oversight

Air Pollution: Information Contained in EPA's Regulatory Impact Analyses Can Be Made Clearer

Published by the Government Accountability Office on 1997-04-14.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                 United States General Accounting Office

GAO              Report to Congressional Committees




April 1997
                 AIR POLLUTION
                 Information Contained
                 in EPA’s Regulatory
                 Impact Analyses Can
                 Be Made Clearer




GAO/RCED-97-38
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Resources, Community, and
      Economic Development Division

      B-275777

      April 14, 1997

      The Honorable John H. Chafee
      Chairman
      The Honorable Max Baucus
      Ranking Minority Member
      Committee on Environment and
        Public Works
      United States Senate

      The Honorable Tom Bliley
      Chairman
      The Honorable John D. Dingell
      Ranking Minority Member
      Committee on Commerce
      House of Representatives

      The Environmental Protection Agency (EPA) has been required to perform
      benefit-cost analyses, or regulatory impact analyses (RIA), to support its
      regulatory actions since 1971. The analyses are expected to conform to
      guidelines developed by the Office of Management and Budget (OMB) and
      EPA to implement executive orders requiring them. Generally, the
      guidelines describe the major components that should be contained in the
      analyses, such as a statement of the need for a regulation and a description
      and estimation of the benefits and costs for regulatory alternatives,
      including the results of sensitivity analyses to characterize the effects of
      uncertainties. The guidelines allow EPA considerable flexibility in
      preparing RIAs. Specifically, the guidelines stipulate that the scope and
      precision of analysis depend on the quality of underlying data, the
      scientific understanding of the problems to be addressed through
      regulation, resource constraints at EPA, and the specific requirements of
      the authorizing legislation. The guidelines also recommend that the scope
      and precision of the analysis should be proportionate to the importance
      and complexity of the issues being addressed.

      This report, which describes the results of our review of 23 RIAs supporting
      air quality regulations, is addressed to you because of your jurisdiction for
      the Clean Air Act. These RIAs were prepared by EPA’s Office of Air and
      Radiation and issued between November 1990, the effective date of the
      Clean Air Act Amendments of 1990, and December 1995.1 Specifically, our

      1
       Although EPA’s other program offices are also responsible for preparing RIAs, we limited our review
      to the RIAs prepared by the Office of Air and Radiation because this office is primarily responsible for
      implementing the requirements of the 1990 amendments.



      Page 1                           GAO/RCED-97-38 Improving EPA’s Regulatory Impact Analyses
                   B-275777




                   review focused on whether the RIAs clearly describe (1) key economic
                   assumptions subject to uncertainty and the sensitivity of the results to
                   these assumptions, (2) the extent to which benefits and costs were
                   quantified for the proposed regulatory action, and (3) the extent to which
                   alternative approaches were considered. This report also follows up on
                   our previous recommendation that RIAs include executive summaries
                   highlighting the analytical results important to decisionmakers.


                   While certain key economic assumptions, such as the discount rate and
Results in Brief   the value of human life, can have a significant impact on the results of
                   benefit-cost analyses and are important to the regulations being proposed,
                   eight of the RIAs did not identify one or more of these assumptions.2
                   Furthermore, in the RIAs that identified key economic assumptions, the
                   rationale for the values used was not always explained. For example, one
                   RIA assumed a value of life that ranged from $1.6 million to $8.5 million and
                   another, prepared in the same year, assumed a value of life that ranged
                   from $3 million to $12 million. In neither instance did the RIAs provide a
                   clear explanation of the rationale for the values that were selected. Even
                   though EPA’s guidance suggests that RIAs account for any uncertainties in
                   the values of key assumptions by conducting sensitivity analyses, which
                   show how benefit and cost estimates vary depending on what values are
                   assumed, 13 RIAs used only a single discount rate.

                   All 23 RIAs assigned dollar values to the estimated costs of proposed
                   regulations; however, 11 of the RIAs assigned dollar values to the estimated
                   benefits. According to EPA officials, assigning dollar values to potential
                   benefits is difficult because of the uncertainty of scientific data and the
                   lack of market data on some of these effects. All of the RIAs contained
                   some quantitative or qualitative information on the expected benefits, such
                   as a reduced incidence of mortality and illness.

                   While the number and the types of alternatives considered in the 23 RIAs
                   were not always clear, our examination indicated that six of the RIAs
                   compared a single alternative, which was the regulatory action being
                   proposed, to the baseline, which was the situation likely to occur in the
                   absence of regulation—the status quo. The remainder compared two or
                   more alternatives to the baseline. Resource constraints and the specific
                   requirements of authorizing legislation, which sometimes limit EPA’s
                   options, were factors influencing the extent to which alternatives were
                   considered.

                   2
                    A discount rate is used to convert future benefit or cost estimates to their present value.



                   Page 2                            GAO/RCED-97-38 Improving EPA’s Regulatory Impact Analyses
             B-275777




             Ten of the RIAs we examined did not include executive summaries, even
             though these summaries can be a significant benefit to decisionmakers. In
             an April 1984 report, we recommended that RIAs include executive
             summaries that identify (1) all benefits and costs—even those that cannot
             be quantified; (2) the range of uncertainties associated with the benefits
             and costs; and (3) a comparison of all feasible alternatives.3 EPA officials
             acknowledged that some of the RIAs did not include executive summaries
             and agreed that executive summaries, by providing easily accessible
             information, can be useful to decisionmakers.


             The Clean Air Act Amendments of 1990 required EPA to issue a series of
Background   new or stricter regulations to address some of the more serious air
             pollution problems, including acid rain, toxic air pollutants, motor vehicle
             emissions, and stratospheric ozone depletion. In view of the estimated
             billions of dollars in annual costs to implement these and other
             requirements, the Congress required EPA to report on the benefits and
             costs of the agency’s regulatory actions under the 1990 amendments, as
             well as under previous amendments to the act. Specifically, section 812 of
             the 1990 amendments required EPA to (1) conduct an analysis of the overall
             impacts of the Clean Air Act on public health, the economy, and the
             environment, (2) report on the estimated benefits and costs of the
             regulations implemented under clean air legislation enacted prior to 1990;
             and (3) biennially update its estimates of the benefits and costs of the
             Clean Air Act, beginning in November 1992. In May 1996, EPA drafted a
             report that examined the benefits and costs of the 1970 and 1977
             amendments to the act. EPA is currently in the process of compiling its first
             prospective study evaluating the benefits and costs of the 1990
             amendments.

             Section 812 also required GAO to report on the benefits and costs of the
             regulations issued to meet the requirements of the 1990 amendments.4 In a
             February 1994 report, we described the methodologies that EPA had used
             and the progress that the agency was making.5

             In addition, since 1971 a series of executive orders and directives by OMB
             have required EPA and other federal agencies to consider the benefits and

             3
              Cost-Benefit Analysis Can Be Useful in Assessing Environmental Regulations, Despite Limitations
             (GAO/RCED-84-62, Apr. 6, 1984).
             4
              This reporting requirement was recently repealed.
             5
              Air Pollution: EPA’s Progress in Determining the Costs and Benefits of Clean Air Legislation
             (GAO/RCED-94-20, Feb. 11, 1994).



             Page 3                           GAO/RCED-97-38 Improving EPA’s Regulatory Impact Analyses
B-275777




costs associated with individual regulations. In February 1981, President
Reagan issued Executive Order 12291, which required federal agencies,
including EPA, to prepare RIAs that identify the benefits, costs, and
alternatives for all proposed and final major rules that the agencies issued.6
 Subsequently, in September 1993, President Clinton issued Executive
Order 12866 replacing Executive Order 12291 and directing federal
agencies, including EPA, to assess benefits, costs, and alternatives for all
economically significant regulatory actions.7

OMB  and EPA have developed guidelines for conducting the benefit-cost
analyses required by these executive orders.8 While describing the
components to be included in these analyses, the guidance affords EPA’s
program offices considerable flexibility in preparing RIAs. Specifically,
EPA’s guidance stipulates that the level and precision of analyses in RIAs
depend on the quality of the data, scientific understanding of the problem
to be addressed through regulation, resource constraints, and the specific
requirements of the authorizing legislation. This guidance also states that
the amount of information and sophistication required in benefit-cost
analyses depend on the importance and complexity of the issue being
considered.

The recently enacted Small Business Regulatory Enforcement Fairness Act
of 1996 provides that before a rule can take effect, the agency preparing it
must submit to GAO and make available to the Congress, among other
things, a complete copy of any cost-benefit analysis of the rule. This act
also provides for congressional review of major rules issued by federal



6
 Under Executive Order 12291, a major rule was defined as any regulation that was likely to result in
(1) an annual effect on the national economy of $100 million or more; (2) a major increase in costs or
prices for consumers, industries, or governments; or (3) significant adverse effects on competition,
employment or investments, productivity, innovation, or the international competitive position of U.S.
firms.
7
 Under Executive Order 12866, a significant regulatory action is a substantive action by an agency that
is likely to result in a regulation that may (1) have an annual effect on the economy of $100 million or
more or adversely affect in a material way the economy, a sector of the economy, productivity,
competition, jobs, the environment, public health or safety, or state, local, or tribal governments or
communities; (2) create a serious inconsistency or otherwise interfere with an action taken or planned
by another agency; (3) materially alter the budgetary impact of entitlements, grants, user fees, or loan
programs, or the rights and obligations of recipients thereof; or (4) raise novel legal or policy issues
arising out of legal mandates, the President’s priorities, or the principles set forth in the executive
order. A regulatory action that meets the first of these criteria is considered economically significant.
8
 Besides revoking Executive Order 12291, Executive Order 12866 revoked the guidelines OMB issued
under the earlier order. However, according to EPA, in the absence of new agency guidance on
preparing benefit-cost analyses under Executive Order 12866, EPA has continued to use the principles
incorporated in its Executive Order 12291 guidance. EPA intends to revise its guidance in the near
future. EPA is also currently relying on guidance issued by OMB in January 1996, which describes best
practices for preparing economic analyses called for in Executive Order 12866.


Page 4                           GAO/RCED-97-38 Improving EPA’s Regulatory Impact Analyses
                         B-275777




                         agencies, including EPA, and the potential disapproval of such rules by the
                         enactment of a joint resolution.9


                         Eight of the RIAs that we examined did not clearly identify the values
Extent to Which          assigned for key economic assumptions, such as the discount rate and
Economic                 value of human life, used to assess the economic viability of the
Assumptions Were         regulations. Furthermore, we found that in the RIAs that identified key
                         economic assumptions the rationale for the values used was not always
Identified, Explained,   explained. While EPA’s guidance suggests that RIAs account for
and Subjected to         uncertainties in such values by conducting sensitivity analyses that show
                         how benefit-cost estimates vary depending on what values are assumed,
Sensitivity Analysis     many RIAs used only a single value and did not always provide a clear
                         explanation. Appendix I summarizes the results of our examination of the
                         economic assumptions used in the 23 RIAs.

                         Five of the 23 RIAs did not indicate whether the estimated future benefits
                         and costs were discounted. The discount rate can have a significant effect
                         on the estimated impact of an environmental regulation. For example,
                         most environmental regulations impose immediate costs, while the
                         benefits are realized in the future. In such a case, a lower discount rate has
                         a more positive effect on future benefits, thus enhancing the regulation’s
                         perceived value. Conversely, using a higher discount rate makes benefits
                         that occur in the future appear less valuable. Not clearly indicating the
                         discount rate used in benefit-cost analyses makes it more difficult for
                         decisionmakers to assess the desirability of a proposed regulation.

                         EPA’s guidelines recognize that there may be uncertainties about which
                         discount rates should be used. Moreover, EPA’s Director of the Office of
                         Economy and Environment stated that there are uncertainties associated
                         with choosing discount rates for conducting benefit-cost analyses. As a
                         result, EPA’s guidance suggests the use of sensitivity analyses to show how
                         benefit and cost estimates are affected by different discount rates. Of the
                         18 RIAs that clearly identified the discount rates used, 5 showed the




                         9
                          Under the act, a major rule is one that OMB finds has resulted in or is likely to result in (1) an annual
                         effect on the economy of $100 million or more; (2) a major increase in costs or prices for consumers,
                         individual industries, federal, state, or local government agencies, or geographic regions; or
                         (3) significant adverse effects on competition, employment, investment, productivity, innovation, or
                         the ability of U.S.-based enterprises to compete with foreign-based enterprises in domestic and export
                         markets.



                         Page 5                            GAO/RCED-97-38 Improving EPA’s Regulatory Impact Analyses
                          B-275777




                          sensitivity of their estimates to different rates ranging from 2 to
                          10 percent. Thirteen of the RIAs used a single rate.10

                          Although 14 RIAs indicated that the reduction in mortality was an expected
                          benefit, five did not indicate the value placed on a human life. Of the nine
                          RIAs that indicated the value placed on a human life, eight included
                          sensitivity analyses to indicate how their benefit estimates were affected
                          by different values assumed for a life. Assigning a relatively high value for
                          human life can have a significant positive effect on estimated benefits.
                          However, for the nine RIAs that assumed a value for a human life, the
                          ranges used were not always explained. For example, one RIA assumed a
                          value of human life that ranged from $1.6 million to $8.5 million, and
                          another, prepared in the same year, assumed a value of human life that
                          ranged from $3 million to $12 million. In both instances, the RIAs did not
                          provide a clear explanation of the rationale for the values that were used.


EPA’s Views on Economic   Because of the agency’s concern about the use of different values for key
Assumptions               assumptions and the extent to which sensitivity analyses were used to
                          account for uncertainties about the appropriate values for these
                          assumptions, EPA recently formed an Economic Analysis Consistency Task
                          Group under the direction of the Regulatory Policy Council to develop
                          information on the causes of inconsistencies in the agency’s RIAs. The
                          Council is chaired by EPA’s Deputy Administrator.

                          In addition, EPA officials explained that the authorizing legislation for some
                          environmental regulations is often a key determinant in the thoroughness
                          of the agency’s benefit-cost analyses. For example, they said that
                          health-based national ambient air quality standards issued by the agency
                          are not based on costs or other economic considerations. However, costs
                          may be considered when developing and implementing control strategies
                          for these standards. Although benefit-cost analyses are completed for
                          these regulations, they do not directly impact the regulatory
                          decision-making process. Therefore, the level of analysis and the number
                          of alternatives analyzed could be more limited.

                          Time constraints imposed by statutory and court-ordered deadlines and
                          shortages of resources and staff also restrict EPA’s ability to conduct


                          10
                           Nine of these RIAs assumed either a 7-percent or 10-percent real discount rate. This difference in
                          assumptions may be due to different guidance by OMB on discount rates. Under Executive Order
                          12291, OMB’s preferred real discount rate was 10 percent. In its January 1996 guidance for Executive
                          Order 12866, OMB has lowered its preferred rate to 7 percent. That guidance also notes that agencies
                          may present sensitivity analyses using various discount rates.



                          Page 6                          GAO/RCED-97-38 Improving EPA’s Regulatory Impact Analyses
                     B-275777




                     comprehensive benefit-cost analyses. Given the limited resources and staff
                     available for completing economic analyses, EPA officials stated that they
                     assign a higher priority to benefit-cost analyses supporting regulations
                     facing imminent deadlines, regulations expected to have greater economic
                     impacts on society, and those for which the economic analysis has the
                     highest potential to affect the regulatory alternative selected.


                     OMB’s and EPA’s guidelines encourage EPA to quantify, to the extent feasible,
Extent to Which      all potential regulatory benefits and costs in monetary terms, but the
Benefits and Costs   guidance recognizes that assigning reliable monetary values to some
Were Quantified      benefits may be difficult, if not impossible. When benefits and costs
                     cannot be described in monetary terms, the guidance recommends that
                     RIAs include quantitative and qualitative information on the benefits and
                     costs associated with the proposed regulations. The benefits mentioned in
                     the guidance include reduced mortality, reduced morbidity, improved
                     agricultural production, reduced damage to buildings and structures,
                     improved recreational environments, improved aesthetics, and
                     improvements in ecosystems.

                     Our review of the 23 RIAs indicated that while all of them assigned dollar
                     values to the costs of proposed regulations, 11 assigned dollar values to
                     estimated benefits. EPA acknowledges that assigning monetary values to
                     projected benefits is more difficult than assigning values to the costs of
                     regulatory actions. According to EPA officials, the uncertainty of the
                     science and inadequacy of other data often prevent the agency from
                     estimating dollar benefits. For example, EPA’s guidance recognizes that
                     assigning a monetary value to reduced health risks, a potentially
                     significant benefit, is difficult because of uncertainties about the precise
                     relationship between different pollution levels and corresponding health
                     effects and the appropriate monetary values to be assigned to reductions
                     in mortality and reduced risks of individuals’ experiencing serious
                     illnesses. Estimating the monetary value of improvements in ecosystems,
                     another potentially significant benefit, is even more complex.

                     Although some RIAs did not assign dollar values to benefits, all 23 of the
                     RIAs we examined contained other quantitative or qualitative information
                     on the benefits of the proposed regulations. When benefits cannot be
                     assigned dollar values, quantifying the benefits, such as a reduced
                     incidence of deaths and illnesses, helps clarify the impact of proposed
                     regulations. For example, an RIA for the National Recycling and Emissions
                     Reduction Program’s regulation estimated that 76,500 fewer cases of skin



                     Page 7                   GAO/RCED-97-38 Improving EPA’s Regulatory Impact Analyses
                  B-275777




                  cancer and 1,400 fewer deaths from skin cancer would occur because of
                  the regulation. Qualitative information is also helpful to decisionmakers
                  because it gives them a more complete understanding of the overall
                  benefits of regulations. Nineteen of the RIAs discussed qualitative benefits,
                  such as increased crop yields, improvements in ecosystems, and reduced
                  damage to buildings and other structures.

                  Recognizing the difficulties associated with assigning dollar values to
                  benefits, EPA’s guidelines state that cost-effectiveness analyses can assist
                  decisionmakers in comparing the desirability of various regulatory
                  alternatives. We found that 20 of the RIAs we examined included the results
                  of cost-effectiveness analyses, such as the cost per ton of reduced
                  emissions.


                  OMB’s and EPA’s guidelines require EPA to identify and discuss in RIAs the
Extent to Which   regulatory and nonregulatory alternatives for mitigating or eliminating the
Alternative       environmental problems being addressed and to provide the reasoning for
Approaches Were   selecting the proposed regulatory action over other alternatives. While
                  EPA’s guidance recommends that RIAs consider four major types of
Considered        alternatives—voluntary actions, market-oriented approaches, regulatory
                  approaches within the scope of the authorizing legislation, and regulatory
                  actions initiated through other legislative authority—it states that the
                  number and choice of alternatives to be selected for detailed benefit-cost
                  analyses is a matter of judgment. While it was not always clear how many
                  alternatives or what types of alternatives were considered, our
                  examination of the 23 RIAs indicated that 6 of them compared a single
                  alternative, which was the regulatory action being proposed, to the
                  baseline, which was the situation likely to occur in the absence of the
                  regulation—the status quo. All other RIAs compared two or more
                  alternatives to the baseline. Figure 1 shows the results of our examination
                  of the number of alternatives that EPA considered in the 23 RIAs.




                  Page 8                   GAO/RCED-97-38 Improving EPA’s Regulatory Impact Analyses
                                   B-275777




Figure 1: Number of Alternatives
Considered in the 23 RIAs          13
                                                    12
                                   12
                                   11
                                   10
                                    9
                                    8
                                    7
                                        6
                                    6
                                                              5
                                    5
                                    4
                                    3
                                    2
                                    1
                                    0

                                            One      Two -        Five or
                                                     four         more
                                            Alternatives considered



                                   Source: GAO’s analysis of data in EPA’s RIAs.




                                   A major goal of RIAs is to develop and organize information on benefits and
                                   costs to clarify trade-offs among alternatives. EPA’s guidance states that
                                   RIAs should provide decisionmakers with a comprehensive assessment of
                                   the implications of alternatives. EPA officials acknowledged that it is not
                                   always clear in the RIAs which alternatives were actually analyzed. They
                                   stated that some alternatives are excluded before the benefit-cost analyses
                                   are performed because of noneconomic reasons, such as statutory
                                   language that precludes EPA from using certain approaches.


                                   In our 1984 report, we recommended that future RIAs prominently include
Extent to Which                    executive summaries that (1) clearly recognize all benefits and costs, even
Executive Summaries                those that cannot be quantified; (2) identify a range of values for benefits
Were Used                          and costs subject to uncertainty, as well as the sources of uncertainty; and
                                   (3) compare all feasible alternatives. While 13 of the 23 RIAs that we
                                   examined included executive summaries, some of these RIAs only briefly
                                   discussed the types of information that we recommended they contain.
                                   For example, the executive summary for the RIA on the regulation for




                                   Page 9                               GAO/RCED-97-38 Improving EPA’s Regulatory Impact Analyses
              B-275777




              national emissions standards for coke ovens contained a limited
              discussion of the uncertainties underlying the analysis, and the executive
              summary for the RIA on the operating permits program’s regulation
              included only two sentences on the three alternatives that EPA considered.

              In contrast, the executive summary for the RIA supporting the regulation
              on phasing out ozone-depleting chemicals presented a relatively thorough
              discussion of the results of the benefit-cost analysis. For example, it
              included a range of cost estimates, qualitative and quantitative benefit
              estimates, discussions of scientific and economic uncertainties, and
              estimated benefits and costs for baseline conditions and three alternatives.
              The prominent display of this type of information in the executive
              summary makes it easier for decisionmakers to locate the information
              they need without searching through hundreds of pages in the body of the
              RIAs.


              EPA officials acknowledged that some of the RIAs did not include executive
              summaries and agreed that executive summaries that include information
              such as descriptions of the difficulties in assigning dollar values to
              benefits, uncertainties of the data, and regulatory alternatives are useful.
              However, they stated that time constraints and limited resources and staff
              often determine whether they prepare executive summaries and the
              amount of detail that is included when summaries are done.


              We believe that improvements in the presentation and clarity of
Conclusions   information contained in EPA’s RIAs would enhance their value to both
              agency decisionmakers and the Congress in assessing the benefits and
              costs of proposed regulations. EPA’s guidelines state that the goal of RIAs is
              to provide decisionmakers with well-organized, easily-understood
              information on the benefits and costs of major regulations and to provide
              decisionmakers with a comprehensive assessment of the implications of
              alternative regulatory actions. However, many of the RIAs we reviewed did
              not clearly identify key economic assumptions, the rationale for using
              these assumptions, the degree of uncertainty associated with both the data
              and the assumptions used, or the alternatives considered. Not clearly
              displaying this information makes it difficult for decisionmakers and the
              Congress to appreciate the range and significance of the benefit and cost
              estimates presented in these documents.




              Page 10                  GAO/RCED-97-38 Improving EPA’s Regulatory Impact Analyses
                  B-275777




                  To help EPA decisionmakers and the Congress better understand the
Recommendations   implications of proposed regulatory actions, we recommend that the EPA
                  Administrator, ensure that RIAs identify the (1) value, or range of values,
                  assigned to key assumptions, along with the rationale for the values
                  selected; (2) sensitivity of benefit and cost estimates when there are major
                  sources of uncertainty; and (3) alternatives considered, including those
                  not subjected to benefit-cost analyses.


                  We provided a draft of this report to EPA and OMB for review and comment.
Agency Comments   We obtained comments from EPA officials, including the Director, Office of
                  Economy and Environment, and representatives of the Office of Air and
                  Radiation. EPA officials stated that the information in the report was
                  accurate and agreed with the recommendations in the report. They
                  provided specific comments on a number of issues, which we have
                  incorporated into the report, including a clarification of the objectives of
                  the Economic Analysis Consistency Task Group. According to EPA
                  officials, this group is in the process of identifying key issues associated
                  with benefit-cost analyses that offer the potential for greater consistency
                  in the agency’s RIAs. Among the issues being considered are the valuation
                  of reductions in the risk of mortality, discount rates and baselines,
                  intergenerational issues, and distribution effects. Additionally, they
                  emphasized that greater consistency in addressing key issues in the RIAs
                  would enhance their usefulness for EPA’s decisionmakers. EPA views this as
                  an ongoing process and anticipates that it will result in revisions to the
                  agency’s guidelines for preparing economic analyses. OMB did not provide
                  comments on the draft report.


                  We conducted our work from February 1996 through February 1997 in
                  accordance with generally accepted government auditing standards. A
                  detailed discussion of our scope and methodology is contained in
                  appendix II. We are sending copies of this report to the Administrator, EPA;
                  the Director, Office of Management and Budget; and other interested
                  parties. Copies are also available to others on request.




                  Page 11                 GAO/RCED-97-38 Improving EPA’s Regulatory Impact Analyses
B-275777




Please call me at (202) 512-4907 if you or your staff have any questions.
Major contributors to this report are listed in appendix III.




Peter F. Guerrero
Director, Environmental
  Protection Issues




Page 12                 GAO/RCED-97-38 Improving EPA’s Regulatory Impact Analyses
Page 13   GAO/RCED-97-38 Improving EPA’s Regulatory Impact Analyses
Appendix I

Economic Assumptions Used in the
Environmental Protection Agency’s
Regulatory Impact Analyses

                                                                                                             Value of life (dollars in
Regulatory impact analysis (RIA)                                                 Discount rates (percent)a   millions)b
RIA and Economic Impact Analysis for Proposed Emission Standards and             3, 7, and 10                $1.6 - $8.5
Guidelines for Municipal Waste Combustors
RIA and Regulatory Flexibility Act Screening for Outer Continental Shelf Air     10                          Not applicable
Regulations
RIA and Regulatory Flexibility Act Screening for Operating Permits               10                          Not applicable
Regulations
RIA for National Emissions Standards for Hazardous Air Pollutants for By-        10                          $1.6 - $8.5
Product Coke Oven Charging, Door Leaks, and Topside Leaks
RIA for Regulating Hazardous Air Pollution Emissions From New and                Not clearly indicated       Not clearly indicated
Existing Sourcesc
RIA and Regulatory Flexibility Analysis of the Enhanced Monitoring Program 10                                $1.58
RIA and Regulatory Flexibility Analysis of Proposed Effluent Guidelines and      Not clearly indicated       $2 - $10
National Emissions Standards for Hazardous Air Pollutants for the Pulp,
Paper, & Paperboard Industry
RIA for the Sacramento Non-attainment Area, South Coast Non-attainment           7 or 10                     Not clearly indicated
Area, and Ventura County—Federal Implementation Plansc
RIA for the National Emissions Standards for Hazardous Air Pollutants for        Not clearly indicated       Not clearly indicated
Source Categories: Organic Hazardous Air Pollutants From Synthetic
Organic Chemical Manufacturing Industry and Other Processes Subject to
the Negotiated Regulations for Equipment Leaksc
RIA for the Petroleum Refinery National Emissions Standards for Hazardous Not clearly indicated              $3 - $7
Air Pollutants
RIA and Regulatory Flexibility Analysis for the Interim Detergent Registration 7                             Not applicable
Program and Expected Detergent Certification Program
Final RIA on Reformulated Gasoline                                               10                          Not applicable

Final RIA for Control of Vehicular Evaporative Emissions                         10                          Not applicable

Final RIA for Refueling Emission Regulation for Light Duty Vehicles and          7                           Not applicable
Trucks and Heavy Duty Vehicles
RIA and Regulatory Support Document: Control of Air Pollution Emission           7                           Not clearly indicated
Standards for New Non-Road Spark-Ignition Engines at or Below 19
Kilowattsc
RIA for Compliance With Section 604 of Clean Air Act for the Phaseout of         2, 4, and 10                $3 - $12
Ozone-Depleting Chemicals
RIA for the National Recycling and Emission Reduction Program (1)                2                           $3 - $12
RIA for the National Recycling and Emission Reduction Program (2)                2, 4, and 7                 $3 - $12
                                                         c
RIA of the Final Acid Rain Implementation Regulations                            3                           Not clearly indicated
RIA of the Rule Requiring Labeling of Products Containing or Manufactured        2 and 7                     $3 - $12
With Ozone-Depleting Substances
RIA of Nitrogen Oxides Regulations—1993                                          Not clearly indicated       Not applicable

                                                                                                                              (continued)




                                               Page 14                         GAO/RCED-97-38 Improving EPA’s Regulatory Impact Analyses
                                           Appendix I
                                           Economic Assumptions Used in the
                                           Environmental Protection Agency’s
                                           Regulatory Impact Analyses




                                                                                                                        Value of life (dollars in
Regulatory impact analysis (RIA)                                                  Discount rates (percent)a             millions)b
RIA of Nitrogen Oxides Regulations—1995                                           5.38                                  Not applicable

RIA for EPA’s High-Level Waste Standards                                          2                                     Not applicable


                                           a
                                               These are real discount rates, which exclude the effects of inflation.
                                           b
                                            Nine of these RIAs did not identify reduced mortality as a benefit associated with a proposed
                                           regulation. Therefore, assigning a monetary value for a human life was not applicable.
                                           c
                                             The RIA indicated that the qualitative benefits of the regulation would include reductions in
                                           mortality rates; nonetheless, the RIA did not indicate the value of life.

                                           Source: GAO’s analysis of data in EPA’s RIAs.




                                           Page 15                             GAO/RCED-97-38 Improving EPA’s Regulatory Impact Analyses
Appendix II

Scope and Methodology


              We examined 23 RIAs issued by the Office of Air and Radiation between
              November 1990, the effective date of the Clean Air Act Amendments of
              1990, and December 1995. Eighteen of these RIAs supported regulations
              that were estimated to cost $100 million or more annually and therefore
              were considered economically significant. Five RIAs supported regulations
              that were considered major or significant by the Environmental Protection
              Agency (EPA) because of their potential impact on costs and prices for
              consumers, the international competitive position of U.S. firms, or the
              national energy strategy or because they were statutorily required by the
              1990 amendments. To determine the number of the RIAs, we interviewed
              officials from EPA’s Office of Policy, Planning, and Evaluation and Office of
              Air and Radiation, which has four program offices—the offices of Air
              Quality Planning and Standards, Mobile Sources, Atmospheric Programs,
              and Radiation and Indoor Air—and examined EPA’s database of completed
              RIAs. Although EPA’s other program offices are also responsible for
              preparing RIAs, we limited our review to the RIAs prepared by the Office of
              Air and Radiation because this office is primarily responsible for
              implementing the requirements of the 1990 amendments.

              We reviewed Executive Orders 12866 and 12291 and EPA’s and the Office of
              Management and Budget’s guidance on the preparation of RIAs under these
              executive orders. From those documents, we identified the key
              components of RIAs and reviewed the 23 selected RIAs for their handling of
              these components. We also discussed issues affecting the clarity of RIAs
              with officials of the Office of Air and Radiation and Office of Policy,
              Planning, and Evaluation.




              Page 16                 GAO/RCED-97-38 Improving EPA’s Regulatory Impact Analyses
Appendix III

Major Contributors to This Report


                       William F. McGee, Assistant Director
Resources,             Charles W. Bausell, Jr., Adviser
Community, and         Harry C. Everett, Evaluator-in-Charge
Economic               Kellie O. Schachle, Evaluator
                       Kathryn D. Snavely, Evaluator
Development Division   Joseph L. Turlington, Evaluator




(160341)               Page 17                GAO/RCED-97-38 Improving EPA’s Regulatory Impact Analyses
Ordering Information

The first copy of each GAO report and testimony is free.
Additional copies are $2 each. Orders should be sent to the
following address, accompanied by a check or money order
made out to the Superintendent of Documents, when
necessary. VISA and MasterCard credit cards are accepted, also.
Orders for 100 or more copies to be mailed to a single address
are discounted 25 percent.

Orders by mail:

U.S. General Accounting Office
P.O. Box 6015
Gaithersburg, MD 20884-6015

or visit:

Room 1100
700 4th St. NW (corner of 4th and G Sts. NW)
U.S. General Accounting Office
Washington, DC

Orders may also be placed by calling (202) 512-6000
or by using fax number (301) 258-4066, or TDD (301) 413-0006.

Each day, GAO issues a list of newly available reports and
testimony. To receive facsimile copies of the daily list or any
list from the past 30 days, please call (202) 512-6000 using a
touchtone phone. A recorded menu will provide information on
how to obtain these lists.

For information on how to access GAO reports on the INTERNET,
send an e-mail message with "info" in the body to:

info@www.gao.gov

or visit GAO’s World Wide Web Home Page at:

http://www.gao.gov




PRINTED ON    RECYCLED PAPER
United States                       Bulk Rate
General Accounting Office      Postage & Fees Paid
Washington, D.C. 20548-0001           GAO
                                 Permit No. G100
Official Business
Penalty for Private Use $300

Address Correction Requested