In anticipation of what might become the costliest federal regulation in US history, Congress should join the Supreme Court in reviewing the Environmental Protection Agency's skewed approach to the economic consequences of its actions. On Nov. 25, the high court agreed to consider a case challenging the mercury and air toxics standard (MATS) for electric power plants, which EPA imposed in 2011. At question is the agency's failure to consider compliance costs when it determined the Clean Air Act compelled it to regulate mercury and several other air pollutants, which it said threaten public health. Plaintiffs argued EPA should have considered costs then, before developing regulations.
Acceptance of the case might indicate the Supreme Court is altering its approach to issues of regulatory cost, which so far has been deferential to the agency. The change would be welcome.
Congress and costs
Congress, too, should make cost-benefit analysis central to its promised effort to corral a stampeding agency. EPA regularly estimates costs of its initiatives at levels orders of magnitude below projections by regulated industries. In a rule it proposed in May covering toxic air emissions by refineries, for example, the agency put capital costs at $240 million and recurring costs at $40 million/year. The American Petroleum Institute and American Fuel and Petrochemical Manufacturers in October submitted a detailed comment estimating capital costs at $20 billion and operating costs at $10 million/year.
EPA frequently argues that the costs of its actions must be weighed against benefits. That's reasonable. But its benefit assessments-which typically exceed its cost projections-deserve suspicion.
The agency proposed the regulation that might set cost records on the same day the Supreme Court agreed to review the MATS case. The proposal would lower the standard for ground-level ozone to 65-70 ppb from 75 ppb. EPA also will take comments on a 60-ppb standard, which environmental groups want. For the proposed range, EPA estimated costs of $3.9-15 billion/year. A July study by NERA Economic Consulting for the National Association of Manufacturers said the most aggressive standard under consideration, 60 ppb, would lower gross domestic product during 2017-40 by an average $270 billion/year.
In the ozone proposal, EPA postulates health benefits of $6.4-13 billion/year in 2025 at 70 ppb and $19-38 billion/year at 65 ppb. The benefits included avoided asthma and heart attacks, missed school days, and "premature death," which wasn't defined. As a report by the White House Office of Management and Budget pointed out earlier this year, EPA's estimates include "cobenefits"-health gains assumed to result from the lowering of emissions of nontarget pollutants, mainly fine particulate matter. The practice is standard but deceptive. In the utility MATS rule, one of EPA's costliest regulations now in place, particulate matter accounted for most of the monetized benefits even though it wasn't among the targeted substances and is subject to discrete regulation.
Cost-benefit distortion also is evident in EPA's arguments for another expensive rule-in-progress: reduction of carbon dioxide emissions by power plants burning fossil fuel. For $7.3-8.8 billion/year, EPA estimated, the plan can achieve benefits in 2030 of $55-93 billion. The comparison is faulty. While the estimated costs would occur in the US, $30 billion of speculated benefits related to climate would be global.
Unacceptable trickery
Especially from an agency on a regulatory rampage, this trickery is unacceptable. Congress needs to examine EPA's cost-benefit assessments and outlaw techniques the agency uses to make overregulation seem profitable.
And the legislative scrutiny should move a step beyond that. Congress should require regulatory authorities frequently to report the cumulative costs of all their initiatives. And it should make the reports subject to review by government auditors empowered not only to check arithmetic but also to sound alarms about real-world hazards of regulatory excess.
Assessment of costs and benefits is essential to successful regulation, of course. But the process has lost balance and believability. The 114th Congress should make repairing this damage a priority.
