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Executive Summary

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From its earliest days, the Environmental Protection Agency has performed economic analyses of proposed and final regulations. The nature and content of these economic evaluations has shifted markedly over the past twenty-eight years, as statutory and executive branch requirements for economic analysis have become more comprehensive and detailed. The changing analytic requirements and great improvements in methods of analysis have resulted in significant improvements in the quality and utility of the economic analyses.

Statutory obligations and requirements of executive orders of the president drive much of the demand for economic analysis at the EPA. Individual statutes carry significant obligations for economic analysis. For example, the 1990 Clean Air Act Amendments required that the agency conduct a retrospective and prospective assessment of benefits and costs under the act. This report was issued as: The Benefits and Costs of the Clean Air Act, 1970 to 1990 (and is also known as the "Section 812 report"). Some statutes require Economic Impact Analyses of proposed regulations. EIAs mainly involve an examination of the cost impacts on facilities subject to a particular class of environmental regulatory action. Undoubtedly the most important non-statutory obligation is that of Executive Order 12866 and its antecedent Executive Order 12291. Executive Order 12866 requires what is now termed an "Economic Analysis" of proposed major regulations. Executive Order 12291 required a Regulatory Impact Analysis (RIA). Basically such analyses involve a detailed assessment of the monetary value of both benefits and costs, to the extent these can be quantified.

This on-line report provides an introduction to the more than 1,200 documents residing in the Regulatory Economic Analyses Inventory database. Most of the documents were prepared by EPA program offices in conjunction with specific rulemakings. In some cases, one rulemaking may be accompanied by several different types of reports.

The report first traces the historical developments, particularly executive orders issued by every president since the early days of EPA, that led to present-day mandates for economic analyses of major rederal regulations affecting health, safety and the environment. The earliest of these developments also are described in EPA's 1987 report, EPA's Use of Benefit-Cost Analysis 1981-1986. The report then examines legal requirements for economic analyses of environmental regulations, and finds that all of the key environmental statutes contain requirements for economic analysis of regulatory activities, though the nature and scope of these requirements varies considerably among the statutes, from cost considerations only to thorough benefit-cost analyses.

The report reviews a number of individual economic analyses covering air pollution, water pollution, and solid and hazardous waste regulatory activities. The reviews constitute a small sample of the database and are intended to provide the reader with a perspective on the larger contents. Each review describes the nature of the regulation--including statutory requirements, the alternatives that EPA considered, cost estimates, benefit estimates, and the economic analysis of benefits and costs.

It is difficult in this report to characterize adequately the great volume of material in the database. Rather than attempt a detailed, systematic evaluation of the more than 1200 documents, the last section of this report summarizes findings of other researchers who have examined many of the economic analyses. The independent analysts have made a number of observations worth repeating here. One is that the overall quality of economic analysis at EPA has improved significantly over time, partly as EPA staff and contractors gained experience and also due to improvements in the techniques of cost and benefit estimation, which lie at the heart of the economic analyses.

A second observation is that the investment of time and effort in preparing economic analyses has paid large dividends. A number of regulatory proposals have been modified in response to the economic analyses so that the net benefits to society are far higher than in the original proposal. These "success stories" provide gains far larger than the total costs of conducting economic analyses on all rulemakings.

A third observation is that statutory constraints on how economic analysis can be incorporated into the decision process continue to limit the situations where detailed economic analysis can affect regulatory outcomes.

Finally, it must be noted that the database itself is a very valuable resource--especially for those who are preparing regulatory analyses. An analyst can review readily the techniques that have been used to estimate benefits and costs for various types of health and environmental outcomes. Dead ends need not be explored further, productive approaches can be repeated, and useful techniques extended in new applications.

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