Amicus Curiae Brief — Entergy Corp. v. Riverkeeper, Inc.

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Supreme Court of the Anited States

ENTERGY CORP., Petitioner, WSN

ENVIRONMEM!M7AL PROTECTION AGENCY, ET AL.,

Respondents.

PSEG FOSSIL LLC AND PSEG NUCLEAR LLC,

Petitioners,

RIVERKEEPER, INC., ET AL., Respondents.

UTILITY WATER ACT GROUP, Petitioner,

RIVERKEEPER, INC., ET AL., Respondents.

On Writ Of Certiorari To The

United States Court Of Appeals

For The Second Circuit

BRIEF CF AMICUS CURIAE OMB WATCH

IN SUPPORT OF RESPONDENTS

PROFESSOR AMY SINDEN

Counsel of Record

Temple University Beasley School of Law

1719 N. Broad Street

Philadelphia, PA 19122

(215) 204-4969

October 6, 2008

TABLE OF CONTENTS

Be I FEAF Eee BEE vic cvescrscsscsescevsscsscossesesseses iv

INTEREST OF AMICUS CURIAE......................... 1

SUMPAARY OF ARGUMENT. ..................ccceccssccosceseees 1

SE IIIITTTE sn. cindlbeepuiatensibinnasineiaenendenminhaitensniwanahedesetsaee 4

I. FORMAL CBA, LIKE EPA RELIED ON

HERE, IS NOT “COMMON SENSE”, IT

IS A SPECIFIC AND CONTROVERSIAL

DECISION PROCEDURE THAT

CONGRESS PROHIBITED IN THE

SITE sinticernnnshienavnnensudaisnimtaidaucdinesnunnbidniiaanidiasesens 4

ll WHEN THE CWA WAS _ PASSED,

LAWMAKERS WERE HIGHLY

SKEPTICAL OF FORMAL CBA......................... 5

Congress Eschewed Formal CBA in

Every Federal Environmental Statute

PUG, WFb GED TRGE BOTOD. avec ccceccssccccnccccccccesses. 6

In Most Environmental Statutes,

Congress Directed Agencies to Employ

Technology-based Standards, Rather

than Formal CBA or Limited Cost-

RSE ETE. PERE D IT RE OTT ARE TO 9

In the Few Instances when Congress did

Authorize Cost-Benefit Balancing, It

Intended a Limited Qualitative

Balancing, Not Formal CBA........................... 10

No Consensus Favors Formal CBA, It

has Always been [Ilighly Controversial.......... 12

Mil. CONGRESS ESCHEWED FORMAL CBA

FOR GOOD REASON: IT PRODUCES

UNRELIABLE AND IRRATIONAL

eine iiciiniticniatinncecvinannpvationdulsatiieniuinittiene 14

The Data and Scientific Understandings

Necessary to Quantify Many

Environmental and Health Benefits are

I CII occcccneccccsvvesescerscoccscevesvesoccs 16

1. The CBA of the Phase II Rule was

Grossly Incomplete Because EPA did

not even Quantify the Vast Majority of

a. 16

2. Even for those Benefits EPA did

Attempt to Quantity, the Estimate was

oa ciivaendetionnaiel 18

B. Techniques for Assigning Monetary

Values to Non-Market Goods _ are

Unreliable and Highly Contestable................ 21

1. The CBA for the Phase II Rule was

Grossly Incomplete Because EPA was

Unable to Find Non-Controversial

Methods for Monetizing Non-Market

SNe licdasiciacmasnsinneiisiighccbsiniighdeeithlubiaseeniaasspeniacaae

a) EPA Used a Method for Estimating

the Benefits of Increased Forage

Species Survival that Measured

“Only a Small Share of these

Fg REESE SONS ns aa RPO Se Re OOS 24

b) Although EPA Believed that “Non-

Use Benefits may be Significant,” It

Ultimately Assigned them a Value of

ls Knaeenites chadecenitiensevcecnatactiinemipenesedaleciedes 25

C. EPA’S Estimate of Benefits for the

Phase II Rule was Grossly Incomplete,

Making Any Comparison with Costs

Irrational and Misleading

1. OIRA Pressured EPA into Weakening

its Proposed Rule on the Basis of the

Highly Flawed, Incomplete, and

Irrational Results of its CBA. ...........02.0..4+.

2. Although EPA Cited Its Formal CBA

as the Basis for Rejecting the Closed

Cycle Alternative, the Proposed Rule

Preamble went on to Cite Dozens of

Reasons the Benefits were Under-

I ee se

. The Phase ll Rulemaking Jilustrates

How CBA Undermines’ Rational

Agency DecisionimakKIng. .......ccccccceceecseeeesee:

CONCLUSION

OOP eee eee eee eee eee eee eee ee eee eee eee eee eee eee eee eee eee

TABLE OF AUTHORITIES

CASES

American Textile Mfrs. Inst. Inc. v.

Donovan, 452 U.S. 490 (1981) ............................. 6, 8

Ass'n of Pacific Fisheries v. EPA, 615 F.2d

LR ER A 10, 12

BASF Wyandotte Corp. v. Costle, 598

gE ECE SESE One a Oe 11

EPA v. California, 426 U.S. 200 (1976)................. 9,10

EPA v. Nat’? Crushed Stone Ass'n, 449

EE RE SER Se aS Re en 11

Indus. Union Dept v. Am. Petroleum

i Me rs IE CI eticnecctnicthateantiininnnisccinnseaneiie 7

Tenn. Valley Auth. v. Hill, 437 U.S. 153

a ds OT 6

Weyerhaeuser v. Costle, 590 F.2d { il

ESET REE ies oat na 10, 11, 12

Whitman v. American Trucking Ass’ns,

631 U.S. 457 (QOOD) ............0...ccc. ccc cccccsccsecccesceescees 6,8

LEGISLATIVE MATERIALS

Clean Water Act, 33 U.S.C.

NE ait eecicniicnixstivsnonenansaccnssccesdccneeiniecaeceneate 11

33 U.S.C. § TDL IO D)...............ccccccccescccccccsccccescecccescees i)

33 U.S.C. § 1314(b)CI)(B) «00. ceee ccc eeeeees 11,12

33 U.S.C. § 1314 (D)(2) ooo. cece cceececcecescececceneceueeees )

National Environmental Policy Act

(NEPA), 42 U.S.C. § 4332(B) ..000..00 00. cece. 10

Clean Air Act, 42 U.S.C. § 7411(a)Q1) ooo. iS)

1 A Legislative Historv of the Water

Pollution Control Act Amendments of

1972, Ser. No 93-1 (1973) ooccccccccccccccccccccccccec ence cceces 11

2 A Legislative History of the Water

Pollution Control Act Amendments of

1972, Ser. No. 93-1 (1973): S. Rep. No.

Sc ONE Be I Oc cicicnicennicanstihineiniaibbaenenes

EPA: Investigation of Superfund and

Agency Abuses (Part 3): Hearings

Before the Subcomm. on Oversight and

Investigations of the Comm. on Energy

and Commerce, 98 Cong. (1983)..............

Subcommittee on Oversight and

Investigations of the Committee on

Interstate and Foreign Commerce,

House of Representatives, 94th Cong.,

Federal Regulation and Regulatory

Reform, H. Rep. No. 75-931 (1976)............

U.S. Senate Committee on Governmental

Affairs, 96 Cong., Study on Federal

Regulation, S. Doc. No. 96-13 (1978).........

ADMINISTRATIVE MATERIALS

Exec. Order 12,291, 46 Fed. Reg. 13,193

TT ansiiuenitanmadepscngnenesimepnendserseen<oneboiiabenesnns

66 Fed. Reg. 6,976 (2001) 00.0.0... cece ece eee

67 Fed. Reg. 17,122 (2002) .0......0. ccc eccce eee eee

69 Fed. Reg. 41,576 (2004) .......... 0.

EPA, Case Study Analysis for the

Proposed Section 316(b) Phase Il

Existing Facilities Rule, EPA-821-R-02-

001 (February 2002) ................0.. cece eee ee eee

EPA, Economic and Benefits Analysis

(EBA) for the Final Section 316¢b)

Phase Il Existing Facilities Rule, EPA

821-R-04-005 (February 2004)........0.0........

EPA, Economic and Benefits Analysis

(EBA) for the Proposed Section 316(b)

.... passim

spaeonnuneels 26

Phase Il Existing Facilities Rule, EPA-

821-R-02-001 (February 2002)........00000.00.. 18, 19, 27

EPA, OMB Review Dratt for the Proposed

Section 316(b) Rule for Large Cooling

Water Intake Structures at Existing

Power Generating Facilities, Docket

W-00-32, DCN # 4-4005 (Dec. 28, 2001).......... 29, 30

EPA, Regional Analysis Document for the

Final Section 316(b) Phase IT Existing

Facilities Rule, EPA-821-R-02-003

I BE BI vv cecceccccescccesccssccesese 17, 23, 24, 25

EPA, Summary of Mayor Changes During

Interagency Review, Docket W-00-32,

EEE SAE ey a OE 30

Exec. Order 12,866, 58 Fed. Reg. 51,735

a iLL esCAadinlbbahdisilsviadalininhinnahiiiivininsnnessssete 13

NEPA Implementing Regulations, 40

I sc eeesmneisniil 11

OMB, Circular A-4 (Sept. 17, 2003) ..............ccc eee ceee 14

BOOKS

Cass R. Sunstein, Arsk and Reason (2002)..... 6, 12, 35

Ehzabeth Anderson, Value in Ethics and

ER RE A. rs 5

Frank Ackerman & Lisa Heinzerling,

Priceless: On Knowing the Price of

Everything and the Value of Nothing

AE SRE Lae a A a 5

Hon. Stephen Breyer, Sreaking the

TTI ATA Re oe LI 16

Richard L. Revesz, et al., Retaking

ETN Beek Pn 12, 13

Sidney A. Shapiro & ~~ Robert L.

Glicksman, Arsk Regulation at Risk:

Restoring a Pragmatic Approach (2003) ................. 5

ARTICLES

Amy Sinden, Cass Sunstein’s Cost-Benefit

Lite: Economics for Libera/s, 29 Col. J.

SE eee

C. Edwin Baker, The Jdeology of the

Economic Analysis of Law, 5 Phil. &

SN EB ccicintieisiihiasistiaingsnintiaimicinanensens

Cass R. Sunstein, Cost-Benefit Default

Principles, 99 Mich. L. Rev. 1651 (2001)......

Cass R. Sunstein, /ncommensurability

and Valuation in Law, 92 Mich. L. Rev.

I iacaishiciisdiniclapvcncienipiailimmabiladiliediainnenenenes

Cass R. Sunstein, The Arithmetic of

Arsenic, 90 Geo. L. J. 2255 (2002) ..........00....

Daniel C. Esty, Revitalizing

Environmental Federalism, 95 Mich. L.

RSET Tea ne Oe

David M. Driesen, Js Cost-Benefit

Analysis Neutral?, 77 U. Colo. L. Rev.

IT tssdihcildasssichiccmdilbapianeniiiamdeantetipiedibnmesess

Frank Ackerman & Lisa Heinzerling,

Pricing the fPriceless: Cost-Benefit

Analysis of Environmental Protection,

150 U. Penn. L. Rev. 1553 (2002) .................

Lawrence H. Tribe, Ways Not to Think

About Plastic Trees: New Foundations

for Environmental Law, 83 Yale L. J.

EIEN cnibartieseenesscceamesocken didbistetnamammennineateniies

Richard Parker, Grading the

Government, 70 U. Chi. L. Rev. 1345

IT hi since itietntetiaeoncdsalaebaielnintieinalldatunsiiak ania

Thomas H. Stevens, et al., Measuring the

Existence Value of Wildlife: What Do

CVM Estimates Really Show? 67 Land

ON cea eee

sincaindais 34

INTEREST OF AMICUS CURIAE

OMB Watch is a nonprofit research and

advocacy organization dedicated to promoting

government accountability, citizen participation in

public policy decisions, and the use of fiscal and

regulatory policy to serve the public interest. OMB

Watch was founded in 1983 to shed light on the

activities and operations of the Office of Management

and Budget (OMB). The organization also focuses on

the substantive areas that OMB and an agency

within it, the Office of Information and Regulatory

Affairs (OIRA), oversee: federal regulatory policy, the

federal budget, taxation and government

performance, information and access, and nonprofit

action, advocacy, policy and technology.

SUMMARY OF ARGUMENT

In developing the Phase II rule, EPA relied in

part on a formal, economic cost-benefit analysis

(“formal CBA”), i.e., an analysis that estimated both

the costs and benefits of the rule in monetary terms

and compared them. Formal CBA is not a “common

sense” tool for “rational” decision making, as

petitioners contend. It is a highly controversial

decision procedure that often produces irrational

results. Congress was extremely skeptical of formal

CBA when it passed the Clean Water Act (CWA) and

thus declined to provide for it anywhere in the

! The parties have consented to the filing of this brief. No

counsel for a party authored this brief in whole or in part, and

no counsel or party made a monetary contribution intended to

fund the preparation or submission of this brief. No person

other than amicus curiae, their institutions, or their counsel

made a monetary contribution to its preparation or submission.

statute, including in § 316(b). Indeed, Congress

eschewed formal CBA in every environmental statute

it passed in the early 1970s.

Rather than directing agencies to engage in

formal CBA, or even a limited cost-benefit balancing,

most environmental statutes of that era, including

the CWA, directed agencies to employ technology-

based standards. Technology-based standard-setting

requires the agency to evaluate likely costs of a

proposed standard in order to determine whether it is

economically feasible (i.e., “available”). But it does

not require agencies to delve into the far more

problematic task of attempting to quantify and

monetize environmental benefits.

The technology-based approach was

particularly important to Congress’ overhaul of the

CWA in 1972 because previous versions of that

statute had required agencies to engage in a

cumbersome and unworkable evaluation of water

quality benefits. In those few instances when

Congress did authorize cost-benefit balancing—as it

did under the Best Practicable Technology

standard—it did not authorize formal CBA. Rather,

it directed agencies to perform a limited, qualitative

balancing.

The use of formal CBA to_ evaluate

environmental regulation has always _ been

controversial. The practice first became widespread

in 1981, when President Reagan signed an executive

order requiring all major federal regulations to

undergo formal CBA (to be overseen by the OMB’s

Office of Information and Regulatory Affairs (OIRA)).

The executive order did not enjoy bipartisan support.

Indeed, many viewed it as a highly partisan effort to

delay and weaken regulation.

The application of formal CBA to

environmental regulation rests on the untenable

assumption that complex effects on ecological and

human health can be quantified and expressed in

dollar terms. In practice, scientific understandings

are rarely fine-grained enough to predict such

impacts in quantifiable terms. Even where they are,

data are inevitably incomplete. And even for those

data that do exist, the process of converting them into

dollars raises intractable difficulties that render the

results endlessly contestable.

The Phase II rulemaking illustrates these

shortcomings. The formal CBA that accompanied it

was hopelessly incomplete because EPA was unable

to quantify the vast majority of the broad and

complex ecological benefits associated with the rule.

EPA admitted, for example, that its estimate

accounted for less than two percent of the fish subject

to impingement and entrainment from cooling water

intake structures. Moreover, EPA was unable to find

non-controversial methods for monetizing the non-

market goods at issue. Finally, after receiving

extensive criticism, EPA threw up its hands and

simply left most benefits out of the analysis entirely.

The CBA never produced a _ reliable or

meaningful number. The benefits estimate

fluctuated wildly, changing by nearly a factor of ten,

from $735 million under the proposed rule to $83

million under the final rule. Even the larger number

was, by EPA’s own frequent; admission, hopelessly

incomplete. The documents describing the CBA were

peppered with caveats and disclaimers, describing

the myriad reasons why the benefits figure grossly

under-estimated the rule’s true benefits.

Yet, despite the innumerable caveats, EPA still

resorted to the raw numbers when it came time to

make a decision. At OIRA’s urging, it rejected a

closed cycle cooling alternative because “the

incremental costs of this option relative to the

proposed option ($413 million) significantly outweigh

the incremental benefits ($146 million).” 67 Fed. Reg.

17,122, 17,158 (2002). Thus, EPA based its decision

on a comparison of an incomplete estimate of benefits

with a relatively complete estimate of costs. This is

the kind of irrational decisionmaking formal CBA

often fosters. Congress rejected formal CBA in §

316(b) for that reason.

ARGUMENT

l. FORMAL CBA, LIKE EPA RELIED ON

HERE, IS NOT “COMMON SENSE”; IT IS A

SPECIFIC AND CONTROVERSIAL

DECISION PROCEDURE THAT CONGRESS

PROHIBITED IN THE CWA.

In deciding which of several alternatives to

adopt for the Phase II rule—setting the standard

under CWA § 316(b) for “minimizing adverse

environmental impact” from cooling water intake

structures at existing power plants—EPA relied in

part on a formal, economic cost-benefit analysis. See

pp. 28-31, infra. By “formal economic cost-benefit

analysis” (hereinafter “formal CBA”), we refer to an

analysis that estimates a regulation’s costs and

benefits to society in quantified, monetary terms and

then compares’ them.2 See Economists Frank

Ackerman, et al. Amicus Br. 10.

? EPA appears to also contemplate that formal CBA will be used

in connection with the site-specific compliance alternative. See

67 Fed. Reg. at 17,149 (EPA believes that a rigorous... .

This is not, as petitioners contend, simply a

“common sense... . imperative of basic rationality to

ensure that actions do more good than harm.”

Entergy Br. 29. It is a_ specific and highly

controversial decision procedure that Congress

considered and rejected in drafting the CWA as a

whole, and in § 316(b) in particular. Riverkeeper Br.

6-14, 47-50. Accordingly, the EPA violated § 316(b)

by using formal CBA to decide on the Phase II rule,

and the judgment of the court of appeals should be

affirmed.

Il WHEN THE CWA WAS _~ PASSED,

LAWMAKERS WERE HIGHLY SKEPTICAL

OF FORMAL CBA.

Congress passed the Clean Water Act in 1972,

during a time when many members of Congress

viewed formal CBA with considerable skepticism.® In

negotiations over the wording of § 316(b), the CBA

skeptics won out, keeping any provision for formal

economic analysis should be performed when a facility seeks a

site-specific determination of best technology available due to

significantly greater cost as compared to the benefits of

compliance.”).

3 Congress’ skepticism reflected an extensive academic

literature critiquing formal CBA. See, e.g., Lawrence H. Tribe,

Ways Not to Think About Plastic Trees’ New Foundations for

Environmental Law, 83 Yale L. J. 1315 (1974); C. Edwin Baker,

The Ideology of the Economic Anailvsis of Law, 5 Phil. & Pub.

Aff. 3 (1975). A robust academic critique of CBA continues to

this day. See, eg, Frank Ackerman & Lisa Heinzerling,

Priceless’: On Knowing the Price of Evervthing and the Value of

Nothing (2004): Sidney A. Shapiro & Robert L. Glicksman, Aysk

Regulation at Risk’ Restoring a Pragmatic Approach (2003);

Cass R. Sunstein, Jncommensurability and Valuation in Law, 92

Mich. L. Rev. 779 (1994): Elizabeth Anderson, Va/ue in Etsics

and Economics 993).

CBA or cost-benefit balancing of any kind out of that

section. Riverkeeper Br. 12-14, 49-50. Indeed, the

CBA skeptics were successful in keeping formal CBA

out of the statute entirely. /d. at 6-12, 48-49. While a

few sections of the CWA call for a limited balancing of

costs and benefits, see pp. 11-12, supra, none allow

for formal CBA. Riverkeeper Br. at 12.

A. Congress Eschewed Formal CBA in Every

Federal Environmental Statute Passed in the

Early 1970s.

Indeed, in every major environmental, health,

and safety statute passed during the first half of

1970s, Congress eschewed formal CBA. See Cass R.

Sunstein, Aisk and Reason 21-22 (2002) (“[Mlost

federal statutes do not call for cost-benefit balancing,

and many of them seem to preclude it.”); American

Textile Mfrs. inst. Inc. v. Donovan, 452 U.S. 490, 508-

522 (1981) (Occupational Safety and Health Act of

1970 requires feasibility analysis rather than CBA);

Whitman v. American Trucking Ass’ns, 531 U.S. 457,

467 (2001) (Clean Air Act of 1970 prohibits weighing

costs against benefits in promulgation of national

ambient air quality standards): Tenn. Valley Auth. v.

FAirll, 437 U.S. 153, 173, 184 (1978) (§7 of Endangered

Species Act of 1973 prohibits weighing costs against

benefits).

Members of Congress were concerned that

efforts to quantify and monetize the values associated

with human health and the environment would be so

controversial and so plagued by uncertainties that

agencies would waste valuable time and resources

without producing meaningful results. A 1976 House

report found these limitations “so severe that they

militate against [the] use lof benefit/cost analysis]

altogether.” Subcommittee on Oversight and

Investigations of the Committee on Interstate and

Foreign Commerce, House of Representatives,

94% Cong., Federal Regulation and Regulatory

Reform, H. Rep. No. 75-931, at 515 (1976). A 1978

Senate study took a similar view:

Where economic regulation is concerned,

[cost-benefit] analysis can be more easily

applied, since there the consequences

are usually capable of being reduced to

dollar and cent terms. Such is not

always the case with health, safety and

environmental regulation. Here it is

extremely difficult to quantify benefits

since they are subject to great

uncertainty and often become apparent

only with the passage of time. In

addition, some important benefits—such

as recreational or aesthetic values—are

difficult if not impossible to quantify in

any meaningful way ... . Therefore

there are serious limitations to the use

of economic impact analysis in the

health and = safety area a

[D]ecisionmaking to protect the public

from serious hazards should not be

reduced to those terms.

U.S. Senate Committee on Governmental Affairs, 96»

Cong., Studv on Federal Regulation, S. Doc.

No. 96-13, at xxiv (1978). See also Indus. Union Dep't

v. Am. Petroleum Inst., 448 U.S. 607, 719 n. 32 (1980)

(Marshall, J., dissenting) (“Congress’s antipathy

toward cost-benefit balancing is evident throughout

the legislative history of the [Occupational Safety and

Health] Act.”).4

Thus, despite petitioners’ protestation that

Congress “could not possibly have intended” such

“absurd” results (Entergy Br. 22), the fact that, in

1972, Congress drafted § 316(b) of the CWA to

preclude the use of formal CBA (or indeed any kind of

cost-benefit balancing) is not at all surprising.

4 In light of Congress’ antipathy toward formal CBA, petitioners’

suggestion that, unless Congress has explicitly prohibited CBA,

“it may be arbitrary and capricious” for an agency not to do it, ts

specious. Entergy Br. 30. The only authority petitioners cite for

this proposition is an article by Professor Cass R. Sunstein,

Cost-Benefit Default Principles, 99 Mich. L. Rev. 1651 (2001), in

which he calls on the federal courts to adopt a presumption

favoring formal CBA where a statute is silent. /d.: see a/so PLF

Amicus Br. 5-6 (advocating Sunstein’s “default principle”);

Entergy Br. 26, n. 8 (same). Here the statute is not silent; §

316(b) clearly requires EPA to apply a technology based

standard rather than CBA. See Riverkeeper Br. 23-33. But

even if it were, petitioners’ call for the application of a “cost-

benefit default principle” would be unavailing. While Professor

Sunstein is a widely-respected scholar, as shown above, his

proposal is clearly out of step with Congressional intent. This

perhaps explains why this Court has repeatedly declined to

adopt his default principle. See WAitman, 531 U.S. at 467 (‘We

have ... refused to find implicit in ambiguous sections of the

[Clean Air Act] an authorization to consider costs that has

elsewhere, and so often, been expressly granted.”); Donavan, 452

U.S. at 510 (“When Congress has intended that an agency

engage in cost benefit analysis, it has clearly indicated such

intent on the face of the statute."). See generally Amy Sinden,

Cass Sunstein’s Cost-Benefit Lite’ Economics for Liberals, 29

Col. J. Envtl L. 191, 228-240 (2004) (critiquing Sunstein’s

proposal).

B. In Most Environmental Statutes, Congress

Directed Agencies to Employ Technology-based

Standards, Rather than Formal CBA or

Limited Cost-Benefit Balancing.

Rather than directing agencies to engage in

formal CBA or even a limited cost-benefit balancing,

most environmental statutes of the 1970s, including

the CWA, direct agencies to employ technology-based

standards. See, e.g., CWA, 33 U.S.C. §§ 1311(b)(2),

1314(b)(2) (effluent limits fur point sources based on

the “best available technology”); Clean Air Act, 42

U.S.C. § 7411(a)(1) (emissions limits for new sources

based on “the best system of emission reduction...

adequately demonstrated”). Technology-based

standard-setting requires the agency to evaluate the

likely costs of a proposed standard in order to

determine whether it is economically feasible (i.e.,

“available”). It does not require agencies to delve into

the far more problematic task of attempting to

quantify and monetize the environmental benefits of

regulation in order to compare them to costs. See

Economists Frank Ackerman, et al. Amicus Br. 16-26.

The technology-based approach was

particularly important to Congress’ overhaul of the

CWA in 1972. Previous versions of the Act had

required standard-setting and enforcement to be

based on an evaluation of the benefits of regulation—

l.e., on assessments of the quality of the receiving

waters. HPA v. California, 426 U.S. 200, 202-205

(1976). This approach proved to be entirely

unworkable—in the words of the Senate Committee

on Public Works—“inadequate in every vital aspect.”

2 A Legislative History of the Water Pollution

Control Act Amendments of 1972, Ser. No. 93-1, at

1423 (1973); S. Rep. No. 92-414, at 7 (1971).

Evaluating the benefits of water pollution

reduction was extremely difficult. California, 426

U.S. at 202. lt required tedious and costly site-

specific measurements, as well as assessments of

complicated and inadequately understood ecological

chains of causation. Technology-based standard

setting, on the other hand, allowed EPA to simply set

uniform national standards for each industry based

on the maximum technologically achievable level of

pollution reduction. Weyerhaeuser v. Costle, 590 F.2d

1011, 1042 (D.C.Cir. 1978). This only required the

agency to evaluate technologies and costs. See

Economists Frank Ackerman, et al. Amicus Br. 16-26.

Thus, one of Congress’ primary goals in overhauling

the CWA in 1972 was to relieve permitting agencies

of the burden of attempting to measure regulatory

benefits. See Ass'n of Pacific Fisheries v. EPA, 615

F.2d 794, 805 (9*» Cir. 1980); Riverkeeper Br. 6-7.

C. In the Few Instances when Congress did

Authorize Cost-Benefit Balancing, It Intended

a Limited Qualitative Balancing, Not Formal

CBA.

Even in the few instances in the early 1970s in

which Congress did instruct agencies to compare

costs and benefits, it did not expect them to perform a

full-fledged, formal CBA. Rather, it directed them

simply to perform a rough, qualitative comparison to

ensure that costs were not wholly disproportionate to

benefits. See, e.g., National Environmental Policy

Act (NEPA), 42 U.S.C. § 4332(B) (‘insure that

presently unquantified environmental... values...

be given appropriate consideration in decisionmaking

along with economic . . . considerations”); NEPA

Implementing Regulations, 40 C.F.R. § 1502.23

(NEPA analysis “need not be displayed in a monetary

cost-benefit analysis and should not be when there

are important qualitative considerations.”).

In the CWA itself, Congress called for a

balancing of costs and benefits in conjunction with

the Best Practicable Technology standard. In

promulgating these interim standards, which were to

remain in effect for only a few years, see 33 U.S.C. §

1311(b)(1)(A); Riverkeeper Br. 34-35, the statute

directed EPA to consider the costs that would be

imposed on industry “in relation to the effluent

reduction benefits to be achieved.” Id. at §

1314(b)(1)(B).

Congress did not intend by this language to

authorize EPA to engage in formal CBA. This

language contemplated no more than a “limited cost-

benefit analysis,” intended to cull out the most

extreme cases where “the additional degree of

effluent reduction is wholly out of proportion to the

costs.” 1 A Legislative History of the Water Pollution

Control Act Amendments of 1972, Ser. No 93-1, at

170 (1973); EPA v. Nat? Crushed Stone Ass’n, 449

U.S. 64, 71, n. 10 (1980)(quoting legislative history);

Weyerhaeuser, 590 F.2d at 1045 n. 52 (same); BASF

Wyandotte Corp. v. Costle, 598 F.2d 637, 656-57 (15"

Cir. 1979)(CWA imposes obligation on EPA only to

perform “limited cost-benefit balancing” which “is a

relatively subsidiary task and need not be precise”).

Concerned that EPA not be “boglged] down in

burdensome proceedings” the courts held that “cost

need not be balanced against benefits with pinpoint

precision.” Weyerhacuser, 590 F.2d at 1048. Indeed,

EPA was not supposed to monetize the benefits at all.

Nor did Congress intend the agency to investigate the

full social benefits of the regulation in the welfare

economic sense—that is, to attempt to measure the

overall ecological improvement in the quality of the

receiving waters. Facific Fisheries, 615 F.2d at 805.

Instead, the statute directed EPA to balance only a

very simplified version of the benefits: “the effluent

reduction benefits,” 33 U.S.C. § 1314(b)(1)(B), i.e., the

pounds or tons of a pollutant that would be prevented

from entering the water. Thus, EPA was simply

supposed to hold up the pounds of pollutant reduced

next to the dollar costs of the regulation and perform

a limited balancing. Weyerhaeuser, 590 F.2d at

1047.

D. No Consensus Favors Formal CBA; It has

Always been Highly Controversial.

There is vot a long-standing consensus

favoring the use of formal CBA in _ agency

decisionmaking, as petitioners and their amici

contend. See AEI-Brookings Amicus Br. 8. The

widespread use of formal CBA by federal agencies

began in 1981, when President Reagan signed

Executive Order 12,291, requiring formal CBAs to be

prepared for all major federal regulations. 46 Fed.

Reg. 13,193 (1981). The executive order was seen at

the time as a highly partisan effort to slow regulatory

activity. See Richard L. Revesz, et al., Retaking

Rationality 24-29 (2008); see also Sunstein, Ask,

supra, at 20 (“Executive Order 12,291 proved

extremely controversial.”). Indeed, it explicitly stated

that its purpose was “to reduce the burdens of

existing and future regulations.” 46 Fed. Reg. at

13,193.

The executive order gave authority to oversee

agency compliance with the new CBA mandate to the

newly created Office of Information and Regulatory

Affairs (OIRA) within the White House Office of

Management and Budget. 46 Fed. Reg. at 13,193 (§

2(b)). This review process, including’ the

relationships and communications between OIRA

officials and regulated industries, was “shrouded in

secrecy,” which only served to heighten the

skepticism and suspicion with which many members

of Congress and environmental groups viewed OIRA

and the CBA mandate. See Revesz, supra, at 25;

EPA: Investigation of Superfund and Agency Abuses

(Part 3): Hearings Before the Subcomm. on Oversight

and Investigations of the Comm. on Energy and

Commerce, 98» Cong. 2 (1983) (statement of Rep.

John Dingell) (“OMB acts as a conduit for promoting

the views of industry affected by proposed regulations

through secret, undisclosed, and wunreviewable

contacts.”).

It was widely assumed that OIRA review of

regulations under the executive order’s CBA mandate

would have the effect of delaying and weakening

rather than spurring regulation, and that, indeed,

has been the effect. See David M. Driesen, /s Cost-

Benefit Analysis Neutral?, 77 U. Colo. L. Rev. 335,

365, 380 (2006) (Of 25 OIRA reviews studied, 24

resulted in changes that weakened environmental,

health, and safety protections.).

Although the Clinton administration pulled

back from the explicitly anti-regulatory stance of the

Reagan and Bush I administrations, it continued to

implement the same basic cost-benefit mandate,

replacing Reagan’s executive order with a similar one

that softened a few edges but kept the essential

mandate intact. See Exec. Order 12,866, 58 Fed. Reg.

51.735 (1993)\(replacing Reagan-era requirement that

benefits “outweigh” costs with “reasoned

determination” that benefits “justify” costs); OMB,

Circular A-4, at 10 (Sept. 17, 2003)(“A distinctive

feature of [CBA] is that both benefits and costs are

expressed in monetary’ units.”), avai at

http://www.whitehouse.gov/omb/circulars/a004/a-

4.pdf. Despite the embrace of CBA by the Clinton

administration, however, debate among scholars and

policymakers continued unabated and _ continues

today. Seep. 5, note 3, supra.

Ill. CONGRESS ESCHEWED FORMAL CBA FOR

GOOD REASON: IT PRODUCES

UNRELIABLE AND IRRATIONAL RESULTS

Congress had good reason to be skeptical of the

use of formal CBA to evaluate environmental health

and safety regulation in the 1970s, and those reasons

remain valid today. The application of formal CBA to

environmental regulation rests on the untenable

assumption that the complex ecological and human

health processes that such regulation seeks to protect

can be quantified and expressed in dollar terms. In

practice, scientific understandings are rarely fine-

grained enough to predict impacts in quantifiable

terms. Even where they are, data are inevitably

vastly incomplete. And even for those quantifiable

data that do exist, the process of converting such data

into dollar terms raises intractable practical and

theoretical difficulties that make most monetized

estimates of impacts endlessly contestable. As a

result, formal CBA fails miserably at its appointed

task. Rather than providing a “common sense” tool

for insuring “rational” regulation (Entergy Br. 4, 10,

29), formal CBA _ produces Alice-in-Wonderland

results that are so incomplete and so unreliable, they

provide endless opportunity for manipulation,

effectively vesting in agency officials virtually

unlimited and unreviewable discretion.

Formal CBA need not pinpoint costs or benefits

with a single number. Some range of uncertainty is

to be expected from any decisionmaking standard.

Results could have some margin of error and still be

quite useful. But the difficulties inherent in trying to

attach a dollar figure to environmental values—like a

human life or clean water or a species or an

ecosystem—create uncertainties of such enormous

magnitude that no meaningful comparison of costs

and benefits is possible.

EPA’s CBA of its regulation limiting arsenic in

drinking water, cited by amicus Pacific Legal

Foundation (PLF Amicus Br. 7), provides a telling

example. EPA estimated the costs of that rule to be

approximately $206 million, see 66 Fed. Reg. 6,976,

7,010 (2001), but a study by Professor Cass Sunstein

concluded that reasonable people making reasonable

assumptions could peg the benefits of the rule

anywhere between a low if $13 million or a high of

$789 million. See Cass R. Sunstein, 7Jhe Arithmetic

of Arsenic, 90 Geo. L. J. 2255, 2288 (2002). EPA

presented the benefits as falling somewhere within

the modest range of $140 to $200 million. 66 Fed.

Reg. at 7017. This presented a false and misleading

picture that failed to capture the true magnitude of

the uncertainties involved. See Sinden, supra, at

212-29.

A CBA with this level of uncertainty does not

help anyone identify “whether the regulation does

more harm than good.” (Entergy Br. 21). Rather than

“rationalizing” agency decision making (7d), it makes

it more vulnerable to political distortion. When

uncertainties are so large, interest groups can easily

manipulate the numbers to reach their desired

outce ie.

A. The Data and “Scientific Understandings

Necessary to Quantify Many Environmental

and Health Benefits are Simply Unavailable.

In many instances, we lack the data and/or

scientific understanding necessary to make definitive,

non-controversial estimates of the environmental

benefits of regulation. See, e.g., Hon. Stephen

Breyer, Breaking the Vicious Circle 45 (1993)

(attempt to assess risks associated with aflotoxin in

peanuts yielded “[t]wo scientifically plausible models

. showling] risk levels differing by a factor of

40,000.”). Quantifying the health benefits associated

with the arsenic rule, for example, was no easy task.

Various studies linked arsenic to seven different

types of cancer as well as to other health effects, but

only the studies linking arsenic to lung and bladder

cancer provided data in quantifiable form. See

Sunstein, Arsenic, supra, at 2272-74. Even for those

cancers, there were no hard data

at low doses. Jd. at 2279-82. From the outset, then,

even before any attempt at monetization, the benefits

estimate for EPA’s arsenic CBA contained a large

range of uncertainty and covered only a fraction of

the relevant health effects.

1. The CBA of the Phase II Rule was Grossly

Incomplete Because EPA did not even

Quantity the Vast Majority of the Benefits.

For rules with primarily ecological benefits,

the informational problems are even more acute,

because so many aspects of ecological processes are

still so poorly understood. Accordingly, EPA has

expressed concern that formal CBAs under the CWA

have generally “been limited in the range of benefits

assessed,” thus “hinder[ing] EPA’s ability to compare

... benefits and costs .. . comprehensively.” 67 Fed.

Reg. at 17,191. EPA found the process of assessing

benefits for the Phase II rule similarly “chalienging.”

69 Fed. Reg. 41,576, 41,655 (2004). Ultimately, its

formal CBA failed to include the vast majority of the

rule’s benefits.

EPA began by estimating the number of fish

impinged or entrained at intake structures. See 67

Fed. Reg. at 17,190. These impacts vary widely from

site to site, depending on the type of aquatic

ecosystem that exists there, the size and location of

the intake structure, and so on. See sd. Accordingly,

EPA did a series of case studies of facilities in

different regions and on different water body types,

and used those results to extrapolate estimates of

impingement and entrainment for all the facilities in

the country. See 69 Fed. Reg. at 41,655.

From the outset, of course, estimating the

number of fish impinged or entrained leaves out a

whole set of other ecological harms caused by cooling

water intake, including the loss of non-fish species

and impacts on the functioning of the ecosystem as a

whole. See EPA, Regional Analysis Document for the

Final Section 316(b) Phase IT Existing Facilities Rule,

EPA-821-R-02-003, at A9-1 (February 12, 2004)

(available at h.tp://www.epa.gov/waterscience/

316b/phase2/casestudy/final. htm). Phytoplankton

and zooplankton trapped in cooling water intake

structures can also be of crucial importance to the

aquatic food chain but these losses were not

calculated by EPA. Indeed, EPA did not even include

the loss of certain commercially valuable large

invertebrate species like lobsters, mussels, crabs, and

shrimp because they lacked adequate data. See EPA,

Economic and Benefits Analysis (EBA) for the

Proposed Section 316(b) Phase II Existing Facilities

Rule, EPA-821-R-02-001, at C1-7 (February 2002)

(available at http://www.epa.gov/waterscience/316b/

phase2/econbenefits). Nor did EPA include effects on

fish-eating birds or on sea turtles and other

endangered species. See 69 Fed. Reg. at 41,624

(“3,200 threatened or endangered sea turtles entered

enclosed cooling water intake canals at the St. Lucie

Nuclear Generating Plant in Florida.”). Moreover,

the agency made no attempt to account for

cumulative impacts, see EPA, EBA Proposed Rule,

supra, at Cl1-6, or the “stresses to overall

communities and ecosystems as_ evidenced by

reductions in diversity or other changes in system

structure and function,” 69 Fed. Reg. at 41,586. EPA

acknowledged that while all of these impacts are very

important, measuring them is _ particularly

challenging, because “[pJopulation dynamics and the

physical, chemical, and _ biological processes of

ecosystems are extremely complex.” Jd.

2. Even for those Benefits EPA did Attempt to

Quantify, the Estimate was Grossly

Incomplete.

Even for the narrow slice of benefits that EPA

did attempt to quantify, its estimates were highly

inaccurate and incomplete, as EPA repeatedly

acknowledged.

EPA derived its estimate of the magnitude of

impingement and entrainment impacts on fish from

facility-reported data. 69 Fed. Reg. at 41,656. This

introduced yet another source of uncertainty and

inaccuracy. See EPA, EBA Proposed Rule, supra, at

C1-6. Most facilities had never even conducted such

studies. See EPA, Economic and Benefits Analysis

(EBA) for the Final Section 316(b) Phase II Existing

Facilities Rule, EPA-821-R-04-005, at A2-1

(February 2004) (available at http:‘//www.epa.gov/

waterscience/3 16b/phase2/econbenefits/final.htm).

Among those that had, sampling methods and

equipment were “highly variable.” 69 Fed. Reg. at

41,656. The “data [were] often limited to a subset of

species,” and were in some instances as much as

three decades old. Jd. EPA observed that as a result

of these problems, “the magnitude of impingement

and entrainment is often underestimated.” 67 Fed.

Reg. at 17,19. see also EPA, EBA Proposed Rule,

supra, at C1-6 (“EPA believes that its analysis is

hkely to lead to _ potentially significant

underestimates . . . of regulatory benefits.”).

Once it had estimated the number of fish that

are otherwise lost through impingement and

entrainment but would be saved by the rule (1.4

billion annually), 69 Fed. Reg. at 41,657, EPA then

estimated the number of those fish that would likely

be caught by commercial and recreational fishermen.

Most: fish species are not caught at all. And even

among those species that are, harvest rates are

usually less than 20 percent. Accordingly, the

number of affected fish that EPA actually counted

was vanishingly small:

Of the organisms which are anticipated

to be protected by the section 316(b)

Phase II rule, it is projected that

approximately 1.8 percent will

eventually be harvested by commercial

and recreational fishers and therefore

can be valued with direct use valuation

techniques. The Agency’s direct use

valuation does not account for the

benefits from the remaining 98.2% of the

age 1 equivalent aquatic organisms

estimated to be protected nationally

under today’s rule.

Id. at 41,660-61.

This estimation was, as EPA acknowledged,

grossly incomplete, since the fish that survive

uncaught have an obvious ecological value. They will

reproduce to sustain the population that will be

fished on in future years, they will provide food for

other fish, and undoubtedly play other important

roles in the larger ecosystem as well. See id. at

41,657. This methodology generated considerable

controversy and illustrates the high degree of

indeterminacy that attempts to quantify natural

resource values can create. For example, natural

resource economist Frank Ackerman, Ph.D., of Tufts

University, commented on the _ proposed rule,

criticizing EPA’s incomplete accounting of fish

mortality. See J.A. 211- 244. He argued that a more

reasonable methodology that took into account the

value of the fish that were not caught would have the

effect of doubling EPA’s benefits estimate. J.A. 223.

In sum, EPA’s benefits estimate was hopelessly

incomplete, encompassing only a tiny fraction of the

total benefits of the Phase II rule. Many aspects of

the rule’s benefits were left off the ledger sheet

entirely because EPA simply lacked the data

necessary to assess them. Even with respect to the

benefits for which EPA did have some limited data—

avoidance of impingement and entrainment impacts

on fish—EPA’s estimate accounted for less than two

percent of the impacted fish.

B. Techniques for Assigning Monetary Values to

Non-Market Goods are Unreliable and Highly

Contestable.

Formal CBA requires the analyst to attach

dollar figures to values that have no price—human

lives, healthy ecosystems, endangered species. For

many, the very thought of attempting to assign a

dollar price to such intangibles defies common sense.

At a minimum, the practice proves extremely

controversial. While economists have developed a

number of methods for de:iving “shadow prices” for

non-market goods, the numbers they produce are

inevitably soft and highly contestable.

Often, in order to attach a dollar figure to

unpriced natural resources, analysts resort to public

opinion polls. In what is called the “contingent

valuation method” (CVM), analysts give members of

the public information about a particular good—the

preservation of an endangered species, or the

maintenance of clean air or clean water—and then

ask how much they would be willing to pay for it.

Thomas H. Stevens, et al., Measuring the Existence

Value of Wildhife- What Do CVM Estimates Really

Show? 67 Land Economics 390 (1991): see 67 Fed.

Reg. at 17.150 (suggesting use of contingent

valuation in CBAs for _ site-specific BTA

determinations). One such survey found the average

person willing to pay $19.28 per year to prevent the

extinction of bald eagles. See Stevens, supra, at 396.

Studies like these never’ produce _ hard

numbers. They are inevitably subject to challenge on

a variety of methodological grounds. The survey may

be criticized for the amount or objectivity of the

background information provided, the way questions

are phrased, the fact that respondents are not subject

to actual budget constraints, or the geographic scope

of the survey. See id. at 396-99. If EPA were to

conduct a contingent valuation survey on the

endangered sea turtles lost in cooling water intake

structures in Florida, for example, would it be

appropriate to count the willingness-to-pay of all

people in Florida, everyone in the U.S., or everyone in

the world? There is no consensus on how to handle

such problems, yet outcomes can vary widely—by

orders of magnitude—depending on how they are

resolved. See Daniel C. Esty, Aevitalizing

Environmental Federalism, 95 Mich. L. Rev. 570, 640

(1996). Accordingly, the results of any such study are

inevitably vulnerable to reasonable arguments that

they should be adjusted significantly up or down.

Alternatively, agencies put off by the expense and

controversy may forego such studies and simply leave

non-market goods out of the calculation altogether.

l. The CBA for the Phase II Rule was Grossly

Incomplete Because EPA was Unable to Find

Non-Controversial Methods for Monetizing

Non-Market Goods.

The vast majority of the benefits associated

with the Phase II rule involved ecological values that

EPA was simply unable to quantify or monetize. The

only aspects of the benefits that directly involved a

market good were the commercial fish species that

would be saved from impingement and entrainment.

EPA estimated this value by simply calculating the

market price of the additional commercial fish that

would be caught under the rule. 69 Fed. Reg. at

41,659-60.

To account for the value of the recreationally

caught fish, EPA used a “random utility model,”

which inferred anglers’ willingness-to-pay for

recreational fishing based on their travel costs for

visiting particular fishing sites and then used a

mathematical model to estimate how that

willingness-to-pay would likely increase in response

to increased catch levels. EPA, Regional Analysis,

supra, at Al1-1 to Al1-13; 69 Fed. Reg. at 41658-57.

Even putting aside the uncertainties and

questionable assumptions associated with EPA’s

valuation of recreational fishing, the fishing benefits

that EPA actually counted represented only a very

small slice of the full spectrum of environmental

benefits associated with the rule. First, EPA’s

estimate of commercial and recreational fishing

benefits accounted for less than two percent of the

total number of aquatic organisms subject to

impingement and entrainment. See pp. 19-20, supra.

Second, even had they accounted for one-hundred

percent of the fish killed by impingement and

entrainment, this would have covered only a very

narrow slice of the broad and complex harms caused

by cooling water intake structures.

In the documents supporting its CBA, EPA

acknowledged this significant limitation in_ its

analysis and itemized the wider ecological harms its

CBA omitted. EPA, Regional Analysis, supra, at

A9-1. The hst is too long to reproduce here, but

included, for example, the fact that “[flish are

essential for energy transfer in aquatic food webs,

regulation of food web structure, nutrient cycling,

maintenance of sediment processes, redistribution of

bottom substrates, the regulation of carbon fluxes

from water to the atmosphere, and the maintenance

of aquatic biodiversity.” Jd.

EPA had no way of valuing most of these

broader ecological impacts, both because they involve

processes that are only dimly understood by science,

and because they involve goods and services not

traded in markets. Accordingly, EPA simply left

most of these values off the balance sheet altogether.

The agency did, however, make an attempt to include

two aspects of these non-market benefits in its

quantified estimate: 1) the benefits of increased

survival of “forage” species (fish that other species

prey on), and 2) non-use benefits of the aquatic

ecosystem. As the next two sections explain,

however, even these attempts were largely

unsuccessful.

a) EPA Used a Method for Estimating the

Benefits of Increased Forage Species

Survival that Measured “Only a Small

Share of these Losses.”

EPA initially used one of two methods to

attempt to estimate the benefits of increased forage

species survival, depending on the region. In most

regions, it used “estimates of trophic transfer

efficiency to relate foregone forage production to

foregone commercial and recreational fishery yields.”

67 Fed. Reg. at 17,191. EPA acknowledged that this

method was highly incomplete in that it measured

“only the small share of these losses, . . . namely the

contribution of the forage species to the increased

biomass of landed recreational and commercial

species.” Jd. at 17,193. As such, this method left out

the myriad other ecological functions such species

undoubtedly serve.

In a few regions, EPA initially used a Habitat

Replacement Cost analysis instead, which used the

projected costs of habitat replacement programs for

various species suffering impingement and

entrainment losses as a proxy for the value of forage

species losses. J/d. at 17,191. EPA viewed this

method as considerably more comprehensive, in part

because of its “recognition that impingement and

entrainment losses have impacts on all components of

the aquatic ecosystem .. . beyond that estimated by

reduced commercial and recreational fish catches.”

Id. This method also posed problems, however. EPA

acknowledged that it did “not take into consideration

ecological problems associated with introducing

hatchery fish into wild populations.” Jd. And it

generated significant controversy. In comments on

the proposed rule, natural resource economist, Robert

Stavins, Ph.D. of Harvard University, criticized the

Habitat Replacement Cost method as “completely

illegitimate” and “fatally flawed.” J.A. 234.

In the final rule, EPA abandoned the Habitat

Replacement Cost analysis altogether. Instead, it

used the far lower (and less complete) numbers

generated by the trophic transfer model, noting that

estimating the value of forage species is

“challenging.” 69 Fed. Reg. at 41,657: see EPA,

Regional Analysis, supra, at Al15-1. Ultimately, then,

EPA’s estimate of the benefits of increased survival of

forage species was, by its own admission,

significantly incomplete.

b) Although EPA Believed that “Non-Use

Benefits may be Significant,” It Ultimately

Assigned them a Value of Zero.

“Non-use values” are the values_ people

attribute to resources they have no intention of ever

using or experiencing directly. These are sometimes

referred to as “existence values” or “bequest values.”

EPA, Case Study Analysis for the Proposed Section

316(b) Phase II Existing Facilities Rule, EPA-821-R-

02-001, at A9-10 (February 2002) (available at

http://www.epa.gov/waterscience/3 16b/phase2/

casestudy). Often such values are estimated using

contingent valuation studies, which can be quite

controversial. See pp. 21-22, supra. But in this

instance, EPA lacked the resources to even conduct

such studies. See EPA, Case Study, supra, at A9-10.

Instead, EPA applied a “rule of thumb” based

on a 1977 study, which inferred that non-use values

associated with water-quality improvements were

typically 50 percent of recreational use values. See

id. 67 Fed. Reg. at 17,149. As described above, EPA’s

estimate of recreational use values was itself based

on shadow pricing methods that were far from

precise. See id. at 17,193 (“[Nlonuse benefits are

most likely understated using the 50 percent rule

because the recreational valtes used are likely to be

understated.”). Perhaps predictably, then, EPA’s 50-

percent rule of thumb came under considerable fire

during the comment period. Economist Robert

Stavins argued that the 50-percent rule was far too

high. J.A. 231, 233. Economist Frank Ackerman, on

the other hand, argued that it was too low and that

based on more recent literature, non-use value should

be estimated at two-times use value. J.A. 220.

Ultimately, when it came to the final rule, EPA

threw up its hands and attached no monetary value

to non-use benefits at all. It explained in the

preamble that while there was “evidence that non-use

values could occur as a result of this rule, ... EPA

was unable, by the time of publication . . . to estimate

reliable valuations . . . [or] to fully develop and

analyze ... non-use benefit approaches.” 69 Fed.

Reg. at 41,657; id. at 41,666 (PA believes omitted

“non-use benefits may be significant.”); 7d. at 41,662

(same).

By EPA’s own admission, then, even the CBA

that accompanied the proposed rule vastly under-

estimated the benefits. But by the time it issued the

final rule, EPA had backed away from so many of the

methods it had originally used to try to value non-

market goods that its benefits estimate had shrunk

by nearly ten-fold. Thus, while the total benefits

estimate for the proposed rule was $735 million, EPA,

EBA Proposed Rule, supra, at D1-4, the benefits

estimate associated with the final rule was just $83

million. 69 Fed. Reg. at 41,666.

C. EPA’S Estimate of Benefits for the Phase II

Rule was Grossly Incomplete, Making Any

Comparison with Costs Irrational and

Misleading.

The story of the Phase II rulemaking provides

a helpful illustration of how formal CBA so often

produces results that actually serve to undermine

“common sense” and “rational” decision making.

Entergy Br. 4, 29. EPA's estimate of the benefits of

the rule was so hopelessly unreliable and incomplete

that any attempt to compare it with the costs was

patently irrational. Thus, rather than clarifying the

relevant issues and helping to identify “whether the

regulation did more harm than good” (Ud. at 21),

formal CBA in this instance actually served to

obscure relevant issues and mislead decisionmakers.

Even EPA’s own estimates of the benefits of its

regulation varied wildly—by a factor of nearly ten—

between the proposed and final rules. This disparity

resulted largely from the fact that the methods for

monetizing non-market ecological values are _ so

inadequate and so contestable. In the end, after

receiving extensive criticism on its CBA for the

proposed rule, EPA threw up its hands and simply

left most benefits out of the analysis entirely.

In reporting the costs and benefits of the final

rule, EPA flatly acknowledged that its benefits

estimate was incomplete, making a meaningful

comparison with costs impossible: “EPA notes that

these analyses are based on a comparison of a partial

measure of benefits with a complicte measure of costs;

therefore, the results must be interpreted with

caution.” 69 Fed. Reg. at 41,666; see EPA, EBA Final

Rule, supra, at D1-5 (“A comparison of complete costs

and incomplete benefits does not provide an accurate

picture of net benefits to society.”). But even the far

larger estimate of benefits that accompanied the

proposed rule was, by EPA’s own admission, grossly

incomplete. Throughout the preamble to the

proposed rule, EPA repeatedly pointed out the

weaknesses in its analysis that likely caused it to

underestimate benefits.

1. OIRA Pressured EPA into Weakening its

Proposed Rule on the Basis of the Highly

Flawed, Incomplete, and Irrational Results of

its CBA.

Nonetheless, it appears to have been on the

basis of this highly flawed, incomplete, and irrational

CBA that OIRA pressured EPA into changing its

proposed rule. EPA’s originally proposed rule

identified closed cycle cooling as the best technology

available for the 59 largest and most environmentally

damaging facilities of the 539 subject to the rule.

EPA, OMB Review Draft for the Proposed Section

316(b) Rule for Large Cooling Water Intake

Structures at Existing Power Generating Facilities,

Docket W-00-32, DCN # 4-4005, p. 72 (Dec. 28, 2001).

These were facilities that either were “located on a

tidal river or an estuary” and had “an intake flow

that exceeds one percent of the tidal excursion” or

were “located on an ocean” and had “an intake flow

that exceeds 500 [million gallons per day].” Jd.

EPA based this proposal on its findings that

closed-cycle cooling “is the most effective technology

for reducing both entrainment and impingement,” sd.

at 75, that closed-cycle cooling is “commercially

available and economically achievable” and already

in use at 21 percent of existing facilities, id at 74-75,

and that “facilities can and have installed these

technologies years after the facility began operation,”

id at 75. Additionally, EPA found that “the

compliance costs for [this proposal] would . . . be low

compared to firm-level revenues.” See 67 Fed. Reg. at

17,158 (82% of firms would incur compliance costs of

less than 0.5 % of revenues). Accordingly, this

proposal met the “best available technology” test of

section 316(b) with flying colors. See Economists

Frank Ackerman, et al. Amicus Br. 16-23.

When it came to formal CBA, on the other

hand, EPA was _ prescient. Anticipating the

conclusion it would ultimately reach two-and-a-half

years later after completion of the final rule, the

agency stated that “EPA cannot perform a complete

benefit-cost comparison because not all of the benefits

resulting from the proposed regulatory alternative

can be valued in dollar terms.” EPA, OMB Review

Draft, supra, at 211. At this stage, EPA’s formal

CBA was not nearly complete: In many places the

draft contained “X’s” in lieu of numbers that were to

be filled in later. /d. at 205, 211-12. But EPA could

tell, even then, that the analysis would not ultimately

be able to quantify enough aspects of the benefits of

the proposed rule to provide a rational comparison

with costs.

On December 28, 2001, after years spent

researching and preparing the proposed rule, EPA

submitted it to OIRA for review. 67 Fed. Reg. at

17,208. The rule that emerged 60 days later was

drastically changed. The OIRA review process

resulted in 58 “major changes” to the rule, including

the removal of the closed cycle cooling requirement

for the 59 most damaging facilities and the addition

of a provision allowing a site-specific determination of

permit requirements based on a cost-benefit analysis.

See EPA, Summary of Mayor Changes During

Interagency Review, Docket W’-00-32, DCN # 4-4005,

at 1 (2002).

Although records of the communications

between EPA and OMB during the review process

have not been made public, we can surmise the

rationale for the change by comparing the preamble

to the proposed rule that was ultimately published in

the Federal Register with the preliminary draft EPA

submitted to OIRA. In the proposed rule, the closed

cycle cooling requirement was demoted from the

preferred option to an alternative option. 67 Fed.

Reg. at 17,156-58. In describing this option in the

preamble to the proposed rule, EPA reiterated all the

reasons it would be a good option, including its

economic practicality. /d. at 17,158. ‘The only

rationale EPA offered for why this option might

ultimately be rejected was formal CBA. “EPA notes

that the incremental costs of this option relative to

the proposed option ($413 million) significantly

outweigh the incremental benefits ($146 million).”

Id. Wecan only surmise that this was the rationale

OIRA used to push EPA to change the rule, since

OIRA’s mandate, after all, is to ensure

implementation of the mandate for formal CBA in

Executive Order 12,866. See pp. 12-14, supra.

2. Although EPA Cited Its Formal CBA as the

Basis for Rejecting the Closed Cycle

Alternative, the Proposed Ruie Preamble

went on to Cite Dozens of Reasons the

Benefits were Under-Estimated.

Thus, the EPA rejected the more stringent

closed cycle alternative on the grounds that its formal

CBA showed the marginal costs of that alternative

outweighing its marginal benefits. 67 Fed. Reg. at

17,158. Nonetheless, the remainder of the preamble

to the proposed rule went on to systematically

undermine that conclusion by repeatedly citing the

myriad reasons EPA believed its analysis had under-

estimated the real magnitude of the rule’s benefits.

See, e.g., id. at 17,194-96 (repeatedly noting “several

critical caveats and limitations of the analysis”). The

preamble is peppered with literally dozens of such

disclaimers. See, e.g., id. at 17,190 (“the magnituce

of impingement and_= entrainment is_ often

underestimated.”); id. at 17,192 (“Secondary impacts .

like] effects on marinas, bait sales, property

values, and so forth are not included, even though

they may be significant.”); id (‘Current fishing

mortality rates (and resulting estimates of yield)

often reflect depleted fisheries, not what the fisheries

should or could be if not adversely impacted by

impingement and entrainment and other stressors.”);

id. at 17,193 (“Forage losses are often valued at only

a fraction of their potential fuli value.”); zd. (“Impacts

on threatened and endangered species are not fully

captured.”).

Indeed, references to the benefits being

“underestimated” or “understated” appear 23 times in

the preamble. See id. at 17,190-203. Nowhere does it

state that the benefits have been either overstated or

overestimated. At one point, EPA entertained that

possibility, see id. at 17,192 (“the Agency’s benefits

estimates could be either over- or under-estimated”),

but then quickly dismissed it:

However, because of the many factors

omitted from the analysis (typically

because of data limitations) and the

manner in_- which several key

uncertainties were addressed, EPA

believes that its analysis is likely to lead

to a potentially significant

underestimate of baseline losses and,

therefore lead to understated estimates

of regulatory benefits.

Td.

Natural resources economist Frank Ackerman,

Ph.D., in comments submitted on the proposed rule,

suggested that even just correcting for a few of the

many inaccuracies in EPA’s benefits estimate would

yield an estimate 4-6 times as high. J.A. 223. If that

were true, then the abandoned closed cycle option

would probably actually pass an incremental cost-

benefit test. See 67 Fed. Reg. at 17,158.

3. The Phase II Rulemaking IJilustrates How

CBA Undermines Rational Agency

Decisionmaking.

The story of the Phase II CBA illustrates why

formal CBA so often leads to irrational results that

defy common sense and actually obscure the factors

relevant to discerning whether a regulation does

more harm than good. The benefits estimate for the

Phase II rulemaking never produced anything even

approaching a reliable or meaningful number.

Indeed, the numerical estimate jumped wildly

between the proposed and final rules, changing by

nearly a factor of ten, from $735 million under the

proposed rule to $83 million under the final rule. See

p. 27, supra.

Even the larger number was, by EPA’s own

frequent admission, grossly and _ hopelessly

incomplete. The documents describing the CBA were

peppered with caveats and disclaimers, describing

the myriad reasons why the benefits figure grossly

underestimated the true benefits of the rule.

Yet, despite the innumerable caveats, EPA still

resorted to the raw numbers when it came time to

make a decision. It rejected the closed cycle cooling

alternative becaise “the incremental costs of this

option relative to the proposed option ($413 million)

significantly outweigh the incremental benefits ($146

million).” 67 Fed. Reg. at 17,158. This time there

were no caveats or disclaimers.

This is not an unusual story. One of the

problems with formal CBA is that, no matter how

many narrative explanations, caveats and qualitative

descriptions are included in the analysis, regulators

face an irresistible temptation to reduce formal CBA

to its raw numbers. In this way, they can make

decisions look easy and definitive rather than

difficult and ambiguous. See Frank Ackerman &

Lisa Heinzerling, Pricing the Priceless: Cost-Benefit

Analysis of Environmental Protection, 150 U. Penn.

L. Rev. 1553, 1579-80 (2002) (unquantifiable benefits

often given lip service in CBA but ultimately ignored;

citing arsenic CBA as example where “{s]ubsequent

public discussion [of the CBA] inevitably referred

only to the EPA’s numerical analysis and forgot about

the cases of avoided illness that could not be

quantified”); Richard Parker, Grading the

Government, 70 U. Chi. L. Rev. 1345, 1348-49,

1404-06 (2003) (observing increasingly prevalent

phenomenon of “regulatory score cards,” which

“reduce... hundreds of pages [in a CBA] to a few

summary statistics”).

But, as the Phase II rule illustrates, when

monetary estimates of benefits and costs are grossly

incomplete and highly contestable, as they so often

are, attempting to compare them “does not provide an

accurate picture of net benefits to society.” EPA,

EBA Final Rule, supra, at D1-5. On the contrary, it

leads to irrational results that actually obscure the

relevant issues behind a false veneer of scientific

objectivity and accuracy. In this way CBA actually

reduces the transparency and_ “rationality of

government decisionmaking.

Rather than rationalizing and disciplining

agency decision making, formal CBA actually renders

agency decision making more vulnerable to interest

group pressure. Because the numbers it produces are

so unrelable and contestable, an interest group

unhappy with the result can almost always find an

economist who can make a credible argument for the

opposite outcome. Indeed, Professor Cass Sunstein

made this observation in connection with his careful

analysis of EPA’s formal CBA of the arsenic rule:

We are now in a position to see the

multiple possible challenges to any

agency decision that involves. cost-

benefit balancing .... We can see how

creative citizens and lawyers,

representing water systems or

environmentalists, might be able to

mount reasonable challenges to EPA’s

decisions, regardless (almost) of the

content of those decisions.

Sunstein, Arsk, supra, at 179. Thus, rulemaking

devolves into a contest over which interest group has

the resources to hire the best credentialed cconomists

rather than which side has the better argument.

In sum, formal CBA often undermines rational

agency decisionmaking. That occurred in this case,

when EPA, at OIRA’s urging, rejected the closed cycle

alternative on the grounds of a comparison of the raw

numbers produced by its formal CBA. EPA compared

a monetary estimate of benefits that was hopelessly

unreliable and incomplete to a relatively compete

estimate of costs and used the results of this fuzzy

math to justify its decision.

CONCLUSION

Formal CBA of the type used by EPA in this

case undermines rational decisionmaking because it

inevitably produces incomplete, unreliable, and

contestable results. It requires analysts to attach a

dollar figure to values like human lives, healthy

ecosystems, and endangered species that cannot be

meaningfully or reliably quantified and monetized.

Formal CBA is not a common sense tool for rational

decision making, but a very specific and highly

controversial method for evaluating regulations.

Congress had good reason to prohibit its use under

the CWA in general and under § 316(b) in particular.

Respectfully submitted.