Environmental Economics

Anyone at EPA care to weigh in on the 'new' methods for benefit cost analysis?

I have spent my career developing (hopefully) objective methods for the valuation of environmental benefits and costs.  This is particularly troubling:

The Trump administration’s rollback of environmental regulations has received ample attention in the media. Unfortunately, all the coverage has done little to slow the campaign at the U.S. Environmental Protection Agency (EPA) and the Department of the Interior to relax critical protections and dismantle former President Obama’s environmental legacy. By one recent count, the Trump administration has overturned — or is in the process of overturning — 60 environmental rules.

Less well known is that in its rush to reverse Obama-era policies, Trump’s team is distorting the way that government agencies such as the EPA evaluate and justify regulations. Yet these distortions may end up emerging as an important part of legal strategies to challenge the Trump administration’s assault on environmental regulations and oversight.

To scrap major environmental regulations put in place by prior administrations or enact new rules, the EPA is required to perform cost-benefit analyses. This has been standard government procedure for decades. Under EPA Administrator Scott Pruitt, the response to the requirement has been unwavering: Exaggerate the costs of environmental regulations; downplay the ecological, financial, and health benefits; and come up with numbers that argue for diminishing the rules or abandoning them altogether. The Pruitt approach is now being applied to some of the Obama administration’s signature achievements, including strengthening the Clean Water Act and the imposition of emissions standards under the Clean Power Plan.

As part of the WOTUS rulemaking, Obama’s EPA released its required economic analysis and found that the anticipated benefits of about $450 million per year would exceed the annual compliance costs of nearly $300 million. The vast majority of benefits were those associated with protecting wetlands, including essential services such as flood control, water quality improvements, fish and wildlife habitat, groundwater recharge, and recreational opportunities.

Then in June 2017, the Trump administration’s proposal to rescind WOTUS included its own analysis, which came to the opposite conclusion about the benefits exceeding the costs. In the new analysis, the quantified benefits for the identical policy were estimated at only $50 million per year — a reduction of nearly 90 percent — while the costs remained the same.

What explains the discrepancy? The EPA under Pruitt’s leadership asserted, with surprisingly little justification, that the 10 studies used to estimate the range of benefits associated with wetlands protection were not recent enough to sufficiently reduce uncertainty. All of the studies were conducted between 1986 and 2000, and while there are well-established techniques to update the results of such studies, none were used, nor did there appear to be any effort to search for more recent studies. The result was simply to assign a value of $0 to the largest category of ecological benefits that had been valued by the same agency two years earlier at more $400 million per year. In effect, zeroing out these benefits made it a foregone conclusion that the rule would not pass a benefit-cost test.

Unfortunately we have now entered what I fear is a partisan cycle and politicization of objective economic analysis.  Until now, the EPA has done an admirable job of maintaining, at least, some semblance of objectivity. Sure, political appointees change policies and procedures, but with at least some level of continuity across new administrations.  Since Executive Order 12291 during the Reagan Administration, both Republican and Democratic Administrations have relied on objective benefit cost analyses as an input to the rule- and decision-making process.  Rarely have administrations so blatantly changed the methods to meet a political objective. 

Until now.  

My fear is that now that this is underway, any attempts to re-establish objectivity in benefit-cost analysis will be viewed as founded in political gamesmanship rather than objective economic analysis.