Draft 2003 Report to Congress on the Costs and Benefits of Federal Regulations

Federal RegisterFeb 3, 2003

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OFFICE OF MANAGEMENT AND BUDGET

Draft 2003 Report to Congress on the Costs and Benefits of Federal Regulations

AGENCY:

Office of Management and Budget, Executive Office of the President.

ACTION:

Notice and request for comments.

SUMMARY:

OMB requests comments on the attached Draft Report to Congress on the Costs and Benefits of Federal Regulation. The Draft Report is divided into two chapters. Chapter I presents estimates of the costs and benefits of Federal regulation and paperwork with an emphasis on the major regulations issued between October 1, 2001 and September 31, 2002. Chapter II requests comments from the public in three areas: (1) Guidelines for regulatory analysis; (2) Analysis and management of emerging risks; and (3) Improving analysis of regulations to homeland security.

DATES:

To ensure consideration of comments as OMB prepares this Draft Report for submission to Congress, comments must be in writing and received by OMB no later than April 3, 2003.

ADDRESSES:

We are still experiencing delays in the regular mail, including first class and express mail. To ensure that your comments are received, we recommend that comments on this draft report be electronically mailed to

OIRA_BC_RPT@omb.eop.gov,

or faxed to (202) 395-7245. Comments on the OMB Draft Guidelines for the Conduct of Regulatory Analysis and the Format of Accounting Statements (Appendix C) should be e-mailed to

OIRA_ECON_GUIDE@omb.eop.gov

, or faxed, with the title “Comments on Draft Guidelines” identified in the transmittal page, to (202) 395-7245.

You may also submit comments to Lorraine Hunt, Office of Information and Regulatory Affairs, Office of Management and Budget, NEOB, Room 10202, 725 17th Street, NW., Washington, DC 20503.

FOR FURTHER INFORMATION CONTACT:

Lorraine Hunt, Office of Information and Regulatory Affairs, Office of Management and Budget, NEOB, Room 10202, 725 17th Street, NW., Washington, DC 20503. Telephone: (202) 395-3084.

SUPPLEMENTARY INFORMATION:

Congress directed the Office of Management and Budget (OMB) to prepare an annual Report to Congress on the Costs and Benefits of Federal Regulations. Specifically, Section 624 of the FY2001 Treasury and General Government Appropriations Act, also know as the “Regulatory Right-to-Know Act,” (the Act) requires OMB to submit a report on the costs and benefits of Federal regulations together with recommendation for reform. The Act says that the report should contain estimates of the costs and benefits of regulations in the aggregate, by agency and agency program, and by major rule, as well as an analysis of impacts of Federal regulation on State, local, and tribal government, small business, wages, and economic growth. The Act also states that the report should go through notice and comment and peer review.

John D. Graham,

Administrator, Office of Information and Regulatory Affairs.

Draft 2003 Report to Congress on the Costs and Benefits of Federal Regulation

Executive Summary

This Draft Report to Congress on regulatory policy was prepared pursuant to the Regulatory Right-to-Know Act (Section 624 of the Treasury and General Government Appropriations Act, 2001), which requires such an account each year. It provides a statement of the costs and benefits of federal regulations and recommendations for regulatory reforms. The report will be published in its final form after revisions to this draft are made based on public comment, external peer review, and interagency review.

The major feature of this report is the estimates of the total costs and benefits of regulations reviewed by OMB. Major federal regulations reviewed by OMB from October 1, 1992 to September 30, 2002 were examined to determine their quantifiable benefits and costs. The estimated annual benefits range from $135 billion to $218 billion while the estimated annual costs range from $38 billion to $44 billion.

OMB seeks public comment on all aspects of this Draft Report. OMB is specifically interested in public comment in the following three areas:

• Guidelines for regulatory analysis. In order to make continued improvements in the quality of the regulatory analyses prepared by agencies, OIRA initiated in 2002 a process to refine the OMB guidelines for regulatory analysis. The OIRA Administrator and a member of the Council of Economic Advisers (CEA) are serving as co-chairs of this effort. OMB and CEA staff have drafted proposed revised guidelines which are presented in Appendix C of this report. We are requesting comment on these draft guidelines for regulatory analysis.

• Analysis and management of emerging risks. An Interagency Work Group on Risk Management, co-chaired by the OIRA Administrator and the Chairman of the White House Council on Environmental Quality has been formed to foster Administration-wide dialogue and coordination on the management of emerging risks to public health, safety and the environment. To assist in the Work Group's efforts, OMB requests comments on current U.S. approaches to analysis and management of emerging risks.

• Improving analysis of regulations related to homeland security. In light of the significant interest in regulations related to homeland security, OMB is seeking public comment on how to more effectively evaluate the benefits and costs of these proposals, including how agencies might better forecast the anti-terrorism benefits and the direct and indirect costs of such rules, including time, convenience, privacy, and economic productivity.

Chapter I: The Costs and Benefits of Federal Regulations

Section 624 of the FY 2001 Treasury and General Government Appropriations Act, the “Regulatory Right-to-Know Act,”

requires OMB to submit “an accounting statement and associated report” including:

31 U.S.C. 1105 note, Pub. L. 106-554, Section 1(a)(3) [Title VI, section 624], Dec. 21, 2000, 114 Stat. 2763, 2763A-161 (see Appendix F).

(1) An estimate of the total annual costs and benefits (including quantifiable and nonquantifiable effects) of Federal rules and paperwork, to the extent feasible:

(A) In the aggregate;

(B) By agency and agency program; and

(2) An analysis of impacts of Federal regulation on State, local, and tribal government, small business, wages, and economic growth; and

(3) Recommendations for reform.

Recommendations for reform are discussed in Chapter II.

This chapter presents the accounting statement. It revises the benefit-cost estimates in last year's report by updating the estimates to the end of fiscal year 2002 (September 30, 2002) and including new estimates from Ocotober 1, 1992 to March 31, 1995. Our new estimates are now based on the major regulations reviewed by OMB over the last ten years. All of the

estimates presented in this chapter are based on agency information or transparent modifications of agency information performed by OIRA. We have not provided new information on the impacts of Federal regulation on State, local, and tribal government, small businesses, wages, and economic growth in this draft report. The 2002 Report issued in December 2002 includes discussions of these issues (see pages 41 to 46). We request public comment and any additional information on these impacts for this year's final report.

We also include in this chapter a discussion of major rules issued by independent regulatory agencies, although OMB does not review these rules under Executive Order 12866. This discussion is based on data provided by these agencies to the General Accounting Office (GAO) under the Congressional Review Act.

A. Estimates of the Total Benefits and Costs of Regulations Reviewed by OMB

In previous reports, we presented detailed discussions about the difficulty of estimating and aggregating the costs and benefits of different regulations over long time periods and across many agencies. We do not repeat those discussions here. Our previous reports are on our Web site at

<http://www.whitehouse.gov/omb/inforeg/regpol.html>

Table 1 presents estimates by agency of the costs and benefits of major rules reviewed by OMB over the period October 1, 2001 to September 30, 2002. We reviewed 31 final major rules over that period. These 31 rules represent less than ten percent of the 330 final rules reviewed by OMB and less than one percent of the 4,153 final rules documents published in the

Federal Register

during this 12-month period. However, OIRA believes that the costs and benefits of major rules are quantitatively more important than all other rules combined.

Of the 31 rules, 25 implemented Federal budgetary programs, which caused income transfers from one group to another. The remaining six regulations were “social regulations”, requiring substantial additional private expenditures and/or providing new social benefits.

Four of these six “social regulations” imposed mandates on State and local entities or the private sector. The other two “social regulations” were enabling regulations that did not impose mandates.

Rules that transfer Federal dollars among parties are not included because transfers are not social costs or benefits. If included, they would add equal amounts to benefits and costs.

Of the six “social regulations,” we are able to present estimates of both monetized costs and benefits for three rules.

We did not include the 3 other rules that did not have monetized estimates for either costs or benefits or both. Three agencies, DOE, DOT, and EPA issued 3 major regulations adding a combined $2.0 billion to $6.5 billion in annual benefits and $1.6 billion to $2.0 billion in annual costs.

We used agency estimates where available. If an agency quantified estimates but did not monetize, we used standard assumptions to monetize as explained in Appendix A.

Table 1.—Estimates of the Annual Benefits and Costs of Major Federal Rules, October 1, 2001 to September 30, 2002

[Millions of 2001 dollars]

Agency

Benefits

Costs

Energy

710

636.

Transportation

409 to 944

749 to 1,206.

Environmental Protection Agency

913 to 4,818

192.

Total

2,032 to 6,472

1,577 to 2,034.

Table 2 presents an estimate of the total costs and benefits of all regulations reviewed by OMB over the ten-year period from October 1, 1992 to September 30, 2002 that met two conditions.

Each rule generated costs or benefits of at least $100 million annually, and a substantial portion of its costs and benefits were quantified and monetized by the agency or, in some cases, monetized by OMB. The estimates are therefore not a complete accounting of all the costs and benefits of all regulations issued by the Federal government during this period. We have expanded the number of years covered by our estimates to ten from the six and half years presented in last year's report. We provide estimates of the cost and benefits of social regulation (health, safety and environmental regulation) for each rule for the periods covering October 1, 1992 to March 31, 1995 and October 1, 2001 to September 30, 2002 in Appendix A.

OMB has chosen a 10-year period for aggregation because pre-regulation estimates prepared for rules adopted more than ten years ago are of questionable relevance today. The estimates of the costs and benefits of Federal regulations over the period October 1, 1992 to September 30, 2002 are based on agency analyses subject to public notice and comments and OMB review under E.O. 12866.

We calculated Table 2 estimates by adding the estimates in Table 1 above and the estimates from Table 6 in Appendix A to Table 8 of the 2002 OMB report.

Agency estimates of the cost and benefits of major regulations for October 1, 1992 to March 31, 1995 are provided in Appendix B. Appendix A contains revised estimates.

In last year's report, the aggregate costs of regulations fell within the range of the estimated benefits—albeit at the lower end of the range. The aggregate benefits reported in Table 2, however, are roughly three to five times the aggregate costs and are substantially larger than the aggregate benefits reported in our 2002 report. There are two reasons for this. First, the additional rules added to cover a 10-year period included EPA's rule implementing the sulfur dioxide limits of the acid rain provisions in the 1990 Amendments to the Clean Air Act. This rule adds calculated benefits of over $70 billion per year to the aggregate benefits estimate. Second, in reviewing our estimates, we inadvertently subtracted incorrect cost estimates for EPA's rules establishing National Ambient Air Quality Standards for Ozone and Particulate Matter. This correction reduces the aggregate cost of the rules covered over the 10-year period by roughly $20 billion per year.

It is important to note that four EPA rules—two rules limiting particulate matter and NO

emissions from heavy duty highway engines, the Tier 2 rule limiting the emissions from light duty vehicles, and the Acid Rain rule cited above—account for a substantial fraction of the aggregate benefits reported in Table 2. These four EPA rules have estimated benefits of $96 to $113 billion per year and costs of $8 to

$8.8 billion per year.

The aggregate benefits and costs for the other 103 rules are $38 to $104 billion and $30 to $35 billion, respectively. Table 3 provides additional information on aggregate benefits and costs for select agency programs.

These four EPA rules will reduce ambient levels of fine particulate matter by reducing direct PM emissions and/or the emissions of precursor pollutants like SO

and NO

that contribute to the formation of fine PM. Many studies show an association between both short- and long-term exposure to fine PM and a variety of adverse health effects ranging from increases in the frequency of hospital admissions to premature mortality. There are, however, important uncertainties associated with these benefit estimates. For example key assumptions underlying the benefit estimates associated with premature mortality include the following: (1) The benefits analysis assumes there is a causal association between inhalation of fine particles and such health effects as premature mortality at exposure levels near those experienced by most Americans on a daily basis. While the biological mechanisms for this effect have not yet been definitively established, EPA has concluded that the weight of the available epidemiological and toxicological evidence supports an assumption of causality; (2) The benefits analysis assumes that all fine particles, regardless of their chemical composition, are equally toxic. This is an important assumption because fine particles from power plant emissions are chemically different from those emitted from both mobile sources and other industrial facilities. However, no clear scientific grounds exist for supporting differential effects estimates by particle type; (3) The benefits analysis assumes that the concentration-response function for fine particles is approximately linear within the range of ambient concentrations under consideration. Thus, the estimates include health benefits from reducing fine particles in areas that are in attainment with the fine particle standard and those that do not meet the standard; (4) The benefits analysis assumes that the forecasts for future emissions and associated air quality modeling are valid. The EPA's analyses are based on peer-reviewed scientific literature and up-to-date assessment tools. However such models are themselves based on an evolving understanding and research continues to provide the data necessary for model evaluation; and (5) The valuation of estimated reduction in mortality risk is largely taken from studies of the tradeoff associated with the willingness to accept risk in labor markets. Alternative estimates may, however, be more relevant for rules addressing air pollution. Further information on these benefits estimates can be found at

http://www.epa.gov/air/clearskies/tech_adden.pdf

http://www.whitehouse.gov/omb/inforeg/costbenefitreport1998.pdf

http://www.whitehouse.gov/omb/inforeg/2000fedreg-report.pdf.

Based on the information released in previous reports, the total costs and benefits of all Federal rules now in effect (major and non-major, including those adopted more than 10 years ago) could easily be a factor of ten or more larger than the sum of the costs and benefits reported in Table 2. More research is necessary to provide a stronger analytic foundation for comprehensive estimates of total costs and benefits by agency and program. OMB's examination of the benefits and costs of Federal regulation supports the need for a common-sense approach to modernizing Federal regulation that involves the expansion, modification, and rescission of regulatory programs as appropriate.

Table 2.—Estimates of the Annual Benefits and Costs of Major Federal Rules, October 1, 1992 to September 30, 2002

[Millions of 2001 dollars]

Agency

Benefits

Costs

Agriculture

3,108 to 6,203

1,649 to 1,679.

Education

658 to 816

363 to 612.

Energy

4,704 to 4,722

2,473.

Health & Human Services

8,733 to 11,724

3,168 to 3,337.

Housing & Urban Development

527 to 601

796.

Labor

1,808 to 4,200

1,057.

Transportation

6,150 to 9,465

4,313 to 6,812.

Environmental Protection Agency

108,858 to 179,757

23,867 to 27,028.

Total

134,547 to 217,539

37,686 to 43,794.

Table 3.—Estimates of Annual Benefits and Costs of Major Federal Rules: Select Programs and Agencies, October 1, 1992-September 30, 2002

[Millions of 2001 dollars]

Agency

Benefits

Costs

Energy: Energy Efficiency and Renewable Energy

4,704 to 4,772

2,473.

Health & Human Services: Food and Drug Administration

2,021 to 4,558

482 to 651.

Labor: Occupational Safety and Health Administration

1,808 to 4,200

1,057.

Transportation:

National Highway Traffic Safety Administration

4,330 to 7,645

2,795 to 5,295.

Coast Guard

1,282.

Environmental Protection Agency:

Office of Air

106,010 to 163,893

18,362 to 20,978.

Office of Water

891 to 8,103

2,424 to 2,937.

In order for comparisons or aggregation to be meaningful, benefit and cost estimates should correctly account for all substantial effects of regulatory actions, including potentially offsetting effects, which may or may not be reflected in the available data. We have not made any changes to agency monetized estimates other than connecting them to annual equivalents. Any comparison or aggregation across rules should also consider a number of factors which our presentation does not address. To the extent that agencies have adopted different methodologies—for example, different monetized values for effects, different baselines in terms of the regulations and controls already in place, different treatments of uncertainty—these differences remain embedded in the table 2. While we have relied in many instances on agency practices in monetizing costs and benefits, our citation of or reliance on agency data in this report should not be taken as an endorsement of all the

varied methodologies used to derive benefits and cost estimates.

B. Estimates of Benefits and Costs of This Year's “Major” Rules

In this section, we examine in detail the benefits and costs of each “major” rule, as required by section 624(a)(1)(C). We have included in our review those final regulations on which OMB concluded review during the 12-month period October 1, 2001 through September 30, 2002.

The statutory language that categorizes the rules we consider for this report differs from the definition of “economically significant” in Executive Order 12866 (section 3(f)(1)). It also differs from similar statutory definitions in the Unfunded Mandates Reform Act and subtitle E of the Small Business Regulatory Enforcement Fairness Act of 1996—Congressional Review of Agency Rulemaking. Given these varying definitions, we interpreted section 624(a)(1)(C) broadly to include all final rules promulgated by an Executive branch agency that meet any one of the following three measures:

• Rules designated as “economically significant” under section 3(f)(1) of Executive Order 12866;

• Rules designated as “major” under 5 U.S.C. 804(2) (Congressional Review Act); and

• Rules designated as meeting the threshold under Title II of the Unfunded Mandates Reform Act (2 U.S.C. 1531-1538)

Of the 31 rules received by OMB, USDA submitted four; the Veterans Administration, DOE, EPA, OMB, the Social Security Administration, and SBA each submitted one; HHS eight; The Departments of Interior, Justice, Defense, and FEMA each submitted two; and DOT five.

Social Regulation

Of the 31 economically significant rules reviewed by OMB, six are regulations requiring substantial additional private expenditures and/or providing new social benefits. Table 4 summarizes the costs and benefits of these rules and provides other information taken from rule preambles and agency RIAs. Of the six regulations received by OMB, EPA and DOE each submitted one, and DOI and DOT each submitted two. Agency estimates and discussion are presented in a variety of ways, ranging from a mostly qualitative discussion—for example, the NHTSA light truck corporate average fuel economy (CAFE) standard—to a more complete benefit-cost analysis, such as DOE's central air conditioner rule.

1. Benefits Analysis

Agencies monetized at least some benefit estimates for five of the six rules. In the case of EPA's recreational engines rule, the agency provides some monetized benefit estimates, but discusses other benefits qualitatively. In one case—NHTSA's tire pressure monitoring systems (TPMS) rule—the agency did not monetize all of the quantified benefits. In another case—NHTSA's CAFE rule—the agency did not report any quantified or monetized benefit estimates.

2. Cost Analysis

For three of the six rules, agencies provided monetized cost estimates. These include DOE's air conditioner rule, NHTSA's TPMS rule and EPA's recreational vehicle rule. For the remaining three rules, both DOI migratory bird hunting rules and NHTSA's CAFE rule, the agencies did not estimate costs.

3. Net Monetized Benefits

Three of the six rules provided at least some monetized estimates of both benefits and costs. Of these, the estimated monetized benefits of both the DOE air conditioner rule and the EPA recreational engine rule exceed the estimated monetized costs. The magnitude of the net benefits varies from $75 million per year for the air conditioner rule to as much as $4.6 billion for the recreational engine rule. One rule, NHTSA's TPMS rule, has negative net monetized benefits ranging from approximately $706 to $862 million per year.

4. Rules Without Quantified Effects

One rule, NHTSA's CAFE rule, is classified as economically significant even though the agency did not provide any quantified estimates of their effects.

Table 4.—Summary of Agency Estimates for Final Rules 10/01/2001-9/30/02

[As of Date of Completion of OMB Review]

Agency

Rule

Benefits

Costs

Other Information

DOE

Energy Conservation Standards for Central Air Conditions and Heat Pumps

$9.1 billion (present value) in energy savings between 2006 and 2030

$7.3 billion (present value) for purchases between 2006 and 2030

Monetized benefit and cost values are obtained from the “National Energy Savings/Net Present Value/Shipments” spreadsheet, available on DOE's web site:

http://www.eren.doe.gov/buildings/codes_standards/applbrf/central_air_conditioner_3.html

DOE projects a cumulative reduction in nitrogen oxide emissions of 119.3 thousand metric tons (undiscounted) over the period 2006-2030 and a cumulative reduction in carbon dioxide equivalent emissions of 53.8 million metric tons (undiscounted) over the period 2006-2030 [DOE Technical Support Document Appendix M, Table M.9].

DOI

Early Season Migratory Bird Hunting Regulations 2002-2003

$50 million to $192 million/yr

Not estimated

The analysis was based on the 1996 National Hunting and Fishing Survey and the U.S. Department of Commerce's County Business Patterns, from which it was estimated that migratory bird hunters would spend between $429 million and $1,084 million at small businesses [67 FR 54704]. The listed benefits represent estimated consumer.

DOI

Late-Season Migratory Bird Hunting Regulations 2002-2003

$50 million to $192 million/yr

Not estimated

DOT

Light Truck Average Fuel Economy Standard, Model Year 2004

Not estimated

“* * * [T]he agency has been operating under a restriction on the use of appropriations for the last six fiscal years. The restriction has prevented the agency from gathering and analyzing data relating to fuel economy capabilities and the costs and benefits of improving the level of fuel economy. Particularly since that restriction was lifted only on December 18, 2001, the agency has been unable to prepare a separate economic analysis for this rulemaking. The agency notes, however, that the standard it is setting for the 2004 model year will not make it necessary for the manufacturers with a substantial share of the market to change their product plans.” [67 FR 16059]

DOT

Tire Pressure Monitoring Systems (TPMS)

79-124 fatalities and 5,176- 8,722 injuries prevented per year; $43-$344 million per year in fuel savings and reduced tire wear

$749-$1,206 million/yr

Unquantified Benefits: “The agency cannot quantify the benefits from a reduction in crashes associated with hydroplaning and overloading vehicles. The primary reason that the agency has been unable to quantify these benefits is the lack of crash data indicating tire pressure and how often these conditions are the cause or contributing factors in a crash. The agency does not collect tire pressure in its crash investigations. NHTSA also has not been able to quantify the benefits associated with reductions in property damage and travel delays that will result from fewer crashes or reductions in the severity of crashes.” [67 FR 38739] Unquantified Costs: “The agency anticipates that there may be other maintenance costs for both direct and indirect TPMS. For example, with indirect TPMSs, there may be problems with wheel speed sensors and component failures. With direct TPMSs, the pressure sensors may be broken off when tires are changed. The agency requested comments on this issue in the NPRM, but received none. Without estimates of these maintenance problems and costs, the agency is unable to quantify their impact. The agency also notes that in order to benefit from the TPMS, drivers must respond to a warning by re-inflating their tires. To accomplish this, most drivers will either make a separate trip to a service station or take additional time to inflate their tires when they are at a service station for fuel. The process of checking and re-inflating tires is relatively simple, and probably would take from three to five minutes. The time it would take to make a separate trip to a service station would vary depending on the driver's proximity to a station at the time he or she was notified.” 67 FR 38741]

EPA

Control of Emissions From Nonroad Large Spark-Ignition Engines, and Recreational Engines

$410 million/yr. in reduced engine operation costs; $900 million to $7.88 billion in air quality benefits in calendar year 2030

$192 million/yr

EPA also lists a variety of other benefit categories which it was not able to quantify or monetize, ranging from infant mortality to damage to urban ornamental plants. [67 FR 68328].

Transfer Regulations

Of the 31 economically significant rules reviewed by OMB, Table 5 lists the 25 that implement Federal budgetary programs. The budget outlays associated with these rules are “transfers” to program beneficiaries. Of the transfer rules, HHS promulgated eight rules, most of which implement Medicare and Medicaid policy. Four are USDA rules. Of the four, three are crop assistance and disaster aids for farmers and one is a food stamp program rule. The Department of Transportation issued three transfer rules. The Departments of Defense, Justice, and the Federal Emergency Management Administration issued two each. The Social Security Administration, Veterans Administration, Small Business Administration and Office of Management and Budget each promulgated one rule.

Table 5.—Agency Transfer Rules: 10/01/01 to 9/30/02

[As of date of completion of OMB review]

Office of Management and Budget (OMB)

Regulation for Air Carrier Guaranteed Loan Program.

Dept. of Agriculture (USDA)

2000 Crop Agricultural Disaster and Market Assistance.

2002 Farm Bill Regulations: Sugar Program.

Peanut Quota Buyout Program.

Work Provisions of the PRWORA of 1996 and the Food Stamp Provisions of the Balance Budget Act of 1997.

Dept. of Defense

CHAMPUS/TRICARE: Partial Implementation of Pharmacy Benefits Programs; NDAA for FY 2001.

TRICARE: Sub-Acute Care Program; Uniform Skilled Nursing Benefit; Home Healthcare Benefit; Medicare Payment Methods for Skilled Nursing Facilities.

Dept. of Health and Human Services (HHS)

Contraception and Infertility Research Loan Repayment Program.

Medicare Program: Revisions to Payment Policies and 5-Year Review and Adjustments to the Relative Value Units Under the Physician Fee Schedule for CY 2002.

Medicare Program: Prospective Payment System for Hospital Outpatient Services for CY 2002 and Pro Rata Reduction on Transitional Pass-Through Payments.

Medicaid Program: Modification of the Medicaid Upper Payment Limit for Non-State, Government-Owned or Operated Hospitals.

Medicare Program: Modifications to Managed Care Rules Based on Payment Provisions in BIPA and Technical Corrections.

Medicare Program: Notice of Modification of Beneficiary Assessment Requirements for Skilled Nursing Facilities.

Changes to Hospital Inpatient Prospective Payment Systems and FY 2003 Rate.

Medicaid Managed Care; New Provisions.

Social Security Administration

Revised Medical Criteria for Determination of Disability Musculoskeletal System and Related Criteria.

Department of Justice

Claims Under the Radiation Exposure Compensation Act Amendments of 2000.

September 11 Victim Compensation Fund of 2001.

Dept. of Transportation

Procedures for Compensation of Air Carriers.

Imposition and Collection of Passenger Civil Aviation Security Fees in the Wake of September 11.

Aviation Security Infrastructure Fees.

Veterans Administration

Diseases Specific to Radiation-Exposed Veterans.

Federal Emergency Management Administration

Assistance to Firefighters Grant Program.

Disaster Assistance; Federal Assistance to Individuals and Households.

Small Business Administration

Disaster Loan Program.

Major Rules for Independent Agencies

The congressional review provisions of the Small Business Regulatory Enforcement Fairness Act (SBREFA) require the General Accounting Office (GAO) to submit reports on major rules to the committees of jurisdiction, including rules issued by agencies not subject to Executive Order 12866 (the “independent” agencies). We reviewed the information on the costs and benefits of major rules contained in GAO reports for the period of October 1, 2001 to September 30, 2002. GAO reported that three independent agencies issued eight major rules during this period. Two agencies did not conduct benefit-cost analyses. One agency considered benefits and costs of the rules. OIRA lists the agencies and the type of information provided by them (as summarized by GAO) in Table 6. The Securities and Exchange Commission consistently considered benefits and costs in their rulemaking processes while the Federal Communications Commission and the Nuclear Regulatory Commission did not prepare benefit-cost analyses.

In comparison to the agencies subject to E.O. 12866, the independent agencies provided relatively little quantitative information on the costs and benefits of the major rules. As Table 6 indicates, three of the eight rules included some discussion of benefits and costs. Three of the eight regulations had monetized cost information; one regulation monetized benefits. It is difficult to discern, however, whether the rigor and the extent of the analyses conducted by the independent agencies are similar to those of the analyses performed by agencies subject to the Executive Order.

Table 6.—Rules for Independent Agencies (October, 2001-September, 2002)

Agency

Rule

Information on benefits or costs

Monetized benefits

Monetized Costs

FCC

Broadcast Services; Digital Television

No.

FCC

Ultra-Wideband Transmission Systems

No.

FCC

Assessment and Collection of Regulatory Fees for Fiscal Year 2002

No.

FCC

Order to Permit Operation of NGSO FSS Systems Co-Frequency with GSO and Terrestrial Systems in the Ku-Band Frequency Range; Authorize Subsidiary Terrestrial Use of the 12.2-12.7 GHz Band by Direct Broadcast Satellite Licensees and Their Affiliates; and in Re-Applications of Broadwave USA, PDC Broadband Corporation, and Satellite Receivers, Ltd. in the 12.2-12.7 GHz Band

No.

NRC

Revision of Fee Schedules; Fee Recovery for FY 2002

No.

SEC

Books and Records Requirements for Brokers and Dealers Under the Securities Exchange Act of 1934

Yes

Yes.

SEC

Certification of Disclosure in Companies' Quarterly and Annual Reports

Yes

Yes.

SEC

Acceleration of Periodic Report Filing Dates and Disclosure Concerning Web Site Access to Reports

Yes

Yes.

Chapter II. Developing Better Regulation

In addition to estimates of the cost and benefits of Federal rules and paperwork, the Regulatory Right-to-Know Act requires OMB to publish “recommendations for reform.” In response to this requirement, OMB seeks public comment in the following three areas.

A. Guidelines for Regulatory Analysis

The evaluation of both the benefits and costs of alternative options through regulatory analysis helps agency policymakers arrive at sound regulatory decisions and also helps the public, Congress, and the courts understand those decisions. Although the preparation of such an analysis may require significant investments of agency staff and resources, carefully completed analyses will result in well-designed regulations and larger net benefits to society as a whole. To help support the development of better analysis, OMB has provided guidance to the agencies since the 1980s on how to conduct regulatory analysis. The current OMB guidelines were issued in 1996 as a “best practices” document and were revised and issued as guidance in 2000.

In order to make continued improvements in the quality of the regulatory analyses prepared by agencies, OIRA initiated in 2002 a process to refine these guidance documents. The OIRA Administrator and a member of the Council of Economic Advisers (CEA) are serving as co-chairs of this effort. OMB and CEA staff have drafted proposed revised guidelines which are presented in Appendix C. Through these proposed guidelines, we seek to establish more uniform analytic guidance for the agencies to follow in preparing their regulatory analysis. We will also incorporate new insights and recent innovations in what constitutes a good analysis. Finally, we expect the guidelines to increase the transparency of the analysis of prospective regulations to both technical and nontechnical readers.

While these proposed guidelines include some additional requirements on the agencies in performing RIAs, we believe that adherence to the proposed revisions will yield improvements in the information provided by these analyses. Improved analyses will strengthen the regulatory development process, resulting in better designed regulations and potentially large net benefits to society as a whole.

The key changes in the proposed guidelines include the following:

• The proposal encourages agencies to perform both cost-effectiveness analysis and benefit-cost analysis of major rules because the two techniques offer regulators somewhat different but useful perspectives. In addition, however, we recognize that cost-effectiveness analysis will be feasible in certain situations where a benefit-cost analysis may not be feasible.

• The proposal recommends that agencies report analytic results based on two discount rates—3 percent and 7 percent—for major rules whose effects will be felt primarily within this generation (

i.e.

, the next 20 or 30 years). If benefits and costs are expected to last beyond the current generation, the proposal permits additional sensitivity analysis with discount rates as low as 1 percent.

• The proposal requires agencies to support rulemakings with formal probabilistic analysis of the key scientific and economic uncertainties regarding costs and benefits for rules with economic effects that exceed more than $1 billion per year. In particular, the analysis must present a probability distribution for the estimated benefits and costs, unless the benefits and costs are known with a high degree of certainty.

The draft guidelines are being released today for a 60-day public comment period as well as independent peer review by leading academic experts in the field of regulatory analysis. We also plan to conduct an interagency review of the draft guidelines following public and peer review comments.

We will continue to use our current guidance until we complete this review process and publish revised guidelines.

B. Request for Comment on U.S. Approaches to Analysis and Management of Emerging Risks

Regulators often must decide on an appropriate course of action to protect public health, safety or the environment before science has resolved all the key factual questions about a potential hazard. The appropriate level of precaution in risk assessment and management is complicated by the need to balance efforts to mitigate these potential risks with countervailing risks that may arise from other sources. For example, policies to facilitate the growth of the diesel-engine market may be desirable from a global environmental and energy security perspective since diesel offers significant fuel efficiency advantages over gasoline-powered vehicles, and would likely lead to less reliance on importation of foreign oil and reduce the emission of greenhouse gases. However, diesel fuels pose greater risk to public health and environment from smog and soot caused by relatively higher emission of particles and nitrogen dioxide than conventional gasoline.

U.S. regulators rely on various science-based precautionary approaches in assessing potential hazards and taking protective actions. These

approaches have evolved over time and reflect statutory requirements, agency specific policy decisions, and advancements in scientific understanding. For purposes of collecting and analyzing current risk assessment and management practices in federal agencies, with an emphasis on the role of precaution in risk policy and regulation, the Administration has formed an Interagency Work Group on Risk Management co-chaired by James L. Connaughton, Chairman of the White House Council on Environmental Quality and John D. Graham, Administrator, Office of Information and Regulatory Affairs, Office of Management and Budget. The Work Group includes representatives from the Department of Agriculture, the Department of Commerce, the Department of Health and Human Services, the Department of Interior, the Environmental Protection Agency, and the Office of Science and Technology Policy.

To assist in the Work Groups efforts, OMB requests comments for the next 60 days on current U.S. approaches to analysis and management of emerging risks. Specifically, we seek public input on:

• Ways in which “precaution” is embedded in current risk assessment procedures through “conservative” assumptions in estimation of risk, or through explicit “protective” measures in management decisions as required by statutory requirements as well as agency judgments.

• Examples of approaches in human and ecological risk assessment and management methods addressed by U.S. regulatory agencies (

e.g.

, consumer product safety, drug approval, pesticide registration, protection of endangered species) which appear unbalanced.

• How the U.S. balances precautionary approaches to health, safety and environmental risks with other interests such as economic growth and technological innovation.

C. Request for Comment on Improving the Analysis of Regulations Related to Homeland Security

In last year's final Report to Congress, OMB noted that 58 significant new federal regulations had been enacted in the aftermath of September 11th to protect national security and provide post-attack assistance. As an integral part of the expedited issuance of these rules, OIRA conducted its full regulatory review and coordination function under Executive Order 12866. These efforts made sure that all the rules related to September 11th received priority attention from the appropriate reviewers, and that the Administration's best solutions to respond to potential terrorist attacks were implemented.

Looking to the future, OMB expects additional homeland-security proposals from federal agencies covering concerns ranging from airline safety and immigration to food safety. For example, USDA and HHS will propose new regulations required to implement the Bioterrorism Preparedness and Control Act of 2002. Similarly, the Department of Homeland Security will face major challenges in developing sensible regulations covering many facets of American society. In light of the significant interest in these regulations, OMB is seeking public comment for the next 60 days on how to more effectively evaluate the benefits and costs of these proposals. OMB seeks comment on how agencies might assess the probability of future terrorist attacks and the likely damages, and the resulting effectiveness of new federal regulations in preventing future attacks, reducing America's vulnerability, or mitigating the damage of attacks which do occur. OMB seeks comment on how agencies might better identify, quantify and weigh the direct and indirect costs of such rules, including impacts on time, convenience, privacy and economic productivity. OMB also seeks comment on how evaluation of such regulation could include auxiliary benefits not directly related to the homeland security purpose of the regulation. OMB's request for comment is concerned with these issues as they apply to future rulemakings and is not intended to address a specific rulemaking.

Appendix A.—Calculations of Benefits and Costs: Explanation

Chapter I presents estimates of the annual costs and benefits of selected final major regulations reviewed by OMB between October 1, 1992 and September 30, 2002. The explanation of the calculations for the major rules reviewed by OMB between April 1, 1995 and March 31, 1999 can be found in Chapter IV of our 2000 report (OMB 2000). Table 19, Appendix E, of the 2002 Report presents OIRA's estimates of the benefits and costs of the 20 individual rules reviewed between April 1, 1999 and September 30, 2001. All benefit and cost estimates were adjusted to 2001 dollars.

In assembling estimates of benefits and costs, OIRA has:

(1) Applied a uniform format for the presentation of benefit and cost estimates in order to make agency estimates more closely comparable with each other (for example, annualizing benefit and cost estimates); and

(2) Monetized quantitative estimates where the agency has not done so (for example, converting Agency projections of quantified benefits, such as, estimated injuries avoided per year or tons of pollutant reductions per year to dollars using the valuation estimates discussed below).

The adoption of a uniform format for annualizing agency estimates allows, at least for purposes of illustration, the aggregation of benefit and cost estimates across rules. While OIRA has attempted to be faithful to the respective agency approaches, the reader should be cautioned that agencies have used different methodologies and valuations in quantifying and monetizing effects. Thus, this aggregation involves the assemblage of benefit and cost estimates that are not comparable.

Table 7.—Estimate of Benefits and Costs of 47 Major Rules October 1, 1992 to March 31, 1995

[Millions of 2001 dollars]

Regulation

Agency

Benefits

Costs

Explanation

Nutrition Labeling of Meat and Poultry Products

USDA—FSIS

205

25-32

Present value estimates amortized over 20 years.

Food Labeling (combined analysis of 23 individual rules)

HHS—FDA

438-2,637

159-249

Present value estimates amortized over 20 years.

Real Estate Settlement Procedures

HUD

258-332

135

Manufactured Housing Wind Standards

HUD

511

Confined Spaces

DOL-OSHA

540

250

We valued each fatality at $5 million and each lost-workday injury at $50,000. We did not value non-lost-workday injuries.

Occupational Exposure to Asbestos

DOL-OSHA

448

We assumed a 20-year latency period between exposure and the onset of cancer or asbestosis and valued each death and each case of asbestosis at $5 million.

Vessel Response Plans

DOT-Coast Guard

324

Present values amortized over 30 years. We valued each barrel of oil not spilled at $2,000.

Double-Hull Standards

DOT-Coast Guard

641

Present values amortized over 30 years. We valued each barrel of oil not spilled at $2,000.

Controlled Substances and Alcohol Use and Testing

DOT-FHWA

1,539

114

Prevention of Prohibited Drug Use in Transit Operations

DOT

107

Present values amortized over 10 years.

Stability Control of Medium and Heavy Vehicles During Braking

DOT-NHTSA

1,650-2,539

694

We valued each “equivalent fatality” at $3 million.

Oil and Gas Extraction

EPA

35-129

First-year costs amortized costs over 15 years and added to annual (15th year) costs.

Acid Rain Permits Regulations

EPA

76,854-77,206

1,109-1,871

We valued SO

reductions at $7,300 per ton.

Vehicle Inspection and Maintenance (I/M)

EPA

219-992

671

We used the estimates of and cost and emission reductions of the new I/M program compared to the baseline of no I/M program. We valued VOC reductions at $520-$2360 per ton. We did not assign a value to CO reductions.

Evaporative Emissions from Light-Duty Vehicles, Light-Duty Trucks, and Heavy-Duty Vehicles.

EPA

243-1,104

161-248

We assumed the VOC emission reductions began in 1995 and rise linearly until 2020, after which point they remain at the 2020 level. Annualizing this stream results in an average of 468,000 tons per year. We valued these tons at $520-$2360 per ton.

Onboard Diagnostic Systems

EPA

421-2,383

226

Emission reductions and costs amortized over 15 years. We valued VOC reductions at $520-$2360 per ton and NO

reductions at $700-$4900 per ton.

Phase II Land Disposal Restrictions

EPA

240-272

We valued each cancer case at $5 million.

Phase-out of Ozone-Depleting Chemicals and Listing of Methyl Bromide

EPA

1,260-3,993

1,681

Present values amortized over 16 years.

Reformulated Gasoline

EPA

184-637

1,085-1,395

Estimates are for Phase II, which include Phase I benefits and costs. We used the benefit estimates that assume the enhanced I/M program is in place. We valued VOC reductions at $520-$2360 per ton and NO

reductions at $700-$4900 per ton. We valued each cancer case at $5 million. We assumed the phase II aggregate costs are an additional 25 percent of the Phase I costs based on EPA's reported per-gallon cost estimates.

Acid Rain NO

Title IV CAAA

EPA

661-4,725

372

Values are for Phase II. We valued NO

reductions at $350-$2500 per ton.

Hazardous Organic NESHAP

EPA

520-2,360

292-333

We valued VOC emissions at $520-$2360 per ton and NO

emissions (which are a cost in this instance) at $350-$2500 per ton. We did not value changes in CO emissions.

Refueling Emissions from Light-Duty Vehicles

EPA

148-673

We assumed Stage II controls will remain in place and valued VOC emissions at $520-$2360 per ton.

Non-Road Compression Ignition Engines

EPA

412-2,881

29-70

We annualized the NO

emissions which yielded an average annual emission reduction of 588,000 tons beginning in 2000. We valued NO

emissions at $700-$4900 per ton.

Bay/Delta Water Quality Standards

EPA

2-26

37-248

Deposit Control Gasoline

EPA

374-1,480

197

We valued estimates of combined emission reductions at $520-$2360 per ton. Present value cost estimates amortized over 5 years.

Total

86,290-106,708

9,506-11,087

Table 8.—Estimate of Benefits and Costs of 3 Major Rules, October 1, 2001 to September 30, 2002

[Millions of 2001 dollars]

Regulation

Agency

Benefits

Costs

Explanation

Energy Conservation Standards for Central Air Conditioners and Heat Pumps

DOE

710

636

Present value estimates amortized over 24 years. We valued NO

emission reductions at $350-$2500 per ton.

Tire Pressure Monitoring Systems (TPMS)

DOT

409-944

749-1,206

We valued each equivalent fatality (see p. iv of the Executive Summary of the Final Economic Assessment) at $3 million.

Control of Emissions From Nonroad Large Spark-Ignition Engines, and Recreational Engines

EPA

913-4,818

192

We amortized the benefit estimates in proportion to the estimated NO

emission reductions. The lower end of the range reflects the alternative approach to valuing benefits of EPA rules discussed elsewhere.

Total

2,032-6,472

1,577-2,034

Assumptions: 7 percent discount rate unless another rate explicitly identified by the agency. For DOL: $5 million VSL assumed for deaths averted when not already quantified. Injuries averted valued at $50,000 from Viscusi.

All values converted to 2001 dollars. All costs and benefits stated on a yearly basis.

W. Kip Viscusi, Fatal Tradeoffs: Public & Private Responsibilities for Risk. New York, NY, Oxford University Press, 1992, p. 65.

Valuation Estimates for Regulatory Consequences

The following discussion updates the monetization approach used in previous reports and draws on examples from this and previous years.

Agencies continue to take different approaches to monetizing benefits for rules that affect small risks of premature death. As a general matter, we continue to defer to the individual agencies' judgment in this area. In cases where the agency both quantified and monetized fatality risks, we have made no adjustments to the agency's estimate. In cases where the agency provided a quantified estimate of fatality risk, but did not monetize it, we have monetized these estimates in order to convert these effects into a common unit.

The following is a brief discussion of OIRA's valuation estimates for other types of effects that agencies identified and quantified, but did not monetize. As a practical matter, the aggregate benefit and cost estimates are relatively insensitive to the values we have assigned for these rules because the aggregate benefit estimates are dominated by those rules where EPA provided quantified and monetized benefit and cost estimates.

Injury. For NHTSA's rules, we adopted NHTSA's approach of converting nonfatal injuries to “equivalent fatalities.” These ratios are based on NHTSA's estimates of the value individuals place on reducing the risk of injury of varying severity relative to that of reducing risk of death.

For the OSHA rules, we monetized only lost workday injuries using a value of $50,000 per injury averted.

National Highway Traffic Safety Administration,

The Economic Cost of Motor Vehicle Crashes, 1994,

Table A-1.

http://www.nhtsa.dot.gov/people/economic/ecomvc1994.html.

I. Change in Gasoline Fuel Consumption. We valued reduced gasoline consumption at $.80 per gallon pre-tax. This equates to retail (at-the-pump) prices in the $1.10-$1.30 per gallon range.

II. Reduction in Barrels of Crude Oil Spilled. OIRA valued each barrel prevented from being spilled at $2,000. This is double the sum of the most likely estimates of environmental damages plus cleanup costs contained in a published journal article [Brown and Savage, “The Economics of Double-Hulled Tankers,” Maritime Policy and Management, Volume 23(2), 1996, pages 167-175].

III. Change in Emissions of Air Pollutants. We used estimates of the benefits per ton for reductions in hydrocarbon and nitrogen oxide emissions derived from recent EPA regulatory analyses, as follows (1996$):

Hydrocarbon:

$520 and $2360 per ton

Nitrogen Oxide (stationary):

$350 and $2500 per ton

Nitrogen Oxide (mobile):

$700 and $4900 per ton

Sulfur Dioxide:

$7300 per ton

The estimates for reductions in hydrocarbon emissions were obtained from EPA's RIA for the 1997 rule revising the primary NAAQS for ozone and fine PM. OIRA has revised the estimates for reductions in NO

emissions to reflect a range of estimates from recent EPA analyses for several rules and for proposed legislation. In particular, OIRA has adopted different benefit transfer estimates for NO

reductions from stationary sources (

e.g.

, electric utilities) and from mobile sources. EPA believes that there are a number of reasons to expect that reductions in NO

emissions from utility sources achieve different air quality

improvements relative to reductions from ground-level mobile sources. For example, mobile source tailpipe emissions are located in urban areas at ground level (with limited dispersal) while electric utilities emit NO

from “tall stacks” located in rural (remote) locations with substantial geographic dispersal (Letter to Don Arbuckle, Deputy Administrator, OIRA from Tom Gibson, Associate Administrator, Office of Policy, Economics and Innovation, EPA, May 16, 2002.) There remain considerable uncertainties with the development of these estimates. The discussion below outlines the various EPA analyses serving as the basis for the NO

benefit transfer values presented above and discusses the uncertainties that attend these estimates.

Analysis of recent EPA rules yield several estimates for the NO

benefits per ton from electric utility sources. (See the Regulatory Impact Analyses for the “NO

SIP Call” and the Section 126 rules, available on the Web at

http://www.epa.gov/ttn/ecas/econguid.html.

In addition, see Memo to NSR Docket from Bryan Hubbell, Senior Economist, Innovative Strategies and Economics Group, EPA.) Based on these studies, the upper end of the range for the benefits of NO

reductions from stationary sources (electric utilities) is $2500 per ton. These studies also developed estimates for the benefits associated with reductions in SO

from electric utilities. Based on an analysis outlined in a June 20, 2001 EPA memo to the file, “Benefits Associated with Electricity Generating Emissions Reductions Realized Under the NSR Program,” we used $7300 per ton SO

emissions for the 1992 EPA Acid Rain rule.

For mobile sources, EPA recently published the final Tier 2/Gasoline Sulfur rule RIA (EPA, 1999) and Heavy Duty Engine/Diesel Fuel RIA (EPA, 2000). For the Tier 2 rule, which affects light-duty vehicles, NO

reductions account for around 90 percent of PM precursor emissions and 86 percent of ozone precursor emissions. Based on the final Tier 2/Gasoline Sulfur RIA, EPA estimates that NO

reductions will yield benefits of $4,900/ton (1996$). EPA believes this analysis provides a more appropriate source for the NO

benefit transfer value for mobile sources. (Letter from Tom Gibson, pp. B2 and B3, May 16, 2002.) Additional details on the Tier 2 benefits analysis are available in the Tier 2/Sulfur Final Rulemaking RIA, available on the Web at

http://www.epa.gov/oms/fuels.htm.

The Heavy Duty Engine/Diesel Fuel benefits analysis examined the impacts in 2030 of reducing SO

emissions by 141,000 tons and NO

emissions by 2,750 thousand tons, as well as a 109,000 ton reduction in direct PM emissions. Based on this analysis, EPA estimates a value for NO

reductions of $10,200/ton in 2030. (Letter from Tom Gibson, p. B3, May 16, 2002.) Complete details of the emissions, air quality, and benefits modeling conducted for the HD Engine/Diesel Fuel Rule can be found at

http://www.epa.gov/otaq/diesel.htm

and

http://www.epa.gov/ttn/ecas/regdata/tsdhddv8.pdf.

Because the Heavy Duty Engine/Diesel Fuel estimate includes an adjustment for income growth out to 2030 and involves reductions in several PM-related pollutants, OIRA has adopted a value of $4900 per ton from EPA's analysis of the Tier 2 rule as a benefits transfer value for reductions in NO

emissions from mobile sources.

Reductions in the risk of premature mortality dominate the benefits estimates in all of these analyses. The size of the mortality risk estimates from the underlying epidemiological studies, the serious nature of the effect itself, and the high monetary value ascribed to prolonging life make mortality risk reduction the most important health endpoint quantified in these analyses.

Because of the importance of this endpoint and the considerable uncertainty among economists and policymakers as to the appropriate way to value reductions in mortality risks, EPA has developed alternative estimates for its “Clear Skies” legislation that show the potential importance of some of the underlying assumptions. (See “Human Health and Environmental Benefit Achieved by the Clear Skies Initiative” at

http://www.epa.gov/clearskies.

) OIRA has used this analysis to identify an alternative estimate of the benefits from NO

reductions. In its Clear Skies analysis, EPA presented alternative benefits estimates of $14 billion and $96 billion per year in 2020, or a difference in the estimates of roughly a factor of seven.

Using this ratio, an alternative estimate of the benefits of NO

reductions from stationary sources would be $350 per ton from stationary sources and $700 per ton from mobile sources.

There are several key assumptions underlying the benefit estimates for reductions in NO

emissions, including:

1. Inhalation of fine particles is causally associated with premature death at concentrations near those experienced by most Americans on a daily basis. While no definitive studies have yet established any of several potential biological mechanisms for such effects, the weight of the available epidemiological evidence supports an assumption of causality.

2. All fine particles, regardless of their chemical composition, are equally potent in causing premature mortality. This is an important assumption, because fine particles from power plant emissions are chemically different from directly emitted fine particles from both mobile sources and other industrial facilities, but no clear scientific grounds exist for supporting differential effects estimates by particle type.

3. The concentration-response function for fine particles is approximately linear within the range of outdoor concentrations under policy consideration. Thus, the estimates include health benefits from reducing fine particles in both attainment and non-attainment regions.

4. The forecasts for future emissions and associated air quality modeling are valid.

5. The valuation of the estimated reduction in mortality risk is largely taken from studies of the tradeoff associated with the willingness to accept risk in the labor market.

The difference between the estimates reflects several assumptions, including differences in the estimation and valuation of mortality risk and the valuation of a reduction in the incidence of chronic bronchitis.

OIRA recognizes that there are potential problems and significant uncertainties that are inherent in any benefits analysis based on $/ton benefit transfer techniques. The extent of these problems and the degree of uncertainty depends on the divergence between the policy situation being studied and the basic scenario providing the benefits transfer estimate. Examples of other factors include sources of emissions, meteorology, transport of emissions, initial pollutant concentrations, population density, and population demographics, such as the proportion of elderly and children and baseline incidence rates for health effects. Because of the uncertainties associated with benefits transfer, OIRA decided not to include three mobile source rules that are projected to achieve substantial reductions in SO

and PM emissions that OIRA included in previous years in the monetized estimates presented in Tables 5 and 6 of the 2002 Report.

These are: Municipal Waste Combustors (1995), Emission Standards for New Locomotives (1997) and Emission Standards for Non-Road Diesel Engines (1998).

Adjustment for Differences in Time Frame Across These Analyses

Agency estimates of benefits and costs cover widely varying time periods. The differences in the time frames used for the various rules evaluated generally reflect the specific characteristics of individual rules such as expected capital depreciation periods or time to full realization of benefits. In order to allow us to provide an aggregate estimate of benefits and costs, we developed benefit and cost time streams for each of the rules. Where agency analyses provide annual or annualized estimates of benefits and costs, we used these estimates in developing streams of benefits and costs over time. Where the agency estimate provided only annual benefits and costs for specific years, we used a linear interpolation to represent benefits and costs in the intervening years.

In other words, if hypothetically we had costs of $200 million in 2000 and $400 million in 2020, we would assume costs would be $250 million in 2005, $300 million in 2010, and so forth. For example, for the Regional Haze rule, EPA provided only an estimate of benefits and costs in 2015. To develop benefit and cost streams, we used a linear extrapolation of benefits and costs beginning in 2009 and scaling up to the reported 2015 estimates.

Further Caveats

In order for comparisons or aggregation to be meaningful, benefit and cost estimates should correctly account for all substantial effects of regulatory actions, including potentially offsetting effects, which may or may not be reflected in the available data. We have not made any changes to agency monetized estimates. To the extent that agencies have adopted different monetized values for effects—for example, different values for a statistical life or different discounting methods—these differences remain embedded in the tables. Any comparison or aggregation across rules should also consider a number of factors which our presentation does not address. For example, these analyses may adopt different baselines in terms of the regulations and controls already in place. In addition, the analyses for these rules may well treat uncertainty in different ways. In some cases,

agencies may have developed alternative estimates reflecting upper- and lower-bound estimates. In other cases, the agencies may offer a midpoint estimate of benefits and costs. In still other cases the agency estimates may reflect only upper-bound estimates of the likely benefits and costs. While we have relied in many instances on agency practices in monetizing costs and benefits, our citation of or reliance on agency data in this report should not be taken as an OIRA endorsement of all the varied methodologies used to derive benefits and cost estimates.

Appendix B. Agency Estimates of Benefits and Costs

Table 9.—Agency Estimates of Benefits and Costs of Major Rules

[October 1, 1992 to September 30, 1993]

Rule

Agency

Benefits

Costs

Other information

Nutrition labeling of meat and poultry products

USDA-FSIS

$1.75 billion (NPV)

$218-272 million (NPV)

20-year NPV discounted at 7%.

Food Labeling: Use of Nutrient Content Claims for Butter

HHS-FDA

$4.4-$26.5 billion

$1.4-$2.3 billion plus $163 million in costs to Federal government