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7.6. EPA's 1987 Review of RIA Process

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EPA's Use of Benefit-Cost Analysis: 1981-1986 is in part a response to GAO’s study but largely goes beyond it to make an affirmative case for EPA’s RIAs. The EPA document cites a number of GAO’s criticisms, never disagreeing with them. They seem to be accepted as valid and constructive criticism. Two examples follow:

Although EPA’s RIA guidelines call for a full discussion of all analytic uncertainties in benefit-cost analyses, the GAO report and EPA's study both found that these guidelines were not always followed adequately. The GAO report recommended more discussion of uncertainties and EPA’s study recommended that more sensitivity analyses be performed whenever considerable uncertainties in the data or analyses exist. (p. 6-4)

Although EPA accepts all noted criticisms, GAO’s comments are not presented in a systematic or comprehensive fashion so the reader does not know where EPA stands on the unmentioned ones. For example, GAO was critical of the selection of regulatory alternatives in certain RIAs but this important comment is not responded to. However, and in fairness to EPA, the subject document is never represented as a point-by-point rejoinder to GAO.

In presenting the positive case that RIAs improve regulations, EPA focuses on major regulations – those requiring RIAs under the Executive Order – promulgated in the five years preceding the subject report. There were eighteen such regulations. Three were exempted from the requirement and RIAs were prepared for the other fifteen. EPA, op. cit., p. S-2.

However, of the fifteen, only six included monetized benefit estimates making them complete benefit-cost studies:

Viewed negatively, 60% of the studies were not complete benefit-cost analyses. They were cost-effectiveness studies having their own, albeit, lesser virtues.

EPA clearly feels that the six complete studies were of great value:

Even some of the cost-effectiveness were apparently of some use:
The paper contains a table showing the “potential increase in total net benefits” that are yielded by three of the regulations covered by RIAs. The total is a respectable $10 billion of welfare gain. The accompanying text states:
The paper contains a thumbnail sketch describing how nearly every RIA improved the contemplated regulation. An excerpt from one of those sketches, for lead in fuels, follows as a sample:

This is certainly impressive but it’s not clear that economists can take credit for the entirety of the huge gain in welfare. Even a few percent of it is impressive, though.

EPA provides a general statement supporting the efficacy of the RIA process in enhancing regulatory development:

It is unsurprising to find that each RIA tends to enhance the regulation for which it is written as is its purpose. What is somewhat surprising is to learn that the RIAs have positive spillover effects. The revelation and discussion of these effects may be the most interesting and novel aspect of the EPA paper.

Regarding “increased awareness of the environmental results of ... regulations,” the EPA document notes that the understanding of health benefits derived from studying reduced lead in gasoline has helped EPA “to evaluate the benefits of reducing lead in drinking water.”

The second spillover effect, “creating a consistent framework for evaluating environmental initiatives,"for evaluating environmental initiatives,” permits comparing

Unfortunately, the document does not explain the benefit from cross-program comparisons.
The third spillover effect, identifying cross-media effects results from benefit-cost analyses because they cover all media. As an example, the document cites the analysis of the treatment of wastewaters in the plastics and organic chemicals industries.

The fourth spillover effect is improvement in analytic technique. The furnished example concerns the National Ambient Air Quality Standard for Particulate Matter.

Regrettably, it isn’t clear from the limited exposition how much of the cited technological progress was attributable to the study as opposed to merely used in it.

The report includes substantial material describing the shortcomings of benefit-cost analysis in general and EPA’s RIAs in particular. The distribution of benefits and costs is one consideration. Benefit-cost analyses ideally produce a measure of net benefits. However, the benefits typically accrue to society generally but the costs are incurred by the polluter.

Valuation of human health is another contentious issue. The report cites arguments by some that hedonic wage studies often used to derive mortality and morbidity values are unreliable because workers are uninformed and for other reasons.

A closely related objection concerns discounting when applied to the value of human lives. Here, ethical objections exist. As to specific failings in EPA’s RIAs, the frequent lack of distributions rather than point estimates has already been noted. Information gaps and analytic uncertainties also are noted.

EPA acknowledges a list of deficiencies in execution for which it has been criticized:

The report discusses the cost of preparing RIAs:
The EPA report concludes with a discussion of future directions. Here, the report describes EPA’s efforts to produce superior analyses. These efforts consist of attempting to enhance the scientific inputs on the one hand and improving economic techniques on the other. Much of EPA's research to improve techniques of environmental economic analysis, particularly the quantification of benefits and costs of making environmental improvements, is documented in the EERI database.

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