The Environmental Protection Agency is rethinking how to calculate the costs and benefits of regulations, including those aimed at curbing smog, shown here enshrouding Los Angeles, California.

Bob Travis/Flickr (CC BY-NC 2.0)

Clean air advocates worried by EPA’s move to rethink cost-benefit calculations

Originally published by E&E News

While the public and the media focus on Scott Pruitt's ethics scandals, the U.S. Environmental Protection Agency (EPA) boss is quietly advancing a regulatory overhaul that could have profound implications for air quality standards.

The agency earlier this month published the draft plan, titled "Increasing Consistency and Transparency in Considering Costs and Benefits in the Rulemaking Process."

Environmental and public health groups are now sounding the alarm that the plan could throw something called co-benefits into jeopardy.

Co-benefits are essentially the indirect benefits of a rule, or the additional gains an agency action was not specifically designed to create. They are particularly relevant to the Clean Air Act's National Ambient Air Quality Standards (NAAQS).

While some of the standards are aimed at reducing levels of ozone or other "criteria" pollutants, they also indirectly reduce levels of particulate matter, which can cause asthma and premature death. And even though co-benefits may not seem controversial at first glance, they have spawned a fierce debate.

"There is legitimate controversy about the use of co-benefits," said Stuart Shapiro, who served as assistant branch chief of the White House Office of Management and Budget (OMB) from 1998 to 2003.

"The fear here is that because it's Scott Pruitt and because it's this current administration, that they will throw the baby of co-benefits out with the bathwater," said Shapiro, who now teaches at the Edward J. Bloustein School of Planning and Public Policy at Rutgers University in New Brunswick, New Jersey.

Co-benefits also play an outsize role in OMB's annual report to Congress on the costs and benefits of all federal regulations.

Contradicting President Donald Trump, the most recent report found that the annual benefits of major federal regulations from 2006 to 2016 were between $219 billion and $695 billion, while the annual costs were between $59 billion and $88 billion (E&E News PM, 26 February).

"If you look at the report that [OMB’s Office of Information and Regulatory Affairs] has to put out every year on the costs and benefits of rules, it's always in the black," said Amy Sinden, a professor at Temple University Beasley School of Law in Philadelphia, Pennsylvania. "And if you look at how it breaks down, you see that most of the benefits numbers are coming out of the EPA's Clean Air Act rules, and most of those are coming from co-benefits."

In many cases, the co-benefits are orders of magnitude larger than the direct benefits. If that's the case, surely those benefits could be obtained more cost-effectively by tackling them directly, rather than as an ancillary effect of another measure.

Susan Dudley, The George Washington University

The plan states, "EPA regularly receives much public comment related to how costs and benefits are considered in decision making. Commenters argued in past rulemakings the Agency has justified the stringency of a standard based on the estimated benefits from reductions in pollutants not directly regulated by the action (i.e., 'ancillary benefits' or 'co-benefits')."

Such language, while appearing to state the status quo, worries advocates of strong rules to protect the environment and public health. They see the text as EPA and its allies questioning the validity of co-benefits.

As an advance notice of proposed rulemaking and not a proposed rule, the EPA action is still in the early stages of consideration.

"That just doesn't fly"

Environmentalists and most economists say counting co-benefits is common sense.

"Good benefit-cost analysis—and this is what I tell my students—counts everything on both sides of the ledger," Shapiro said. "If, because of this regulation, there's going to be less particulate matter in the sky causing asthma or heart attacks, then we should count that."

John Walke, clean air director for the Natural Resources Defense Council in Washington, D.C., noted that OMB Circular A-4 explicitly tells agencies, "Your analysis should look beyond the direct benefits and direct costs of your rule and consider any important ancillary benefits and countervailing risks."

Walke said "it's a matter of basic, honest economics to include direct and indirect benefits, and direct and indirect cost, when conducting credible benefit-cost analysis."

But conservatives and industry groups say considering the co-benefits of Clean Air Act rules is duplicative, since the NAAQS already takes account of particulate matter.

Americans for Prosperity, the Arlington, Virginia-based conservative advocacy group founded by David and Charles Koch, wrote to EPA in May 2016 regarding the ozone standard, "The only way EPA could justify the regulation was to use questionable co-benefits."

The group wrote, "In reducing ozone, there may also be benefits from reductions of other pollutants, in this case particulate matter (PM). However, the EPA already has another set of regulations dealing exclusively with PM. Either the EPA has woefully inadequate standards for PM or it is effectively double counting the health benefits of PM reductions to justify the ozone regulation."

A mercurial debate

The Mercury and Air Toxics Standards (MATS) have emerged as the sort of poster child of the fight over co-benefits. That's because astronomical co-benefits were the reason the rules passed muster under President Obama.

EPA finalized the standards in 2011, requiring coal-burning power plants to reduce emissions of hazardous substances including mercury, lead, arsenic and cadmium by installing control technologies or retiring the plant.

Twenty-one states, as well as business and industry groups, sued, and in 2015, the Supreme Court found that EPA had not adequately considered costs when deciding to regulate toxic emissions from power plants. Justices sent the rule back to EPA.

In 2016, the Obama administration issued a supplemental determination finding that the standards were still "appropriate and necessary," even with the consideration of costs.

EPA projected that the standards would annually cost $9.6 billion, making them among the most expensive air rules ever. But the agency found that the costs were far outweighed by benefits of between $37 billion and $90 billion a year — including co-benefits of $33 billion to $81 billion a year.

In its regulatory impact analysis, the agency said the rule would lead to reductions in particulate matter that could prevent between 4,200 and 11,000 premature deaths.

But conservative and industry groups were quick to criticize the Obama EPA's analysis, saying co-benefits shouldn't be the deciding factor in whether a rule passes muster.

"That's one problem I have, where you have a rule that can't be justified based on the target of the rule, be it mercury or whatever," said Diane Katz, senior research fellow in regulatory policy at the Heritage Foundation in Washington, D.C.

"So you have to count other components that are already regulated under other regulations," Katz said. "You're effectively counting the same particle more than once. And that just doesn't fly."

Susan Dudley, who served as administrator of the Office of Information and Regulatory Affairs during the George W. Bush administration, agreed that the mercury rule presented a "concern."

"In many cases, the co-benefits are orders of magnitude larger than the direct benefits," said Dudley, who now heads the George Washington University Regulatory Studies Center in Washington, D.C., in an email. "If that's the case, surely those benefits could be obtained more cost-effectively by tackling them directly, rather than as an ancillary effect of another measure."

Litigation over the Obama EPA's supplemental finding was pending when the Trump administration took office. In April 2017, the U.S. Court of Appeals for the District of Columbia Circuit agreed to indefinitely postpone the proceedings to allow the new administration time to figure out what to do.

EPA air chief Bill Wehrum said in April that the administration had not made a decision on how to proceed with the standards (Greenwire, 19 April).

Reprinted from Greenwire with permission from E&E News. Copyright 2018. E&E provides essential news for energy and environment professionals at www.eenews.net