EPA takes a step toward a more effective regulatory structure

In the midst of the chaos caused by the COVID-19 pandemic and the recent protests in America’s streets, it’s rare but heartening to find examples of the federal government taking concrete steps that promise to improve its efficacy. The latest of these are the steps taken by the Environmental Protection Agency (EPA), which recently proposed a rule that would standardize and increase transparency in the cost-benefit analyses it creates to assist it in making important policy decisions. ​

While this may appear at first glance to be a tedious bureaucratic maneuver, the rule represents an important and necessary step to improve rulemaking — both at the EPA and, hopefully, at other executive-branch agencies as well. 

​The federal rulemaking process is relatively straightforward: After Congress passes a law, it is left to the executive-branch agencies to execute the law’s intent by issuing regulations. While Congress can exert a modicum of pressure on the agencies​ if it feels they are deviating too far in that rulemaking, they have fairly free rein to interpret the laws. 

One ostensible constraint is Executive Order 12866, which says that when promulgating a major rule — which means its economic impact will be greater than $100 million — an agency must demonstrate that major rules generate more benefits than costs. The Office of Information and Regulatory Affairs (OIRA), within the Office of Management and Budget, is tasked with implementing the executive order. 

However, the problem it has faced almost since the order’s inception in 1993 is that agencies by and large chafe at the rule’s constraints and would rather be unencumbered by OIRA’s oversight — and some administrations have been happy to accommodate them. 

As a result, the EPA’s obeisance to the order has waxed and waned over the past 30 years, depending on the occupant of the White House. 

In the Obama administration the economists of OIRA felt as if the agencies — and the EPA in particular — were given free rein to flout the cost-benefit analysis requirements. One complaint was that the agency often declared, without evidence, that a regulation’s aggregate impact would be just under $100 million, rendering any cost-benefit analysis unnecessary. 

I worked at OIRA during the Bush administration, and it took cost-benefit analysis seriously, at least when it worked in its favor. However, the EPA pushed against it even then; it once delivered a rule’s cost-benefit analysis to our office that read “Engineering Analysis” on the cover, crossed out with “Cost-Benefit Analysis” scribbled above it in pencil. It was anything but. 

Another frustration uttered by OIRA staff that the EPA is inclined to tilt the scale on behalf of regulating whenever possible. For example, a key determinant of any cost-benefit analysis is the “Value of a Statistical Life,” or VSL, used to quantify the benefits from preventing the loss of life. Economists come up with estimates for this value based on decisions that individuals make every day, which reveal the value we implicitly place on our lives by looking at how much more we require to work a riskier job, how much we are willing to pay for a safer bicycle helmet, or a safer car. 

In the early 2000s, the EPA commissioned a variety of economic research on the VSL, which turned up a number of roughly $2.5 million to $3 million. It then ignored that research and adopted a value three times that amount for its cost-benefit analysis and went about justifying that number ex-post. ​

When agencies have that much latitude to ignore an executive order or take liberties with legislation passed by Congress, it is problematic for everyone involved and undermines people’s faith in the functioning of democracy. 

Support for this rule is bipartisan: Cass Sunstein, former OIRA administrator for President Obama and an expert on regulatory analysis, has called it “an important memorandum that makes perfect sense.” ​

​While some have complained that this would take away some of the EPA’s flexibility, the reality is that it restores more power in the legislative branch by limiting the ability of agencies to do rulemaking that does not hew to the spirit, let alone the letter, of the law. In a country where presidents of both parties have schemed to usurp power from Congress for as long as I’ve been alive, constraining executive branch agencies in a way that ensures they follow the law and executive orders should be welcome by everyone who’s frustrated with the government’s status quo. 

Ike Brannon is a senior fellow at the Jack Kemp Foundation and a former senior economist with the Office of Information and Regulatory Affairs. Follow him on Twitter @coachbuckethead.