United States
Environmental Protection
Agency
Oi.ice of Policy
Planning and Evaluation
Washington DC 20460
EPA-23G-0 ^87-028
August 1967
xvEPA
EPA's Use of
Benefit-Cost Analysis:
1981-1986
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EPA's USE OF BENEFIT-COST ANALYSIS
1981-1986
By
Economic Studies Branch
Office of Policy Analysis
Office of Policy, Planning and Evaluation
U.S. Environmental Protection Agency
AUGUST 1987
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ACKNOWLEDGEMENTS
This report was prepared under the direction of:
Ralph A. Luken
Chief
Economic Studies Branch
Robert M. Wolcott
Director
Economic and Regulatory Analysis Division
Richard D. Morgenstern
Director
Office of Policy Analysis
John M. Campbell
Acting Assistant Administrator
Office of Policy, Planning and Evaluation
It was initiated by Ralph (Skip) Luken and written by
Lyman H. Clark. The Appendix was prepared by Margaret H. Miller.
The authors would like to thank the many economists in EPA's
program offices who assisted with this report.
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UNITED STATES ENVIRONMENTAL PROTECTION AGENO
WASHINGTON, D.C. 20460
JUN I I '•••'.-•; OFF ICE OF
POLICY, PLANNING AND EvALU/UiQM
MEMORANDUM
SUBJECT: Report entitled "EPA's Use «ff Benefit-Cost Analysis:
1981-1986"
FROM: John M. Campb<
Acting AssistarT^taiffitfistrator for OPPE
THROUGH: A. James Barnes
Deputy Administrator
TO: Lee M. Thomas
Administrator
I am pleased to forward the enclosed report, "EPA's Use of
Benefit-Cost Analysis: 1981-1986." This report, prompted by an
initial GAO analysis, discusses the contributions that benefit-
cost analysis has made to EPA's regulatory process and examines
the limitations of benefit-cost analysis as well. It analyzes
the various statutory provisions that affect EPA's use of these
analyses in regulatory decision making. Finally, it describes
how EPA is working to improve its benefit-cost analyses in the
future.
In addition to the benefit-cost analyses prepared for major
rules as part of the RIA process, EPA prepares benefit-cost
analyses to accompany most other important environmental decisions.
During the 5-year period covered by this report, EPA issued about
1,000 regulations. Less than 2% of these were considered major
rules requiring RlAs. EPA prepared RIAS for 15 of the 18 major
rules. The other 3 were exempted by OMB because of statutory or
court-imposed deadlines. The accompanying report covers the
benefit-cost analyses prepared for each of the 15 RIAs, as well
as several of the analyses prepared for non-major rules.
The major findings of our study are the following:
1. Analysis improves environmental regulation.
EPA's benefit-cost analyses have resulted in several
cases of increased net benefits to society from
environmental regulations. Three of the RIAs showed
that the net benefits from recommended improvements
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in the regulations would exceed $10 billion. The
total cost of preparing all of the 15 RIAs studied was
approximately $10 million. Thus, our analyses yielded a
return on investment of 1,000 to 1.
2. Benefit-cost analysis often provides the basis for
stricter environmental regulations.
Environmentalists often fear that economic analysis
will lead to less strict environmental regulations
in an effort to save costs, but our study reveals
that the opposite is just as often the case. For
example, the most dramatic increase in net benefits
($6.7 billion) from EPA's RIAs resulted from a
recommendation for much stricter standards — to
eliminate lead in motor fuels.
3. Alternatively, benefit-cost analysis may reveal
regulatory alternatives that achieve the desired
degree of environmental benefits at a lower cost.
Four of the analyses studied (used oil, TSCA
premanufacture review, FIFRA data requirements, and
the national contingency plan) showed how less costly
regulations would achieve results equivalent to the
more expensive alternatives. In two of these cases
(used oil and the national contingency plan), the
analyses showed that the less costly alternatives
would lead to greater reductions in environmental risk
4. Statutory restrictions limit EPA's use of benefit-
cost analysis for many regulations.
Many environmental statutes prevent EPA from consi-
dering costs and even some benefits when setting
environmental standards. EPA was able to consider
the full implications of its benefit-cost analyses
when setting only 6 of the 15 regulations studied.
EPA's experience shows, however, that some of the
traditional statutory decision criteria, such as
"health effects thresholds" and "technical feasi-
bility," frequently do not provide clear distinc-
tions for decision making. Being able to consider
the full range of benefits and costs associated
with alternative standards would enhance the infor-
mation available in making these decisions.
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5. The average cost of an RIA is low.
The average cost of EPA's 15 RIAs was $685,000.
This amounts to about 0.1% of the minimum cost of a
major rule over five years. (By definition, a major
rule has a cost of at least $100 million per year.)
6. EPA can improve its benefit-cost analyses by expanding
the available scientific and economic database and by
following more rigorously EPA's own guidelines for
preparing RIAs.
Only 6 of the 15 benefit-cost analyses presented a
complete analysis that included monetized estimates of
the net benefits of regulatory alternatives. For many
of these analyses, the necessary scientific and/or
economic data were either inadequate or unavailable.
In the case of some of the other analyses/ on the
other hand, EPA simply did not thoroughly carry out
all of the specific types of analyses called for in
the RIA guidelines.
Over the years since EPA was founded, EPA's use of benefit-
cost analysis in environmental rulemaking has increased consider-
ably. While recognizing the limitations of benefit-cost analyses,
we are finding these analyses to be increasingly useful tools in
helping to provide the balance required in complex regulatory
decisions. We expect that this report, which we will publish
with limited distribution, will contribute to a better under-
standing on the part of EPA, the regulated community, and the
nation as a whole of the role of these analyses in environmental
rulemaking.
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EPA'S USE OF BENEFIT-COST ANALYSIS
1981 1986
Contents
Page
EXECUTIVE SUMMARY S-l
Chapter 1 INTRODUCTION 1-1
Chapter 2 HISTORICAL BACKGROUND 2-1
Precursors of RIAs 2-1
Regulatory Impact Analyses. 2-4
Chapter 3 LEGISLATIVE AUTHORITIES AFFECTING
BENEFIT-COST ANALYSIS 3-1
Clean Air Act 3-1
Clean Water Act 3-4
Safe Drinking Water Act 3-4
Toxic Substances Control Act 3-5
Resource Conservation and Recovery Act 3-5
Comprehensive Environmental Response, Compensation
and Liability Act 3-6
Federal Insecticide, Fungicide and Rodenticide Act 3-6
Atomic Energy Act 3-7
Chapter 4 EPA's BENEFIT-COST ANALYSES: 1981-1986 4-1
Contents of the RIAs 4-3
Influence of the Benefit-Cost Analyses, 4-5
Chapter 5 CONTRIBUTIONS OF BENEFIT-COST ANALYSIS 5-1
Improving Regulations 5-1
Increasing Awareness of Environmental Results 5-2
Creating a Consistent Framework for Evaluating
Environmental Initiatives 5-3
Highlighting Cross-Media Effects 5-3
Improving Analytic Techniques 5-3
Chapter 6 LIMITATIONS OF BENEFIT-COST ANALYSIS 6-1
Limitations of Economic Analysis 6-1
Information Gaps and Analytic Deficiencies 6-3
Deficiencies in Execution 6-4
Cost of the Analyses 6-5
Chapter 7 DIRECTIONS FOR THE FUTURE 7-1
Strengthening Analytic Capabilities 7-2
Focusing Environmental and Economic Research 7-2
NOTES N-l
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Contents (cont'd)
APPENDIX
Table A-l U. S. ENVIRONMENTAL PROTECTION AGENCY
RIAs PREPARED FOR MAJOR RULES
February 1981 - February 1986
Table A-2 EPA's COMPLIANCE WITH EPA AND OMB
GUIDELINES FOR RIAs
EXECUTIVE SUMMARIES OF RIAs PREPARED BY THE
U. S. ENVIRONMENTAL PROTECTION AGENCY
February 1981 February 1986
NAAQS for Nitrogen Dioxide a
NAAQS for Particulate Matter b
Surface Coal Mines c
Heavy Duty Motor Vehicles d
NAAQS for Carbon Monoxide e
Lead in Fuels f
Iron and Steel g
Organic Chemicals h
Asbestos i
PCB Transformers j
Premanufacture Review k
Used Oil 1
Land Disposal of Hazardous Wastes m
Oil Pollution Contingency Plan n
Data Requirements for Registration of Pesticides . . . . o
11
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Tables
Table 2-1 HISTORY OF REGULATORY ANALYSIS, 2-2
Table 3-1 ANALYSES SPECIFIED IN EPA's ENABLING LEGISLATION ... 3-2
Table 4-1 NUMBER OF MAJOR AND NON-MAJOR REGULATIONS
ISSUED BY EPA: 1981-85
4-1
Table 4-2 EPA's MAJOR RULES: February 1981 - February 1986 4-2
Table 4-3 EPA's BENEFIT-COST ANALYSES: 1981-86 4-4
Table 6-1 ESTIMATED COSTS OF RIAs 6-6
Table A-l U. S. ENVIRONMENTAL PROTECTION AGENCY
RIAs PREPARED FOR MAJOR RULES
February 1981 - February 1986
Appendix
Table A-2 EPA's COMPLIANCE WITH EPA AND OMB
GUIDELINES FOR RIAs
Appendix
in
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EXECUTIVE SUMMARY
EPA's central mission is to carry out its various statutory directives to protect
the nation's health, welfare, and environment from the risks posed by pollution.
Because the nation's resources are limited, EPA seeks to the extent legally permitted
to direct those resources towards the actions that will produce the greatest reduc-
tions in environmental risk. Benefit-cost analysis is one of the analytic tools that
the Agency uses to help make these environmental decisions.
Over the past 15 years, EPA's use of benefit-cost analysis in its rulemaking
activity has increased considerably. This evolution has been driven in part by a
series of executive orders requiring regulatory analyses, and in part by a steady
improvement in the analytic techniques and data sources available to the Agency.
The increasingly detailed and comprehensive benefit-cost analyses have contributed to
a better understanding, on the part of EPA, the regulated community, and the nation
as a whole, of the benefits and costs of environmental regulations.
On April 6, 1984, the U.S. General Accounting Office (GAO) published a review
of three of EPA's Regulatory Impact Analyses (RIAs) entitled "Cost-Benefit Analysis
Can Be Useful in Assessing Environmental Regulations, Despite Limitations" (GAO
Report). The GAO report offered several recommendations for enhancing the useful-
ness of benefit-cost analysis in the regulatory process. Among these recommen-
dations was that EPA send to the Congress, "in executive summary form, those
cost-benefit analyses that cannot be used in environmental rulemaking because of
legal restrictions."
This report, prompted in part by the GAO report, examines the contributions
that benefit-cost analyses have made and discusses their limitations as well. It
analyses the various statutory provisions that affect EPA's use of benefit-cost
analysis in regulatory decision making. Finally, it describes how EPA is working to
improve its benefit-cost analyses in the future. Included in the appendix are
executive summaries of the 15 benefit-cost analyses discussed in this report.
HISTORICAL BACKGROUND
EPA has been preparing analyses of environmental regulations since its
inception. EPA has prepared these analyses both to provide information essential to
fulfilling its statutory responsibilities and also to comply with executive orders.
Each of the major environmental statutes designates different factors that EPA is to
consider when setting environmental regulations. At the same time the Agency is
required to provide regulatory analyses for review by the Office of Management and
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Budget (OMB). Beginning with the "Quality of Life" reviews under the Nixon
Administration, the requirements for review by OMB have evolved from a relatively
simple analysis of costs to the comprehensive benefit-cost analyses required for the
current Regulatory Impact Analyses. Often, the factors required for review by OMB
are not the same as those specified for consideration in the environmental statutes.
The U. S. Environmental Protection Agency is authorized to issue regulations
under several different Acts of Congress. Some of these laws give EPA relatively
broad flexibility when choosing which factors to consider in the decision making
process. With other laws, however, the scope of EPA's consideration is more nar-
rowly defined by the enabling legislation. Although none of the environmental
statutes specify an analysis of net benefits as part of the rulemaking process, many
statutes direct EPA to consider most, if not all, of the information that results from
preparing benefit-cost analyses.
President Reagan's Executive Order 12291 of 1981 requires agencies to prepare
Regulatory Impact Analyses (RIAs) for most major regulations. Executive Order
12291 is the first such order to designate "net benefits" as the criterion for
assessing proposed regulations. In the words of the executive order, "regulatory ob-
jectives shall be chosen to maximize the net benefits to society," and "regulatory
action shall not be undertaken unless the potential benefits to society for the
regulation outweigh the potential costs to society."
By using the phrase "to the extent permitted by law" to qualify the directive
that agencies consider the RIAs in their rulemaking, Executive Order 12291
recognizes that there are many instances in which Congress has directed an agency
to base its rulemaking on considerations other than those of maximizing net benefits.
EPA's BENEFIT-COST ANALYSES: 1981-1986
Executive Order 12291 requires EPA to prepare RIAs only for major rules, a
very small portion of EPA's rulemaking activity. Less than two percent of the
approximately 1,000 regulations issued by EPA from 1981 through 1985 were
considered major rules. From February 1981 through February 1986, the period
covered by this report, EPA issued 18 major rules as proposed and/or final rules. The
Agency prepared RIAs for 15 of these rules. OMB exempted the other three major
rules from the RIA requirements. In addition to the RIAs for major rules, EPA
prepared benefit-cost analyses for many non-major rules and environmental decisions.
Although the benefit-cost analyses in each of the RIAs included monetized cost
estimates and discussed the benefits of the regulations, not every benefit-cost
analysis included monetized estimates of benefits. In general, the benefit-cost
analyses prepared for air and water regulations were more likely to include
monetized benefits estimates than those for other program areas. This is because
the data and analytic techniques necessary for the analysis of pollutant quantities,
exposures, and adverse effects are available more often for air and water regulations
than for some of the other regulations. Twelve of the benefit-cost analyses included
estimates of changes in exposure and/or reductions in adverse effects projected as a
result of regulatory actions. Six of these analyses traced benefit estimates
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S-3
completely from improved ambient conditions through reduced exposures and adverse
effects to estimates of the monetized values of the benefits and net benefits of the
regulations.
These six analyses provided EPA with direct comparisons of the benefits and
costs of regulatory alternatives. Two of these analyses (lead in fuels and
NAAQS-PM) showed that more stringent standards could lead to greater benefits for
society. One analysis (surface coal mines) showed that costs would exceed benefits
for two of the three alternatives proposed. Another (organic chemicals) revealed
hitherto unnoticed inter-media pollution effects that EPA is now taking into
consideration. The remaining two analyses (iron and steel and PCBs) confirmed the
positive net benefits of the preferred regulatory alternatives.
The analyses that did not monetize net benefits typically evaluated regulatory
alternatives on the basis of cost per cancer case avoided, cost per ton of pollutant
removed, or similar cost-effectiveness measures. Although these analyses might be
more appropriately termed cost-effectiveness analyses, they are included in this
report under the more general heading of benefit-cost studies, because they compared
quantified benefits with monetized costs.
Although these analyses did not provide EPA with directly comparable estimates
of benefits and costs, they were useful in showing, the relationships between benefits,
however measured, and costs. Two of these analyses (used oil and national
contingency plan) assisted EPA in selecting regulatory alternatives that will result in
greater environmental benefits at less cost. Another (TSCA premanufacture review)
showed how the costs of the regulation could be reduced considerably with no
significant reduction in benefits. A fourth analysis (small quantity generators), on
the other hand, showed that greater benefits could be achieved with only a small
increase in costs.
CONTRIBUTIONS OF BENEFIT-COST ANALYSIS
Among the many ways that benefit-cost analyses have influenced the
development of regulations at EPA are the following:
1. Guiding the regulation's development,
2. Adding new alternatives,
3. Eliminating non-cost-effective alternatives,
4. Adjusting alternatives to account for differences
between industries or industry segments,
5. Supporting decisions.
At times benefit-cost analysis has led to more efficient regulations by showing
how more stringent alternatives would bring about a greater reduction in pollution
without a commensurate increase in costs. In two instances (lead in fuels and small
quantity generators) this led to the adoption of regulations that were more stringent
than originally contemplated. At other times the analysis showed that the costs of
more stringent regulations would be disproportional to the expected benefits. In
three instances (used oil, TSCA premanufacture review, FIFRA data requirements)
this led to the selection of less stringent regulatory alternatives that resulted in
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S-4
reduced regulatory burdens without significant reductions in environmental
improvement.
While these improvements cannot be attributed solely to benefit-cost analysis, it
is fair to say that the analyses played major roles in bringing about the regulatory
improvements. The most dramatic potential increases in the estimated net benefits
from regulation are summarized as follows:
RIA
Lead in Fuels
Used Oil
Premanufacture Review
Change in Regulation
more stringent standard,
greater health and
welfare benefits
reduced regulatory costs,
greater reduction in risk
reduced regulatory costs,
no significant reduction
in effectiveness
Potential Increase in
Total Net Benefits
of Regulations
$6.7 billion
$3.6 billion
$40 million
The contributions of the benefit-cost analyses prepared by EPA go beyond
individual regulations, however. In addition to improving individual environmental
regulations, benefit-cost analyses also have increased awareness of the environmental
results of EPA's regulations, provided a framework for comparing regulations both
within a single medium and across media, identified cross-media effects, and improved
analytic techniques.
COSTS OF THE ANALYSES
One issue frequently raised about the RIA process is the cost and time required
to perform the benefit-cost and other analyses required for the RIAs. The total cost
of the twelve RIAs for which cost information is available was approximately $8.1
million. The cost of each RIA ranged from $210,000 to $2,380,000, with an average
cost of approximately $675,000.
When compared with the costs of at least $100 million per year that are
associated with each major regulation, a one time cost of less than $1 million for,
each benefit-cost analysis seems modest. As EPA's experience demonstrates^
benefit-cost analyses have often played major roles in bringing about regulatory
improvements worth many times the cost of the analyses. The benefit-cost analyses
summarized in this report cost approximately $10 million but were instrumental in
bringing about regulatory improvements estimated at over $10 billion. This would be
equivalent to a return on investment of over 1,000 to 1.
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S-5
LIMITATIONS OF BENEFIT-COST ANALYSIS
Benefit-cost analysis and the RIA process have been subject to considerable
scrutiny since Executive Order 12291 was issued. The GAO report pointed to a
number of limitations in the three analyses it reviewed, and a number of journal
articles have addressed the subject.
In general, there are three major types of limitations discussed in these
reviews:
1. Those inherent in the nature of economic analyses
in general,
2. Those caused by gaps in available information and
deficiencies in analytic techniques, and
3. Those that are the result of errors and omissions in
the execution of the analysis.
EPA recognizes the importance of these limitations, addressed more fully in the body
of this report, and has taken them into consideration in the Agency's guidelines for
preparing RIAs.
DIRECTIONS FOR THE FUTURE
Benefit-cost analysis has proven to be a useful tool not only for comparing
alternatives for a specific regulation, but also for comparing the relative value of the
many different regulations that are written in response to EPA's various statutory
authorities. Through such analyses EPA is increasing its ability to decide how to
apply the nation's limited resources to achieve greater levels of environmental
protection, not only within but across environmental media.
As the Agency's economic analytical capability has advanced, EPA has begun to
discover limitations in some of the traditional decision criteria for setting standards.
EPA's experience shows that these decision criteria, such as "health effects
thresholds," "margins of safety," and "technical feasibility," frequently do not provide
clear distinctions for decision making. Increasingly, health effects research is
finding that it is difficult to identify thresholds below which certain pollutants pose
no risk of adverse health effects. At the same time, engineering advances are
resulting in technologies that can achieve lower and lower levels of pollution, albeit
usually at higher and higher costs. When there are no identifiable health effects
thresholds and no limits to control technology, then choosing an appropriate level of
control becomes a matter of balancing the relative benefits and costs of additional
levels of control.
While recognizing the limitations of analyses such as benefit-cost analyses, EPA
finds these analyses to be increasingly useful tools in helping to provide the balance
required in complex regulatory decisions. Consequently, EPA is committed to
strengthening its capabilities for performing benefit-cost analyses and to improving
the research programs that provide the underlying economic, scientific, and technical
information.
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Chapter 1
INTRODUCTION
EPA's central mission is to carry out its various statutory directives to protect
the nation's health, welfare, and environment from the risks posed by pollution.
Because the nation's resources are limited, EPA seeks to the extent legally permitted
to direct those resources toward the actions that will produce the greatest reductions
in environmental risk. Benefit-cost analysis is one of the analytic tools that the
Agency uses to help make these environmental decisions.
Over the past 15 years, EPA's use of benefit-cost analysis in its rulemaking
activity has increased considerably. This evolution has been driven in part by a
series of executive orders requiring regulatory analyses, and in part by a steady
improvement in the analytic techniques and data sources available to the Agency.
The increasingly detailed and comprehensive benefit-cost analyses have contributed to
a better understanding, on the part of EPA, the regulated community, and the nation
as a whole, of the benefits and costs of environmental regulations.
EPA's recent benefit-cost analyses have been prepared under Executive Order
12291, issued in February 1981. This is the first executive order to provide a formal
mechanism for comparing the benefits and costs of environmental regulations. It
requires each federal agency to prepare a Regulatory Impact Analysis (RIA) to
accompany most major rules. Each RIA should include a complete analysis of the
benefits and costs associated with regulatory alternatives and should calculate the
net benefits of each alternative.
The benefit-cost analyses contained in each RIA fulfill multiple objectives.
They articulate how pollution damages human health, welfare, and the environment.
They estimate the benefits of reducing those damages. They estimate the costs of
pollution control and the cost-effectiveness of control alternatives. And they assess
the impacts of pollution control alternatives upon business, society, and the economy.
Benefit-cost analyses are based upon scientific research of the extent and the
effects of pollution and upon engineering studies of alternative pollution control
technologies. Although monetizing the costs of control is usually routine, monetizing
the benefits of environmental improvements is more complex. Typically, the benefits
are based upon "willingness-to-pay" estimates obtained from the revealed preferences
of potentially affected individuals. These estimates use the common metric of the
dollar to answer the question: What is the value placed on a change in well-being
that results from an improvement in environmental quality? Estimates of the net
benefits of each regulatory alternative are obtained by subtracting the estimated
costs from the estimated benefits.
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For each regulatory alternative, the RIAs should include not only estimates of
those benefits and costs that can be monetized, but also descriptions of health and
environmental benefits that cannot be monetized. These analyses should be accom-
panied by qualifications as to the accuracy of the analyses and uncertainties in the
estimates, and comments on intergenerational and other distributional considerations.
The benefit-cost analyses in the RIAs are used to assess how environmental
regulations fulfill environmental, economic, and social objectives.
EPA strives simultaneously to provide the full benefit-cost analyses required by
Executive Order 12291, and to remain faithful to its statutory directives. Many of
the statutes that govern EPA define which benefit and cost factors it may consider
when deciding upon regulations. When setting standards under these statutes, EPA
prepares full regulatory impact analyses, but the Administrator considers only those
portions of the analyses that the statute allows.
While recognizing these limitations, the U.S. General Accounting Office (GAO)
has praised benefit-cost analysis as a valuable tool for improving environmental
regulations. On April 6, 1984, the GAO published a report on three of EPA's RIAs
entitled Cost-Benefit Analyses Can Be Useful in Assessing Environmental Regula-
tions. Despite Limitations.1 The GAO report offered several recommendations for
enhancing the usefulness of benefit-cost analysis in the regulatory process. Among
these recommendations was that EPA send to the Congress, "in executive summary
form, those cost-benefit analyses that cannot be used in environmental rulemaking
because of legal restrictions."2
For the first five years following the issuance of Executive Order 12291, EPA
prepared 15 RIAs to accompany major rules and many similar analyses to accompany
a number of non-major rules. This report, prompted in part by the GAO report,
examines the contributions that benefit-cost analyses have made and discusses their
limitations as well. It analyses the various statutory provisions that affect EPA's use
of benefit-cost analysis in making regulatory decisions. Finally, it describes how
EPA is working to improve its benefit-cost analyses for the future. The appendix
contains executive summaries of each of the RIAs prepared by EPA for major rules
from February 1981 when Executive Order 12291 was issued through February 1986.
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Chapter 2
HISTORICAL BACKGROUND
EPA has been preparing analyses of environmental regulations since its
inception, both to provide information essential to fulfilling its statutory
responsibilities and also to comply with executive orders. Each of the major
environmental statutes designates different factors that EPA is to consider when
setting environmental regulations. At the same time, EPA must provide regulatory
analyses for review by the Office of Management and Budget (OMB). Beginning with
the "Quality of Life" reviews under the Nixon Administration, the requirements for
review by OMB have evolved from a relatively simple analysis of costs to the
comprehensive benefit-cost analyses required for the current RIAs. Often, the
factors required for review by OMB are not the same as those specified for
consideration in the environmental statutes.
This chapter examines how the requirements for regulatory analysis have
evolved and describes the requirements of Executive Order 12291. Chapter 3
discusses how these requirements compare with those of EPA's enabling legislation.
PRECURSORS OF RIAs
Over the years, the scope of the regulatory analyses required by executive
orders has gradually broadened to include not only costs, but also inflation and other
economic impacts, effects on small businesses, benefits, and net benefits. Table 2-1
summarizes the history of these regulatory analysis requirements.
Quality of Life Review
The first executive requirement for an economic analysis of EPA's regulations
came shortly after EPA was formed. On October 5, 1971, OMB established a formal
review procedure for regulations pertaining to environmental quality, consumer
protection, and occupational and public health and safety. Known as the "Quality of
Life" review, it required that a "summary description1' accompany every significant
regulation, indicating the principal objectives of the regulation, the alternatives
considered, a comparison of the benefits and costs associated with the alternatives,
and the reasons for selecting the proposed alternative.1
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Table 2-1
HISTORY OF REGULATORY ANALYSIS
Act/Executive Order
Year Title of Analysis
Types Of Analysis
OMB Memo 10/5/71
1971 Quality of Life
Review
Costs, Benefits
Executive Order 11821
1974 Inflation Impact
Statement
Costs, Benefits,
Inflationary Impacts
Executive Order 11949
1976 Economic Impact
Statement
Costs, Benefits,
Economic Impacts
Executive Order 12044
1978 Regulatory Analysis Costs, Economic
Consequences
Regulatory Flexibility Act 1980
Regulatory
Flexibility Analysis
Impacts on Small
Businesses
Executive Order 12291
1981 Regulatory Impact
Analysis
Costs, Benefits,
Net Benefits
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Inflation Impact Statements
President Ford's Executive Order 11821 of November 27, 1974, required all major
regulations to be accompanied by a statement "certifying that the inflationary impact
of the proposal has been evaluated." These statements were referred to as "Inflation
Impact Statements."2
In January 1975, OMB required each agency to develop criteria for determining
which rules would be considered major, as well as procedures for evaluating the
inflationary impact of proposed rules. OMB specified that these statements were to
include (1) a review of the alternatives to the proposed action, together with their
probable costs, benefits, risks, and inflationary impacts; (2) the costs associated with
the recommended alternative, together with the inflationary effects of the action on
markets, consumers, and businesses; and (3) a comparison of the benefits to be
derived from the proposed action, with the estimated costs and inflationary impacts.
Costs, benefits, and economic impacts were to be quantified as much as possible.3
EPA responded to OMB's directive by adopting final guidelines for Inflation
Impact Statements in April 1975. These guidelines required the analysis of the costs,
benefits, risks, and inflationary impacts of the proposed action and its alternatives.
EPA emphasized that the benefits were to be expressed first in terms of
environmental improvements, and were to be valued in dollar terms where feasible.
However, EPA did point out in its guidelines that "given the limitations in the state
of the art of benefits assessment of pollution control,...in most cases this type of
valuation will not be feasible or meaningful."4 Thus, although a discussion of benefits
and a comparison of benefits with costs were called for in OMB's guidance, the
emphasis of Inflation Impact Statements was upon costs and the impact of those
costs on the economy.
Economic Impact Statements
Executive Order 11821 expired at the end of 1976. On December 31, 1976,
President Ford issued Executive Order 11949, extending the previous order for
another year. This new order also changed the title of the required analyses to that
of "Economic Impact Statements."5 In January 1977, EPA revised its guidelines for
these analyses. The new guidelines recommended that the title of the analyses be
amended to "Economic Impact Analyses" (EIAs) to avoid confusion with Environmental
Impact Statements (EISs).6 This new title was adopted by EPA, but was never
formalized by the executive office.
Regulatory Analysis
In March 1978, President Carter's Executive Order 12044 replaced the Economic
Impact Statement with the Regulatory Analysis. The Regulatory Analysis was to
contain a "succinct statement of the problem; a description of the major alternative
ways of dealing with the problem that were considered by the agency; an analysis of
the economic consequences of each of these alternatives, and a detailed explanation
of the reasons for choosing one alternative over the others." Consideration of
benefits was not an explicit requirement of the analysis, but the agencies were
required to consider "the direct and indirect effects of the regulation," and to choose
the "least burdensome" alternative.7
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EPA responded to Executive Order 12044 by publishing final guidelines for
implementation in May 1979. The contents of the Regulatory Analyses were to
include marginal cost-effectiveness curves for each alternative, together with
analyses of the economic impacts of the proposed standard and of each alternative.
An analysis of the environmental improvements and other benefits of the proposed
action was not required by Executive Order 12044 and, accordingly, was not included
in EPA's guidelines for Regulatory Analyses.8
Regulatory Flexibility Analysis
The Regulatory Flexibility Act in 1980 added another report to the requirements
for regulatory development. It required all federal agencies to analyze the impacts
of proposed regulations on small businesses, small nonprofit organizations, and small
governmental entities. A Regulatory Flexibility Analysis is required for all actions,
except those that will "not have a significant economic impact on a substantial
number of small entities."9
REGULATORY IMPACT ANALYSES
President Reagan's Executive Order 12291 of 1981 replaced the Regulatory
Analysis with the Regulatory Impact Analysis. The RIA not only restored the
consideration of benefits to the regulatory process, but also subtly changed the
emphasis of regulatory development. No longer were agencies to choose the "least
burdensome" alternative. Instead, they were directed to choose the alternative that
would maximize the "net benefits to society."10
As of the date of this report, all federal agencies must prepare RIAs for most
major regulations and Regulatory Flexibility Analyses, except when the Administrator
certifies there will be no significant economic impact on small entities. These two
analyses may be combined into one report.
Executive Order 12291 is the first such order to designate "net benefits1' as the
criterion for assessing proposed regulations. In the words of the executive order,
"Regulatory objectives shall be chosen to maximize the net benefits to society,"11
and "Regulatory action shall not be undertaken unless the potential benefits to
society for the regulation outweigh the potential costs to society."12 Executive
Order 12291 recognizes that many environmental statutes have established other
criteria for setting regulations and qualifies its directive to maximize net benefits
with the phrase "to the extent permitted by law."
Definition of "Major Rule"
To ensure that its requirements are carried out, Executive Order 12291 requires
each agency to prepare and, to the extent permitted by law, consider an RIA for
every major rule. A major rule is defined as any regulation that 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; or (3) significant adverse effects on competition, employment,
investment, productivity, innovation, or the international competitive position of U.S.
firms.
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Regulations Exempt from RIAs
The executive order provides for certain exemptions to the RIA process.
Regulations that respond to emergencies are exempt from the review schedules, but
RIAs are required as soon as is practicable. Regulations for which the RIA process
would conflict with deadlines imposed by statute or by judicial order are similarly
exempt, but the RIA requirements must be followed to the extent permitted by
statutory or judicial deadlines. Finally, the Director of OMB may exempt any class
or category of regulations from any or all of the requirements, subject to the
direction of the Task Force on Regulatory Relief.
Required Contents
As specified in Executive Order 12291, the contents of each RIA must include:
1. "A description of the potential benefits of the rule,
including any beneficial effects that cannot be
quantified in monetary terms, and the identification of
those likely to receive the benefits;
2. "A description of the potential costs of the rule,
including any adverse effects that cannot be quantified
in monetary terms, and the identification of those likely
to bear the costs;
3. "A determination of the potential net benefits of the
rule, including an evaluation of effects that cannot be
quantified in monetary terms;
4. "A description of alternative approaches that could sub-
stantially achieve the same regulatory goal at lower
cost, together with an analysis of the potential benefits
and costs and a brief explanation of the legal reasons
why such alternatives, if proposed, could not be adopted;
and
5. "Unless covered by the description required under para-
graph (4) of this subsection, an explanation of any legal
reasons why the rule cannot be based on the requirements
set forth in Section 2 of this Order."13
Although Executive Order 12291 does not explicitly require an analysis of the
benefits or costs of all of the alternatives to the proposed action, such analysis is
implicit in the requirement that the alternative with the greatest net benefits be
chosen.
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OMB Guidelines
In June 1981, OMB issued guidance to help federal agencies prepare RIAs. The
guidance elaborates the requirements of the executive order. Unlike the executive
order, however, it explicitly calls for estimates of the benefits, costs, and net
benefits of all major regulatory alternatives.14
EPA Guidelines
In December 1983, EPA issued its own final guidelines for performing RIAs.15
These guidelines expand on OMB's guidance, especially on the statement of the need
for and consequences of the proposal, the examination of alternative approaches, and
the analysis of benefits and costs. EPA's guidelines are divided into six sections and
are supplemented with four appendices and two additional guidance documents.
The six sections are:
1. schedules for OMB review,
2. stating the need for and consequences of the proposal,
3. considering alternative approaches,
4. assessing benefits,
5. analyzing costs, and
6. evaluating benefits and costs.
The first section sets forth OMB's analytical requirements and its schedule for
regulatory review. The remaining sections describe how the RIA is to be performed.
Appendices have been drafted to provide considerably more detail on analyzing
benefits, analyzing costs, choosing discount rates, and performing economic impact
analyses. Additional guidance documents have been drafted to provide information on
how to value mortality and morbidity benefits, and case studies have been prepared
as examples of well prepared analyses. The guidelines, appendices, and associated
documents are intended to reflect the state of the art in analytic techniques and are
updated regularly.
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Chapter 3
LEGISLATIVE AUTHORITIES AFFECTING BENEFIT-COST ANALYSIS
By using the phrase "to the extent permitted by law'1 to qualify the directive
that agencies consider the RIAs in their rulemaking, Executive Order 12291
recognizes that there may be instances in which Congress has directed an agency to
base its rulemaking on considerations other than those of maximizing net benefits.
The U.S. Environmental Protection Agency is authorized to issue regulations
under several different acts of Congress. These include the Clean Air Act; the Clean
Water Act; the Safe Drinking Water Act; the Toxic Substances Control Act; the
Resource Conservation and Recovery Act; the Comprehensive Environmental Response,
Compensation and Liability Act; the Federal Insecticide, Fungicide, and Rodenticide
Act; and the Atomic Energy Act and its amendments, including the Uranium Mill
Tailings Radiation Control Act.
Some of these laws give EPA relatively broad flexibility when choosing which
considerations to include in the decision-making process. With other laws, however,
the scope of EPA's consideration is more narrowly defined by the enabling
legislation. The following paragraphs summarize EPA's legislative authorities and
discuss the extent to which EPA is able to consider the results of its benefit-cost
analyses in its rulemaking under each act. Table 3-1 summarizes how the analyses
permitted under these acts compare with the benefit-cost analyses required under
Executive Order 12291. As can be seen, although none of the environmental statutes
specifies an analysis of net benefits as part of the rulemaking process, many statutes
direct EPA to consider most, if not all, of the benefit and cost analyses that are
part of determining net benefits.
CLEAN AIR ACT
The Clean Air Act (CAA) requires EPA to issue many different types of
regulations for different types of emission sources.1 Depending on the source and
pollutant, the Act places different requirements on the rulemaking process. For some
regulations, such as the primary National Ambient Air Quality Standards (NAAQS),
the statute explicity speaks only of effects of the regulation upon public health. For
others, such as most emission standards for motor vehicles and aircraft, the CAA
calls for analysis of the cost of compliance. For the regulation that controls or
prohibits motor vehicle fuels, the CAA specifically requires a benefit-cost analysis
whenever the regulation is intended to protect the effectiveness of emission control
systems.
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Table 3-1
ANALYSES SPECIFIED IN EPA's ENABLING LEGISLATION
Benefits
Act/Regulation
Clean Air Act
NAAQS Primary
NAAQS Secondary
Hazardous Air Pollutants
New-Source Standards
Motor Vehicle Standards***
Aircraft Emissions
Fuel Standards***
Clean Water Act
Private Treatment Works
Public Treatment Works
Safe Drinking Water Act
Max. Contaminant Level Goals
Maximum Contaminant Levels
Toxic Substances Control Act
Resource Conservation and
Recovery Act
Comprehensive Environmental
Response. Compensation and
Liability Act
Reportable Quantities
National Contingency Plan
Federal Insecticide. Fungicide
and Rodenticide Act
Data Requirements
Minor Uses
Atomic Energy Act
Radioactive Wastes
Uranium Mill Tailings
Pollution Welfare/
Reduction Health Envrnmnt
Costs
X
X
X
X
X
X
X
X
X
X
X
X
*
X
X
X
X
X
X
X
X
X
X
X
X
X
X
****
X
X
X
X
X
X
Compliance Cost-
Costs Effctv
Economic
Impacts
**
X
X
X
X
**
X
X
**
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
* Includes non-air-quality health and environmental impacts only.
** Statute refers only to "cost."
*** Type of analysis depends on grounds for control.
**** Includes non-water-quality environmental impacts only.
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Many of the air pollution regulations for stationary sources are governed by
public health and welfare considerations. EPA must base the primary NAAQS upon
air quality criteria and must allow an "adequate margin of safety-requisite to protect
the public health."2 In setting these regulations, the CAA specifies only that EPA
shall consider public health. EPA has not considered any analyses that evaluate
costs or nonhealth benefits. Thus, EPA has considered part, but not all, of the
benefit-cost analyses for these regulations.
The language for the secondary NAAQS allows the consideration of a broader
range of analyses. EPA must establish the secondary NAAQS "to protect the public
welfare from any known or anticipated adverse effects."3 Effects on welfare are
defined in the Act as including, but not being limited to, "effects on soils, water,
crops, vegetation, man-made materials, animals, wildlife, weather, visibility, and
climate, damage to and deterioration of property, and hazards to transportation, as
well as effects on economic values and on personal comfort and well-being."4
The National Emission Standards for Hazardous Air Pollutants (NESHAPs) must
be set at the level that "provides an ample margin of safety to protect the public
health...."5 EPA does consider costs and economic feasibility to a limited extent
when setting these standards.
In establishing the performance standards for new stationary sources of
pollution, EPA is required to consider costs. EPA must choose a standard that
reflects "the degree of emission reduction achievable through the application of the
best system of continuous emission reduction which (taking into consideration the
cost of achieving such emission reduction, and any non-air quality health and
environmental impact and energy requirements)...has been adequately
demonstrated...."6 This language explicitly calls for the consideration of costs, but
omits any reference to air quality benefits. Consequently, EPA considers costs,
.cost-effectiveness and economic impacts in setting these standards, because
cost-effectiveness exclusively considers costs in relation to emission reduction. It
does not consider air-quality-related benefits when setting these standards.
While establishing emission standards for motor vehicles, EPA generally must
consider costs. For example, certain heavy duty motor vehicle standards are to
"reflect the greatest degree of emission reductions achievable—giving appropriate
consideration to the cost of applying such technology within the period of time
available...and to noise, energy, and safety factors associated with the application of
such technology."7 Certain other heavy-duty standards may be revised, if they
"cannot be achieved...without increasing cost or decreasing fuel economy to an
excessive and unreasonable degree...."8 If these standards are revised, EPA must
submit an "analysis of the cost-effectiveness of other strategies for attaining and
maintaining national ambient air quality standards—in relation to the
cost-effectiveness for such purposes of standards which, but for such revision, would
apply."9 This language permits the consideration of cost-effectiveness and economic
feasibility when setting these standards.
EPA is authorized to develop aircraft emission standards for any pollutant that
"may reasonably be anticipated to endanger the public health or welfare." 10 In
developing these standards, EPA must give "appropriate consideration to the cost of
compliance."11
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For another type of regulation, the CAA specifically calls for benefit-cost
analysis. When controlling or prohibiting motor vehicle fuels or fuel additives for
the purpose of preventing significant impairment of emission controls, EPA must
consider "available scientific and economic data, including a cost-benefit analysis
comparing emission control devices or systems which are or will be in general use
and require the proposed control or prohibition with...[those that]...do not...."12
CLEAN WATER ACT
Under the Clean Water Act (CWA), EPA's principal rulemaking activity is to
establish effluent limitation guidelines for industrial and municipal waste-water
treatment facilities.13 The CWA specifies that these guidelines are to be technology
based. Non-water quality environmental impacts are to be considered when setting
these guidelines, but the benefits of water-quality improvements are not mentioned as
factors to be considered.14 The CWA does provide, however, that more stringent
water-quality-based effluent limitations are to be imposed for individual facilities
when necessary to meet state water-quality standards.15
For private treatment plants, the CWA calls for EPA to establish a number of
technology-based effluent-limitation guidelines. Best Practicable Technology (BPT)
guidelines, for example, are to be established considering "the total cost of
application of technology in relation to the effluent reduction benefits to be
achieved," as well as "the age of equipment and facilities involved, the process
employed, the engineering aspects of the application of various types of control
techniques, process changes, non-water quality environmental impact (including
energy requirements), and such other factors as the Administrator deems
appropriate."16 For these BPT guidelines, the CWA clearly calls for cost-
effectiveness analysis and for the consideration of economic feasibility, but limits the
consideration of benefits to effluent reduction benefits and non-water quality
environmental impacts. The statutory language for the other technology-based
effluent-limitation guidelines is similar, but not identical, to the language for BPT.
When setting these regulations, EPA only considers the benefit-cost analysis called
for in the RIA to the extent authorized for each type of guideline.
The standards for publicly owned treatment works are based upon information
relating to "the degree of effluent reduction available through the application of
secondary treatment."17 Again, these are technology-based standards. Because EPA's
standards predate Executive Order 12291, the issue of whether benefit-cost analysis
can be considered in the rulemaking process has not been decided.
SAFE DRINKING WATER ACT
Under the Safe Drinking Water Act,18 EPA must establish national primary
drinking water regulations for each contaminant which "may have an adverse effect1
on the health of persons...."19
The primary drinking water regulations for each contaminant are to be based on
a maximum contaminant level goal (MCLG), set "at a level at which...no known or
anticipated adverse effects on the health of persons occur and which allows an
adequate margin of safety."20 The MCLG is based upon these health effects. The
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primary drinking water regulations are to specify a maximum contaminant level
(MCL), set as close to the MCLG as is feasible. The term "feasible" is defined in
the Act as meaning "feasible with the use of the best technology, treatment
techniques, and other means, which...are available (taking cost into consideration)."21
When establishing MCLs, EPA considers health benefits, particularly residual risk at
alternative MCL levels as well as costs and technical feasibility.
TOXIC SUBSTANCES CONTROL ACT
The Toxic Substances Control Act (TSCA)22 authorizes EPA to prohibit, restrict,
or regulate the manufacture, processing, distribution in commerce, use or disposal of
any substance that presents "an unreasonable risk of injury to health or the
environment."23 EPA's rules are to be applied "to the extent necessary to protect
adequately against such risk using the least burdensome requirements...."24
In promulgating any rule under TSCA, EPA is to consider and publish a
statement with respect to --
(A) "the effects ... on health and the magnitude of the
exposure of human beings ...,
(B) "the effects ... on the environment and the magnitude
of the exposure of the environment ...,
(C) "the benefits of such substance or mixture for various
uses and the availability of substitutes for such uses,
and
(D) "the reasonably ascertainable economic consequences of
the rule, after consideration of the effects on the
national economy, small business, technological
innovation, the environment, and public health."25
Because this language in TSCA calls for consideration of health and
environmental effects as well as economic consequences, EPA considers all aspects of
benefit-cost analysis in establishing rules under this authority.
i
RESOURCE CONSERVATION AND RECOVERY ACT
The Solid Waste Disposal Act26 includes as amendments the Resource
Conservation and Recovery Act (RCRA) and the Hazardous and Solid Waste
Amendments of 1984. In this paper they are referred to collectively as RCRA, the
most commonly used acronym. RCRA directs EPA to promulgate regulations for
generators and transporters of solid waste, as well as owners and operators of solid
waste treatment, storage, and disposal facilities. Most of these regulations are to
"establish such standards—as may be necessary to protect human health and the
environment."27
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RCRA clearly places the emphasis in rulemaking upon protecting human health
and the environment. Because the act is generally silent with respect to costs, EPA
looked at the legislative history to determine Congress' intent. Interpreting this
history can be difficult and is often the subject of debate. When issuing the initial
RCRA Subtitle C regulations, for example, EPA concluded that it could not consider
the cost burden on industry as a basis for lessening the standards, but it could
consider cost-effectiveness in choosing among alternatives that would meet the
standards chosen.28
COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY
ACT
The Comprehensive Environmental Response, Compensation, and Liability Act
(CERCLA),29 as amended by the Superfund Amendments and Reauthorization Act of
1986 (SARA), governs EPA's responses to releases of hazardous substances into the
environment, along with EPA's cleanup of inactive hazardous waste disposal sites.
EPA must designate which substances are to be considered hazardous and must set
the minimum quantities for reporting releases. These are to be based upon whether
such releases "may present substantial danger to the public health or welfare or the
environment."30 In establishing reportable quantities, therefore, EPA may consider
most benefits, but the act is silent with regard to costs or economic impact analysis.
Under CERCLA, EPA is also responsible for revising the National Oil and
Hazardous Substances Pollution Contingency Plan (NCP) for the removal of oil and
hazardous substances, originally published under the Clean Water Act. This plan is
to include "means of ensuring that remedial action measures are cost-effective over
the period of potential exposure to the hazardous substances or contaminated
materials."31 EPA has interpreted this language to mean that it should not consider
costs when determining the level of control necessary to protect public health, but
can consider cost-effectiveness when choosing among alternatives that would meet
the required level of control.
FEDERAL INSECTICIDE, FUNGICIDE AND RODENTICIDE ACT
The Federal Insecticide, Fungicide and Rodenticide Act (FIFRA) is primarily a
licensing statute.32 Most of EPA's actions under FIFRA have to do with registering,
and then modifying or cancelling the registration of pesticides.
When registering a pesticide, EPA is to determine that the pesticide will not
have "unreasonable adverse effects on the environment."33 These adverse effects are
defined to mean "any unreasonable risk to man or the environment, taking into
account the economic, social, and environmental costs and benefits of the use of any
pesticide."34 If EPA finds that a pesticide already registered has unreasonable
adverse effects on the environment, it may cancel the registration or change the
classification. In so doing EPA must take into account "the impact of the action...on
production and prices of agricultural commodities, retail food prices, and otherwise
on the agricultural economy."35
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Because the actions taken under this licensing authority are not considered
rulemaking under the terms of Executive Order 12291, RIAs are not prepared for
these decisions. Because of FIFRA's specific language, a risk-benefit analysis is
performed, however, and costs are considered.
EPA's formal rulemaking under FIFRA consists almost exclusively in establishing
the data requirements and procedures to be used in the registration process. In
establishing these regulations, EPA is to take into account "the difference in concept
and usage between various classes of pesticides and differences in environmental risk
and the appropriate data for valuating such risk between agricultural and non-
agricultural pesticides."36 It must also consider "the effect of the regulation on
production and prices of agricultural commodities, retail food prices, and otherwise
on the agricultural economy...."37 This language covers most of the costs and
benefits associated with pesticide use. Thus, it authorizes EPA to consider most of
the benefit-cost and economic impact analyses in the RIA when establishing
regulations under FIFRA.
ATOMIC ENERGY ACT
Under the Atomic Energy Act and its amendment, the Uranium Mill Tailings
Radiation Control Act (UMTRCA), EPA may establish regulations for managing and
disposing of radioactive wastes. A recent amendment to UMTRCA requires EPA to
"consider the risk to the public health, safety, and the environment, the
environmental and economic costs of applying such standards and such other factors
as the Administrator determines to be appropriate."38 This broad language allows
EPA to consider all aspects of benefit-cost analysis in setting standards under
UMTRCA.
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Chapter 4
EPA's BENEFIT-COST ANALYSES: 1981-1986
Executive Order 12291 requires EPA to prepare RIAs only for major rules. As
the following table shows, less than 2 percent of the approximately 1,000 regulations
issued by EPA from 1981 through 1985 were considered major.
Table 4-1
NUMBER OF MAJOR AND NON-MAJOR REGULATIONS
ISSUED BY EPA: 1981 85*
Non-Ma ior Major
Proposed Final Proposed Final
270 462 1 1
152 182 1 5
154 112 1 1
166 129 7 0
168. 122 _5 _7
910 1,007 15 14
Source: Office of Management and Budget.
*Most, but not all, regulations are counted twice, as both proposed and final.
From February 1981 through February 1986, the period covered by this report,
EPA issued 18 major rules as proposed and/or final rules (see Table 4-2). It
prepared RIAs for 15 of these major rules. OMB exempted the other three major
rules from the RIA requirements.
During this same five-year period EPA analyzed many non-major rules. While
the executive order does not require such analysis, OMB's guidelines require EPA to
perform sufficient analysis to demonstrate that non-major rules meet the order's
objectives. At a minimum, this analysis must examine costs and economic impacts.
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Table 4-2
EPA's MAJOR RULES
February 1981 - February 1986
Act/Rule
Proposed Final RIA Exemption
Clean Air Act
National Ambient Air Quality Standards for Nitrogen Dioxide
National Ambient Air Quality Standards for Particulate Matter
Requirements for Implementation Plans: Surface Coal Mines and
Fugitive Emissions
Control of Air Pollution from New Motor Vehicles and New Motor
Vehicle Engines; Gaseous Emission & Particulate Emission Regs.
Stack Height Regulation
National Ambient Air Quality Standards for Carbon Monoxide
Fuels and Fuel Additives: Gasoline Lead Content Regulations
Clean Water Act
Iron and Steel Manufacturing Point Source Category: Effluent
Limitations Guidelines
Organic Chemicals and Plastics and Synthetic Fibers Industry
Effluent Guidelines
Toxic Substances Control Act
Asbestos; Proposed Mining and Import Restrictions and Proposed
Manufacturing, Importation, and Processing Prohibition
PCB Manufacture Processing, Distribution in Commerce, and Use
Prohibitions in Electrical Transformers
Premanufacture Notification: Premanufacture Notice Requirements
and Review Procedures
Resource Conservation and Recoverv Act
Standards for Owners and Operators of Hazardous Waste Land
Disposal Facilities
Codification Rules
Management of Used Oil
Restrictions on Land Disposal of Hazardous Wastes
Comprehensive Environmental Response. Compensation & Liability Act
National Oil and Hazardous Substances Contingency Plan
Federal Insecticide. Fungicide and Rodenticide Act
Data Requirements for Pesticides Registration
1984
1984
1984
1984
1984
1980
1985
1983
1985
1984
1980
1981
1985
1985
1986
1982/84
1985
1985
1985
1985
1985
1982
1986
1985
1983
1982
1985
1982
1984
Yes
Yes
Yes
Yes
No
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
No
'
Yes
Yes
Yes
Yes
Published
RIA 2/86
Court
Deadline
Court
Deadline
Legislatd
Deadlines
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4-3
Although this paper focuses on the benefit-cost analyses prepared as part of
the RIAs for the major rules, many of the benefit-cost analyses prepared for the
non-major rules represent significant analytic efforts. For this reason, they are
included to some extent in the discussion. However, only the RIAs for the major
rules are included in the tables and charts.
CONTENTS OF THE RIAs
The appendix summarizes each of the RIAs prepared by EPA for major rules,
presents their conclusions, and comments on how extensively EPA used them in its
rulemaking. Table A-l in the appendix lists the RIAs prepared for the major rules.
Table 4-3 summarizes how each of the RIAs prepared by EPA for major rules
meets the requirements of Executive Order 12291 as regards benefit-cost analysis.
How each of the RIAs meets the more detailed specifications of EPA's and OMB's
guidelines is summarized in Table A-2 in the appendix.
The benefit-cost analyses prepared for air and water regulations were more
complete than those for the other program areas. This is because the data and
analytic techniques necessary for the analysis of pollutant quantities, exposures, and
adverse effects are available more often for air and water regulations than for some
of the other regulations. The eight analyses for air and water plus two others were
able to estimate the impact of alternatives upon ambient pollution concentrations.
Twelve benefit-cost analyses estimated changes in exposure and/or reductions in
adverse effects projected as a result of the regulatory action. Six of these analyses
traced the benefit estimates completely from improved ambient conditions through
reduced exposures and reduced adverse effects through to estimates of the monetized
value of benefits. Because benefits were monetized in only these analyses, only six
of the benefit-cost analyses estimated net benefits.
These six analyses provided EPA with direct comparisons of the benefits and
costs of regulatory alternatives. Two of these analyses (lead in fuels and NAAQS-
PM) showed that more stringent standards could lead to greater benefits for society.
One analysis (surface coal mines) showed that costs would exceed benefits for two of
the three alternatives proposed. Another (organic chemicals) revealed hitherto
unanalyzed inter-media pollution effects that EPA is now taking into consideration.
The remaining two analyses (iron and steel and PCBs) confirmed the positive net
benefits of the preferred regulatory alternatives.
The RIAs that did not monetize net benefits typically evaluated regulatory
alternatives on the basis of cost per life saved, cost per ton of pollutant removed, or
a similar cost-effectiveness measure. Although these studies might be more
appropriately termed cost-effectiveness studies, they are included in this report under
the more general heading of benefit-cost studies because they compare quantified
benefits with monetized costs.
Although these analyses did not provide EPA with directly comparable estimates
of benefits and costs, they were useful in showing the relationships between benefits,
however measured, and costs. Two of these analyses (used oil and national
contingency plan) assisted EPA in selecting regulatory alternatives that will result in
greater environmental benefits at less cost. Another (TSCA premanufacture review)
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Table 4-3
EPA's BENEFIT-COST ANALYSES: 1981-86
Act/Rule Benefits Costs Net Benefits
Clean Air Act
NAAQS NO2 X $
NAAQS-PM $ $ $
Surface Coal Mines $ $ $
Heavy Duty Motor Vehicles X $
NAAQS- CO X $
Lead in Fuels $ $ $
Clean Water Act
Iron and Steel $ $ $
Organic Chemicals $ $ $
TSCA
Asbestos X $
PCBs $ $ $
Premanufacture Review X $ X
RCRA
Used Oil X $
Land Disposal X $
CERCLA
Contingency Plan X $
FIFRA
Data Requirements X $ X
X = Item discussed.
$ = Item discussed and monetized.
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showed how the costs of the regulation could be reduced considerably with no
significant reduction in benefits. A fourth analysis (small quantity generators), on
the other hand, showed that greater benefits could be achieved with only a small
increase in costs.
INFLUENCE OF THE BENEFIT-COST ANALYSES
Whether benefit-cost analyses have an important influence on a regulation's
development depends on the degree to which benefit-cost considerations provide
clear-cut distinctions between alternatives, and also on the legislative authority
under which EPA issues the regulation. When trade-offs between benefits and costs
have been central issues in choosing among regulatory alternatives, and when the
legislative authority has allowed the full consideration of benefits and costs, the
benefit-cost analyses have played an important role in the decision-making process.
The following paragraphs discuss how each of the benefit-cost analyses for
major rules and some of those for non-major rules have influenced the rulemaking
process at EPA, This information has been assembled from the RIAs themselves and
from discussions with EPA officials involved in preparing the RIAs and in making
regulatory decisions.
Clean Air Act
NAAOS
Under the Clean Air Act, the primary NAAQS have been based solely on human
health effects, without consideration of welfare benefits, costs, or economic impacts.
The cost analyses in the benefit-cost analyses for the primary NAAQS for nitrogen
oxides, particulate matter, and carbon monoxide were not used in the rulemaking
decisions.
Even though the benefit-cost analyses played no role in EPA's decision making,
they were not without value. For example, the analysis for the PM-NAAQS helped
explain to the public the effects of EPA's decision, and showed that more stringent
standards could lead to greater benefits to society.
Surface Coal Mines
In analyzing the listing of surface coal mines for new-source review, EPA
considered the benefits and costs of three alternatives relative to current standards.
The analysis showed that the costs of two of the alternatives exceeded the benefits.
The results of the benefit-cost analysis for the third alternative were inconclusive.
EPA is reviewing public comments to the proposal.
Heavy Duty Motor Vehicles
In setting or revising certain emission standards for heavy duty motor vehicles
under the Clean Air Act, EPA must achieve the greatest degree of emission reduction
available, but must also give appropriate consideration to costs. The RIA for the
heavy duty motor vehicle standards examined the cost-effectiveness of several
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alternatives. The alternatives chosen were selected on the basis of the degree of
pollution reduction, health and welfare impacts, and technical feasibility, supported
by the cost-effectiveness determinations.
Lead In Fuels
Benefit-cost analysis played an important role in this regulation. In 1982 EPA
had tightened its standard for lead in gasoline, and there was no legislative or other
pressure on EPA to further revise the standard. After reviewing new information,
however, EPA officials realized in 1984 that the benefits of a further reduction in
lead content might be substantial. Accordingly, EPA fully analyzed the benefits and
costs of the alternatives.
This analysis revealed that reducing the lead content in gasoline from 1.1 to 0.1
grams per gallon would reduce adverse health effects and medical care and
educational costs for children with high blood lead levels; could reduce deaths,
illnesses, and lost wages from cardiovascular and other diseases; would reduce
emissions of other pollutants; and would improve fuel economy and reduce motor
vehicle maintenance costs. The present value of the net benefits to the nation from
1985 through 1992 of lowering the lead standard to 0.1 grams was calculated to be
$6.7 billion, without considering the benefits of anticipated reductions in adult blood
pressure, the value of which is yet to be determined.1 In large part because the
benefit-cost analysis showed such dramatic net benefits, EPA revised its lead in
gasoline standard in 1985 to 0.1 grams per gallon, which became effective on January
1, 1986. Although EPA might have adopted this revision even without the benefit-
cost analysis, that analysis, and the increase in net benefits it showed, provided a
strong justification for the revision.
Clean Water Act
Under the Clean Water Act, EPA considers the economic feasibility of its
effluent guidelines, but does not consider site-specific benefits of water quality
improvements. For the .effluent guidelines for the iron and steel industry, the
analysis performed as part of the RIA confirmed the positive net benefits of the
decision that was made using the criteria specified in the Act.
In preparing the benefit-cost analysis for the proposed organic chemicals
guidelines, EPA found that wastewater treatment processes, which removed pollutants
from waste streams before they reached receiving water bodies, could generate
significant emissions of volatile organic compounds (VOCs) into the air. This
analysis showed that the treatment options originally considered might not be
sufficient to control the transfer of pollution from the water to the air.
Consequently, in a July 1985 Federal Register notice, EPA announced its intention to
consider new options to control air emissions of VOCs. Thus, in highlighting the
intermedia transfer issue, this benefit-cost analysis led to the introduction of the
new regulatory options that are now being considered as part of this rulemaking
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Safe Drinking Water Act
Under the Safe Drinking Water Act, EPA considers both health risks and
economic feasibility in deciding upon drinking-water standards. Although EPA has
promulgated no major rules under the Safe Drinking Water Act since Executive Order
12291 was issued, in the course of preparing regulatory analyses for its standards
pertaining to fluoride and VOCs in drinking water EPA considered benefits and costs.
The analysis for the proposed VOC MCLs showed substantial differences in the cost-
effectiveness of alternative standards. This information is being considered as part
of the regulatory decision making.
Toxic Substances Control Act
Asbestos
EPA announced regulations for asbestos before the issuance of Executive Order
12291. After this order, the benefit-cost analysis already under way became part of
an extensive RIA. The analysis included ten options in addition to the proposed
option. The results of this analysis supported the proposal to ban some uses of
asbestos and to phase out others.
PCBs
EPA prepared three different benefit-cost analyses in conjunction with the
regulation of PCBs, although only one of these was associated with a major rule.
For uncontrolled sources, industry and environmental groups negotiated a proposed
rule. The benefit-cost analysis was used mainly to verify the economic feasibility of
that proposal. For the regulation of PCBs in transformers, the benefit-cost analysis
was used to determine the economic feasibility of the various options. This proved
useful in selecting the alternatives preferred for the different segments of the
regulated community. For the regulation of PCBs in electrical equipment, the RIA
played a similarly useful role in determining which options would be feasible for
different segments of the industry.
TSCA Premanufacture Review
In establishing the requirements for premanufacture review under TSCA, EPA
identified the major issue as being how much information to require on the
application form. One major consideration was the limit of EPA's authority — i.e.,
how much information EPA could legally require. Costs and economic impacts were
another major consideration in this rulemaking, because there was concern that high
costs might discourage innovation in the chemical industry.
In analyzing the benefits and costs of alternative forms for use in EPA's
premanufacture review of new chemicals, EPA's Office of Toxic Substances (OTS)
developed a new alternative that would substantially reduce costs without
significantly lowering the probability of identifying a problem chemical. The
alternative eventually chosen as a result of both the cost and legal considerations
provided sufficient information to protect public health, yet cost less than half as
much as the alternative originally considered. The total annual savings were
estimated to be approximately $4 million.2
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Resource Conservation and Recovery Act
Used Oil
RCRA directed EPA to consider the impact upon recycling used oil, when
setting standards for managing used oil. The benefit-cost analysis showed that
modifying the regulations not only would reduce costs, but would lead to an increase
in recycling and a concomitant decrease in risk.
Before the benefit-cost analysis, EPA had considered applying the full RCRA
hazardous waste regulations uniformly to all categories of generators of used oil.
The benefit-cost analysis showed that the cost of the full regulations would be large
for small generators, and that this could lead to the increased dumping of used oil.
By proposing different standards for small, medium, and large generators, and by
reducing standards for some used oil transporters, EPA reduced the estimated cost of
the proposed regulation* by approximately $358 million a year.3 In addition, reducing
the costs to small generators would lead to fewer incidents of dumping, which would
in turn result in fewer cases of cancer.4
Land Disposal
RCRA calls for the prohibition of the land disposal of hazardous wastes, unless
the waste is pretreated in accordance with standards set by EPA, or unless the
Administrator determines that a method of land disposal would prevent migration of
hazardous constituents from disposal sites for as long as the waste remained
hazardous. Benefit-cost analysis did not play a role in this decision.
Small-Quantity Generators
In regulating generators of small quantities of waste, EPA was restricted by
RCRA to considering the health effects and the regulatory burden of the regulations.
The proposed rule required minimal paperwork from small-quantity generators. Many
of the comments received made EPA aware that this aspect of the rule might not
provide sufficient information to enforcement personnel. Thus, EPA expanded the
benefit-cost analysis to address this issue.
The revised analysis showed that the cost of additional record-keeping
requirements for each facility would be only $34 per year, which would not increase
the burden to the regulated community significantly.5 Thus, the benefit-cost
analysis helped resolve the issue and led to setting a stricter standard than was
originally proposed.
In November 1986, subsequent to the time period covered by this report,
EPA announced that it would not list any used oil bound for recycling as hazardous
waste and would reconsider its proposed regulation for used oil bound for disposal.
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4-9
Comprehensive Environmental Response, Compensation and Liability Act
In developing the 1982 revisions to the National Oil and Hazardous Substances
Pollution Contingency Plan (NCP), EPA considered costs as well as engineering
feasibility, environmental, welfare and public health effectiveness in choosing among
alternative regulatory options, but did not consider monetized benefits. The RIA
showed the proposed alternative, which emphasized public health concerns in
characterizing the objectives of the NCP revisions, to be less costly and to result in
a greater reduction in the population exposed to contaminated groundwater than the
other alternative considered, which emphasized public welfare and the environment.
EPA's subsequent revision to the NCP in 1985 was not considered a major rule and
consequently was not accompanied by an RIA.
Federal Insecticide, Fungicide and Rodenticide Act
Of the regulations promulgated by EPA under FIFRA, the one for which
benefit-cost analysis had the most impact was the establishment of data requirements
for registering pesticides. Early in the regulatory process, the analysis of benefits
and costs showed that testing all new pesticide formulations would be extremely
expensive, compared with testing only active ingredients, and would not have any
substantial benefits. Consequently, this alternative, which was not cost-effective,
was eliminated very early in the decision-making process.
The benefit-cost analysis for the emergency exemption regulations, a non-major
rule under FIFRA, played a similar role to that for data requirements. Throughout
the rulemaking process, the costs and benefits of suggested alternatives were
analyzed. These analyses eliminated most suggestions and eventually pointed to the
cost-effective alternatives that were finally considered in the rulemaking.
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Chapter 5
CONTRIBUTIONS OF BENEFIT-COST ANALYSIS
As we have seen, the benefit-cost analyses prepared by EPA have clearly
influenced the regulations for which they were written. But the contributions of
these analyses go beyond individual regulations. They have increased awareness of
the environmental results of EPA's regulations, provided a framework for comparing
regulations both within a single medium and across media, identified cross-media
effects, and improved analytic techniques.
IMPROVING REGULATIONS
Chapter 4 provides examples of the different ways that benefit-cost analysis has
improved individual environmental regulations. These include:
1. guiding the regulation's development (lead in fuels);
2. adding new alternatives (TSCA premanufacture review,
organic chemicals, small-quantity generators);
3. eliminating alternatives that are not cost-effective
(FIFRA data requirements);
4. adjusting alternatives to account for differences between
industries or industry segments (asbestos, PCBs, used
oil); and
5. supporting decisions (heavy duty motor vehicles, iron and
steel).
In some cases benefit-cost analyses have improved regulations by showing how
more stringent alternatives would bring about a greater reduction in pollution
without an undue increase in costs. In two instances this led to the adoption of
regulations that were more stringent than previously contemplated (lead in fuels and
small-quantity generators). In other cases the analyses showed that the costs of
more stringent regulations would be disproportional to the expected benefits. In
three instances this led EPA to select less stringent regulatory alternatives (FIFRA
data requirements, TSCA premanufacture review, and used oil). In each of these
cases, the result has been reduced regulatory burdens without significant reductions
in environmental improvement.
The monetary value of three of these regulatory improvements, as measured by
the potential increase in net benefits attributable to the regulations, is summarized
below.
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Potential Increase in Net Benefits of Regulations
Potential Increase in
RIA Change in Regulation Total Net Benefits
Lead in Fuels more stringent standard, $ 6.7 billion 1
greater health and wel-
fare benefits
Used Oil reduced regulatory costs, $ 3.6 billion 2
greater reduction in risk
Premanufacture reduced regulatory costs, $ 40 million 3
Review no significant reduction
in effectiveness
While these potential improvements cannot be attributed solely to benefit-cost
analyses, it is fair to say that these analyses played a major role in bringing about
regulatory improvement.
Compared to these regulatory improvements of over $10 billion, the cost of
performing the analyses has been modest. Twelve of the fifteen RIAs prepared by
EPA for major rules cost less than $10 million (see Chapter 6). Thus, the return to
society from improved environmental regulations is more than one thousand times
EPA's investment in the benefit-cost analyses.
INCREASING AWARENESS OF ENVIRONMENTAL RESULTS
EPA's first regulatory analyses focused upon costs and economic impacts. As
the marginal benefit of increased regulation became more of an issue, and as analytic
techniques improved, EPA undertook more benefit-cost analyses. Executive Order
12291 brought this trend to its logical conclusion by requiring benefit-cost analysis
of most major rules and by designating net benefits as the measure of a regulation's
merit.
The formal consideration of benefits for each proposal has brought to light
considerably more information about the environmental results of EPA's regulations
than has been available before. This has led to an increased awareness of the
improvements in human health and welfare and the environment that result from
environmental regulation.
The benefit-cost analysis for lead in fuels discussed in Chapter 4 provides a
good example of this effect. In analyzing the benefits of reducing the lead content
of gasoline, EPA learned a great deal about the health benefits that would result if
lead emissions were reduced. This resulted in a substantial reduction in the lead
content permitted in gasoline. EPA is also using some of the information from this
benefit-cost analysis to evaluate the benefits of reducing lead in drinking water.
This is a good example of how benefit-cost analysis can contribute to an increased
environmental awareness that goes beyond a specific regulation.
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CREATING A CONSISTENT FRAMEWORK FOR EVALUATING ENVIRONMENTAL
INITIATIVES
The benefit-cost approach means that regulatory proposals now integrate
scientific and economic information into a more consistent, comprehensive framework
that informs decision makers about the expected outcomes of alternative regulatory
proposals. Estimating and monetizing both the benefits and costs of regulations
result in a set of measures that can be used not only to evaluate the alternatives for
each regulation, but also to compare different regulations and environmental
programs across media. This makes it possible to begin to examine the relative
effectiveness of different regulations and different programs.
HIGHLIGHTING CROSS-MEDIA EFFECTS
Because environmental regulations typically deal with only one medium (e.g.,
water), their analysis formerly was restricted to one medium. Benefit-cost analyses
cover all media. In some cases, this has led to an awareness of cross-media effects
that had not been noted previously.
For example, in analyzing the benefits of treating wastewaters in the plastics
and organic chemicals industries, EPA learned that the systems being considered to
treat water pollution would volatilize many organic compounds, thereby creating a
potential air pollution problem near the treatment sites. As a result, EPA is
considering additional regulatory approaches.
The increased awareness of cross-media effects has led to similar studies in
many program areas. EPA's budget priorities for FY 1987 include cross-media
reviews for municipal combusters and wastewater sludge management. In addition,
EPA's Office of Policy, Planning and Evaluation has initiated a series of integrated
environmental management studies that are examining intermedia risk transfers
associated with all types of pollution control activities in different geographic areas.
IMPROVING ANALYTIC TECHNIQUES
The increased emphasis on benefits has stimulated the introduction of new
measures of environmental results and has led to improvements in existing techniques
for estimating benefits. Similarly, the formal requirements for full cost and
economic impact analyses have stimulated improvements in the techniques used to
estimate costs and economic impacts.
The analysis prepared for the National Ambient Air Quality Standard for
Particulate Matter illustrates the progress that has been made in quantifying benefits.
Because of recent scientific and economic developments and the availability of new
data, EPA was able to break new ground for this analysis. The analysis used several
techniques for estimating indicators of environmental benefits, including
exposure-response estimates, hedonic models of changes in property values or wages,
and direct economic models of behavioral responses of individuals and firms. Using
these different measures, EPA estimated the net benefits of each regulatory
alternative. The resulting range of net benefits for each alternative could then be
compared and evaluated, taking the pros and cons of each technique into account.
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Chapter 6
LIMITATIONS OF BENEFIT-COST ANALYSIS
Benefit-cost analysis and the RIA process have been subject to considerable
scrutiny since Executive Order 12291 was issued. The GAO report1 pointed to a
number of limitations in the three analyses it reviewed, and a number of subsequent
studies2 have addressed the subject. In addition, EPA's Office of Policy, Planning
and Evaluation recently published a report on how to improve RIAs for hazardous
waste regulations ("EPA's study").3
In general, three major types of limitations are discussed in these reviews: (1)
those inherent in the nature of economic analyses in general, (2) those caused by
gaps in available information and deficiencies in analytic techniques, and (3) those
that are the result of errors and omissions in the execution of the analysis. Another
issue that has been raised is the cost and time required to perform benefit-cost
analyses.
LIMITATIONS OF ECONOMIC ANALYSIS
Benefit-cost analysis, in particular the estimate of net benefits, provides only
one perspective on regulatory alternatives. A single measure of efficiency, such as
net benefits, can never present a complete picture of issues that deal with such
complex matters as risks to human health and environmental degradation. An estimate
of net benefits cannot account for differences in technical feasibility among
alternatives, for example, even though feasibility questions may be of paramount
importance.
The results of benefit-cost analyses must always be regarded in light of the
results of other types of analyses, the uncertainties inherent in complex
environmental situations, and the many subjective evaluations that must accompany
environmental decisions. Some of the limitations of the economic measures used in
benefit-cost analyses are discussed below.
Efficiency Measures
Every economic measure of efficiency is based upon a number of implicit
assumptions. A simple estimate of net benefits, for example, assumes that
distributional effects are not important. Yet distributional effects are almost always
significant in environmental decisions. Usually, environmental regulations increase
costs for one group of people -- the polluters ~ and produce benefits for another
group — the public in general, and especially the people who live near the polluters.
On the one hand, these results may be viewed as transfers ofwealth from the
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6-2
polluters to the public. On the other hand, they may be viewed as restoring to the
public the benefits of a clean environment that had been taken from them.
Another assumption implied in using maximum net benefits as a decision rule is
that this is the sole objective of environmental decision making. Again, this is
oversimplification, for environmental decisions often are based on many objectives.
Decision makers may want to provide incentives for further research and
development, for example, or may want to minimize unemployment and economic
dislocations.
EPA's RIA guidelines call for a full discussion of all distributional effects,
feasibility considerations, and other issues that may be important to the
environmental decision. Nevertheless, because benefit-cost analysis tends to focus on
numerical estimates of net benefits, there is always the danger that these other
issues will be given insufficient attention.
Single Estimates
Many benefit-cost analyses express net benefits in terms of a single dollar
value, rather than as a range of dollar values. These point estimates may hide many
uncertainties in the underlying analyses. As explained in more detail below, there
are often many gaps in the data that must be used in benefit-cost analyses, and
there may be deficiencies in the analytic techniques as well.
EPA's RIA guidelines specify that estimates of net benefits should be presented
as a range of estimates and should be accompanied by a full discussion of the
uncertainties involved. Nevertheless, the GAO study found that this directive was
often ignored. One of GAO's strongest recommendations was that EPA place more
emphasis on the uncertainties inherent in the benefit-cost analyses and that
estimates be presented as ranges, rather than point estimates.
Valuation of Human Health
Perhaps the most controversial issue in relation to the economic analysis of
environmental regulations is the valuation placed upon reducing health risks. EPA's
guidelines offer extensive information on current techniques that are available for
making such estimates, but the state of the art in this area remains controversial.
There is no consensus on the value of reducing morbidity and mortality risks.
Nevertheless, it is necessary to develop a general understanding of these issues, so
that comparisons can be made among the multitude of human health and welfare
benefits that result from environmental regulations.
The most common approaches used by economists to derive a value for reducing
risks to human life are based upon laborers' willingness to accept increased risk in
exchange for additional wages. While these studies provide some insight into how
people view increased risks to life and limb, not everyone will agree that the
methodology is sound. Some commenters argue that workers are not well informed
and may not make employment decisions freely, without economic pressure. Others
point out that workers may not perceive their increased risks as significant and
would act much differently, if they thought that they actually would lose their lives.
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6-3
There is no unequivocally valid method for converting human health risks into
monetary terms. As the National Academy of Sciences' Committee on Principles of
Decision Making for Regulating Chemicals in the Environment concluded:
Different individuals place different values on things such as
human life, aesthetics, or national security. Thus an analysis
that assigns a quantitative value to...these factors is necessarily
subjective, and to some degree, arbitrary.4
Discounting Future Benefits
Another controversial issue in relation to the economic measures used in RIAs
is the question of evaluating future benefits. Not only is there the problem of
estimating the value of benefits that may only potentially be realized, i.e.,
groundwater that is not now but may become a source of drinking water, but there
is also the problem of placing a dollar value on benefits realized in the future when
compared with benefits realized today.
OMB's guidelines call for all benefits and costs to be discounted back to the
present, using a discount rate of 10 percent, although the effect of using other
discount rates may also be analyzed. Some commenters argue that a real rate of 10
percent is too high, and a more appropriate rate would be in the range of 5 to 7
percent. Others argue that it is inappropriate to use the discount rate for money
when discounting human health risks. Yet others argue that there is no legitimate
discount rate that can be applied to future "lives saved," because there are no
real-world market transactions in "life saving" that can be used to assess the value
that society places on future lives saved versus current lives saved.
While some economists are proponents of discounting, others argue that
reductions in future health risks should never be discounted, because discounting may
significantly reduce the apparent severity of future health effects, and lead to the
choice of an inequitable option. When using a 10 percent discount rate, for example,
we value 100 lives saved 30 years in the future the same as 6 lives saved in the
present. Thus, when a high discount rate is used, expenditures made to save lives in
the future appear to be much less effective than expenditures that will save lives
today.
Discounting is designed to help assess only whether an action is efficient, not
whether it is equitable. As shown above, discounting for environmental regulations
that span several generations may obscure intergenerational inequities. Thus,
discounting again raises the question of how efficiency measures, such as net
benefits, can account for distributional inequities, such as the distribution of health
risks among generations.
INFORMATION GAPS AND ANALYTIC DEFICIENCIES
Benefit-cost analyses can involve the collection of vast amounts of scientific
data, the modeling of complex environmental phenomena, and the tracing of these
environmental phenomena through to the calculation of human exposures and the
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6-4
estimation of resultant diseases and deaths. Estimating costs and economic impacts
can involve similar degrees of difficulty. Not surprisingly, there are many gaps in
the scientific knowledge and many deficiencies in the analytic techniques necessary
to complete these analyses.
The GAO report identified several such gaps in the three analyses studied.6
These included difficulties in determining the changes in air and water quality that
result from reductions in discharges, problems in relating changes in air and water
quality to diseases, the necessity of having to estimate health risks to humans from
low-level doses of pollution using data from experiments that were based on
high-level doses to animals, and problems associated with having to use health
studies from the United Kingdom, where the chemical makeup of the air might differ
significantly from that in the United States. These last two deficiencies highlight a
related problem: even though scientific data may be available, they may not be
available in a form that is directly applicable to the proposed regulations.
A good example of this is provided by the recent proposed National Ambient Air
Quality Standard for particulate matter. EPA proposed to express the standard in
units of particulates that are 10 microns or less in diameter (PM10), because it
believed that these smaller particulates are better indicators of the particles that are
of concern for human health. Unfortunately, much of the research on particulate
matter is expressed in units other than PM10, units that may be less useful for
estimating health effects.
EPA's study found several limitations in many of the analytic methods used in
the benefit-cost analyses. Among other things, the study recommended that EPA (1)
develop more realistic models to estimate releases to groundwater, (2) generate more
explicit estimates of the fate of toxic chemicals in air, surface water, landfills, and
groundwater, (3) develop more realistic exposure models including the actual timing,
persons affected, and levels of expected exposure, and (4) develop dynamic models
for estimating the impacts of increased costs upon market behavior.
When data are poor or analytic techniques deficient, the reliability of the
benefit-cost analyses deteriorates. To protect the soundness of the environmental
decisions based on such analyses, decision makers must be informed of the effect
that uncertainties have upon the assessment of the regulatory alternatives. Although
EPA's RIA guidelines call for a full discussion of all analytic uncertainties in
benefit-cost analyses, the GAO report and EPA's study both found that these
guidelines were not always followed adequately. The GAO report recommended more
discussion of uncertainties and EPA's study recommended that more sensitivity
analyses be performed whenever considerable uncertainties in the data or analyses
exist.
DEFICIENCIES IN EXECUTION
Besides the questions of fundamentals and state of the art is the question of
whether benefit-cost analyses are prepared correctly. In light of the many complex
analyses required for each regulation, it is not surprising that several of the EPA's
benefit-cost analyses have been found to be deficient.
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The GAO report found several deficiencies in three benefit-cost analyses. In
one case EPA failed to consider costs for new sources in determining whether a rule
was to be classified as major. In the same case, EPA did not consider any
regulatory alternatives. In other cases, EPA did not evaluate the benefits and costs
of some of the most promising alternatives. EPA was also criticized for not
considering all categories of benefits and costs in its analyses. Perhaps the most
emphasized of the deficiencies identified in the GAO report is that EPA did not
prominently discuss the uncertainties of its analyses and did not present decision
makers with ranges of values that would reflect those uncertainties.
Several other studies have found deficiencies in the technical aspects of some
of EPA's benefit-cost analyses.6 These include (1) using unrealistic assumptions when
preparing exposure estimates, (2) not assigning dollar values to health benefits, (3)
not using common time periods when estimating benefits and costs, (4) failing to
consider distributional effects, (5) improperly considering employment consequences,
and (6) not incorporating overall market trends into the economic analyses.
EPA's RIA guidelines provide technical guidance on how to properly prepare
benefit-cost analyses. These guidelines deal with all of the deficiencies mentioned
above. If these guidelines are followed, EPA's analyses will be as good as the
underlying data and analytic techniques permit. But because time, budget, and other
considerations do not always support complete analyses, it is important that, at the
very least, decision makers be made aware of the deficiencies in each analysis and
the implications thereof.
COST OF THE ANALYSES
Benefit-cost analyses require significant time and resources to complete. Some
commentors have questioned whether the analyses are worth their cost.
Table 6-1 presents estimates of the costs of the RIAs prepared by EPA. The
total cost of the twelve RIAs for which cost information is available was
approximately $8.1 million. The cost of each RIA ranged from $210,000 to $2,380,000,
with an average cost of approximately $675,000.7
When compared with the costs of at least $100 million per year that are
associated with each major regulation, a one-time cost of less than $1 million for
each benefit-cost analysis seems modest. As explained in Chapter 5, benefit-cost
analyses often result in significant regulatory improvements worth many times the
costs of the analyses. Three of the benefit-cost analyses covered by this report
helped to increase the net benefits, associated with their respective regulations by
over $10 billion.
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Table 6-1
ESTIMATED COSTS OF RIAs
Contractor
Act/RIA Costs
Clean Air Act
NAAQS - NO2
NAAQS PM
Surface Coal Mines
Heavy Duty Motor Vehicles
NAAQS - CO
Lead in Fuels
Clean Water Act
Iron and Steel
Organic Chemicals
TSCA
Asbestos
PCBs
Premanuf acture Review
RCRA
Used Oil
Land Disposal
CERCLA
Contingency Plan
FIFRA
Data Requirements
$744,000
$1,541,000
$150,000
n.a.
$405,000
$522,000
$150,000
$225,000
$915,000
$156,000
n.a.
$450,000
$200,000
n.a.
$ 40,000
EPA Personnel
FTE
(yrs)
3.5
14.0
1.0
n.a.
2.0
8.0
2.5
2.0
2.5
1.0
n.a.
1.5
3.0
n.a.
3.5
$
$210,000
$840,000
$ 60,000
n.a.
$120,000
$480,000
$150,000
$120,000
$150,000
$ 60,000
n.a.
$ 90,000
$180,000
n.a.
$210,000
Total
Costs
$954,000
$2,381,000*
$210,000*
n.a.
$525,000
$1,002,000
$300,000
$345,000*
$1,065,000*
$216,000*
n.a.
$540,000*
$380,000*
n.a.
$250,000
n.a. = not available
Source: See note #7, Chapter 6.
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Chapter 7
DIRECTIONS FOR THE FUTURE
Benefit-cost analysis has proven to be a useful tool not only for comparing
alternatives for a specific regulation, but also for comparing the relative value of the
many different regulations that are written in response to EPA's various statutory
authorities. Through such analyses EPA is increasing its ability to decide how to
apply the nation's limited resources to achieve greater levels of environmental
protection, not only within but across environmental media.
As EPA has advanced its analytic capability, it has begun to discover limitations
in some of the traditional decision criteria for setting standards. EPA's experience
shows that these decision criteria, such as "health effects thresholds," "margins of
safety," and "technical feasibility," frequently do not provide clear distinctions for
decision making. As is often the case, EPA must then rely upon its analytic
capabilities in other areas to provide the information on which to formulate its
decisions.
Nowhere is this difficulty more apparent than in setting standards that are to
be based on health effects or technology thresholds. For many pollutants it is
becoming increasingly difficult to find an established threshold below which there are
no adverse health effects. At the same time, engineering advances are producing
more pollution control technology that can achieve zero discharge of pollutants,
albeit usually at a high cost. Where there are no health effects thresholds and no
limits to control technology, then choosing an appropriate level of control may best
be done by balancing the relative benefits and costs of additional levels of control.
In adopting National Emission Standards for Hazardous Air Pollutants (NESHAPs) for
carcinogens, for example, EPA considers both economic and technological feasibility
when establishing an ample margin of safety to protect public health.
While recognizing their limitations, EPA finds benefit-cost and similar analyses
to be increasingly useful tools in helping provide the balance required when choosing
appropriate levels of environmental control. Consequently, EPA is committed to
strengthening its capabilities for performing benefit-cost analyses and to improving
the research programs that provide the underlying economic, scientific, and technical
information for these complex regulatory decisions.
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STRENGTHENING ANALYTIC CAPABILITIES
EPA has prepared RIA guidelines to ensure that benefit-cost analyses are based
upon the best information available and the best analytic techniques that the state of
the art permits. The guidelines provide extensive information on how to perform
each portion of the analyses. When written according to these guidelines, the RIAs
will not only present thorough benefit-cost analyses, but will also discuss the
uncertainties and multidimensional consequences of regulatory alternatives.
EPA is continually refining its RIA guidelines to upgrade the information that is
available to assist program offices in preparing benefit-cost analyses. For example,
EPA is currently updating its guidance on valuing reductions in mortality and
morbidity risks and on alternative procedures for considering future benefits and
costs.
EPA's management has implemented an options selection procedure that requires
program offices to describe more than one regulatory option and then to document
the most likely connection between regulatory expenditures and environmental results.
Management is also supporting the establishment of analytical divisions in program
offices now lacking analytic personnel and resources. The continued commitment of
EPA's management to requiring rigorous analysis from all program offices will ensure
that major environmental regulations are properly supported with benefit-cost
analyses.
To facilitate better cross-program and cross-media comparisons of risk
assessments, EPA is working to ensure that all the data and methodologies used in
these assessments are consistent. An example of this effort is the work now under
way to develop consistency among the many standards for toxic chemicals. A report
by EPA's Chemical Coordination Staff demonstrated that maximum exposure limits
(MELs) for many chemicals often were not consistent across programs. This report
identified the need to base MELs upon consistent health data and upon consistent
analytic methodology. EPA is now developing the information and the methodology
that will be used to bring more consistency to regulations involving these chemicals.
EPA recently released guidelines for assessing the risks associated with cancer,
mutagenicity, chemical mixtures, and developmental toxicity, and for estimating
exposures. Additional risk assessment guidelines are being prepared.
FOCUSING ENVIRONMENTAL AND ECONOMIC RESEARCH
Since the late seventies, EPA's research and development program has become
increasingly more focused on providing the data and methods required for sound
regulatory development.
The 1978 annual authorization for environmental research carried a very strong
message from Congress that the relationship between environmental research and
regulation must be strengthened. To that end, EPA established several pilot research
planning committees comprised of senior research scientists and EPA regulatory
office representatives to jointly set the research agenda for the coming years. Based
on the success of these efforts, the research committee planning approach was
expanded over the next several years to encompass EPA's entire research and
development program. These committees now meet periodically to review current-year
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7-3
research projects for relevance to regulatory office priorities, and to plan future
research to address critical gaps in data needed for regulatory decision making.
Benefit-cost analyses provide a framework for identifying those areas in which better
information is required and consequently influence the deliberations of each of the
research committees.
Two recent developments have served to sharpen the focus of EPA's scientific
research on regulatory needs. First, the Assistant Administrator for EPA's Office of
Research and Development (ORD) has conducted meetings with each of EPA's
program offices to set out their mutual understanding of the highest priority
regulatory activities in the upcoming budget that require ORD's support. And second,
EPA's Deputy Administrator has established a process by which program offices, on
completing a rulemaking that is subject to periodic review, identify in writing to
ORD those data gaps that should be filled before the next review cycle. Both of
these efforts reflect EPA's greater reliance on high-quality research outputs for
informed decision making. Two areas receiving ORD's increased attention are
improving estimates of total human exposure to pollutants and relating pollutant
exposure more precisely to health and ecological outcomes. These areas are crucial
to assessing the risks from environmental pollution and evaluating the benefits of
pollution control. Knowledge gained in these areas will improve EPA's ability to
analyze these important factors in future RIAs.
EPA's Office of Research and Development has also continued to strengthen the
mechanisms it uses to ensure the scientific quality of its research products.
Recently, it has augmented its longstanding reliance on peer reviews of all published
reports to include the establishment of several standing peer review panels composed
of experts from outside EPA. Panel members are selected by EPA's Science Advisory
Board (SAB) to review research in progress that is of particular importance to the
regulatory offices. These panels transmit their views to the SAB and to EPA's Deputy
Administrator.
Since FY 1972, EPA has had an extensive research program to improve the
economic data and methodologies available for doing cost-benefit analysis. In 1983
EPA's research efforts in that area were consolidated into the Economic Research
Program of EPA's Office of Policy Analysis. Although both the economic
methodologies and the data used in preparing cost-benefit analyses are much
improved over the early 1970s, much still remains to be done if EPA is to be able to
accurately value the economic benefits of its proposed regulations. Improved
methods are particularly needed for valuing benefits for which no private markets
exist. The Economic Research Program has funded much of the research that resulted
in the contingent valuation method for valuing such nonmarket goods, and is working
to solve the problems that remain before this valuation method can be routinely
applied. One problem of particular importance is the lack of adequate methodology
and data for valuing most ecological benefits. These and other methodological and
data problems are the subject of continuing research, usually in the form of
demonstration projects involving applications to proposed EPA regulations.
-------
NOTES
Chapter 1
1. United States General Accounting Office, Cost-Benefit Analysis Can Be Useful
in Assessing Environmental Regulations. Despite Limitations. Report to the
Congress of the United States by the Comptroller General (GAO/RCED-84-62),
Washington, D.C., April 6, 1984.
2. Ibid., p. 21.
Chapter 2
1. Shultz, George P., Memorandum to the heads of departments and agencies,
Subject: "Agency Regulations, Standards, and Guidelines Pertaining to
Environmental Quality, Consumer Protection, and Occupational and Public Health
and Safety," Office of Management and Budget, Washington, D.C., October 5,
1971.
2. Ford, Gerald R., "Inflation Impact Statements," Executive Order 11821; White
House, November 27, 1974.
3. Ash, Roy L., Circular No. A-107 to the heads of executive departments and
establishments, Subject: "Evaluation of the Inflationary Impact of Major
Proposals for Legislation and for the Promulgation of Regulations or Rules,"
Office of Management and Budget, Washington, D.C., January 28, 1975.
4. Aim, Alvin L., Memorandum to the Administrator, Subject: "Proposed EPA
Guidelines on Inflation Impact Statements," U.S. Environmental Protection
Agency, Washington, D.C., no date stated; Attachment A, p. 4.
5. Ford, Gerald R., "Economic Impact Statements," Executive Order 11949; White
House, December 31, 1976.
6. Brands, Paul A., "Change in the Inflation Impact Statement Program,"
Memorandum to all Assistant Administrators, Regional Administrators, and Office
Directors, U.S. Environmental Protection Agency, Washington, D.C., January 26,
1971.
7. Carter, Jimmy, "Improving Government Regulations," Executive Order 12044;
White House, March 23, 1978.
8. U. S. Environmental Protection Agency, Improving Environmental Regulations:
Final Report Implementing Executive Order 12044. Washington, D.C., June 1979.
9. Regulatory Flexibility Act.
10. Reagan, Ronald, "Federal Regulation," Executive Order 12291, White House,
February 17, 1981.
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N-2
11. Ibid., Section 2(c).
12. Ibid., Section 2(b).
13. Ibid., Section 3(d).
14. Office of Management and Budget, "Interim Regulatory Impact Analysis
Guidance," Washington, D.C., June 5, 1981.
15. United States Environmental Protection Agency, Guidelines for Performing
Regulatory Impact Analysis (EPA-230-01-84-003); Washington, D.C., December
1983.
Chapter 3
1. Clean Air Act (42 U.S.C. 7401 et seq.).
2. Ibid., Section 109(b)(l).
3. Ibid., Section 109(b)(2).
4. Ibid., Section 302(h).
5. Ibid., Section 113(b)(l)(B).
6. Ibid., Section 111 (a)( 1 )(C).
7. Ibid., Section 202(a)(3)(A)(iii).
8. Ibid., Section 202(a)(3)(C)(i).
9. Ibid., Section 202(a)(3)(D)(ii).
10. Ibid., Section 231(a)(2).
11. Ibid., Section 231(b).
12. Ibid., Section 211(c)(2)(B).
13. Clean Water Act As Amended Through February 1982 (33 U.S.C. 466 et seq.).
14. Ibid. See, for example, Section 304(b)(l)(B).
15. Ibid., Sections 303, 301(b)(l)(C).
16. Ibid., Section 304(b)(l)(B).
17. Ibid., Section 304(d)(l).
18. Safe Drinking Water Act Amendments of 1986 (42 U.S.C. 5300f et seq.).
-------
N-3
19. Ibid., Section 101(b)(3)(A).
20. Ibid., Section 101(b)(4).
21. Ibid., Section 101(b)(5).
22. Toxic Substances Control Act; October 11, 1976 (15 U.S.C. 2601 et seq.).
23. Ibid., Section 6(a).
24. Ibid., Section 6(a).
25. Ibid., Section 6(c)(l).
26. Solid Waste Disposal Act (42 U.S.C. 6901-699 li).
27. Ibid., Section 3002(a).
28. 45 Federal Register. May 19, 1980; p. 33089.
29. Comprehensive Environmental Response, Compensation, and Liability Act of 1980
(42 U.S.C. 9601 et seq.).
30. Ibid., Section 102(a).
31. Ibid., Section 105(7).
32. Federal Insecticide, Fungicide and Rodenticide Act As Amended; Revised May
1985 (7 U.S.C. 136 et seq.).
33. Ibid., Section 3(c)(5)(C) and Section 3(c)(5)(D).
34. Ibid., Section 2(bb).
35. Ibid., Section 6(b).
36. Ibid., Section 25(a)(l).
37. Ibid., Section 25(a)(2)(B).
38. Public Law 97-415; January 4, 1983; Section 22(b)(2).
Chapter 4
1. U.S. Environmental Protection Agency, Office of Policy Analysis, "Costs and
Benefits of Reducing Lead in Gasoline - Final Regulatory Impact Analysis,"
EPA-230-05-85-006; Washington, D.C., February 1985, p. VIII-26. Figure is for
"Net Benefits Excluding Blood Pressure" from the "No Misfueling" column of
Table VIII-8.
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N-4
2. U.S. Environmental Protection Agency, Economics and Technology Division,
"Regulatory Impact Analysis for New Chemical Reporting Alternatives under
Section 5 of TSCA," prepared by ICF Incorporated, Washington, D.C., May 10,
1983, p. 206. Figures are from Exhibit VIJI-6. Comparison is between the
annual cost of the FINAL Form ($5.2 $13 million) and the annual cost of the
EPA 79 Form ($6.9 - $20.6 million).
3. U.S. Environmental Protection Agency, Office of Solid Waste, Economic Analysis
Branch, "Regulatory Impact Analysis - Proposed Standards for the Management
of Used Oil," Washington, D.C., November 1985; p. 1-5. Figure represents the
difference between the Grand Total Costs for Full Subtitle C regulations ($525.3
million) and the Proposal ($167.1 million) in Table 1-2.
4. Ibid., p. 1-8. The statement is based on the difference between the total cancer
risk over 70 years for the Full Subtitle C regulations (6,064 cases of cancer)
and the Proposal (6,016 cases) in Table 1-5.
5. U.S. Environmental Protection Agency, Office of Solid Waste, "Regulatory
Analysis for Final RCRA Rule for Certain Small Quantity Generators of
Hazardous Waste," prepared by Industrial Economics, Inc., Cambridge,
Massachusetts, December 1985, p. 6.17. Figure is from Exhibit 6-1 and is the
difference between total annual costs for Option C-3 ($222) and Option C-2
($188).
Chapter 5
1. U.S. Environmental Protection Agency, Office of Policy Analysis, "Costs and
Benefits of Reducing Lead in Gasoline - Final Regulatory Impact Analysis,"
EPA-230-05-85-006, Washington, D.C., February 1985, p. VIII-26. Figure is for
"Net Benefits Excluding Blood Pressure" from the "No Misfueling" column of
Table VIII-8.
2. U.S. Environmental Protection Agency, Office of Solid Waste, Economic Analysis
Branch, "Regulatory Impact Analysis Proposed Standards for the Management
of Used Oil," Washington, D.C., November 1985; p. 1-5. The figure is the
present value of the $357 million cost savings realized each year for 70 years
discounted at 10% interest. The $357 million annual savings is the difference
between the Grand Total Costs for Full Subtitle C regulations ($559.1 million)
and the Proposal ($201.9 million) in Table 1-2.
3. U.S. Environmental Protection Agency, Economics and Technology Division,
"Regulatory Impact Analysis for New Chemical Reporting Alternatives under
Section 5 of TSCA," prepared by ICF Incorporated, Washington, D.C., May 10,
1983; p. 206. The figure is the present value of $4 million cost savings realized
each year for an indefinite period discounted at 10% interest. The $4 million
annual savings is the average difference between the annual cost of the'EPA 79
Form ($6.9 - $20.6 million) and the FINAL Form ($5.2 - $13 million) as reported
in Exhibit VIII-6.
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N-5
Chapter 6
1. United States General Accounting Office, Cost-Benefit Analysis Can be Useful
in Assessing Environmental Regulations. Despite Limitations. Report to the
Congress of the United States by the Comptroller General (GAO/RCED-84-62),
Washington, D.C., April 6, 1984.
2. See for example:
McGarity, Thomas D., The Role of Regulatory Analysis In Regulatory Decision-
making, a Report Prepared for the Administrative Conference of the United
States, Austin, Texas, 1985; and, V. K. Smith, ed., Environmental Policy Under
Reagan's Executive Order: The Role of Benefit-Cost Analysis. University of
North Carolina Press, Chapel Hill, N.C., 1984. See especially the article by W.
Norton Grubb, Dale Whittington, and Michael Humphries, "The Ambiguities of
Benefit-Cost Analysis: An Evaluation of Regulatory Impact Analyses under
Executive Order 12291."
3. U.S. Environmental Protection Agency, Office of Policy, Planning and
Evaluation, Economic Analysis Division, Improving RIAs: Suggestions for the
Analysis of Hazardous Waste Regulations. EPA-230-02-87-023, Washington, D.C.,
January 1987.
4. National Academy of Sciences, Decision-Making for Regulating Chemicals in Our
Environment. 17-22 (1975); p. 484.
5. GAO; op. cit.
6. See Note #2.
7. Contract costs and FTE estimates have been obtained from EPA personnel
familiar with the RIAs. In most cases, these were the RIA project officers, and
their estimates were based on memory and on a brief examination of contract
files.
The estimated cost of $60,000 per FTE was obtained from EPA's Office of
Policy Analysis (OPA) and includes OPA's estimate of approximately $45,000 per
FTE to cover salary, travel, benefits, etc., plus approximately $15,000 per FTE
to cover rent, electricity, telephones, and other agencywide overhead. Although
these costs may vary from program to program, this estimate has been used to
approximate EPA's costs.
-------
APPENDIX
Table A-l U. S. ENVIRONMENTAL PROTECTION AGENCY
RIAs PREPARED FOR MAJOR RULES
February 1981 February 1986
Table A-2 EPA's COMPLIANCE WITH EPA AND OMB GUIDELINES FOR RIAs
EXECUTIVE SUMMARIES OF RIAs PREPARED BY THE
U. S. ENVIRONMENTAL PROTECTION AGENCY
February 1981 February 1986
NAAQS for Nitrogen Dioxide a
NAAQS for Particulate Matter b
Surface Coal Mines c
Heavy Duty Motor Vehicles d
NAAQS for Carbon Monoxide e
Lead in Fuels f
Iron and Steel g
Organic Chemicals h
Asbestos i
PCB Transformers j
Premanufacture Review k
Used Oil 1
Land Disposal of Hazardous Wastes m
Oil Pollution Contingency Plan n
Data Requirements for Registration of Pesticides . . . o
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Table A-l
U. S. ENVIRONMENTAL PROTECTION AGENCY
RIAs PREPARED FOR MAJOR RULES
February 1981 - February 1986
Act/RIA
Clean Air Act
Regulatory Impact Analysis of the National Ambient
Air Quality Standards for Nitrogen Dioxide
Benefits and Net Benefit Analysis of Alternative
National Ambient Air Quality Standards for
Particulate Matter
Short Title
NAAQS -PM
Date EPA Office
NAAQS - NO2 2/85 Air
3/83 Air
Regulatory Impact Analysis: Listing of Surface
Coal Mines for New Source Review
Regulatory Impact Analysis, Oxides of Nitrogen
Pollutant Specified Study and Summary and
Analysis of Comments
Regulatory Impact Analysis of the National Ambient
Air Quality Standards for Carbon Monoxide
Costs and Benefits of Reducing Lead in Gasoline:
Final Regulatory Impact Analysis
Clean Water Act
Regulatory Impact Analysis of the Effluent Limitation
Guidelines Regulation for the Iron & Steel Industry
The Economic Benefits of the Proposed Effluent
Limitations Guidelines for the Organic Chemicals
and Plastics and Synthetic Fibers Industry
Toxic Substances Control Act
Regulatory Impact Analysis of Controls on Asbestos
and Asbestos Products
Regulatory Impact Analysis of the Final Rule for
Non-Substation PCB Transformers
Regulatory Impact Analysis for New Chemical
Reporting Alternatives under Section 5 of TSCA
Surface Coal 2/86 Air
Mines
Heavy Duty 3/85 Mobile
Motor Vehicles Sources
NAAQS CO 7/85 Air
Lead in Fuels 2/85 Policy
Analysis
Iron and Steel 3/82 Water
Organic
Chemicals
Asbestos
PCBs
Premanufacture
Review
1/83 Policy
Analysis
8/85 Toxic
Substances
6/85 Toxic
Substances
5/83 Toxic
Substances
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Table A-l (cont'd)
U. S. ENVIRONMENTAL PROTECTION AGENCY
RIAs PREPARED FOR MAJOR RULES
February 1981 - February 1986
Act/RIA
Resource Conservation and Recovery Act
Regulatory Impact Analysis of Proposed Standards
for the Management of Used Oil
Regulatory Analysis of Proposed Restrictions on
Land Disposal of Hazardous Wastes
Short Title
Used Oil
Date EPA Office
11/85 Solid
Waste
Land Disposal 12/85 Solid
Waste
Comprehensive Environmental Response. Compensation
and Liability Act
Regulatory Impact Analysis of the Revisions to the
National Oil and Hazardous Substances Pollution
Contingency Plan
Contingency
Plan
2/82 Emergency &
Remedial
Response
Federal Insecticide. Fungicide and Rodenticide Act
Regulatory Impact Analysis: Data Requirements for
Registering Pesticides under the Federal Insecticide,
Fungicide and Rodenticide Act
Data
Requirements
8/82 Pesticides
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Table A-2
(page 1 of 6)
EPA's COMPLIANCE WITH EPA AND OMB GUIDELINES FOR
Section 1
Statement of the
Act/Rule
Clean Air Act
Identify
Pollutants
NAAQS - NO2 , X
NAAQS - PM X
Surface Coal Mines X
Heavy Duty Motor Vehicles X
NAAQS - CO X
Lead in Fuels X
Clean Water Act
Iron and Steel
Organic Chemicals
TSCA
Asbestos
PCBs
Premanufacture Review
RCRA
Used Oil
Land Disposal
CERCLA
X
X
X
X
X
X
RIAs
Need and Consequences of the Proposal
Estimate
Quantities
X
X
X
X
X
X
X
X
X
X
X
X
X
Describe
Environmental
Impact
X
X
X
X
X
X
X
X
X
X
X
Estimate
Pollutant
Reduction
X
X
X
X
X
X
X
X
X
X
X
X
Describe
Environmental
Benefits
X
X
X
X
X
X
X
X
X
X
X
Contingency Plan
FIFRA
Data Requirements
X
X
X
X
X
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Table A-2
(page 2 of 6)
EPA's COMPLIANCE WITH EPA AND OMB GUIDELINES FOR RIAs
Section 2
Identification of Alternatives
_ Number of Alternatives Identified
Identify
Act/Rule _
Clean Air Act
NAAQS - NO2
NAAQS - PM
Surface Coal Mines
Heavy Duty Motor Vehicles
NAAQS - CO
Lead in Fuels
Clean Water Act
Iron and Steel
Organic Chemicals
Asbestos
PCBs
Premanufacture Review
RCRA
Used Oil
Land Disposal
CERCLA
Contingency Plan X
FIFRA
Data Requirements X
Identify
Baseline
X
X
X
X
X
X
X
X
X
X
X
X
X
No Federal
Total Regulations
9 X
10
10 X
4
10 X
8
15
1
10
4
4 X
4
3 X
Within Market
Scope Oriented
3 3
10
4 3
4
4 3
6 2
13
1
10
4
4
4
3
Beyon
Scop«
3
3
3
2
-------
Act/Rule
Clean Air Act
NAAQS-NO2
NAAQS PM
Surface Coal Mines
Heavy Duty Motor Vehicles
NAAQS- CO
Lead in Fuels
Clean Water Act
Iron and Steel
Organic Chemicals
TSCA
Asbestos
PCBs
Premanufacture Review
RCRA
Used Oil
Land Disposal
CERCLA
Contingency Plan
FIFRA
Data Requirements
Table A-2
(page 3 of 6)
WITH EPA
AND OMB
GUIDELINES
FOR RIAs
Section 3
Analysis
Identify
Baseline
X
X
X
X
X
X
X
X
X
X
X
X
X
of Benefits
Ambient
Impact
X
X
X
X
X
X
X
X
X
X
Estimate
Exposure
X
X
X
X
X
X
X
X
X
X
Adverse
Effects
X
X
X
X
X
X
X
X
X
X
Monetize
Benefits
X
X
X
X
X
X
X
X
X
X
X
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Table A-2
(page 4 of 6)
EPA's COMPLIANCE WITH EPA AND OMB GUIDELINES FOR RIAs
Section 4
Analysis of Costs
Estimate Costs
Act/Rule
Clean Air Act
NAAQS - NO2
NAAQS-PM
Surface Coal Mines
Heavy Duty Motor Vehicles
NAAQS CO
Lead in Fuels
Clean Wafer Act
Iron and Steel
Organic Chemicals
Asbestos
PCBs
Premanufacture Review
RCRA
Used Oil
Land Disposal
CERCLA
Contingency Plan
FIFRA
Data Requirements
Real Government
Baseline Resource Costs
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Welfare
Losses
X
X
X
Adjustment
Costs
X
X
X
X
X
-------
Table A-2
(page 5 of 6)
EPA's COMPLIANCE WITH EPA AND OMB GUIDELINES FOR RIAs
Section 5
Evaluation of Net Benefits
Act/Rule
Clean Air Act
NAAQS - NO2
NAAQS-PM
Surface Coal Mines
Heavy Duty Motor Vehicles
NAAQS- CO
Lead in Fuels
Clean Water Act
Iron and Steel
Organic Chemicals
TSCA
Asbestos
PCBs
Premanufacture Review
Net Benefits Distribution
X
X
X
X
X
X
X
X
X
Economic Cost-
Impacts Effectiveness
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Used Oil
Land Disposal
CERCLA
Contingency Plan
FIFRA
Data Requirements
X
X
X
X
X
X
-------
Table A-2
(page 6 of 6)
EPA's COMPLIANCE WITH EPA AND OMB GUIDELINES FOR RIAs
i
Section 6
Rationale for Choosing the Proposed Action
Reasons for Legal Constraints to Statutory
Act/Rule Choosing Action Maximizing Benefits Authority
Clean Air Act
NAAQS NO2 XXX
NAAQS-PM X X
Surface Coal Mines XXX
Heavy Duty Motor Vehicles X
NAAQS- CO X X X
Lead in Fuels X X
Clean Water Act
Iron and Steel XXX
Organic Chemicals X X
Asbestos X X
PCBs X X
Premanufacture Review X X
Used Oil X X
Land Disposal XXX
CERCLA
Contingency Plan X X
FIFRA
Data Requirements X X X
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NAAQS FOR NITROGEN DIOXIDE
Regulation
NO2 is an air pollutant generated by the oxidation of nitric oxide (NO), which
is emitted from both mobile and stationary sources. At elevated concentrations, NO2
can adversely affect human health, vegetation, materials, and visibility. Nitrogen
oxide compounds (NOX) may also contribute to increased rates of acidic deposition.
The Clean Air Act provides authority for EPA to set National Ambient Air
Quality Standards (NAAQS) for NO2. The NO2 NAAQS established in 1971 were
reviewed and, in 1984, EPA proposed to retain the existing annual average standards
and specifically requested comment on whether a separate short-term standard is
requisite to protect human health.
The Clean Air Act requires that the NAAQS be based on scientific criteria
relating to the level of air quality needed to protect public health and welfare. EPA
did not consider the results of this RIA in selecting the proposed NAAQS.
Regulatory Alternatives
The following alternative approaches to regulation were considered in this RIA:
1. Technology-based emission standards.
2. Regional air quality standards.
3. Alternate stringency levels (ranging
from 0.053 ppm to 0.07 ppm), and
alternate implementation schedules.
4. Market-oriented alternatives.
5. No regulation.
Only alternate stringency levels were studied in detail in this RIA and only
they were considered in the Agency's development of the standard.
Environmental Effects
A variety of respiratory system effects have been reported to be associated
with exposure to NO2 concentrations less than 2.0 ppm in humans and animals,
including altered lung function, and respiratory illness and lung tissue damage.
Welfare effects of NO2 in the atmosphere include materials damage, reduced
productivity of crops, reduced visibility, and climate changes. The revised NO2
NAAQS are intended to improve air quality and thereby reduce the above adverse
effects.
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a-2
Benefits
Benefits were not monetized for this RIA; instead, benefits were represented by
the reductions of NO2 that are obtained under different NO2 standards.
Costs
This RIA emphasized the direct principal, or real-resource, costs associated with
controlling emission sources of nitrogen oxides (NOX) air pollution in order to attain
alternative nitrogen dioxide (NO2) NAAQS. Costs were estimated for controls
necessary to attain the alternative NAAQS by 1985 and 1990. The costs, in constant
1984 dollars, included inspection and maintenance of motor vehicle costs (I&M) and
stationary source control costs.
Other costs included are those incurred to meet:
1. The Federal Motor Vehicle Control Program (FMVCP) for
automobile and truck NOx controls, as governed by the
Clean Air Act; and
2. New source performance standards (NSPS) for certain new
large point sources of NOx emissions, also governed by CAA.
The discounted present value of the total estimated nationwide costs for the
alternative NO2 NAAQS for 1985 attainment ranged from $1,950 million to $1,840
million for 1 gpm FMVCP, $1,730 million to $1,590 million for 1.5 gpm FMVCP, and
$1,700 million to $1,560 million for 2.0 gpm FMVCP. For 1990 attainment, these costs
were $2,670 million for 1 gpm FMVCP, $1,750 million for 1.5 gpm FMVCP and ranged
from $1,640 million to $1,630 million for 2.0 gpm FMVCP.
Benefit-Cost Analysis
A traditional benefit-cost assessment was not made in this RIA. Instead,
analyses of the incremental costs to reduce potentially adverse concentrations of NO2
were performed. This was calculated from the incremental control costs and the
incremental NO2 concentrations resulting from more stringent NO2 standards to yield
an estimate for the incremental costs per concentration reduction between standards.
The incremental costs per NO2 concentration reduction in 1985 ranged from $0
to $17.1 million for 1.0 gpm FMVCP, $5 to $55 million for 1.5 and 2.0 gpm FMVCP;
the incremental costs for 1990 were zero in every case, except for reduction from
0.60 to 0.53 ppm for 2.0 gpm FMVCP, where they were $2 million.
Distributional Effects
EPA has concluded that the following groups are particularly sensitive to
low-level NO2 exposures and therefore would gain the greatest benefit from the
control of NOX emissions:
-------
a-3
1. Young children,
2. Asthmatics,
3. Individuals with chronic bronchitis, and
4. Individuals with emphysema and other
chronic respiratory diseases.
Economic Impact Analysis
No plant closings were expected due to the installation of NOX controls to meet
any of the annual average NO2 NAAQS. None of the proposed NO2 NAAQS would
have a significant impact on product price, capital availability, or import substitution.
At most, a NO2 NAAQS would add 0.020% to the cost of producing goods. Also, the
average per vehicle cost of I&M for a failed vehicle -- approximately $23 -- was not
considered a significant increment in the annual cost of vehicle operation for either
the commercial or industrial sectors. The analysis, therefore, predicted no major
changes in industry market structure and no significant effect on small business
entities.
Decision
As a result of its review and revision of the health and welfare criteria
associated with NO2, EPA promulgated a rule retaining the existing primary and
secondary standards of 0.053 ppm as an annual arithmetic average. The RIA was not
considered in the Agency's decision. The decision on the need, if any, for a
separate short-term standard is being deferred pending the results from additional
research focused on reducing the uncertainties associated with short-term health
effects.
-------
NAAQS FOR PARTICULATE MATTER
Regulation
Particulate matter (PM) represents a broad class of diverse substances that exist
as discrete particles and are emitted to the atmosphere from a wide variety of
sources. At elevated concentrations PM can adversely affect human health and
welfare.
The Clean Air Act provides authority for EPA to set National Ambient Air
Quality Standards (NAAQS) for PM. The PM NAAQS established in 1971 were
reviewed and new NAAQS were proposed in 1984.
The Clean Air Act requires that the NAAQS be based on scientific criteria
relating to the level of air quality needed to protect public health and welfare. EPA
did not consider the results of this RIA in selecting the proposed NAAQS.
Regulatory Alternatives
In reviewing the PM NAAQS, EPA considered a range of ambient concentrations
for PM10. PM10 refers to particles with an aerodynamic diameter less than or equal
to 10 um. The ambient levels considered for PM10 included both a range of annual
arithmetic means from 48 to 70 ug/m3 and a range of 24-hour expected 2nd maximum
values from no standard to 150 to 250 ug/m3. The existing standards for Total
Suspended Particulates (TSP) were also considered.
Environmental Effects
Scientific research suggests that reducing ambient PM concentrations would
have beneficial effects both on human health and on the physical environment.
Reduced PM concentrations may lead to reductions primarily in the incidences of
respiratory and cardiovascular diseases. Also, reduced PM concentrations may lead to
less soiling of property, less acidic deposition, and an improvement in visibility.
Benefits
EPA used existing health and welfare studies to obtain information about the
benefits of reducing PM concentrations. Benefit estimates were included for all
categories of effects for which adequate studies were available. In aggregating the
benefits across the various categories of effects EPA used six different aggregation
procedures (A-F). Aggregation procedures A and B were based only on those studies
which had gone through the Criteria Document and CASAC review process and were
found to provide quantitative evidence of effects. The other procedures incorporated
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progressively more studies and consequently more benefit categories, even though
some of these studies were exposed to lesser degrees of review or consensus.
The effects considered in the benefit estimates for aggregation procedure A and
B included reductions in human mortality and morbidity. The aggregation procedures
C and D added the benefits of reduced soiling and materials damage in the household
sector. Aggregation procedures E and F added the benefits of reduced soiling and
materials damage in the manufacturing sector. For several categories of effects,
such as soiling and materials damage in the other sectors, adequate studies could not
be identified. These categories of effects were not included in the benefit estimates.
The benefits of the alternative PM NAAQS were aggregated from the estimated
attainment dates (1987 or 1989) through 1995 and were monetized using two estimates
($0.36 and $2.80) of the value of a unit reduction of 1.0 x 10"6 in annual mortality
risk. These estimates were provided as a range of estimates from studies of what
individuals are willing to pay for such a reduction in mortality risk. The total
estimated benefits ranged from about $0.5 - $6.0 billion for aggregation procedure A
to about $40 - $270 billion for aggregation procedure F.
Costs
Costs for the alternative PM NAAQS were estimated by preparing a list of
control options and associated costs for each source in those counties projected to
be in nonattainment. Where the control strategies did not result in full attainment,
the additional cost of attainment was estimated by extrapolation using average
national costs.
The discounted present value of the total estimated nationwide costs for the
alternative PM NAAQS ranged from $1.4 billion to $11.0 billion.
Benefit-Cost Analysis
The benefits and costs for each alternative PM NAAQS were aggregated to yield
estimated net incremental benefits. Using aggregation procedure A the net benefits
were negative for all of the alternatives when the lower value of reducing mortality
risk was used and ranged up to about $1 billion using the higher value of reducing
mortality risk. Using aggregation procedure F the net benefits ranged from about
$40 - $260 billion.
Distributional Effects
The benefits of reduced PM concentrations were found to vary considerably
among different regions of the country. Particularly large shares of the benefits
were noted in Regions V (East North Central), VI (South Central) and IX (South
Pacific). The share of the benefits changes depending on the aggregation procedure
used. For example, Procedure A for the PM10 (70/250 ug/m3) standard suggests that
54% of the benefits would occur in Region IX. Under Procedure E, the share for
Region IX falls to 32% and is exceeded by the 35% share in Region V.
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Economic Impact Analysis
The most stringent PM NAAQS resulted in the imposition of costs on some 200
industries. Because it was not feasible to complete an economic analysis of all
affected industries, sixteen industries that were judged particularly vulnerable to
these costs were analyzed.
The incremental costs of the most expensive PM NAAQS alternative were
applied to pro forma income statements and balance sheets developed for model
plants in each industry. For 10 of the 16 industries, absorption of the control costs
with no price changes or net adjustment to production was projected to result.
Firms in the remaining industries were judged able to pass through a significant
portion of the control costs, resulting in price increases ranging from 0.6% to 7.0%
with resulting net decreases in production no greater than 1.0%. Although the
impacts were found to vary by industry, the analysis forecast neither major change
in production or industry structure, nor a significant effect on a substantial number
of small business entities.
Decision
As a result of the review and revision of the health and welfare effects
associated with PM, EPA proposed to replace TSP with PM10 as an indicator for the
primary PM NAAQS. The RIA was not considered by the Agency in formulating the
proposal. The 24-hour primary NAAQS was proposed to be selected from a range of
150 to 250 ug/m3 and the annual primary standard was proposed to be selected from
a range of 50 to 65 ub/m3 expressed as an annual arithmetic mean. A 24-hour
secondary NAAQS was proposed to be selected from a range of 70 to 90 ug/m3 of
TSP expressed as an annual arithmetic mean. The Administrator invited comments
and information from the public for consideration in promulgating the specific levels
for each of the standards.
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SURFACE COAL MINES FOR NEW SOURCE REVIEW
Regulation
EPA has various rules that regulate the construction of new stationary sources
of air pollution and modifications in existing sources. EPA has proposed to list
surface coal mines (SCMs) as a source category subject to the New Source Review
(NSR) provisions of the Clean Air Act (CAA). This action would limit paniculate
matter (PM) emissions of SCMs and result in reductions in PM concentrations beyond
those that can be achieved under the existing or revised PM National Ambient Air
Quality Standards (NAAQS) and state regulations. PM represents a broad class of
diverse substances that exist as discrete particles. At elevated concentrations, PM
can adversely affect human health and welfare.
The CAA allows for the consideration of economics as one of the criteria in
making a final decision with regard to the proposed rulemaking.
Regulatory Alternatives
Alternative I: No further regulations beyond PM NAAQS and state regulations.
Alternative II: Would affect SCMs starting construction after promulgation of
the regulation; existing SCMs would be exempted from NSR.
Alternative III: Would affect new and existing SCMs that started construction
after January 6, 1975,
Alternative IV: As major sources, mines would be subject to the CAA's
prevention of significant deterioration (PSD) increments. Allowable CAA and state
PSD increments include Class I through III designations, which represent increasing
levels of air quality degradation that are allowable. Alternative IV would affect only
those SCMs whose operations would have ambient impacts on Class I and mandatory
Class II lands.
Other alternatives required to be considered by E.O. 12291 included:
1. No additional regulation.
2. Regulations beyond the scope of present legislation.
3. Market-oriented approaches.
4. Alternative stringency levels.
Statutory requirements preclude consideration of 1, 2 and 4. This RIA did not
attempt to identify optional strategies that states may undertake to comply with
alternative regulations.
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Environmental Effects
Reducing ambient PM concentrations has been found to have beneficial effects
both on human health and on the physical environment. Human health is improved
by reductions in the incidences of cancer and of respiratory and cardiovascular
diseases. Reduced PM concentrations also lead to less soiling of property, less acidic
deposition, and an improvement in visibility.
To estimate improvements in air quality due to regulation, baseline PM
concentrations associated with individual mines were computed and dispersion
modelling was then performed to obtain maximum off-site concentrations contributed
by a mine. The difference between the baseline off-site concentration and the PSD
increment was then determined to yield the level of air quality improvement
attributable to the alternative regulations.
Under Alternative II, annual average PM concentrations were estimated to
decrease between zero and 33.9 ug/m3, while 24-hour concentrations decreased
between zero and 84.0 ug/m3. Under Alternative III, the annual average improvement
ranged from 3.2 ug/m3 and 51.1 ug/m3. The range for the 24-hour improvements was
0.3 to 57.1 ug/m3. Under Alternative IV, visibility in Class I and mandatory Class II
was estimated to improve from 0.5 to 18.2 miles.
Benefits
EPA used existing health and welfare studies to obtain information about the
benefits of reducing PM concentrations. The benefit estimates in this RIA
represented the incremental improvement in going from an air quality level due to
PM NAAQS regulations to an air quality level consistent with PSD increments.
Benefit categories analyzed included morbidity, mortality, household soiling and
materials damage, visual range and plumeblight. Benefits for these categories were
quantified by measuring individuals' willingness-to-pay (WTP) for cleaner air. Ranges
of benefits for new mines were calculated by making alternative assumptions with
regard to the population exposed.
The range of benefits for five basins analyzed under Alternative II was $25,200
to $815,900, estimated for 1995. The range of benefit estimates, for Alternative III,
also for 1995, was only for the Powder River Basin and was from $109,000 to
$242,200. (Under Alternative II, the Powder River benefits ranged from zero to
$33,200.) The benefit ranges for Alternative IV were zero to $303,200 and zero to
$13,600 for Bryce Canyon National Park (for 1996), and Chaco Culture National
Historic Park (for 1989), respectively. (Under Alternative IV, only benefits related
to visibility were measured because neither park had large enough permanent
populations to generate residential benefits.) Benefits were measured in 1983 dollars
using a 10% discount rate.
Costs
Engineering costs associated with air quality improvement over and above the
costs of current control programs were calculated in this RIA for individual mines.
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Emission control costs were estimated by costing-out additional equipment. A surface
mine production cost model was used to compute changes in the cost of production
arising from forced reductions in output rates.
Under Alternative II, mine cost increases ranged from zero to $5.51 per ton of
coal produced. For Alternative III, engineering costs ranged from $0.015 to $0.81 per
ton of coal. Since mines were not expected to locate near Class I and mandatory
Class II areas under Alternative IV, no engineering cost estimates were expected.
Benefit-Cost Analysis
The benefit-cost analysis described comparisons across alternatives on the basis
of incremental benefits and incremental costs. For Alternative II, the largest
incremental net benefit was $-4.6 million for the five basins; for Alternative III, the
largest incremental net benefit was $-5.7 million for the Power River Basin. (For the
Power River Basin, maximum incremental net benefits under Alternative II were
estimated to be $-199,000.) Under Alternative IV, the maximum benefits in the two
areas studied were about $300,000. Alternative IV is therefore the most economically
efficient alternative.
Distributional Effects
All new mines were assumed to locate in isolation and away from existing
populations. The hypothetical population that was expected to be affected by PM
emissions of mines included mine employees, their families, employees of secondary
businesses supporting the mining activity and families of these latter employees.
Economic Impact Analysis
Economic impacts measured in this RIA included market price, changes in
production rates and social costs of the alternatives. As the alternative regulations
impose costs on new SCMs entering the market, market prices increase, surface
production declines and deep coal production increases in basins where the two
technologies compete. The market price increases caused by adopting Alternative II
ranged from zero to $4.87 per ton of coal.
The price impacts of Alternative III ranged from $0.01 to $0.75 per ton (Powder
River price impacts would be the same under either alternative). Alternative IV was
asserted to have no impacts on any regional market or on the national level.
Price increases would lead to reduced basin output of surface mined coal.
Under Alternative II, these reductions would range from 2.6 to 29.5 million tons of
surface coal summed across all basins analyzed. Reduced surface coal output in the
Power River Basin under both Alternatives II and III ranged from 0.1 to 5.3 million
tons of coal. In the two eastern basins analyzed under Alternative II, underground
coal production would go up, ranging from increases of 1.6 to 13.5 million tons.
Social costs represent increased costs of production due to regulation and costs
associated with decreases in coal production due to price increases. The social cost
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estimate of Alternative II ranged from $5.4 million to $68.2 million. Under
Alternative III, the Powder River Basin social costs ranged from $5.9 million to $15.5
million. (Under Alternative II, Powder River social costs ranged from $0.2 million to
$11.6 million.)
Regulation will primarily affect large mining operations and will not have a
significant impact on a substantial number of small entities.
Decision
EPA has proposed to add surface coal mines to the current list of 30
categories of sources subject to the New Source Review provisions of the Clean Air
Act. None of the alternatives presented in this RIA has yet been chosen by EPA for
promulgation. The Administrator has invited comments and information from the
public for consideration in promulgating a final rule.
This RIA was prepared for use in assisting the Administrator in making his
decision on the final action on listing SCMs.
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HEAVY DUTY MOTOR VEHICLES
Regulation
The final rule associated with this RIA regulates, for 1988 and later model
years, the level of emissions of nitrogen oxides from light-duty trucks (LDTs) and
heavy-duty engines (HDEs) and the level of particulate emissions from heavy-duty
diesel engines (HDDEs). The lower level of NOX and PM in the ambient air attained
by this regulation (compared to uncontrolled emissions) is anticipated to have a
beneficial effect on human health and welfare.
The Clean Air Act Amendments of 1977 created a statutory heavy-duty vehicle
class and established mandatory emissions reductions for that class. Under the
Amendments, all heavy-duty vehicles were required to achieve a 75 percent reduction
in NOX emissions from uncontrolled levels, effective with the 1985 model year. The
Act also authorized the Administrator to temporarily establish revised NOX standards
for heavy-duty engines if the statutory standards could not be achieved without
increasing cost or decreasing fuel economy to an "excessive and unreasonable
degree.'1
The Amendments of 1977 also required the "greatest degree of particulate
emission reduction achievable," given the availability of control technology and
considering cost, leadtime and energy impacts. These reductions were to begin in
the 1981 model year. The heavy-duty diesel engine particulate standards in this
rulemaking were based on this authority.
Technological feasibility was the primary basis for the decision in this
rulemaking because of the statutory provisions governing both the NOX and
particulate standards. Cost-effectiveness was a lesser consideration in deciding
among control options.
Regulatory Alternatives
A range of alternative emissions standards were considered for LDTs, HDEs and
HDDEs. Technical difficulty, cost, and cost-effectiveness values were determined for
each alternative.
Environmental Effects
EPA used a "rollback model" to predict future air quality: In this approach,
any change in emissions was assumed to translate proportionately into a change in
ambient pollutant concentrations. The final rule's standards for NOX emissions were
tested in eight low-altitude urban areas resulting in 5% lower ambient concentrations
of NO2 than base case predictions in 1990 and 11% lower in 1995. In two
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high-aititude urban areas, NO2 concentrations were 4% lower than for the base case
in 1990 and 11% lower in 1995.
Diesel participate emissions are almost exclusively composed of fine particulates
and, because they occur at ground level, lead to high ambient concentrations.
Current ambient diesel particulate concentrations in large cities are projected to
grow from an average of 1-3 ug/m3 to levels of 3-7 ug/m3 by the year 2000 with no
further control on HDDEs. With the standards promulgated in the final rule, diesel
particulate concentrations in large cities will be reduced to 1.5-4 ug/m3, a reduction
to almost half of baseline concentrations.
It has been determined that reducing ambient concentrations of NO2 will reduce
the incidence of human respiratory problems. Reducing ambient diesel PM
concentrations will lower the risks of cancer and non-cancer health problems; diesel
PM reduction will also lead to improved visibility and reduced soiling of property.
Benefits
Because of a court-imposed deadline, the Office of Mobile Sources did not
include in the final RIA those sections of the draft RIA that remained unchanged.
However, the final RIA makes clear that these sections are meant to be part of the
total economic analysis within its purview. These sections include a benefit-cost
analysis of HDDE PM emissions.
Health and welfare benefits for a .25 g/BHP-hr particulate standard totaled
$6,625 million, and for a .10 g/BHP-hr standard totaled $9,455 million. (These values
are in 1983 dollars and represent the 1987-2000 interval.)
Annual benefits were also calculated for all six HDDE particulate control
options under consideration. The benefits ranged across alternatives from a lower
bound of $117 million and an upper bound of $1,977 million to a lower bound of $240
million and an upper bound of $4,082 million.
Costs
The aggregate costs to the nation of the HDE NOX and particulate standards
included the total manufacturer costs of research, development and testing (RD&T),
hardware, and user costs of fuel economy and maintenance incurred as a result of
the standards. These costs were estimated to be $118-600 million for the 1988
standards, $833-1,241 million for the 1991 standards, and $336-394 million for the
1994 standards, discounted at 10% to each of those years.
The control costs for emissions of PM were calculated separately as part of the
benefit-cost analysis of particulate control. For the .25 g/BHP-hr standard, the
lower-bound cost was $1,788 million and the upper-bound $2,986 million; for the .10
g/BHP-hr standard, the lower bound was $2,554 million, the upper bound $4,266
million. (These values are in 1983 dollars and represent the 1987-2000 interval.)
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Annual costs were also calculated for all six HDDE particulate control options
under consideration. These costs ranged across alternatives from a lower bound of
$113 million and an upper bound of $189 million to a lower bound of $347 million and
an upper bound of $579 million.
Benefit-Cost Analysis
EPA determined the cost-effectiveness of the proposed standards in terms of
the dollar cost per ton of particulate or NOX emissions controlled over and above
less stringent options. These values were used to make comparisons with the
cost-effectiveness of other mobile and non-mobile source control strategies. The
costs represent the net present value in the year of sale to the consumer, using a
10% discount rate. Cost-effectiveness analysis of the NOX standards for LDTs
yielded a $405/ton figure, $35/ton for the HDE option of 6.0 g/BHP-hr in 1988, and
$58-122/ton for the HDE option of 6.0 g/BHP-hr in 1988 and 5.0 g/BHP-hr in 1991.
For the diesel PM standards, the cost-effectiveness figure for the option of .60 g/
BHP-hr in 1988 was $2,710/ton, for the option of .60 g/BHP-hr in 1988 and .25 g/
BHP-hr in 1991 the figure was $8,950-$10,300/ton, and for the option of .60
g/BHP-hr in 1988, .25 g/BHP-hr in 1991 and .10 g/BHP-hr in 1994, the figure was
$10,300-$! 1,900/ton. All of the above figures assume a 10% discount rate for the
calculation of tons of PM reduced.
Benefit-cost analyses were performed for six regulatory options for particulate
emissions from heavy-duty vehicles. The net benefits ranged across alternatives from
a lower bound of -$74 million and an upper bound of $1,863 million to a lower bound
of -$339 million and an upper bound of $3,735 million.
Cost-effectiveness figures were also obtained for other mobile source control
alternatives for NOX and PM as well as for stationary source control alternatives for
PM. Based on these analyses, the final standards appear to be a relatively
cost-effective means of reducing particulate and NOX emissions compared to
controlling these pollutants from other sources.
Distributional Effects
Because emissions of NOX and PM result in different ambient concentrations at
high and low altitudes, high and low altitude areas are considered separately when
developing emission standards.
Economic Impact Analysis
Besides the costs mentioned above incurred by industry and vehicle purchasers
as a result of the HDE NOX and particulate standards, the original draft RIA
discussed the effects on manufacturer sales and cash flow, the regional effects on
employment, and the national effects on energy usage, balance of trade and inflation.
The final RIA does not go over the results of these analyses, but does review some
comments received from individuals and organizations. EPA agrees with these
comments that the costs of regulation will be passed on to the consumer in terms of
price increases but deems that these costs will be considered worthwhile, considering
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the benefits incurred of improved environment and public health.
Comments were received pertaining to the impact of the rule on urban transit
buses. EPA estimated that the costs borne by these transit systems, at
approximately 5% increase in first price and 2% increase in operating and
maintenance costs, would not be severe, and there should be no significant fare
increases or ridership losses.
There is no analysis in the final RIA of the effects of the rule on small
business entities.
Decision
EPA's new oxides of nitrogen emission standards for 1988 and later model
year LDTs are 1.2 or 1.7 g/mile, depending on vehicle test weight; for 1988 and later
model year HDEs, 6.0 g/BHP-hr (the D.C. Circuit Court has since ruled on Nov. 7,
1986 that this standard cannot take effect until 1990); and for 1991 and later model
year HDEs, 5.0 g/BHP-hr. The new particulate emissions standards, which apply only
to HDDEs, are .60 g/BHP-hr for 1988 and later model years, .25 g/BHP-hr (.10
g/BHP-hr for urban buses) for 1991 and later model years, and .10 g/BHP-hr for 1994
and later model years. Emissions-averaging, of both particulate and NOx emissions
from HDEs, is allowed beginning with the 1991 model year. Averaging of NOX
emissions from LDTs is allowed beginning in 1988. Comments on inter-company
trading of HDE emissions of NOX and PM were solicited as a possible future
regulatory initiative.
EPA held two public hearings following the proposal of NOX and particulate
standards and invited comments, which were reviewed and incorporated into the final
RIA.
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NAAQS FOR CO
Regulation
Carbon monoxide is a colorless, odorless gas that is toxic to mammals, causing
deficient oxygenation of the blood, which leads to malfunction of cardiovascular,
central nervous, pulmonary and other body systems. Low-level CO exposures have
been shown to cause aggravation of cardiovascular diseases.
The Clean Air Act provides authority for EPA to set National Ambient Air
Quality Standards (NAAQS) for CO. Primary and secondary CO NAAQS established in
1971 were reviewed and new NAAQS were proposed in 1980. Since CO at the level
found in the ambient air does not have any adverse effects on vegetation or the
public welfare, EPA is revoking the existing secondary standard. Consequently, this
RIA focused on the primary standards only.
The Clean Air Act requires that the NAAQS be based on scientific criteria
relating to the level of air quality needed to protect public health and welfare. EPA
did not consider the results of this RIA in selecting the proposed NAAQS.
Regulatory Alternatives
Executive Order 12291 requires that, at a minimum, the following regulatory
alternatives be examined:
1. No regulation.
2. Regulations beyond the scope of present legislation.
3. Market oriented alternatives.
4. Alternative stringency levels and implementation schedules.
Because of legislative constraints, only alternative stringency levels were
analyzed in detail in this RIA. These alternative CO levels for the 8-hour primary
standard ranged from 9 parts per million (ppm) to 15 ppm.
Environmental Effects
Reducing ambient CO concentrations would have beneficial effects on human
health. Low-level exposure to CO can cause aggravation of angina and other
cardiovascular diseases and can have adverse effects on the central nervous system.
Benefits
Benefits were not monetized for this RIA; instead, benefits were represented by
the number of occurences of carboxyhemoglobin (COHb) levels of 2.1 percent or
higher among American adults with cardiovascular disease. These numbers were
derived by linking up the Coburn model with outputs of the national exposure model
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to estimate COHb distributions in sensitive adults that would be exposed to various
ambient CO levels under the alternative standards. These numbers ranged from 12,570
occurences under the 9 ppm standard to 15,476,000 occurences under the 15 ppm
standard.
Costs
This RIA emphasized the direct principal, or real-resource, costs associated with
controlling emission sources of CO air pollution in order to attain alternative CO
NAAQS. This RIA discussed the cost estimate for NAAQS attainment by 1995. The
costs, in constant 1984 dollars, are those associated with reasonably available control
measures (RACM), which form the basis for the state implementation plans which are
developed to attain and maintain NAAQS. RACM include inspection and maintenance
programs for automobiles (I & M), transportation control measures (TCM) and point
source-oriented technologies. However, since the RACM does not result in full
attainment of the CO NAAQS, four additional alternative control strategies were
investigated.
These resulted in annual costs ranging across alternative ambient CO
concentration standards from $44 - $58 million to $261 - $338 million.
Benefit-Cost Analysis
A traditional benefit-cost assessment was not made in this RIA. Instead,
analyses of the incremental costs and of reduced potentially adverse exposures to CO
were performed instead. Costs associated with the four alternative standards were
analyzed along with reductions in the number of sensitive people with COHb levels
exceeding 2.1 percent and reductions in the number of occurences of COHb levels
exceeding 2.1 percent. The incremental costs ranged from $47-$72 to $7,980-$!4,500
per reduction in the number of cardiovascular adults exceeding 2.1 percent COHb and
ranged from $4-$6- to $3,140-$5,850 per reduction in the number of occurences of
COHb levels exceeding 2.1 percent.
Distributional Effects
EPA has identified persons with angina or other types of cardiovascular disease
as the groups at greatest risk from low-level, ambient exposures to CO. Other
susceptible groups include:
1. Persons with chronic respiratory disease.
2. Elderly individuals, especially those with
reduced cardio-pulmonary function.
3. Fetuses and young infants.
4. Persons suffering from anemia and/or those with
abnormal hemoglobin types that affect oxygen
carrying capacity or transport in the blood.
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Economic Impact Analysis
No plant closings or significant unemployment impacts were predicted due to the
installation of CO controls. None of the proposed CO NAAQS would have a
significant impact on product price, capital availability, or import substitution. For
large industrial sources, CO capital expenditures would be, at most, 8 percent of
projected capital expenditures, resulting in price changes of no more than 0.5
percent. The analysis, therefore, predicted no major changes in industry market
structure and no effect on small business entities.
Decision
As a result of its review of the health and welfare criteria associated with CO,
EPA decided to retain the existing primary (health) standards for CO established in
1971, of 9 ppm for the 8-hour average and 35 ppm for the 1-hour average, and
revoked the existing secondary (welfare) standards. The Agency did not consider the
RIA in reaching this decision.
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LEAD IN GASOLINE
Regulation
The EPA is regulating the level of lead in gasoline in order to minimize the
adverse health and environmental effects of subsequent ambient air lead levels and of
increased emissions of other pollutants due to catalytic converters damaged by leaded
gasoline. The Clean Air Act provides authority for EPA to control a fuel additive if
its emission products cause or contribute to air pollution endangering "the public
health or welfare...or impairing...the performance of any emission control device or
system...in general use."
The benefits and costs of alternative lead phasedown rules were included among
the considerations made in setting the final standard.
Regulatory Alternatives
In reviewing the lead in gasoline standard, EPA considered a range of
alternative phasedown schedules. These alternatives included both different lead
levels and different effective dates. Market-oriented alternatives to regulation were
also considered.
Environmental Effects
Lead in gasoline has been shown to increase blood lead levels, which in turn
have been linked to a variety of serious health effects. Exposure to high levels of
lead in the air may lead to severe retardation, kidney disease, and even death- lower
levels of lead provoke biochemical changes, with uncertain implications for health.
Particular concern has focused on children, who appear to be at greater risk. A
reduction in the level of lead in gasoline will significantly reduce the incidence of
these health problems. Also as a result of the lead standard, excess emissions of
hydrocarbons, carbon monoxide and nitrogen oxides that result from misfueling will
be reduced to the extent that misfueling is reduced. Other benefits of the lead in
gasoline standard include vehicle maintenance savings, improved fuel economy, and
increased engine durability.
Benefits
Monetized benefits of the final rule were estimated for three categories: (1)
Children's health benefits associated with reduced lead exposure; (2) Benefits from
reduced emissions of hydrocarbons, nitrogen oxides, and carbon monoxide from
misfueled vehicles; and (3) Maintenance and fuel economy savings. In each category,
estimates did not cover all the likely benefits, because of gaps in the data or
difficulty in monetizing some types of benefits.
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1. Benefits from reduced lead exposure in children included
estimates of medical costs averted, amounting to $155 mil-
lion in 1986. Estimates were also made of compensatory
education costs averted for children experiencing learning
difficulties due to elevated blood lead levels; for 1986,
these benefits amounted to $447 million.
2. Benefits from reducing emissions of pollutants other than
lead were estimated using two methods. The first method
used direct estimates of health and welfare effects, e.g.
the effects of ozone (formed by HC and NOx) on agricultural
crop losses and on days lost from work due to respiratory
symptoms; these benefits ranged in 1986 from a low estimate
of $113 million to a high estimate of $305 million, with a
point estimate of $171 million. The second method used the
cost of pollution equipment destroyed by misfueling, yielding
an estimate of $385 million saved for 1986. The final estimate
was based on an average of these two methods.
3. Assuming no misfueling, the estimates of maintenance benefits
were $933 million for 1986. Estimates of fuel economy savings,
mostly due to higher fuel density, were $190 million for 1986.
Costs
A reduction in the standard from 1.10 grams of lead per gallon of gasoline
(Splg) to 0.50 gplg, effective in July 1985, raised the cost of producing an
octane-barrel of gasoline from 15.8 cents to 20.4 cents. (An octane-barrel is defined
as raising the octane of a barrel of gasoline by 1 point.) Annually, the cost to the
industry is $96 million. A standard of 0.10 gplg effective January 1, 1986 will cost
the industry $3.4 billion for the period 1986-92.
Benefit-Cost Analysis
The benefits and costs for alternative lead level standards were aggregated to
yield estimated net benefits. Assuming no misfueling starting in 1985, the net
benefits of the proposed rule for the period 1985-92 were estimated to be $6.7
billion. The benefits calculated do not include benefits from averting elevated blood
pressure in adults due to elevated blood lead levels, because studies establishing thi,s
link are too recent to allow widespread review. Whether or not blood pressure data
was used, and whether or not it was assumed that the rule would eliminate
misfueling, the results showed that the final phasedown rule had the highest net
benefits of the alternatives considered.
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Distributional Effects
Harmful effects to human health due to elevated blood lead levels occur in all
segments of the population but are most prevalent in children. Blood lead levels are
higher in summer than in winter; the gasoline lead variable that best correlates with
blood lead is gasoline sales for the preceding month.
To determine regional differences in industry costs, the national model of costs
was disaggregated by geographic location. It was found that the rule would cause
fewer operating constraints in the West Coast, Alaska and Hawaii than in the rest of
the country as the rule generates lower operating rates and marginal costs for
producing octane in these areas.
Economic Impact Analysis
EPA used the Department of Energy linear programming model of the refining
industry to estimate the costs of complying with the lead phasedown rule. This
model estimated that at current lead levels (1.10 gplg) the increase in manufacturing
costs between leaded and unleaded gasoline was less than 2 cents per gallon. Retail
prices diverged by an average of about 7 cents per gallon. This large discrepancy
reflects marketing strategies within the retail industry rather than real social costs,
defined as the costs of real resources such as extra capital and labor.
Increases in manufacturing costs were moderated in 1985 by the option for
industry to use marketable "lead credits." Under the 1.10 gplg limit, industries with
lower than average costs to produce octane without lead were allowed to reduce
their lead content below the limit and to sell the excess lead rights to refiners with
higher than average costs, who could then produce gasoline with lead content above
the limit. This production of lead rights was allowed to continue under the interim
.50 gplg limit but prohibited when the .10 gplg standard came into effect on January
1, 1986; however, use of existing lead rights is permitted through December 31, 1987.
The cost to industry of the final rule with banking was calculated in the RIA
to be lower than the cost of the proposed rule without banking. The Agency
determined that per unit costs of complying with the rule would be somewhat higher
for smaller refineries, particularly those with less modern equipment.
Decision
As a result of its analysis of the health, economic, energy, and air quality
impacts of regulation, EPA promulgated a low-lead standard of 0.10 gplg effective
January 1, 1986, while an interim standard of 0.50 gplg went into effect July 1, 1985.
The standard of 0.10 gplg was established based on the conclusion that such an
amount of lead would be adequate to protect engines at risk from the problem of
valveseat recession and that such an effective date would be feasible for the refining
industry as a whole. The 0.50 gplg standard was promulgated as it was deemed
attainable by the refining industry. Considering these factors, the effective dates of
these two standards were also deemed to maximize the net benefits of the standards.
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Benefits and costs of the proposed rule, as calculated in the RIA, were
considered in setting the two standards: the benefits were shown to substantially
exceed the costs, whatever the predicted impact of reduced misfueling.
EPA held a public hearing on the proposed rulemaking and invited written
comments before going ahead with promulgation.
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IRON AND STEEL
Regulation
The rule, of May 1982, associated with this RIA defines effluent limitation
guidelines for the iron and steel industry. The purpose of this regulation was to
specify effluent limitations for "best practicable technology" (BPT), "best available
technology" (BAT), "best conventional technology" (BCT), and "new source
performance standards" (NSPS) for direct dischargers and to establish pretreatment
standards for indirect dischargers.
Monetary benefits were not considered in the final rule.
Regulatory Alternatives
EPA evaluated a number of alternative wastewater treatment technologies to
form the basis of the final limitations. The Agency weighed the costs of industrial
compliance with each of these alternatives and the derived effluent reduction
benefits.
EPA also evaluated alternatives to the concept of uniform national effluent
limits based on available technology. These alternatives included allowing waivers
from national standards based on economic or local water quality considerations,
establishing a single effluent limitation which would apply to a number of discharge
pipes within one plant or even to a number of plants (the "bubble" concept), and
using receiving water quality standards rather than a technology basis for
establishing individual effluent limitations beyond those already in effect. The iron
and steel regulation does allow for the bubble concept to be applied across discharge
pipes within one facility. Each of the other alternatives could not be legally
implemented unless the Clean Water Act is modified. The RIA did not include a
discussion of the costs and benefits of the alternatives to uniform effluent limits
based on available technology.
Environmental Effects
The end result of the industry's failure to control pollution was the severely
degraded condition of many rivers and streams during the early 1960's. Federal,
state, and local regulatory programs have since caused the cleanup of the most
visible problems; however, many streams are still adversely affected by pollutant
discharges. The loadings of toxic materials from the iron and steel industry are
among the highest of all major industrial categories regulated by the EPA. This
regulation was intended to reduce the industry's toxic pollutant discharges from
19,500 Ibs/day to about 10,500 Ibs/day with full implementation of BPT and to about
2,300 Ibs/day with implementation of BAT. The subsequent improvement in water
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quality of the stream segments receiving discharges from iron and steel facilities
would result in increased recreation opportunities and improved aesthetic conditions.
Benefits
EPA attempted to quantify the benefits of this regulation using two approaches:
1. A specific analysis of the benefits attributable to the
regulation for three individual stream segments; and
2. The allocation of shares of the aggregate benefits of water
pollution control to the BPT and BAT effluent guidelines
for the steel industry.
The benefits of water pollution control are generally classified into four
categories:
1. Recreation benefits;
2. Nonuser benefits;
3. Human health benefits; and
4. Diversionary uses and commercial fisheries benefits.
The Agency's case study analysis concentrated on the first two categories
because these categories were expected to constitute a significant portion of the
total benefits for the stream segments studied.
1. On the Black River in Northern Ohio, the annual benefits
were expected to range from $2.2 $7.3 million (in 1981
dollars).
2. On the Mahoning River in eastern Ohio and southwestern
Pennsylvania, the annualized benefits were expected to
range from $2.3 - $12.1 million.
3. On the lower Monongahela River in southwestern Pennsylvania,
the annual benefits were expected to range from $13.2 -
$30.3 million.
To estimate national aggregate benefits of water pollution control, the Agency
synthesized a range of aggregate benefit estimates. The Agency pointed out that
these estimates were imprecise because, in some cases, the effects of relevant
pollutants had been omitted. The estimates also did not account in most cases for
the impacts of nonpoint sources of pollution. In contrast to the case studies
described above, this aggregate benefits calculation was based on more limited data.
At the time this RIA was written, in March 1982, the iron and steel industry
was responsible for 6.5% of all discharges for the pollutant categories for which data
were available. Applying this loadings percentage, the total annual benefits of
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complete abatement of iron and steel effluent, from a 1972 loadings baseline, were
calculated to range between $320 million to $4.95 billion. The share of this amount
due to BPT and BAT loadings reduction relative to discharge levels current at the
time this RIA was written ranged from a total of $35.9 $727.7 million.
Costs
The following figures are in 1981 dollars:
1. On the Black River, the annualized compliance
costs were projected at $2.7 - $3.2 million.
2. On the Mahoning River, the annualized compliance
costs were projected at $4.2 - $5.5 million.
3. On the Monongahela River, the annualized compliance
costs were projected at $3.7 $7.1 million.
The estimated annual compliance costs of complete abatement from the 1972
level of the BPT and BAT loadings share of the iron and steel industry discharges
ranged from $46.3 $48.5 million.
Also, EPA calculated the costs of alternative wastewater treatment technologies
for each of the subcategories. As in all other effluent limitations guidelines
regulations, this analysis formed an important basis for selecting appropriate control
technologies.
Benefit-Cost Analysis
Benefit-cost analysis was not conducted for alternative wastewater treatment
technologies; only costs were determined for each subcategory. Benefit-cost analysis
was also not conducted for alternatives to uniform national effluent limits based on
available technology.
Benefit-cost analysis was done for the proposed standards. The results from the
first approach delineated in the benefits section were that, for two of the stream
segments (the Mahoning and Black Rivers), the estimated costs were within the range
of the estimated benefits but were near the lower end of the range. For the
Monongahela River, the estimated costs were less than the lower bound of the
estimated benefits range. For all 3 streams combined, the range of estimated annual
costs was $10.8 million to $15.8 million, while the range of estimated annual benefits
was $17.7 million to $49.7 million.
The results of the second approach were that the total costs of the iron and
steel effluent guidelines regulation were near the lower bound of the range of
estimated benefits.
All of the benefits estimates used in this analysis contained a large degree of
uncertainty. Nevertheless, the analysis did indicate there was a high probability that
the societal benefits of the regulation would significantly outweigh the costs.
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Cost effectiveness studies were conducted on various regulatory alternatives on
both and intra- and inter-industry basis. Cost effectiveness is defined as the
incremental annualized cost associated with a pollution control option in an industry
or industry subcategory divided by the incremental "pounds equivalent" of pollutant
removed. Within the industry, the results of the analysis showed that, for
subcategories where a BAT option other than BPT was selected, the selected option
was the most cost-effective one.
A cost effectiveness analysis was done of pollutant removals in the iron and
steel industry as compared to other industries: of the seven industries for which BAT
limitations had been proposed, the iron and steel regulation was more cost-effective
than all except one.
Distributional Effects
Distributional effects of regulation were not discussed in this RIA.
Economic Impact Analysis
Using two scenarios for future demand for domestically produced steel products,
EPA estimated that the economic impact of the regulation would be relatively small
(under either scenario). The incremental costs resulting from the regulation would
result in incremental short-run changes in price, production, market share, and
employment totaling about 0.6% or less from their 1985 baseline levels. By the early
1990's, there would be virtually no impact under either scenario, except for a 0.6%
increase in price.
Decision
EPA issued, in May 1982, effluent limitations for "best practicable technology,"
"best available technology," "best conventional technology," and "new source
performance standards" for direct discharges and established pretreatment standards
for indirect dischargers. EPA invited comments and held meetings with
representatives of the industry and other members of the public before promulgating
the rule.
EPA promulgated modifications to this rule in May 1984.
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ORGANICS AND PLASTICS
Regulation
The Agency proposed effluent limitations guidelines and standards for the
organic chemicals, plastic resins and synthetic fibers (OCPSF) industries in March of
1983. The proposed regulations included effluent limitations and standards based on
Best Practicable Control Technology Currently Available (BPT), Best Available
Technology Economically Achievable (BAT), New Source Performance Standards
(NSPS), and Pretreatment Standards for New and Existing Sources (PSNS and PSES).
The regulations were proposed under authority of the Federal Water Pollution Control
Act, as amended by the Clean Water Act of 1977.
Since the proposed rule, substantial new data collection and analyses have been
conducted, and new standards are being developed. A separate RIA document is being
developed for the final rule. This will include case studies of the benefits of the
rule, economic impact studies, and an environmental assessment of the affected
industry. Also, currently being developed are: a study of the benefits of the rule for
the Delaware River, a national water quality benefits estimate based on the case
studies, and a national volatile organic compounds (VOCs) intermedia transfer study.
Regulatory Alternatives
Unlike other industries for which EPA has established effluent guidelines, the
OCPSF industry is not amenable to the specification of a single model technology.
Instead, effluent limitations will be achieved using some combination of in-plant
control, treatment of specific wastestreams by any of a variety of physical/chemical
methods, biological treatment of combined wastestreams, and post-biological
treatment. The regulatory options examined for the 1985 economic impact study
include various combinations of these control technologies.
Environmental Effects
Two studies were done in 1985 assessing the environmental impacts of the
OCPSF industry. One of these studies covered 81 direct discharging facilities. The
other covered 109 indirect discharging facilities. Both used a simplified dilution
water quality model to predict the increase in in-stream pollutant concentrations
resulting from direct or indirect discharges.
Over 60% of the OCPSF direct dischargers using current pollution control
practices were projected to exceed water quality criteria on toxicity levels. This
amount was projected to be reduced by as much as 50% by implementing BAT
treatment. While 33% of the pollutants identified were projected to exceed water
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quality criteria under current conditions, this number would be reduced by 66% with
BAT treatment.
Over 27% of the indirect dischargers using current pollution control practices
were projected to exceed water quality criteria of toxicity levels. This amount was
projected to be reduced by as much as 70% by implementing PSES treatment. Over
30% of pollutants were projected to exceed water quality criteria under current
conditions, which number would be reduced by over 80% with PSES treatment.
In preparing its analyses of the organic chemicals effluent guidelines, EPA
found that wastewater treatment processes could generate significant emissions of
VOCs into the air. As a result of this finding, new regulatory options that would
control this intermedia transfer of pollutants are now being considered as part of the
rulemaking. The benefits of controlling the intermedia transfer of VOCs into the air
are reductions in exposure to carcinogenic and non-carcinogenic compounds that
result in adverse health effects and to VOC-generated ozone that results in adverse
health and welfare effects.
Controlling effluent discharges from the OCPSF industry would have beneficial
effects on human health by reducing the incidences of cancer and other toxic effects
of pollutants. It would also reduce the toxic effects of pollutants on aquatic life.
Benefits
To help demonstrate the benefits of regulation on the OCPSF industry, EPA
undertook studies of the incremental economic benefits of the regulation on specific
stream segments. The stream segments studied in 1983 were (1) the Kanawha River
in West Virginia, and (2) the Houston Ship Channel/Upper Galveston Bay, in Texas.
Also, currently in process are: a study of the benefits of regulation for the
Delaware River; a national water quality benefits estimate based on the case studies;
and a national benefits study based on the measurement of VOC intermedia transfer
effects.
The approach for measuring benefits used in the 1983 studies involved
estimating present and potential future benefits from water quality improvements on
the case streams. The benefit categories included recreation benefits, non-user
benefits, health benefits, diversionary uses and commercial fishing benefits. The
analytic techniques included direct estimation of the change in recreational activity
on the case streams. Health benefits were not monetized.
For the Kanawha River the total dollar benefits per year were estimated to be
in the range of $2.3 $9.7 million. These numbers reflected the benefits of moving
from current, in-place treatment to the proposed BAT. The analysis of the Houston
Ship Channel was hampered by lack of data on water quality and recreational
activity and by the complexity of the task. The estimated benefits were less than $1
million annually, but more information might indicate a greater level of benefits. All
estimates were in 1982 dollars.
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Costs
Treatment costs for BPT and BAT/PSES were estimated independently in 1985.
The major categories of estimated costs included those for capital equipment, land,
operation and maintenance, sludge treatment and disposal, and compliance monitoring.
Costs are estimated on a plant-by-plant basis. For the BPT and PSES options, the
treatment costs are incremental from the current treatment in-place at the plants.
For the BAT options, the costs are incremental to BPT Option II. Total annualized
treatment costs ranged from $131 million (in 1982 dollars) to $676.8 million.
Regarding the case studies, the total annual costs calculated for the Kanawha
River were $5.8 million. The total annual costs for the Houston Ship Channel were
estimated to be $25 million.
Benefit-Cost Analysis
For the Kanawha River, the benefits of moving OCPSF facilities from in-place
treatment to proposed BAT were found to be roughly comparable to the costs; for
the Houston Ship Channel, the costs of further treatment would clearly outweigh the
nonhealth-related benefits, but nonmonetized reductions in health risks would be
realized with the addition of BPT and BAT pollution abatement controls.
Distributional Effects
Plants in the OCPSF industry are concentrated in the North Central, Mid
Atlantic, Southeastern, and Southwestern states.
Economic Impact Analysis
In 1985, EPA identified 997 OCPSF establishments in order to conduct an
economic impact analysis of regulation. The primary economic impact variables
assessed included the costs of the contemplated regulations, and the potential for
these regulations to cause plant closures, price changes, unemployment, reductions in
profitability, shifts in the balance of trade and anticompetitive effects on small
businesses and new facilities. Across options, the median decrease in profitability
ranged from 7.5% to 33.9%. The median production cost increase ranged from 0.5% to
2.4%. The median liquidity reduction ranged from 4.8% to 26.6%. Estimated plant
closures ranged from 4 to 20. And plant closures were estimated to result in job
losses ranging from 251 to 9,906.
The BPT and PSES regulatory options are not expected to have foreign trade
impacts. BAT Option II is expected to have a small impact on one chemical group,
and BAT Option III is estimated to have a small impact on two chemical groups.
Projected closures are more heavily weighted among small businesses, especially
at BPT and PSES.
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Decision
EPA proposed effluent limitations guidelines' based on the application of the
best practicable technology, best conventional technology, best available technology,
new source performance standards, and pretreatment standards for existing and new
sources. These proposed regulations apply to wastewater discharges resulting from
the manufacture of organic chemicals, plastics and synthetic fibers. EPA considered
health and ecological effects, economic benefits and costs, as well as availability and
practicability of technology in setting its effluent standards for the OCPSF industry.
EPA will consider comments received in response to the proposal and to
subsequent notices in setting the final rule.
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ASBESTOS
Regulation
Asbestos is a naturally occurring substance applied in a wide variety of
industrial uses because of its desirable properties and because it can be produced at
prices competitive with those of available substitutes. Unfortunately, exposure to
asbestos dust has been shown to increase significantly an individual's risk of
contracting a number of potentially serious diseases.
EPA has determined, according to criteria set down by the Toxic Substances
Control Act (TSCA) of 1976, that all uses of asbestos should be controlled because
asbestos products may pose an unreasonable risk to human health due to the
potential for exposure to asbestos throughout the life cycle of the products; that is,
the mining, milling, manufacturing, processing, use, and disposal of asbestos products.
Regulatory Alternatives
This RIA examined 10 regulatory alternatives, which involve either product bans,
or fiber phase-down rules, or combinations of both. Fiber buyers or sellers would be
issued permits, depending on the specific alternative, that would limit the quantity of
fiber sold or bought, and these permits would be transferable. The baseline exposure
assumptions ranged across alternatives from 0.5 fiber/milliter (f/mL), strictly complied
with, to 2.0 f/mL, not always complied with. (The exposure assumption of 0.2 f/mL
was also studied in the rulemaking process although not included in this RIA.)
Environmental Effects
Reducing asbestos manufacture and use was anticipated to have beneficial
effects on human health, resulting in a significant reduction in incidences of lung
cancer and mesothelioma.
The Nicholson relative risk model was used in this RIA to estimate the number
of lung cancer cases avoided due to regulation, and Nicholson's absolute risk model
was used to estimate the number of mesothelioma cases avoided. The estimates were
presented using three different baseline exposure assumptions:
1. Actual exposures assuming the 2 f/mL standard is in place,
but is not always complied with.
2. Exposures assuming that the 2 f/mL standard is in place and
is strictly complied with.
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3. Exposures assuming a 0.5 f/mL standard is in place and is
strictly complied with.
(Exposures assuming a 0.2 f/mL standard is in place and strictly complied with were
also studied in the rulemaking process, but not included in this RIA.)
Total cancer cases avoided, assuming actual compliance with the 2 f/mL
standard, ranged across alternatives from 2,306 to 4,545. Assuming strict compliance
with the 2 f/mL standard, the numbers ranged from 1,632 to 3,441; and assuming
strict compliance with the 0.5 f/mL standard, the numbers ranged from 793 to 1,725.
Benefits
Benefits in this RIA were defined as number of cancer cases avoided due to
regulation. (See above.)
Costs
Three types of regulation costs were projected:
1. Welfare losses incurred by consumers.
2. Welfare losses incurred by owners of capital equipment
used to produce asbestos and asbestos products.
3. Dislocation costs incurred by displaced workers.
Total surplus losses due to regulation ranged across alternatives from $437
million to $2,747 million. These costs w.ere for the period from 1985 - 2000,
discounted at a 10% discount rate. Worker dislocation costs from plant closings due
to product bans totaled $12.9 million in 1983 dollars. These costs would be incurred
in 1985.
Benefit-Cost Analysis
A traditional benefit-cost analysis was not performed for this RIA. Instead, a
cost-effectiveness analysis was made, which yielded an estimate of the cost per
cancer case avoided, and a comparison of this estimate across regulatory alternatives.
The estimates are very sensitive to the baseline exposure assumptions made. If the
assumption is of actual compliance with the 2.0 f/mL standard, the cost per cancer
case avoided ranges from $137,489 to $607,261; assuming strict compliance with the
2.0 f/mL standard, the costs range from $194,301 to $502,092; and assuming strict
compliance with the 0.5 f/mL standard, the costs range from $432,277 to $1,600,000.
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Distributional Effects
Under all of the alternatives, the greatest losses would be incurred by domestic
secondary processors and other downstream consumers of asbestos products. However
these losses would be spread out over many companies and consumers. The highest
concentration of secondary processors is in Region V, the Great Lakes area. In
contrast, the relatively small losses of domestic miners and millers would be shared
by only three companies, located in Vermont and California.
Those who would benefit from the regulation of asbestos are those who may be
exposed to asbestos, both in occupational and nonoccupational settings. Occupational
exposures occur during the mining and milling of asbestos and in the manufacture,
installation, repair, and disposal of the asbestos products or among those using the
products at work. Nonoccupational exposure may occur among persons living or
working close to the asbestos product manufacturing site or close to a site where
the asbestos product is used or discarded. Nonoccupational exposure also includes
consumers of automobiles and housing in every state.
The effects of U.S. regulation of the market will also be felt abroad; as Canada
is the most important source and importer of U.S. asbestos, it would be the country
most affected by the product bans and fiber cap.
Economic Impact Analysis
Most capital equipment used to produce asbestos products can be converted
fairly easily to produce other products often substitutes for the asbestos products.
Projected market adjustments due to the ban (of roofing felt, flooring felt and
felt-backed vinyl flooring, V/A floor tile, A/C pipe, and asbestos cloth used to make
protective clothing), which is included in all the alternatives except Alternative 10,
include a 32.9% reduction in asbestos fiber price and a 48% reduction in equilibrium
output of asbestos fiber. Prices of certain unbanned asbestos products would decline
by more than 10%, inducing equilibrium demand increases by 25% or more.
All regulatory alternatives except Alternative 1 involved the imposition of an
asbestos fiber phase-down rule beginning in 1985, accompanied or unaccompanied by a
products ban. Under these conditions, the price was projected to increase for
Alternatives 2 and 3 from $557 per ton in 1985 to $6,624 per ton in 2000; for
Alternatives 4-7, the price would increase from $557 in 1985 to $8,684 in 1994; for
Alternatives 8 and 9, the price would increase from $557 in 1985 to $6,246 in 1989;
and for Alternative 10, the price would increase from $601 in 1985 to $5,809 in 2000.
Only 27 small primary processors (out of a total of 212 firms) would experience
producer surplus losses under the proposed regulation, and their losses would be
approximately 10% of total producer surplus losses of domestic companies.
Decision
As a result of its review of the health effects associated with asbestos and the
economic consequences of asbestos regulation, EPA is proposing to prohibit the
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manufacture, importation, and processing of seven asbestos products and to phase out
the use of asbestos in all other products by 1995. Eventually, all mining or
importation of asbestos would be prohibited, except for that mining or importation
allowed under an exemption process.
EPA is requesting comments on an alternative rule, which would ban the
manufacture, importation and processing of asbestos at staged intervals. EPA is also
requesting comments on the feasibility and effectiveness of labelling all asbestos
products that are not banned.
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PCS TRANSFORMERS
Regulation
Section 6(e) of the Toxic Substances Control Act (TSCA) bans the continued use
of polychlorinated biphenyls (PCBs), except for certain specifically authorized uses
and for totally enclosed uses. EPA issued the Electrical Use Rule in 1982 allowing
the continued use of PCBs in most electrical equipment (considered an "enclosed
use") during the remainder of the equipment's useful life, but requiring quarterly
inspections of the transformers, and phasing out the use of certain other
transformers. This rule focused on the exposure risk posed by PCBs resulting from
leaks or spills of PCB-containing dielectric fluid from electrical equipment. However,
as a result of several incidents involving PCB transformers, EPA proposed another
rule dealing specifically with PCB transformers located in or near buildings where
fires or electrical malfunctions could pose substantial risk to human health or the
environment as a result of exposure to PCBs or PCB oxidation productions.
Regulatory Alternatives
Regulatory alternatives to the current authorized use of indoor PCB
transformers included:
1. Accelerated phase-out/replacement of indoor
PCB transformers (over 5 years).
2. Accelerated phase-out (over 10 years).
3. Retrofill of existing PCB-askarel filled
transformers with alternative fluids.
4. Additional electrical protection.
Environmental Effects
Additional control of PCB-containing electrical transformers would substantially
reduce the adverse effects to human health and the environment caused by exposure
to PCBs following a catastrophic fire or explosion.
Benefits
Two measures of benefits due to regulation were derived in this RIA:
1. The reduction in catastrophic events resulting
from PCB transformer fires or failure; and
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2. The dollar savings resulting from avoided clean-up costs.
For purposes of analysis, catastrophic events were assumed to cost $20 million
to clean up. The costs focused on in this analysis were the incremental costs
incurred as a result of a fire or a failure being associated with a PCB transformer.
Because fire risk is not uniform across transformer types, calculations of both
benefits and costs of regulation were made separately for 3 types of transformers.
The savings associated with regulation are based on the reduction in incidences of
catastrophic events calculated under each alternative. For 480Y/277 Spot Network
transformers, the total number of catastrophic events avoided ranged across
alternatives from 21.2 to 29.7, and the total clean-up costs avoided ranged from
$123.2 million to $234.3 million; for 208Y/120 Grid Network transformers, the number
of events avoided ranged from 2.8 to 4.2 and costs avoided ranged from $16.7 million
to $35.1 million; for 480Y/277 Radial Transformers, the number of events avoided
ranged from 8.8 to 12.8, and costs avoided ranged from $53 million to $106.7 million.
All dollar measures reflect 1985 present value using a 10% discount rate.
Costs
The costs of regulation were defined as the incremental costs of implementing a
given regulatory option, including direct labor, capital, and registration costs, as well
as any changes in transformer operating costs. For 480Y/277 Spot Networks, the
total real resource costs ranged across alternatives from $121.1 million to $173.3
million; for 208Y/120 Grid Networks, the costs ranged from $36.8 million to $286.2
million; for 480Y/277 Radial Transformers, costs ranged from $554.6 million to
$1,205.2 million. The cost measures reflect 1985 present value and use a 10%
discount rate.
Benefit-Cost Analysis
In this RIA, the only benefits monetized were the clean-up costs avoided. For
each alternative the net cost was defined as the incremental cost of regulation minus
incremental clean-up costs avoided. A ratio of net cost to expected number of
events avoided was then calculated, yielding a cost per expected event avoided.
Regulation of 480Y/277 Spot Networks produces a net gain to society: that is, the
avoided clean-up costs exceed the costs of regulation. Total benefits ranged across
alternatives from $2.1 million to $41.3 million. For the other source categories the
costs of regulation exceeded the clean-up costs avoided. For 208Y/120 Grid
Networks, total net costs ranged from $11 million to $266 million, with associated
cost-effectiveness ranging from $3 million to $74 million per avoided event. For
480Y/277 Radial Transformers, total net costs ranged from $500 million to $1.098
billion, and cost-effectiveness ranged from $47 million to $86 million per avoided
event.
Distributional Effects
The costs of regulation will be borne by owners of PCB-containing transformers.
Of an estimated 104,284 indoor PCB transformers, 17.5% are owned by electric
utilities. Owners of the remaining transformers in service at the end of 1984 include
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public (5%), commercial (52%), and industrial (26%) building owners. However, as a
result of variations in transformer characteristics, the distribution of regulatory costs
among ownership segments is not proportional to the number of transformers owned.
Large commercial building owners and public utilities were expected to bear the
highest regulatory costs -- $355.4 million and $177.1 million, respectively.
Economic Impact Analysis
One major commercial ownership group, real estate development companies,
participates in one of the economy's most competitive markets and therefore is not
likely to pass on a significant portion of these costs to tenants. Because of the
pressure of Public Utility Commissions, public utilities will not be able to pass on
regulatory costs either.
In this RIA, measures of economic impact on individual companies were
determined. These measures demonstrated that customer and shareholder impacts are
likely to be less than 1 percent in all cases, except for small, localized PCB
transformer owners. For these owners, impacts could potentially reach several
percent, with cash flow impacts likely to be the most significant.
Decision
The final rule regarding PCB transformers prohibits the use of 480Y/227 Spot
Network transformers in or near commercial buildings after 1 October 1990, requires
enhanced electrical protection on 208Y/120 Grid Networks and 480Y/227 Radial
Transformers by 1 October 1990, prohibits the installation of PCB transformers in or
near commercial buildings after 1 October 1985, requires the registration of all PCB
transformers with fire response personnel and building owners by 1 December 1985,
requires the marking of the exterior of all PCB transformer locations by 1 December
1985, and requires the removal of stored combustibles located near PCB transformers
by 1 December 1985. The net costs of this rule were estimated to be $390 million;
the average cost-effectiveness of the rule was estimated to be $11 million per
avoided event.
TSCA requires that, in issuing rulemaking under TSCA's authority, EPA must
consider health and environmental effects as well as economic consequences. The
benefits and costs of the regulatory options discussed in this RIA contributed to the
final regulatory decision on PCB transformers.
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PREMANUFACTURE REVIEW
Regulation
Section 5(a)(l)(A) of the Toxic Substances Control Act (TSCA) requires
manufacturers and importers of new substances to provide EPA with notice of their
intent to manufacture or import such substances at least 90 days prior to when
actual manufacturing or import begins. Although TSCA does not require that
premanufacture notice (PMN) requirements and processes be stated in a rule, EPA
determined that the issuance of a procedural/interpretive rule and a form was in the
best interest of all concerned parties. The form was to be set up to determine
whether the commercial introduction of newly developed substances would present an
unreasonable risk to human health or the environment.
Regulatory Alternatives
Three alternative forms for the premanufacture notice were considered initially
in this analysis. As a result of analysis in support of this study, a fourth form was
developed. The four forms were differentiated by the scope of the information
requested:
1. EPA 79 Form (an interim proposal developed by EPA in
1979) would require submitters to provide the most
information. It would require more detailed production
and marketing data, explanation of physical and chemical
properties and exposure, release, and disposal data, than
the other forms would.
2. CMA 79 Form: The Chemical Manufacturers Association
developed a proposed PMN form based on the principle
that Section 5(d) of TSCA provides an all-inclusive
list of the information that a PMN is to contain. This
form would make the provision of risk assessment and
exposure and release information optional.
3. EPA 82 Form would require the submitter's identity; the
chemical name of the substance; its identity and molecular
structure; production and marketing data; flow diagram;
and worker exposure, release and disposal estimates.
4. Final Form: This form is very similar to the EPA 82 Form,
except that it adds information about worker activity
exposure, general information about sites controlled by
others, and clarifies other sections.
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Environmental Effects
Use of the different chemical reporting forms would result in a greater or
lesser probability of prevention of adverse health and environmental effects resulting
from exposure to toxic substances. In a study of five cases of previously reviewed
PMNs where use of a different form might have resulted in a different regulatory
action, uncertainties concerning dose response relationships made quantitative
assessments of risk reduction difficult; and the small number of cases studied is not
a statistically valid sample of the potential health benefits of each form. It was
assumed that the major health benefits from regulation would occur as the result of
regulation acting as a deterrent, that is resulting in the introduction of less
hazardous chemicals than would otherwise have been introduced.
Benefits
Benefits were not quantified for this RIA. Benefits of the alternative forms are
primarily the health benefits that result from having sufficient information to make
correct decisions. The Office of Toxic Substances in EPA conducted a study of PMN
cases to determine whether use of any of the three alternatives other than the final
would not have identified the PMN substances for Agency action. The results of this
study suggest that the EPA 79 Form is more likely to provide sufficient information
for regulatory decisions in marginal cases than either the EPA 82 or CMA 79 forms.
However, the probability of EPA identifying a problem substance is not significantly
lower with the forms other than EPA 79; thus the incremental benefits of the
lengthier form are small.
Costs
Following are the costs which firms will incur in complying with Section 5
requirements:
1. Direct filing costs.
2. Confidentiality: If the firm claims the data contained
in a PMN are confidential, the costs increase.
3. Delay costs: The reduction in the present value of the
profit stream for the new chemical because of delayed
introduction into commerce.
4. Costs of voluntary actions taken by firms during the PMN
review to reduce possible health hazards; these actions
are taken to forestall EPA from placing restrictions on
production of the chemical.
Total industry costs per year in 1981 dollars, assuming 900 new substances per
year, ranged across alternatives from $4.8 $11.4 million, for the EPA 82 Form, to
$6.9 - $20.6 million, for the EPA 79 Form. (Annual costs for the Final Form were
estimated to be $5.2 - $13 million.) EPA review costs for all alternatives were $7.0
million. Total costs for the Final Form were $12.2 - $20 million.
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Benefit-Cost Analysis
A traditional benefit-cost analysis was not performed in this RIA.
Distributional Effects
Distributional effects of regulation were not discussed in this RIA.
Economic Impact Analysis
Based on data from industry commissioned surveys and data in PMN files, it
appears that since the PMN program became effective, there has been no significant
change in the number of new substances introduced by the largest companies, though
there might have been a decline from small companies. This decline reduces total
industry profits from new substances by less than 5 percent.
Regulatory costs to firms with less than $30 million in annual sales represent
less than 1% of sales for these companies and between 0.9 and 2.1% of their profits.
For firms under $100 million in annual sales, costs represent less than 0.1% of sales
and 0.3 0.6% of profits. The exemption rules are expected to result in a savings of
11 to 35% for small firms.
Decision
In January 1979, EPA proposed a rule and forms to implement the TSCA Section
5 notice requirements; the rule and forms were reproposed in part in October 1979,
and supplemented by a processor reporting proposal in August 1980 and a
clarification of importer reporting requirements in September 1980. In May 1983,
EPA issued a final rule and notice form. The notice requirements and procedures
established in this rule replaced the Interim Policy under which EPA had been
conducting the new chemical notice review program since it began on July 1, 1979.
Although this rule will not have an annual effect on the economy of $100
million or more, EPA based its classification of the rule as "major" on various studies
conducted on the costs of compliance with Section 5 notice requirements and the
effect of these requirements on new chemical innovation.
Along with considerations of health effects, EPA considered the economic
effects of regulation in promulgating this rule.
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MANAGEMENT OF USED OIL
Regulation
EPA has tentatively determined that used oil typically and frequently contains
significant quantities of lead and other metals, chlorinated solvents, toluene, and
naphthalene. Improper management of used oil would pose a substantial hazard to
human health and the environment. EPA is proposing to control the management of
used oil in order to reduce these risks.
Passage of the Used Oil Recycling Act (UORA), codified as Section 3014 of the
Resource Conservation and Recovery Act (RCRA), and Amendments to Section 3014 in
the Hazardous and Solid Waste Amendments of 1984 have given EPA the specific
mandate to regulate used oil recycling. In setting the regulation, EPA considered its
costs as well as its health and welfare effects.
Regulatory Alternatives
In making its decision to propose these rules, EPA evaluated in the RIA four
regulatory alternatives. These alternatives include administrative standards, today's
listing and management standards, and upcoming standards on used oil combustion
devices.
Alternative 1 is the imposition of full hazardous waste standards as previously
promulgated. The remaining three alternatives control the flow of used oil with a
limited set of regulations less stringent than those presently applied to hazardous
wastes. The alternatives also vary by the limits on lead content set in the fuel
specification. In alternatives 1 and 2, the lead standard is established at 100 parts
per million (ppm). In the last two alternatives, the lead standard is set at 50 and 10
ppm.
Environmental Effects
Used oil contaminants can be transported through the air as well as through
surface and ground water. The nature of the effects of used oil contaminants is as
broad as the range of types of these contaminants themselves. Many of the organic
contaminants are known human carcinogens, as are several of the inorganic
contaminants. Other inorganic materials (e.g., lead) are known to cause brain and
renal damage. (The RIA quantitatively evaluates only carcinogens.)
Potential exposure estimates were translated in the RIA into cancer risk
estimates using traditional linear dose-response functions and then aggregated
nationwide.
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Benefits
Benefits were not monetized for this RIA; instead, they were represented by
reductions in potential cancer risks from exposure to used oil contaminants. The
reduction from the baseline that would be achieved by regulation ranged across
alternatives from 60 to 67 percent. Neither non-cancer effects nor ecological effects
were quantified in the RIA.
Costs
The costs of regulation would include incremental costs for storage controls,
administrative requirements, tracking used oil from its point of collection to end use,
and testing controls. They would also include costs of controlling the burning and
disposal of used oil. These costs were estimated in this RIA for each facility, then
aggregated nationwide. Total annual compliance costs ranged from $167 million for
the proposed alternative to $525 million for the full hazardous waste standards.
Benefit-Cost Analysis
A traditional benefit-cost analysis was not made in this RIA; instead a
comparative cost-effectiveness ratio was determined for each alternative, attained by
dividing total annual costs by the number of potential cancer cases avoided (adjusted
to a per-year basis). Cost-effectiveness ratios ranged from $1.29 million per
potential cancer case avoided to $4.12 million. (However, since these calculations are
based on the use of relative risk reductions rather than absolute risk reductions,
these dollar values are likely to be underestimates of the cost-per-cancer-case
avoided. As such, this cost-effectiveness measure should be taken only as a basis of
comparison among regulations and not as an indication of absolute cost-
effectiveness.)
Distributional Effects
Costs of regulation would accrue to the following groups: generators of used
oil, collectors and processing facilities, and end-users of used oil, such as asphalt
plants and commercial road-oiling services. Small and medium-sized collectors would
be likely to suffer the most under regulation.
Economic Impact Analysis
In order to estimate the economic impact of the alternative regulations on
industries that buy and sell used oil, EPA developed a financial profile of model;
facilities based on income statements and projected cash flows, and estimated the
value of the facilities after regulatory costs and associated price changes took place.
This analysis showed that costs incurred by the proposed regulation would cause
facilities to raise the prices at which used oil is purchased and sold, contributing to
the closing of approximately 473 of 700 collector facilities. Most of these closures
would be small facilities, and many of these would be replaced by expanded large
facilities. Re-refiners and fuel processors were expected to profit from regulation
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and produce larger volumes of recycled used oil products.
Decision
As a result of its review of the health and welfare criteria associated with used
oil, as well as of its analysis of the cost-effectiveness of the regulatory alternatives,
EPA proposed Alternative 2 in regulating generators and transporters of recycled oil,
and owners and operators of used oil recycling facilities. The standards included
tracking requirements when used oil is shipped off-site for recycling, and facility
management requirements when used oil is stored prior to recycling. Because the
RIA found that the cost of the full hazardous waste standards could lead to
increased dumping of used oil by some segments of the regulated community,
Alternative 2 included different standards for small, medium, and large generators
and reduced standards for some used oil transporters. Recycled oil used as fuel was
subject to certain regulations; the lead content in the fuel specification was
established at 100 ppm. Disposal of recycled oil was regulated, and road oiling was
prohibited outright.
The Administrator invited comments from the public for consideration in
promulgating the standards. The concern about increased dumping and reduced
recycling, raised in the RIA, was expressed by a great many commentors.
Subsequently, EPA announced that it would not list used oil bound for recycling as a
hazardous waste and would reconsider its options for regulating used oil bound for
disposal.
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LAND DISPOSAL OF HAZARDOUS WASTES
Regulation
The 1984 Amendments to the Resource Conservation and Recovery Act (RCRA)
prohibit the land disposal of all listed hazardous wastes by specified dates unless
EPA determines through a site-specific petition process that continued land disposal
of these wastes is protective of human health and the environment, or unless wastes
comply with treatment standards to be established by EPA. EPA has proposed a
regulatory framework for specifying treatment standards for land disposed wastes.
These standards include screening levels that would result in no significant health
hazard to persons exposed to releases of hazardous constituents from land disposal
units, and Best Demonstrated Available Technology (BDAT) standards in cases where
no technology can achieve the screening level but the BDAT substantially reduces
toxicity.
Regulatory Alternatives
Alternative 1 does not provide for the development of a screening level but
instead relies entirely on technology-based standards and the petition process.
Under Alternative 2, EPA would take no action to determine if continued land
disposal of the affected hazardous waste is protective of human health and the
environment. As a result, land disposal of these hazardous wastes would be banned
after a certain date, under the RCRA Amendments' hammer provisions.
Under Alternative 3, the Agency would not ban land disposal of the affected
hazardous wastes. Instead, EPA would require (1) treatment of contaminated drinking
water prior to use, or (2) corrective action to clean up a contaminated acquifer.
In this RIA, only the Agency's proposed regulatory framework was analyzed.
Environmental Effects
Controlling land disposal of toxic materials will have beneficial effects both on
human health and the physical environment.
Benefits
In this RIA, benefits were expressed in terms of number of health risk
reductions and percentage reduction from current risks achieved by land disposal
restrictions This analysis derived human health risk distributions for each
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combination of waste and type of treatment technology. The percentage reduction
from current risks attained by the proposed regulation was estimated to be approx-
imately 60%.
Costs
To calculate the incremental costs incurred by society as a result of the
proposed land disposal restrictions, this RIA first estimated the current costs of land
disposing hazardous wastes, then identified the minimum cost treatment alternative to
land disposal. The difference between the costs of baseline land disposal and the
minimum cost treatment alternative, summed across the estimated number of facilities
nationally, represents the social cost of the regulation. Total social costs of
restricting all hazardous wastes from land disposal were predicted to be
approximately $1.3 billion per year, including wastes managed at commercial facilities,
noncommercial facilities, and small quantity generators.
Benefit-Cost Analysis
Benefits and costs were not compared in this RIA.
Distributional Effects
Distributional effects of regulation were not discussed in this RIA.
Economic Impact Analysis
In the economic impact analysis, the increased costs of complying with the
proposed regulation were compared to the overall cash flow and production costs of
firms in the affected industries to determine the implications of the regulation for
the economic sectors generating and disposing of hazardous wastes.
All of the significantly impacted noncommercial facilities (175) would experience
potential reductions in cash from operations (CFO) of greater than 5%. Seventy-one
of these facilities would also experience potential increases of greater than 5% in
cost of production (COP). The remaining significantly affected facilities, and all of
the 238 less severely impacted facilities, could pass on to their customers the full
cost of regulatory compliance via a product price increase of less than 5%.
Commercial facilities were divided into two types, one which primarily land
disposes wastes while the other provides a range of treatment and disposal
alternatives. Among the facilities that provide solely land disposal services, 7
facilities would incur significant revenue loss (a total ranging from $144,000 to $29
million) if RCRA waste handling was shifted to the more technologically diverse
firms. These land disposal firms would have to enter a different market, one in
which they may have limited competitive advantage. The other land disposal oriented
firms rely upon RCRA waste handling for 9% or less of their revenue.
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Technologically diverse firms, on the other hand, would benefit from both the
elimination of low-priced competitive treatment and disposal practices and the
probable increase in quantity of waste shipped to them.
The economic impact of RCRA waste land disposal restrictions on small quantity
generators was not significant.
Eighty-four of the 175 significantly impacted noncommercial facilities were small
businesses. The sections most affected would be Primary Metals (with 30% increase
in COP and 823% reduction in CFO), Lumber and Wood Products (total compliance
costs of $303,988), and Petroleum Refining.
Decision
January 1986's rule restricting land disposal of hazardous wastes proposes
procedures to establish treatment standards for hazardous wastes, to grant nationwide
variances from statutory effective dates, to grant extensions on effective dates on a
case-by-case basis, and procedures by which EPA will evaluate petitions
demonstrating that continued land disposal is protective of human health and the
environment. In addition, this rule prohibits land disposal of certain dioxin- or
solvent-containing wastes unless the treatment standards are achieved. This rule was
based on considerations of health effects and economic impacts of regulation, and
partially on BDAT.
EPA has determined that the regulation of land disposal of solvents and dioxins
will not constitute a major rule as defined by Executive Order 12291. However, this
and other RIAs were prepared in support of this proposal, in recognition of the
scope of the regulatory framework of which restrictions on land disposal of solvent
and dioxin wastes are only a part, and of total costs of applying this regulatory
framework to all land disposed wastes regulated under RCRA, which will exceed the
$100 million that defines a major rule.
In the Federal Register notice of the proposal, EPA invited comments from the
public for consideration in promulgating the standards.
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NATIONAL OIL AND HAZARDOUS SUBSTANCES POLLUTION CONTINGENCY PLAN
Regulation
The Comprehensive Environmental Response, Compensation, and Liability Act
(CERCLA), enacted in 1980, provides the authority and funding for the President to
take removal and remedial actions when hazardous substances have been released or
there is a substantial threat of their release into the environment. Section 105 of
CERCLA requires revision of the mechanism established in 1973 under the authority
of the Clean Water Act (CWA) for coordinating response to specified environmental
emergencies, the National Contingency Plan (NCP), to reflect the new authorities of
CERCLA. CERCLA provides that actions taken in response to releases of hazardous
substances shall, to the extent practicable, be in accordance with the revised NCP.
CERCLA requires that the Plan define methods for investigating facilities, methods
for remedying releases, appropriate roles for government and industry, provisions for
procurement of response equipment, methods for determining cost-effective remedial
actions, methods for setting up national priorities among sites, and other factors.
In developing these revisions, considerations of costs as well as engineering
feasibility, environmental, welfare and public health effectiveness were made in
choosing among alternative regulatory options; however, monetized benefits were not
considered.
Regulatory Alternatives
Two regulatory alternatives were evaluated. Each alternative reflected a
different formulation of the goals and scope of the NCP revisions and a substantially
different method of allocating the Superfund:
1. Alternative 1 characterizes the objectives of the NCP
revisions as the protection of public health, welfare,
and the environment, with the emphasis on public health
concerns.
2. Alternative 2 gives greater emphasis to public welfare
and the environment, thereby increasing the likely costs
of response at each individual site.
EPA proposed Alternative 1 as the preferred option.
Environmental Effects
Anticipated health benefits from regulating the disposal of hazardous substances
included health benefits from:
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1. Stemming the contamination of groundwater sources
supplying water for human consumption (the analysis
showed that Alternative 1 would reduce the population
at risk of exposure to contaminated groundwater by
about 4.9 million, compared to 4.4 million under
Alternative 2);
2. Stemming the spread of hazardous chemicals through the
air due to corrosion or rupture of contaminant vessels,
fire or violent chemical reactions; and
3. Reducing the risk to populations due to soil and surface
water contamination.
All of the above imply environmental benefits, which were not quantified in this
RIA.
Benefits
No monetized benefits were calculated for this RIA.
Costs
Under the two regulatory alternatives, there are no expected differences in the
number and cost of removal actions, but there are differences in the projected
number of remedial actions, which form the core of the Superfund site cleanup
program. And the most important difference between the two alternatives is the
estimated cost of a remedial action under each alternative.
In the narrower, preferred option, 170 remedial actions were planned, at an
average cost over a seven-year period (1981-87), of $4.5 million per remedial action,
with a total cost of $765 million. In Alternative 2, the costs per remedial action
were increased by 50% to an average cost of $6.75 million, with 115 of these more
extensive remedial actions yielding a total cost of $776 million.
Benefit-Cost Analysis
No benefit-cost analysis was performed in this RIA.
Distributional Effects
As a result of the regulation, industry will incur costs:
1. As a result of EPA enforcement actions;
2. When costs are recovered from industry after
federal response action has been performed; and
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3. As a result of privately financed responses
induced by provisions of the NCP.
Disposers and chemical producers are likely to bear the largest portion of costs
of removals and remedial actions. The cost burden does not fall on these industries
as a whole, however, but on individual firms as a result of specific enforcement and
cost recovery actions.
Benefits affect those private contractors hired in connection with removal and
remedial actions, mainly construction firms. As the risk of exposure to hazardous
substances is reduced, public welfare benefits increase. For example, property prices
may recover from depression due to proximity to a site, and public parks nearby
would become accessible again. Communities may revive, benefitting the local tax
base.
States and localities affected by the action will accrue both costs and benefits
as a result of it. The NCP revisions will establish a list of at least 400 priority
sites for remedial action; CERCLA stipulates that the one hundred top priority sites
include at least one site from each state "to the extent practicable."
Economic Impact Analysis
Costs of remedial actions are balanced by pecuniary benefits to firms, mainly
construction firms, that are contracted during a hazardous waste cleanup and a
societal redistribution of resources.
The additional costs to generators, disposers, and transporters of hazardous
wastes will increase their production costs, resulting initially in a combination of
output declines and price increases. It is unclear what will be the magnitude of these
effects or whether they will persist. The real resource costs (as these costs are
called) of the revised NCP were found to be small: upper bound estimates of the
decline in output by the chemical industry would be around 0.1%, and of an increase
in prices would be about 0.2%.
Although the analysis indicated that an effect could be felt by some individual
firms and states, the total impact of the revised NCP would be negligible. Even if
all costs attributed directly and indirectly to the revised NCP are passed through to
consumers (which is unlikely), the estimated increase in the consumer price index
will be less than 0.02%. Output and employment effects are small and are not
expected to persist in the long run.
A small initial price increase in the hazardous waste cleanup industry will not
have economy-wide effects; the greatest impact of a more significant price increase
would be that there could be less cleanup because the cost of cleanup would be
higher.
For some states, the potential costs are high because of the extent of their
hazardous waste problem. The costs borne by a state for a cleanup where federal
funds are used for remedial actions is 10% of costs for privately owned sites and at
least 50% of costs for sites owned by state or local governments. Other costs would
include institutional and administrative costs associated with establishing a framework
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in the states for operating under CERCLA, operation and maintenance costs after the
Superfund tax expired in 1985, and the possible effect of adverse publicity on
reducing state tax bases and increasing unemployment.
Regarding small business entities, it is unlikely that a high percentage of these
firms are at risk from potential enforcement actions because they tend to produce
much smaller quantities of waste than large firms. Also, EPA is allowed discretion
whether or not to proceed with enforcement actions against small businesses.
Decision
Pursuant to Section 105 of CERCLA and Executive Order 12316, EPA
promulgated revisions to the National Contingency Plan for oil and hazardous
substances. The revised NCP is applicable to response actions taken pursuant to
CERCLA and Section 311 of the Clean Water Act.
The Agency invited public comments and incorporated suggested changes in the
proposed revisions where appropriate.
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DATA REQUIREMENTS FOR PESTICIDE REGISTRATION
Regulation
EPA, through its Office of Pesticide Programs (OPP), is charged with the
responsibility for regulating pesticide use in the United States. The legal authority
for regulating pesticides is established by the Federal Insecticide, Fungicide, and
Rodenticide Act, as Amended (FIFRA). The Act requires all pesticides to be
registered with EPA and further requires EPA to make a finding that if a pesticide
is registered, its use in accordance with widespread and commonly recognized
practices will not generally cause unreasonable adverse effects on the environment.
Section 3(c)(2) of FIFRA requires that EPA publish guidelines specifying the kinds of
information required to support the registration of a pesticide.
The benefits and costs of alternative regulations were included among the
considerations made in setting the final standard.
Regulatory Alternatives
The Agency considered five alternatives to information generation that supports
registration:
1. Reference Guidelines: Rulemaking on data submittal
requirements would not be issued.
2. Regulation Requirements: The Agency would issue
regulations on data submittal requirements for the
different types of pesticide products and uses to
be registered. Waivers would be permitted and tiered
testing approaches specified where appropriate.
3. Self-Certification: Applicants would certify that their
products would not cause unreasonable adverse effects.
4. Comprehensive Data Requirements: The Agency would
issue regulations specifying a list of all data
requirements that products must fulfill to obtain
registration. Waivers and tiered testing are not
considered in this approach.
5. Provisional Registration: Registrants would be
allowed to market their products on a limited basis
after having submitted results from "indicator studies,"
which are short-term and relatively low-cost. Full
marketing rights would be granted only after all studies,
including chronic effects tests, are submitted.
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EPA decided to propose Alternative 2.
Environmental Effects
Pesticides by design are toxic to living organisms. Nontarget species including
humans may suffer acute toxic effects from exposure to pesticides.
Pesticides may also produce general types of chronic health effects, although
data are limited with regard to the actual extent of pesticide-induced carcinogenicity,
teratogenicity, reproductive effects, and mutagenicity. The pesticide registration
alternatives will have an effect in detecting and avoiding these health effects,
ranging from comprehensive requirements, being most effective, to self-certification,
(being one-fifth as effective.
Ecological effects of pesticides are reduced by the current program, and could
be reduced further under Alternatives 2 and 4. Major problems would be likely
under Alternative 3.
Benefits
Benefits were not monetized for this RIA. Relatively few factors in this
analysis were capable of being quantified or monetized. In order to bring the results
of the analysis into "net benefit terms," a "benefit rating technique" was developed,
taking into account the relative importance of various factors or criteria to the
management of the program and developing relative ratings of the benefits of the
alternative rulings. Benefit factors included pesticide program benefits, health
effects, and environmental effects. The benefit ratings ranged from a low of 10 for
the self-certification alternative to a high of 25 for comprehensive requirements.
Costs
Costs of the alternative regulatory options were composed mainly of industry
compliance costs and agency program costs. The calculation of direct compliance
costs involved mainly estimation of unit costs of individual studies and estimation of
the number of studies expected to be required on an annual or other time-period
basis. Total (direct and indirect) compliance costs ranged from $103 million/yr. (in
1980/81 prices) to $141 million/yr. Program costs ranged from $58 million/yr. to $65.5
million/yr.
Benefit-Cost Analysis
No traditional benefit-cost analysis was calculated in this RIA. Instead, costs
were rated as well as benefits, and a benefit/cost rating ratio was calculated for
each alternative. This ratio ranged from a low of .64 for self-certification to a high
of 1.21 for the regulatory requirements alternative.
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Distributional Effects
Distributional effects of regulation were not discussed in this RIA.
Economic Impact Analysis
Whereas a substantial portion of increased pesticide costs would be passed on to
final consumers in the agricultural sector, in the non-agricultural sector, most of the
increased costs would be absorbed either by the pesticide manufacturers or the users
of pesticides in the production of other goods and services for sale to final
consumers. In either case, net economic impacts would be quite nominal in relation
to the size of these sectors.
None of the alternatives would be capable of generating significant economic
impacts on macroeconomic variables such as employment, inflation or balance of
payments.
The Agency's proposal to implement the regulatory requirements option rather
than to maintain the current program would not produce a significant economic
impact on a substantial number of small entities.
Decision
As a result of its review of the health and ecological benefits associated with
data requirements for pesticide registration, as well as of a consideration of program
and compliance costs of regulatory action, EPA chose to promulgate the regulatory
requirements option (Alternative 2). Waivers would be permitted under this
alternative and tiered testing approaches specified where appropriate.
EPA requested and considered public comments on the proposed rule and revised
the rule accordingly.
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