Smarter Regulation: Doing More Good Than Harm

The U.S. Environmental Protection Agency (EPA) has just taken a groundbreaking step to advance the eminently reasonable principle required by every president for over 37 years: In developing regulations, regulators should consider important tradeoffs and select regulatory options that do more good than harm.

On June 7, EPA issued an Advance Notice of Proposed Rulemaking (RIN 2010-AA12) requesting public comment on how EPA could be more consistent and transparent in considering societal benefits and costs when designing its regulations. Specifically, EPA may develop implementing regulations on how it will consider benefits and costs when interpreting its authorizing statutes and designing regulatory proposals. (Read ANPRM here.)

There is a longstanding bipartisan consensus that agencies should regulate only if the benefits justify the costs. As the Clinton administration put it:  

“[R]egulations (like other instruments of government policy) have enormous potential for both good and harm. Well-chosen and carefully crafted regulations can protect consumers from dangerous products and ensure they have information to make informed choices. Such regulations can limit pollution, increase worker safety, discourage unfair business practices, and contribute in many other ways to a safer, healthier, more productive, and more equitable society. Excessive or poorly designed regulations, by contrast, can cause confusion and delay, give rise to unreasonable compliance costs in the form of capital investments, labor and on-going paperwork, retard innovation, reduce productivity, and accidentally distort private incentives.

The only way we know how to distinguish between regulations that do good and those that do harm is through careful assessment and evaluation of their benefits and costs. Such analysis can also often be used to redesign harmful regulations so they produce more good than harm and redesign good regulations so they produce even more net benefits.”^[1]

As an alumnus of the Office of Management and Budget’s Office of Information and Regulatory Affairs (OIRA) that reviews regulatory proposals, I wholeheartedly support the longstanding presidential orders requiring agencies -- to the extent permitted by law -- to regulate only if the benefits justify the costs.^[2] But I also believe that the status quo is inadequate for many reasons, including the institutional limitations of the agencies and OIRA (such as bureaucratic turf battles, failure to utilize both internal and external expertise, bias and the mismatch between the vast volume of regulation and OIRA’s shrinking resources), as well as political dysfunctions (including inconsistent support for OIRA by varying administrations, interest group rent-seeking and presidential electoral politics).^[3] But one of the greatest yet most readily addressable impediments to smarter regulation is that regulatory agencies such as EPA too often have interpreted their statutes to limit their ability to fully engage in benefit-cost balancing and thus to comply with the presidential directives to do more good than harm.^[4] Yet, the actual text of the statutes typically does not prohibit benefit-cost balancing and thus does not require or authorize non-compliance with the presidential benefit-cost orders.  

The good news is that recent case law -- especially the Supreme Court decisions in Entergy Corp. v. Riverkeeper, Inc. (2009)^[5] and Michigan v. EPA (2015)^[6] -- has made it quite clear that agencies have broad discretion to interpret statutes that are silent or ambiguous on benefit-cost analysis as permitting, not forbidding, this type of smarter regulation.^[7] Indeed, the logical corollary reflected in Michigan is that agencies that decline the invitation to do more good than harm could render their regulations vulnerable to an arbitrariness challenge.

While the use of benefit-cost analysis in developing regulations has enjoyed bipartisan support for many decades, in the politically polarized environment in Washington, D.C., it will come as no surprise if critics attack this initiative (just like the first benefit-cost executive order by President Reagan). But an evidence-based regulatory system can be a salutary antidote to political polarization. Important rules that can save lives and protect our health and environment are the very rules that can pass benefit-cost analysis with flying colors. Such rules may indeed be expensive, but unsurprisingly, they can deliver benefits well beyond their costs.^[8]

The importance of clarifying the authority of agencies to implement their statutes through benefit-cost balancing should not be underestimated. Most environmental statutes (like most other regulatory statutes) are silent or ambiguous on benefit-cost balancing. It is long overdue for EPA to carefully reexamine its statutory interpretations and implement its statutes through benefit-cost balancing, unless prohibited by law. This is an opportunity for EPA to be a leader on sustainable regulation.

Paul Noe is Vice President for Public Policy at the American Forest & Paper Association. From 2001 – 2006, he served as Counselor to Administrator John Graham in the Office of Information and Regulatory Affairs, Office of Management and Budget in the George W. Bush Administration.

^{[1] Office of Management and Budget, Office of Information and Regulatory Affairs, Report to Congress on the Costs and Benefits of Federal Regulation (Sept. 30, 1997), at p. 10.}

^{[2] See, e.g., John D. Graham and Paul R. Noe, “A Paradigm Shift in the Cost-Benefit State,” RegBlog, University of Pennsylvania Law School (April 26, 2016); John D. Graham and Paul R. Noe, “A Reply to Professor Sinden’s Critique of the ‘Cost-Benefit State,’” RegBlog, University of Pennsylvania Law School (Sept. 27, 2016); Jonathan S. Masur & Eric A. Posner, “Against Feasibility Analysis,” 77 U. Chicago L. Rev. 657 (2010).} 

^{[3] See John D. Graham and Paul R. Noe, “Beyond Process Excellence: Enhancing Societal Well-Being,” in Achieving Regulatory Excellence, Brookings Institution Press, Washington, DC, 2017, pp. 72 - 87.}

^{[4] See, e.g., John D. Graham and Paul R. Noe, “A Paradigm Shift in the Cost-Benefit State,” supra.}

^{[5] 556 U.S. 208.}

^{[6] 135 S. Ct. 2699.}

^{[7] See, e.g., John D. Graham and Paul R. Noe, “A Paradigm Shift in the Cost-Benefit State,” supra.}

^{[8] See, e.g., John D. Graham, “Saving Lives Through Administrative Law and Economics,” 157 U. Pa. L. Rev. 395, 465-81 (2008) (providing examples of beneficial EPA regulations such as emissions limits for coal-fired power plants); Economic Analyses at EPA, Richard D. Morganstern, Editor, Resources For the Future Press, Washington, DC (1997) (providing case studies on EPA’s use of benefit-cost analysis on rules such as the  removals of lead from gasoline and from drinking water, and finding the result was reduced regulatory costs and often increased benefits as well); U.S. Environmental Protection Agency, “EPA’s Use of Cost-Benefit Analysis: 1981-1986,” EPA-230-05-87-028 (Aug. 1987), p. 5-2 (“the return to society from improved environmental regulations is more than one thousand times EPA’s investment in cost-benefit analysis”).}