Cost and Benefit Considerations in Clean Air Act Regulations

Summary

The Clean Air Act (CAA) gives the Environmental Protection Agency (EPA) broad authority to set ambient air quality standards to protect public health and welfare. It authorizes emission standards for both mobile and stationary air pollution sources, including cars, trucks, factories, power plants, fuels, consumer products, and dozens of other source categories. Since 1970, EPA has used this authority to require emission controls for these sources. Emissions of the most widespread (“criteria”) pollutants have been reduced by 72% during that period.

As directed by Congress and by executive orders, EPA has estimated the costs and benefits of major CAA (and other) regulations for the last four decades. Its most comprehensive recent studies and studies by the Office of Management and Budget (OMB) have concluded that the benefits of clean air regulations outweigh the costs by substantial margins. EPA’s cost-benefit analyses of individual regulations, required by Executive Order 12866, show similar results: a review of the 55 economically significant CAA regulations promulgated from 2001 to 2016 found only two in which estimated costs exceeded benefits.

Nevertheless, many in Congress have expressed concern that Clean Air Act and other environmental regulations harm the nation’s economy. One issue raised by critics is whether EPA underestimates the cost and other negative impacts of CAA rules—in part, by considering them individually, and not considering cumulative impacts. Another criticism is that the agency relies for most of its benefit assessments on the effects of reducing a single category of pollutants, particulate matter (PM). Research has tied PM to tens of thousands of premature deaths, and EPA often finds that reductions in PM emissions justify regulation, even where PM reductions are a “co-benefit” of reducing another targeted pollutant. A third issue critics raise is whether the methodology used to place monetary value on the avoidance of premature death—a technique referred to as calculating the “value of a statistical life”—inflates the estimated benefits of regulation.

This report examines these issues in the context of Clean Air Act regulation. It reviews EPA and Office of Management and Budget (OMB) studies of the cost and benefit of CAA regulations, and addresses the issues raised by agency critics. The report finds that

The Clean Air Act authorizes EPA to set standards in multiple sections of the act: about half of the act’s major regulatory authorities mention costs or economic considerations explicitly, and several others imply that costs may be considered; but other authorizing sections, including some key sections, make no mention of cost considerations.

Where the statutory authorities do not mention cost consideration, they tend to fall into one of four categories: provisions in which Congress itself set the standards; provisions where Congress directed the agency to set health-based standards, without mentioning cost; broad authority to promulgate regulations to achieve an objective that Congress determined was necessary, but the specifics of which it could not anticipate; or authority to promulgate federal requirements in cases where states have failed to develop or implement adequate regulations on their own to meet a federal mandate.

In all cases, even where the statute would prohibit consideration of cost in setting standards, EPA is bound by executive orders to provide estimates of costs and benefits if the rule would be economically significant.

According to EPA, the estimated benefits of CAA regulation will exceed the estimated costs by more than 30 to 1 in the period 1990-2020. CAA regulations prevent 230,000 premature deaths annually, according to the agency.

The estimated benefits of CAA regulations rely heavily on the effects of reducing particulate emissions, and on the value placed on the avoidance of premature death as a result of such controls.

Many rules have benefits or costs that cannot be quantified or monetized in light of existing information.

President Trump has issued two executive orders that address the cost of EPA regulations: Executive Order (E.O.) 13771, signed January 30, 2017, and E.O. 13783, signed March 28, 2017. The former directs OMB to set regulatory “budgets” for executive branch departments and agencies and, in general, to rescind two regulations for every new one issued. The latter requires EPA to review—and, if appropriate, suspend, revise, or rescind—several CAA regulations affecting energy production, with an eye to avoiding regulatory burdens. At present, the effect of the two orders on future CAA regulations is unclear. The report discusses some of the possible implications.