significantly revised new air pollution rules on Wednesday that will make it easier for operators of thousands of industrial boilers and incinerators to meet federal air quality standards.

It’s not obvious to me that the instant punditry analysis is correct. EPA had received an enormous number of comments on the rule prior to the November elections. The regulated community had made a fairly strong case that the proposed standards simply couldn’t be met. EPA faced a real possibility of losing in court if it went forward with the proposed rule. Only time will tell if EPA has truly developed a new-found concern for the economic impacts of its rules.

Regardless of the reason for EPA’s change of heart, I think it is fair to say that the rule represents a triumph of the rule-making process. EPA issued a proposed rule, took thousands of comments, and – whatever its motivation – changed the rule in response to the comments, making compliance significantly less costly, while still achieving most of the benefits of the original proposal. 

The boiler rule was never one that could have been issued as guidance – it was statutorily mandated, for one thing – but I think that the boiler rule still provides a stark contrast with agency development of guidance. Guidance is not subject to the formal notice and comment process. Moreover, even where agencies do take comment on guidance documents, the very flexibility guidance supposedly provides makes agencies less responsive to comments. They can always say that the guidance will be interpreted flexibly in light of adverse comments.

Finally, to the extent that the economic concerns were part of EPA’s motivation, I can only say, hurray! Not simply because EPA considered the cost of the rule, but because EPA considered the cost-effectiveness of the rule. EPA can almost always generate an analysis demonstrating that the benefits of a rule exceed its costs, but that’s not really the proper criterion. If EPA could obtain 90% of the benefits of a rule with an alternative rule that would impose only 10% of the costs, I would vote for the alternative rule. If the boiler rule represents one small step towards increased use of cost-effectiveness analysis by EPA, then it will be worth its costs, even aside from the substantial health benefits EPA projects to result from its implementation.

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With everyone in agreement that cap-and-trade legislation is dead in Congress for the near term, attention is now turning to whether Congress might be able to pass some kind of renewable or clean energy standard. In fact, even Thomas Donahue, President of the U.S. Chamber of Commerce, sworn foe of cap-and-trade legislation, is saying that the Chamber could support some kind of climate change legislation – presumably a CES including nuclear power – as long as the legislation precludes EPA regulation of GHG under existing authority. 

For those who are taking the half a loaf approach to climate legislation, I recommend this post by Rob Stavins at Harvard and Dick Schmalensee at MIT, which compares cap-and-trade legislation with CES legislation. The piece is a remarkably cogent short analysis of the issue, so I hate to excerpt something which can be read in a few minutes. Nonetheless, for the lazy among my readers, the bottom line is that:

Carbon cap-and-trade has been killed in the Senate, presumably because of its costs. Renewable electricity standards or clean energy standards would accomplish considerably less and would impose much higher costs per ton of emissions reduction than cap-and-trade would. This does not sound like a step forward.

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It may be an apocryphal story, but my understanding as to why so many small municipal landfills in New Hampshire ended up on the NPL is that some bright light in the Granite State thought that Superfund was a public works program and that the fund would pay for the landfill closures. The result? Small towns became PRPs, responsible for Superfund response costs which, in some cases, approximated their annual municipal budget.

I recall going to a public meeting concerning EPA’s preferred alternative at one site. At most sites, the public pleads for EPA to require more cleanup – because someone else will be paying, of course. Here, the public was begging for less cleanup, because they thought that they had better ways to spend the money. Even if the money had to be devoted to public health and safety, they were confident that spending money on traffic lights and police and fire departments would yield a greater return.

I was reminded of this episode by EPA’s announcement last week of the release of guidance recommending the removal of PCB-containing light ballasts from schools. According to a report in the Wall Street Journal, New York City estimates that the cost to remove the ballasts will be $1 billion. Anyone think that NYC might have a better use for $1 billion in school spending?

There are really two points to this story. The first is that legislation in response to panics is not a good idea. The notion that there are special legislative provisions for PCBs, unlike the myriad of other toxic chemicals which are handled under provisions of general application is, to use a technical term, nuts. It has led to a separate PCB program within EPA which, in the bureaucratic nature of things, has to justify its existence, leading to costly recommendations such as those made last week.

Second, what if it really would be better to spend money on fire trucks, or traffic lights, or anti-drug programs in schools? To be fair to EPA, this is not a question the agency is tasked with answering. However, shouldn’t somebody be asking and answering such questions before regulations with such potential consequences are promulgated? 

This is not about cost-benefit analysis, which simply asks whether the benefit of the requirement is worth its costs. It’s not even cost-effectiveness analysis, at least as EPA normally thinks about it. Such analysis would normally only try to determine the most cost-effective way to eliminate PCBs. I’m after something deeper. Even after we’ve determined the most cost-effective way to eliminate PCBs from light ballasts, I want to know how much that would cost, how much risk reduction it would achieve, and whether more risk reduction could be obtained by spending the money elsewhere. 

I can dream, can’t I?

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As some of my clients know all too well, I’ve been spending a lot of time on some Superfund matters recently. Although I can’t remember a period when I didn’t have at least one moderately active Superfund case, significant immersion in complex remedial decision-making and negotiations provides an unwelcome reminder just how flawed CERCLA is. Almost 20 years after the acid rain provisions of the Clean Air Act ushered in wide-spread acceptance of the use of market mechanisms to achieve environmental protection goals and the state of Massachusetts successfully privatized its state Superfund program, the federal Superfund program, like some obscure former Russian republic which remains devoted to Stalinism, is one of the last bastions of pure command and control regulation.

Can anyone tell me why the remedy selection process takes years and costs millions of dollars – before any cleanup has occurred or risk reduction been achieved? Can anyone tell me why, after the remedy has been selected, EPA has to spend millions of dollars – charged back to the PRPs, of course – to oversee the cleanup? Oversight costs can easily exceed 10% of cleanup costs, while oversight during the remedial design and feasibility study process sometimes seem to be barely less than the cost of actually performing the RI/FS.

While there are certainly a multiplicity of causes, there are two factors which greatly contribute to the problem. One was, coincidentally, highlighted in a post today by my friend Rob Stavins. As Rob noted, unlike the acid rain program, which was new at the time, the Superfund bureaucracy is well entrenched and there are a number of actors with a vested interest in maintaining the status quo. 

The second issue relates to the genesis of the Superfund program, as well as its continuing raison d’être. Whenever EPA has ranked relative risks from different environmental hazards, Superfund sites come in at the bottom. However, if you think back to Superfund’s origins, what comes to mind? Love Canal and the Valley of the Drums – and some concerned near-by residents who rallied around a cause to ensure that the problem would be addressed. As renowned risk communications expert Dr. Peter Sandman has noted, there is not necessarily a significant correlation between actual risk levels and public outrage, and it’s not possible to decrease outrage simply by providing accurate information about risks.

In short, the public is outraged by hazardous waste sites and does not trust PRPs to clean them properly. All of those EPA oversight costs are, in large part, intended not to decrease risk, but to lower outrage.  Outrage is understandable in some circumstances, and efforts to reduce it are laudable, but is it really an appropriate use of scarce environmental protection resources to spend the money that gets poured into Superfund sites?

There has to be a better way. Indeed, there is a better way. It’s called a privatized system in which PRPs have to meet well-defined cleanup standards, but are allowed to do so on their own, in whatever manner is most cost-effective, subject to audits by regulators. Privatized programs such as the one in Massachusetts are not perfect. However, their flaws – which largely stem from a failure to fully support privatization -- pale in comparison to the waste that is the federal program under CERCLA.

In other contexts, I’ve called on the Obama administration to embrace regulatory reform. Why not start with Superfund? Notwithstanding Rob Stavins’ point about the difficulty of overturning an entrenched status quo, if the states could do it, why not the federal government?

Besides, I have an entrenched personal reason for seeking Superfund reform. This stuff drives me nuts.

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