In a May 13, 2019, intra-Agency memo that was leaked to news outlets, EPA Administrator Andrew Wheeler instructed the heads of four Agency offices to begin to reform how those offices evaluate costs and benefits as part of the regulatory decision process. The intent, wrote Wheeler, is to correct lapses in consistency and transparency evident in how cost-benefit analyses have been conducted throughout the EPA.

“[B]enefits and costs have historically been treated differently depending on the media office and the underlying authority,” wrote Wheeler. “This has resulted in various concepts of benefits, costs and other factors that may be considered. This memorandum will initiate an effort to rectify these inconsistencies through statute-specific actions.”

Costs underestimated

Revision of cost-benefit analyses across all executive branch agencies was an early goal of the Trump administration (see Executive Order (EO) 13777). Following issuance of the EO, Wheeler states that the Agency received public comments from a “large cross-section of stakeholders [who] identified instances when the Agency underestimated costs, overestimated benefits, or evaluated benefits and costs inconsistently.”

Subsequently, in June 2018, the EPA issued an advanced notice of proposed rulemaking (ANPRM), soliciting comment on potential approaches for increasing consistency and transparency in how the Agency considers benefits and costs.

“Informed by the public comments received on that ANPRM, I have determined that the Agency should proceed with benefit-cost reforms using a media-specific approach, taking into account the variety of statutory programs” wrote Wheeler.

Accordingly, the memo directs the assistant administrators for the offices of Air and Radiation, Chemical Safety and Pollution Prevention, Land and Emergency Management, and Water to develop reforms, including notice-and-comment rulemakings, that outline how benefit-cost considerations will be applied in areas that are in need of greater clarity, transparency, and consistency. Wheeler adds that while any new approaches to analyses should be formalized in final rules, the extensive rulemaking “should not forestall near-term benefit-cost methodological changes for individual regulatory actions.”

Clarity on definitions and best practices

Wheeler indicates that revisions to the cost-benefit analysis process should be consistent with applicable laws and regulations and be guided by the following principles:

• Ensuring the Agency balances benefits and costs in regulatory decision-making. The EPA should evaluate and consider both benefits and costs in decision-making.
• Increasing consistency in the interpretation of statutory terminology. The EPA media offices should evaluate benefits and costs in a manner that applies consistent interpretations of key terms and concepts for specific statutes (e.g., practical, appropriate, reasonable, and feasible).
• Providing transparency in the weight assigned to various factors in regulatory decisions. Media offices should transparently identify which factors were and were not considered in regulatory analysis and how these factors were weighed to arrive at a particular regulatory outcome.
• Promoting adherence to best practices in conducting the technical analysis used to inform decisions.The EPA's technical analyses should follow sound economic and scientific principles and adhere to existing guidance and best practices for benefit-cost analysis.

Priority rulemaking

The memo will be implemented through Tier 1 rulemaking, which is defined as “top actions that demand the ongoing involvement of the Administrator’s office and extensive cross-Agency involvement on the part of Assistant Administrators and Regional Administrators”  (EPA’s Action Development Process). Wheeler asks the Office of Air and Radiation to be the first to issue a proposal later this year, followed by the other three offices.

Finally, the memo instructs the EPA’s Office of Policy to improve and update the Agency’s Guidelines for Preparing Economic Analyses. Issued in 2010 under the Obama administration, the Guidelines sets the parameters for assessing and describing who pays the costs and who receives the benefits of regulations, among other topics.