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

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URL: https://www.frixlaw.com/law-library/documents/fr%3A03-2542

## Record

- **Collection:** Federal Register
- **Document type:** Notice
- **Published:** February 3, 2003
- **Citation:** 68 FR 5492

## Text

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,”
1

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

1
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

(C) By major rule;

(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.
2

2
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
3

3
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

.

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.
4

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.

4
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.
5

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.

5
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.
6

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.
7

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.

6
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.

7
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
X
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.
8

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.

8
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
2
and NO
X
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
68
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
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.

DOT
Light Truck Average Fuel Economy Standard, Model Year 2004
Not estimated
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
No
No.

FCC
Ultra-Wideband Transmission Systems
No
No
No.

FCC
Assessment and Collection of Regulatory Fees for Fiscal Year 2002
No
No
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
No
No.

NRC
Revision of Fee Schedules; Fee Recovery for FY 2002
No
No
No.

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

SEC
Certification of Disclosure in Companies' Quarterly and Annual Reports
Yes
No
Yes.

SEC
Acceleration of Periodic Report Filing Dates and Disclosure Concerning Web Site Access to Reports
Yes
No
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
79
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
92
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
8
324
Present values amortized over 30 years. We valued each barrel of oil not spilled at $2,000.

Double-Hull Standards
DOT-Coast Guard
15
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
37
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
35
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
2
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
X
reductions at $700-$4900 per ton.

Phase II Land Disposal Restrictions
EPA
26
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
X
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
X
Title IV CAAA

EPA
661-4,725
372

Values are for Phase II. We valued NO
X
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
X
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
33
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
X
emissions which yielded an average annual emission reduction of 588,000 tons beginning in 2000. We valued NO
X
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
X
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
X
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.
9
All values converted to 2001 dollars. All costs and benefits stated on a yearly basis.

9
W. Kip Viscusi, Fatal Tradeoffs: Public & Private Responsibilities for Risk. New York, NY, Oxford University Press, 1992, p. 65.

Valuation Estimates for Regulatory Consequences
10

10
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.
11

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

11
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
X
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
X
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
X
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
X
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
X
benefit transfer values presented above and discusses the uncertainties that attend these estimates.

Analysis of recent EPA rules yield several estimates for the NO
X
benefits per ton from electric utility sources. (See the Regulatory Impact Analyses for the “NO
X
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
X
reductions from stationary sources (electric utilities) is $2500 per ton. These studies also developed estimates for the benefits associated with reductions in SO
2
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
2
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
X
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
X
reductions will yield benefits of $4,900/ton (1996$). EPA believes this analysis provides a more appropriate source for the NO
X
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
2
emissions by 141,000 tons and NO
X
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
X
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
X
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.
12

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
X
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.
13

Using this ratio, an alternative estimate of the benefits of NO
X
reductions from stationary sources would be $350 per ton from stationary sources and $700 per ton from mobile sources.

12
There are several key assumptions underlying the benefit estimates for reductions in NO
X
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.

13
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
2
and PM emissions that OIRA included in previous years in the monetized estimates presented in Tables 5 and 6 of the 2002 Report.
14

14
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.
15

15
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
HHS-FDA performed one analysis for the food labeling requirements imposed by this rule and the other 22 HHS-FDA rules in this table related to food labeling.

Food Labeling: Declaration of Ingredients
HHS-FDA
$4.4-$26.5 billion
$1.4-$2.3 billion plus $163 million in costs to Federal government
HHS-FDA performed one analysis for the food labeling requirements imposed by this rule and the other 22 HHS-FDA rules in this table related to food labeling.

Food Labeling, Declaration of Ingredients: Common or Usual Name Declaration for Protein Hydrolysates and Vegetable Broth in Canned Tuna “and/or” Labeling for Soft Drinks
HHS-FDA
$4.4-$26.5 billion
$1.4-$2.3 billion plus $163 million in costs to Federal government
HHS-FDA performed one analysis for the food labeling requirements imposed by this rule and the other 22 HHS-FDA rules in this table related to food labeling.

Food Labeling: Declaration of Ingredients for Dairy Products and Maple Syrup
HHS-FDA
$4.4-$26.5 billion
$1.4-$2.3 billion plus $163 million in costs to Federal government
HHS-FDA performed one analysis for the food labeling requirements imposed by this rule and the other 22 HHS-FDA rules in this table related to food labeling.

Food Labeling: Nutrient Content Claims, Definition of Term Healthy
HHS-FDA
$4.4-$26.5 billion
$1.4-$2.3 billion plus $163 million in costs to Federal government
HHS-FDA performed one analysis for the food labeling requirements imposed by this rule and the other 22 HHS-FDA rules in this table related to food labeling.

Food Labeling: Label Statements on Foods for Special Dietary Use
HHS-FDA
$4.4-$26.5 billion
$1.4-$2.3 billion plus $163 million in costs to Federal government
HHS-FDA performed one analysis for the food labeling requirements imposed by this rule and the other 22 HHS-FDA rules in this table related to food labeling.

Food Labeling: Health Claims, Zinc and Immune Function in the Elderly
HHS-FDA
$4.4-$26.5 billion
$1.4-$2.3 billion plus $163 million in costs to Federal government
HHS-FDA performed one analysis for the food labeling requirements imposed by this rule and the other 22 HHS-FDA rules in this table related to food labeling.

Food Labeling, Reference Daily Intakes and Daily Reference Values (Decision)
HHS-FDA
$4.4-$26.5 billion
$1.4-$2.3 billion plus $163 million in costs to Federal government
HHS-FDA performed one analysis for the food labeling requirements imposed by this rule and the other 22 HHS-FDA rules in this table related to food labeling.

Food Labeling: Health Claims and Label Statements, Sodium and Hypertension
HHS-FDA
$4.4-$26.5 billion
$1.4-$2.3 billion plus $163 million in costs to Federal government
HHS-FDA performed one analysis for the food labeling requirements imposed by this rule and the other 22 HHS-FDA rules in this table related to food labeling.

Food Labeling: Health Claims and Label Statements: Omega-3 Fatty Acids and Coronary Heart Disease
HHS-FDA
$4.4-$26.5 billion
$1.4-$2.3 billion plus $163 million in costs to Federal government
HHS-FDA performed one analysis for the food labeling requirements imposed by this rule and the other 22 HHS-FDA rules in this table related to food labeling.

Food Labeling: Health Claims and Label Statements, Dietary Fat and Cancer
HHS-FDA
$4.4-$26.5 billion
$1.4-$2.3 billion plus $163 million in costs to Federal government
HHS-FDA performed one analysis for the food labeling requirements imposed by this rule and the other 22 HHS-FDA rules in this table related to food labeling.

Food Labeling: Health Claims, Calcium and Osteoporosis
HHS-FDA
$4.4-$26.5 billion
$1.4-$2.3 billion plus $163 million in costs to Federal government
HHS-FDA performed one analysis for the food labeling requirements imposed by this rule and the other 22 HHS-FDA rules in this table related to food labeling.

Food Labeling: Health Claims and Label Statement, Antioxidant Vitamins and Cancer
HHS-FDA
$4.4-$26.5 billion
$1.4-$2.3 billion plus $163 million in costs to Federal government
HHS-FDA performed one analysis for the food labeling requirements imposed by this rule and the other 22 HHS-FDA rules in this table related to food labeling.

Food Labeling: Health Claims and Label Statements, Dietary Saturated Fat and Cholesterol and Coronary Heart Disease
HHS-FDA
$4.4-$26.5 billion
$1.4-$2.3 billion plus $163 million in costs to Federal government
HHS-FDA performed one analysis for the food labeling requirements imposed by this rule and the other 22 HHS-FDA rules in this table related to food labeling.

Regulation Impact Analysis of the Final Rules to Amend the Food Labeling Regulations
HHS-FDA
$4.4-$26.5 billion
$1.4-$2.3 billion plus $163 million in costs to Federal government
HHS-FDA performed one analysis for the food labeling requirements imposed by this rule and the other 22 HHS-FDA rules in this table related to food labeling.

Food Labeling: Health Claims and Label Statements, Folic Acid and Neural Tube Defects
HHS-FDA
$4.4-$26.5 billion
$1.4-$2.3 billion plus $163 million in costs to Federal government
HHS-FDA performed one analysis for the food labeling requirements imposed by this rule and the other 22 HHS-FDA rules in this table related to food labeling.

Food Labeling: Health Claims and Label Statements, Dietary Fiber and Cardiovascular Disease
HHS-FDA
$4.4-$26.5 billion
$1.4-$2.3 billion plus $163 million in costs to Federal government
HHS-FDA performed one analysis for the food labeling requirements imposed by this rule and the other 22 HHS-FDA rules in this table related to food labeling.

Food Labeling: Health Claims and Label Statements, Dietary Fiber and Cancer
HHS-FDA
$4.4-$26.5 billion
$1.4-$2.3 billion plus $163 million in costs to Federal government
HHS-FDA performed one analysis for the food labeling requirements imposed by this rule and the other 22 HHS-FDA rules in this table related to food labeling.

Food Labeling, General Requirements for Health Claims for Food
HHS-FDA
$4.4-$26.5 billion
$1.4-$2.3 billion plus $163 million in costs to Federal government
HHS-FDA performed one analysis for the food labeling requirements imposed by this rule and the other 22 HHS-FDA rules in this table related to food labeling.

Food Labeling, Mandatory Status of Nutrition Labeling and Nutrient Content Revision, Form for Nutrition Label
HHS-FDA
$4.4-$26.5 billion
$1.4-$2.3 billion plus $163 million in costs to Federal government
HHS-FDA performed one analysis for the food labeling requirements imposed by this rule and the other 22 HHS-FDA rules in this table related to food labeling.

Food Labeling, Nutrient Content Claims, General Principles, Petitions, Definition of Terms, Definitions of Nutrient Content Claims for the Fat, Fatty Acid, and Cholesterol
HHS-FDA
$4.4-$26.5 billion
$1.4-$2.3 billion plus $163 million in costs to Federal government
HHS-FDA performed one analysis for the food labeling requirements imposed by this rule and the other 22 HHS-FDA rules in this table related to food labeling.

Food Labeling Regulation Implementing the Nutrition Labeling and Education Act of 1990, Opportunity for Comments
HHS-FDA
$4.4-$26.5 billion
$1.4-$2.3 billion plus $163 million in costs to Federal government
HHS-FDA performed one analysis for the food labeling requirements imposed by this rule and the other 22 HHS-FDA rules in this table related to food labeling.

Food Labeling—Metric Labeling Requirements
HHS-FDA
$4.4-$26.5 billion
$1.4-$2.3 billion plus $163 million in costs to Federal government
HHS-FDA performed one analysis for the food labeling requirements imposed by this rule and the other 22 HHS-FDA rules in this table related to food labeling.

Real Estate Settlement Procedures Act (Regulation X), FR-1942
HUD
$119,014,950 annually in greater competition in title insurance business; $89.1-148.5 million net benefit annually in reducing transaction costs by packaging services with affiliated services
Cost of duplicate good-faith estimates: $56,824,627 per year; Cost of new disclosure for controlled business arrangements: $48,147,000 per year; Cost of computerized loan originations: $3,607,890 per year; Cost of two additional years for storage (discount rate = 6%): $24,305

Manufactured Housing Construction and Safety Standards
HUD

Net Benefit: $300 million per year present value in energy savings; $50-160 million per year present value in reduced NO
X
, SO
X
, and PM emission

Final frameworks for early-season migratory bird hunting regulations
DOI
Not Estimated
Not Estimated.

Migratory bird hunting, final frameworks for late-season migratory bird hunting regulations
DOI
Not Estimated
Not Estimated.

The Family and Medical Leave Act of 1993
DOL-ESA
Not Estimated
$674 million annually
Estimate provided by U.S. General Accounting Office (Parental Leave: Estimated Costs of H.R. 925, the Family and Medical Leave Act of 1987—GAO/HRD-88-34, Nov. 10, 1987).

Permit Required Confined Spaces
DOL-OSHA
Reduced annually: 54 fatalities; 5,931 lost-workday injury and illness cases; 5,908 non-lost-workday cases
$202.4 million annually
“OSHA anticipates that improved worker productivity as a result of the standard will help to lower production costs and contribute to higher quality output. Although OSHA did not quantify these cost offsets, the Agency believes they will be substantial” (RIA, pp. I-10, I-13). “OSHA anticipates that greater use of mechanical ventilation to reduce atmospheric hazard in permit spaces may result in additional release of hazardous substances to the air. Incremental release quantities related to the permit space standard are not determinable at present, but are expected to be minor relative to current overall releases” (RIA, pp. I-17—I-18).

Lead Exposure in Construction
DOL-OSHA
Near-term avoided annual health effects; Reduced nerve conduction velocity: 16,199-22,831 cases; Reduced blood ALA-D levels: 130,056-164,044 cases; Increased urinary ALA: 60,389-78,676 cases; Gastrointestinal disturbances: 1,135-4,413 cases; Detected blood-lead levels above MRP trigger: 24,262-35,163 cases. Long-term avoided health effects over 10 years; Fatal/nonfatal infractions: 2,164-2,322 cases; Fatal/nonfatal stroke: 644-698 cases; Renal disease: 1,258-2,157 cases
$365-445 million annually plus one-time start-up costs of $150-$183 million

Response Plans for Marine Transportation-Related Facilities
DOT-USCG
58,838 barrels of oil not spilled (NPV)
$176,105,666 (NPV)
Timeline of the analysis: 1996-2025 Discount Rate: 7%; $1996.

Vessel Response Plans
DOT-USCG
50,312 barrels of oil not spilled (NPV)
$3,245,869,985 (NPV)
Timeline of the analysis: 1996-2025 Discount Rate: 7%; $1996.

Light Truck Average Fuel Economy Standard for Model Year 1995
DOT
Not Estimated
Not Estimated.

Water quality standards regulation: Compliance with CWA Section 303(C)(2)(B) Amendments
EPA
Not Estimated
Not Estimated
“The analysis performed was limited to assessing only the potential reduction in cancer risk; no assessment of potential reductions in risks due to reproductive, developmental, or other chronic and subchronic toxic effects was conducted. However, given the number of pollutants, there could be: (1) Decreased incidence of systemic toxicity to vital organs such as liver and kidney; (2) decreased extent of learning disability and intellectual impairment due to the exposure to such pollutants as lead; and (3) decreased risk of adverse reproductive effects and genotoxity.” (57 FR 60848-). “The ecological benefits that can be expected from today's rule include protection of both fresh and salt water organisms, as well as wildlife that consume aquatic organisms * * * In addition, the rule would result in the propagation and productivity of fish and other organisms, maintaining fisheries for both commercial and recreational purposes. Recreational activities such as boating, water skiing, and swimming would also be preserved along with the maintenance of an aesthetically pleasing environment” (57 FR 60848-). “EPA acknowledges that there will be a cost to some dischargers for complying with new water quality standards as those standards are translated into specific NPDES permit limits * * * Revised wasteload allocations may result in adjustments to individual NPDES permit limits for point source dischargers, and these adjustments could result in increased wastewater treatment costs or other pollution control activities such as recycling or process changes. The magnitude of these costs depends on the types of treatment or other pollution control, the number and type of pollutants being treated, and the level of control that can be achieved by technology-based effluent limits for each industry. Similar sources of costs and the variables affecting costs may also apply to indirect industrial dischargers to the extent that the industrial discharger is a source of toxic pollutants discharged by the POTW * * * Nonpoint sources of toxic pollutants may also incur increased costs to the extent that best management practices need to be modified or applied to more sources to reflect the revised water quality standards. Although there is no Federal permit program for nonpoint sources comparable to that for point sources, there are State regulatory programs to control nonpoint source discharges. Monitoring programs are another source of potential incremental costs to dischargers and States.” (57 FR 60848-).

Coastal nonpoint pollution control program development and approval guidance (EPA, NOAA), guidance specifying management measures for sources of nonpoint * * * Section 6217
EPA
Not Estimated
$389,940,000-$590,640,000 (annualized)
The RIA identified generally the types of “off-site benefits” that could be related to water quality improvements, including 4 use benefits (in-stream, near stream, option value, and diversionary) and 3 non-use (intrinsic) benefits (aesthetic, bequest, and existence).

Oil and Gas Extraction Point Source Category, Offshore Subcategory, Effluent Limitations Guidelines and New Source Performance Standards (Final Rule)
EPA
$28.2-103.9 million per year
Total annualized BAT and NSPS costs: 1st year = $122 million, 15th year = $32 million
“Other benefits that are quantified, to the extent possible, but not monetized due to lack of appropriate data, include: (1) Human health risk reductions associated with systemics other than lead, pH-dependent leach rates, carcinogens for which there are no risk factors available, exposure to pollutants via sediment or food chair; (2) ecological risk reductions; (3) fishery benefits; and (4) intrinsic benefits * * * The non-quantified, non-monetized benefits assessed in this RIA include increased recreational fishing, increased commercial fishing, improved aesthetic quality of waters near the platform, and benefits to threatened or endangered species [the Kemp's Ridley Turtle and the Brown Pelican] in the Gulf of Mexico.” (58 FR 12454-).

Acid Rain Permits, Allowance System, Emissions Monitoring, Excess Emissions and Appeals Regulations Under Title IV of the Clean Air Act Amendments of 1990
EPA

10 million tons/year reduction in SO
2
emission (mandated by Title IV); Cost savings: $689-973 million (annualized)

$894-1,509 million (annualized)

SO
2
emission reductions are expected to: (1) reduce acidification of surface waters, thereby increasing the presence and diversity of aquatic species; (2) improve visibility by reducing haze; (3) may improve human health as lower SO
2
emissions reduce air concentrations of acid sulfate aerosols and thus acute and chronic exposure to the acid aerosols that adversely affect human health may even affect even mortality; (4) eliminate damage to forest soils and foliage, especially of high-elevation spruce trees in the eastern U.S. and allow recovery of previously damaged tree populations; (5) may reduce damage to auto paint, reduce soiling of buildings and monuments, and thus the life of some materials and structures may be extended and the costs of maintenance or repair reduced (RIA, pp. 1-5 to 1-6, and 6-1 to 6-3). Engineering costs associated with CEM retrofit were not analyzed (RIA, pp. 4-18). “The annualized costs of the implementation regulations are estimated to increase the annual costs of generating electricity by 0.5 to 1.2 percent.” (58 FR 3590-).

Vehicle Inspection and Maintenance Requirements for State Implementation Plan (Final Rule)
EPA
Emission reductions from continuing current I/M program unchanged (baseline = no I/M program) in 2000: 116016 tons VOC, 1566395 tons CO (annual tons in 2000); Emission reductions from new I/M program in 2000 (baseline = no I/M program): 420415 tons VOC, 2845754 tons CO (annual tons in 2000)
Continuing current I/M program: NET COST = $894 million ($2000); New I/M program: NET COST = $541 million ($2000)
“These repairs have been found to produce fuel economy benefits that will at least partially offset the cost of repairs. Fuel economy improvements of 6.1% for repair of pressure test failures and 5.7% for repair of purge test failures were observed. Vehicles that failed the transient short test at the established cutpoints were found to enjoy a fuel economy improvement of 12.6% as a result of repairs.” (57 FR 52950-). “In conclusion, today's action may cause significant shifts in business opportunities. Small businesses that currently do both inspections and repairs in decentralized I/M programs may have to choose between the two. Significant new opportunities will exist in these areas for small businesses to continue to participate in the inspection and repair industry. This will mean shifts in jobs but an overall increase in jobs in the repair sector and a small to potentially large increase in the inspection sector, depending on state choices.” (57 FR 52950-).

Evaporative emission regulations for gasoline-fueled and methanol-fueled light duty vehicles, light-duty trucks, and heavy-duty vehicles—SAN 2969
EPA
Total VOC Reduction in 2020: 1,120,000 metric tons
Annual total program cost without fuel savings: $130-200 million ($1992, NPV to the year of the sale)
“[Emission] projections are made for the year 2020 in order to provide benefit predictions for a fully turned-over fleet and to factor in other known trends, such as the effects of other new Clean Air Act programs. These new programs include high-technology inspection and maintenance and reformulated gasoline. Reformulated gasoline achieving a 25 percent overall VOC emission reduction standard is assumed to be used in 40 percent of the nation.” (58 FR 16002-). “[The cost] estimate does not include the offsetting fuel savings.” (58 FR 16002-).

Control of air pollution from new motor vehicles and new motor vehicle engines, regulations requiring on-board diagnostic systems on 1994 and later model year light-duty vehicles
EPA

4.0 million tons HC, 30.8 million tons CO, 2.5 million tons NO
X
(NPV)

$16.6 billion (NPV) ($1993)
Discount rate: 7% (58 FR 9468-) Timeline: 2005-2020 (58 FR 9468-).“EPA has not been able to adequately quantify some potential cost savings not included in these estimates. Potential cost savings can accrue due to early repairs of malfunction which, if left undetected and unrepaired, could result in the need for even more costly repairs in the future. Also, improved repair effectiveness should reduce the potential for a part to be unnecessarily replaced in attempting to fix a problem. Repair facilities should also benefit from the availability of generic tools for accessing and using the OBD system in problem diagnosis and repair. These service facility benefits could be passed along to the consumer in the form of lower repair costs.” (58 FR 9468-).

Table 10.—Agency Estimates of Benefits and Costs of Major Rules
[October 1, 1993 to September 30, 1994]

Rule
Agency
Benefits
Costs
Other information

Manufactured Home Construction and Safety Standards on Wind Standards
HUD
$63,726,314 annually
$412,106,180 annually
The cost estimates do not include costs associated with “out of pocket expenses related to deductibles or non-covered losses” (RIA, pp. 1-2). Non-quantified benefits include: “purchasers will experience less dislocation caused by damage to or destruction of their manufactured homes. Fourth, residents who choose to remain in their units during storms will suffer fewer injuries and deaths” (RIA, p. 1) Discount rate used = 6.64 percent (RIA, p. 8) Basis for public benefit assessment: Hurricane Andrew (RIA, p. 9).

Designate critical habitat for four endangered Colorado River fishes
DOI
Net benefit: $7.92 million

Increase employment by 710 jobs, increase earnings by $6.62 million, increase government revenue by $3.20 million from 1995-2020 (59 FR 13374-).

Occupational Exposure to Asbestos
DOL-OSHA
Reduction in annual cancer risk: 2.12 cancer deaths in general industry, 40.48 cancer deaths in construction industry, 14.2 cancers among building occupants. Reduction in asbestosis: 14 cases annually
$361.4 million annually
Non-quantified benefits include: avoided cases of asbestosis for building occupants and others secondarily exposed, reduced risks of cancer and fires (from rages contaminated with solvent), more rapid building reoccupation, reduced probability of asbestos-related lawsuits (RIA, pp 52-57).

Financial Responsibility for Water Pollution (Vessels)
DOT-USCG
525,316 barrels of oil not spilled (NPV)
$451,440,918 (NPV)
Timeline of the analysis: 1996-2025; Discount Rate: 7%; $1996.

Antidrug Program for Personnel Engaged in Specified Aviation Activities
DOT-FAA
$206.64 million (NPV)
$138.13 million (NPV)
Timeline of the analysis: 1994-2003 (RIA, p. 12); $1992 (RIA, p. 12); Discount rate = 7% (RIA, p. 20).

Controlled Substances and Alcohol Use and Testing
DOT-FHWA
Reduced fatal accidents: $680 million in 1st year, $952 million per year in 2nd and subsequent years. Reduced injury cost: $152.4 million in 1st year, $213.4 million per year in 2nd and subsequent years assuming the highest deterrence scenario. Reduced property damage: $47.5 million in 1993, $66.5 million per year from 1994-2002. Reduced traffic delays: $3.5 million in 1993, $4.9 million per year thereafter assuming highest deterrence rate; Reduced other costs of freeway accidents: $1.9 million in 1995 and $2.7 million thereafter
$93,947,750 in 1995, and $92,453,950 per year in 1996 and thereafter

Light Truck Average Fuel Economy standards, Model Years 1996-1997
DOT
Not Estimated
Not Estimated.

Prevention of Prohibited Drug Use in Transit Operations
DOT
$608,520,643 (NPV)
$208,970,087 (NPV)
Timeline: 1995-2004; Discount rate: 7%; $1991.

Land disposal restrictions phase II, universal treatment standards and treatment standards for organic toxicity, characteristic wastes, and newly listed wastes
EPA
0.22 cancer cases per year avoided from groundwater, 0.037 cancer cases per year avoided from air; $20 million avoided property value damage (annualized)
$194-219 million (annualized)
“The timeframe to which these benefits are attributable begins 30 years following promulgation of the rule.” (59 FR 47982-). “However, there are some benefits which the Agency has not attempted to quantify which are potentially attributable to today's rule. For example, the agency has not attempted to quantify any potential non-use-value benefits from protection of resources through treatment of hazardous wastes. Furthermore, the risk analysis performed by the Agency for today's rule does not account for many other potential benefits from today's rule. Ecological risk reduction from treatment of wastes under today's rule has not been quantified. Nor do the Agency's air and groundwater benefit estimates account for karst terrain, complex flow situations, or other factors which could contribute to underestimates of benefits.” (59 FR 47982-).

Accelerated phase-out of ozone depleting chemicals and listing and phase-out of methyl bromide
EPA
Ozone depleting chemicals: $8-24 billion (NPV) Methyl Bromide: $1.6-6.4 billion (NPV)
Ozone depleting chemicals: $12 billion (NPV); Methyl Bromide: $0.8 billion (NPV)
Discount rate: 7% (58 FR 65018-). Timeline for methyl bromide cost: 1994-2010 (58 FR 65018-). Timeline for methyl bromide benefits: 1994-2001 (58 FR 65018-).

Fuel and fuel additives: standards for reformulated gasoline
EPA

Phase I—Summertime VOC emission reduction: 90-140 thousand tons per year; Reduction in cancer incidence: 16 per year (assuming enhanced I/M in place) or 24 per year (assuming basic I/M in place).

Phase II—(incremental to Phase I): Summertime VOC emission reduction: approximately 42,000 tons Summer time NO
x
emission reduction: approximately 22,000 tons Number of cancer avoided: 3-4 fewer cancer incidence per year

Phase I—Annual costs: $700-940 million.
Phase II—(incremental to Phase I): Increase gasoline production cost by 1.2 cents/gallon during the VOC control period, since only the toxics standard changes, and there is not expected to be a cost for year-round toxics control above that required for Phase I; EPA doesn't expect non-production related costs, such as distribution costs, recordkeeping and reporting costs, etc., to increase isgnificantly relative to Phase I

“Reductions in mobile source emissions of the air toxics addressed in the reformulated gasoline program (benzene, 1,3-butadiene, formaldehyde, acetaldehyde and POM) may result in fewer cancer incidences. A number of adverse noncancer health effects have also been associated with exposures experience in particular microenvironments such as parking garages and refueling stations. These other health effects include blood disorders, heart and lung diseases, and eye, nose and throat irritation. Some of the toxics may also be developmental and reproductive toxicants, while very high exposure can cause effects on the brain leading to respiratory paralysis and even death. The uses of reformulated gasoline meeting the Phase II standards will likely help to reduce some of these health effects as well.” (59 FR 7716-). Phase I: The cost of producing reformulated gasoline is expected to increase by approximately 3-5 cents per gallon in 1995. (59 FR 7716-). The cost of testing, enforcement, and recordkeeping not reflected in the annual cost estimate. (59 FR 7716-).

Acid Rain NO
X
Regulations under Title IV of the Clean Air Act Amendments of 1990

EPA

Phase I: 400,000 tons NO
X
reduced Phase II: 1.89 million tons NO
X
reduced

Phase I: $77 million/year Phase II: $300 million/year

Qualitative human health benefits: Lower ambient levels of NO
X
(and associated lower PM and lower ozone levels) may mean fewer lost school days, fewer disability days for children; for all, less eye irritation and its associated acute and chronic health effects; for exercising asthmatics, improved pulmonary function. Also ambient concentrations of nitrates will be lower and fewer toxic nitrogenous compounds will be formed. (RIA, pp. 9-1 to 9-4) Qualitative welfare effects: reduced materials damage, increased visibility that is associated with enhanced enjoyment of vistas and fewer aircraft and motor vehicle accidents. The potential ecological effect include minimizing the adverse effects of excess nitrogen deposition in forest soils and surface waters, including the “acid pulses” that precede fish kills and consequently, reduced biodiversity. (RIA, pp. 9-1 to 9-4) “Moreover, EPA expects that most or all utility expenses from meeting NO
X
requirements will be passed along to ratepayers * * * Under today's rule the cost to ratepayers is very small, relative to their current expenditures on electricity. The average increase in electric rates across the United States is estimated to be only 0.03 and 0.13 percent under Phases I and II respectively.” (59 FR 13538-).

Hazardous Organic NESHAP (HON) for the Synthetic Organic Chemical Manufacturing Industry (SOCMI) and Other Processes Subject to the Negotiated Regulation for Equipment Leaks
EPA
HAP reduction: 510,000 tons/year; VOC reduction: 1,000,000 tons/year

Total nationwide annual cost: $230 million/year ($1989); CO emission increase: 1,900 tons/year; NO
x
emission increase: 19,000 tons/year

“Thus, the estimates represent annual impacts occurring in the fifth year.” (59 FR 19402-). “As discussed in section III.B.3 of this preamble, the EPA has deferred the final decision regarding control of medium-sized storage vessels at existing sources. Therefore, emission reductions for storage vessels shown in Table 1, and consequently the total, may be slightly overstated.” (59 FR 19402-). “Because of the EPA's deferral of a final decision on control of medium-sized storage vessels at existing sources, as discussed in section III.B.3 of this preamble, the cost impacts for storage vessels, and consequently the total cost impact, may be slightly overstated.” (59 FR 19402-). “Market analyses for a subset of 21 of the chemicals estimated price increases from 0.1 percent to 3.9 percent and quantity decreases from 0.1 percent to 4 percent.” (59 FR 19402-).

Control of air pollution from new motor vehicles and new motor vehicle engines, refueling emission regulations for light-duty vehicles and trucks and heavy-duty vehicles
EPA
Without Stage II controls, average VOC annual emission reductions: over 420,000 tons per year; With Stage II phase-out when ORVR and Stage II would cover the same percent of fuel, average annual emission reduction: 378,000 tons; If retain Stage H controls, an incremental emission reduction: 285,000 tons
Without Stage II controls, the average annual cost: −$6 million (1998-2020); With Stage II and phasing out at 2010, the average annual cost: $2 million (1998-2020); With Stage II and no phase out, the average annual cost: $27 million (1998-2020); In 1998 NPV, costs are $102 million, $264 million and $435 million respectively
“It should be noted that the RIA was completed prior to EPA's decision to delay the requirements for LDTs and to exclude HDVs. These controls were included in the analysis and were assumed to begin in 1998. EPA expects that inclusion of these items in the analysis has no significant effect on the results and does not affect the conclusions which are based on the analysis.” (59 FR 16262-). “In the cases where costs are negative, it is because the value of the recovery credits exceeds the hardware and R, D, & T costs.” (59 FR 16262-).

Determination of significance for nonroad sources and emission standards for new nonroad compression ignition engines at or above 37 kilowatts, control of air pollution * * *—SAN 3112
EPA

NO
X
annual reduction in 2010: 800,000 tons; NO
x
annual reduction in 2025: over 1,200,000 tons

Average annual cost: $29-70 million (59 FR 31306)
“EPA maintains that the impact of this rule on fleet average fuel consumption will be minimal.” (59 FR 31306-).

Table 11.—Agency Estimates of Benefits and Costs of Major Rules

Rule
Agency
Benefits
Costs
Other information

The Family and Medical Leave Act of 1993
DOL-ESA
Not Estimated
$674 million annually
Estimate provided by U.S. General Accounting Office (Parental Leave: Estimated Costs of H.R. 925, the Family and Medical Leave Act of 1987—GAO/HRD-88-34, Nov. 10, 1987).

Double Hull Standards for Vessels Carring Oil in bulk
DOT-USCG
94,172 barrels of oil not spilled (NPV)
$6,413,027,637 (NPV)
Timeline of the analysis: 1996-2025.

FMVSS: Stablity and Control of Medium and Heavy Vehicles During Braking
DOT-NHTSA
Equivalent fatalities forgone: 415-683 per year; Forgone property damage: $327-394.9 million annually
Total consumer cost = $560.5 million annually
Discount rate: 7%.

Bay/Delta water quality standards
EPA
$2.1-21.5 million annually in economic benefits to commercial and recretional fisheries and have associated employment gains of an estimated 145-1585 full-time equivalent jobs annually (RIA ES-7)
For the urban sector, $4.3 million/yr on average and $15.8 million/yr during dry years; $28.3 million/yr on average gains $165.3 million/yr during dry years without water transfers or waterbanks. For agriculture sector, $27 million/yr on average, $43 million/year in the driest 10% of years (RIA ES-5) If using sharing approach (spread water supply impacts to entities diverting water from the Sacramento and San Joaquin River systems), −$0.5 million/yr average years, −$5.5 million/yr for dry years for agricultural sector, −$10.5 million/yr for average years and −$54 million/yr for day years (RIA ES-6)
“Important benefits of the water quality regulations include the following: Biological productivity and health for many estuarine species are expected to increase. The decline of species is expected to be reversed and the existence of species unique to the Bay/Delta, such as Delta smelt, winter-run Chinook salmon, long fin smelt, and Sacramento splittail, will be protected. Populations of a variety of estuarine species are expected to increase; although the extent of the population increases has not been determined for all species, the increases are anticipated to benefit the recreational and commercial fisheries.” (60 FR 4703-)

Water quality guidance for Great Lakes system
EPA
Given the site-specific nature of water quality benefits and the unavailability of site-specific data across the Great Lakes Basin, only case study monetized benefits are estimated in the RIA. Average monetized benefits across the three case studies evaluated are $0.3 million per year to $6.2 million per year, with a midpoint of $2.9 million per year (in 1996 dollars); average annual costs across case studies are also $2.8 million per year (1996 dollars).
$64.0-394.6 million ($1996, annualized)
“The benefit analysis is based on a case study approach, suing benefits transfer applied sources to three case studies . . . The case studies include: (1) the lower Fox River drainage, including Green Bay, located on Lake Michigan in northeastern Wisconsin; (2) the Saginaw River and Saginaw Bay, located on Lake Huron in Northeastern Michigan; and (3) the Black River, located on Lake Erie in north-central Ohio . . . EPA did attempt to calculate longer-term benefits to human health, wildlife, and aquatic life once the final Guidance provisions are fully implemented by nonpoint sources as well as point sources and the minimum protection levels are attained in the ambient water.” (60 FR 15382). “The three case studies combine to account for nearly 14 percent of the total cost of the final Guidance, nearly 17 percent of the loadings reductions, and from four percent to 10 percent of the benefits proxies (i.e.,. basin-wide population, recreational angling, nonconsumptive recreation, and commercial fishery harvest.” (60 FR 15382). “In addition to the cost estimates described above, EPA estimated the cost to comply with requirements consistent with the antidegradation provisions of the final Guidance. This potential future cost is expressed as a ‘lost opportunity’ cost for facilities impacted by the antigradation requirements. This cost could result in the addition of about $22 million each year.” (60 FR 15381).

Interim Requirements for Deposit Control Gasoline Additives, Regulations of Fuels and Fuel Additives
EPA

HC, CO and NO
X
reduction during the 18-month interim period: 700,000 tons (59 FR 54678-); HC, CO and NO
X
reduction after the interim period: 600,000 tons per year (59 FR 54678-) Fuel economy savings: 390 million gallons in 1995-2000 (59 FR 54678-)

$650 million (NPV, discount rate = 7%, 1995-2000 (59 FR 54678-))

Appendix C. OMB Draft Guidelines for the Conduct of Regulatory Analysis and the Format of Accounting Statements

Preface

This Circular provides OMB's guidance to federal agencies on the development of regulatory analysis as required under Executive Order No. 12866 and a variety of related authorities. The Circular also provides guidance to agencies on the regulatory accounting statements that are required under the Regulatory Right-to-Know Act.

This draft Circular refines OMB's “best practices” document of 1996
http://www.whitehouse.gov/omb/inforeg/riaguide.html,
which was issued as a guidance in 2000
http://www.whitehouse.gov/omb/memoranda/m00-08.pdf,
and reaffirmed in 2001
http://www.whitehouse.gov/omb/memoranda/m01-23.html
. It will replace both the 1996 “best practices” and the 2000 guidance. Before issuing the Circular, this draft will go through a process of peer review, public comment and interagency review.

Introduction

These guidelines are designed to help analysts in the regulatory agencies by encouraging good regulatory impact analysis—called either “regulatory analysis” or “analysis” for brevity—and standardizing the way benefits and costs of Federal regulatory actions are measured and reported.

Why Analysis of Proposed
16

Regulatory Actions Is Needed

Regulatory analysis is a tool regulatory agencies use to anticipate and evaluate the likely consequences of their actions. It provides a formal way of organizing the evidence on the key effects—good and bad—of the various alternatives that should be considered in developing regulations. The motivation is to (1) learn if the benefits of an action are likely to justify the costs or (2) discover which of various possible alternatives would be the most cost-effective. By choosing actions that maximize net

benefits, agencies direct resources to their most efficient use.

16
We use the term “proposed” to refer to any regulatory actions under consideration regardless of the stage of the regulatory process.

A good regulatory analysis informs the public and other parts of the Government as well as the agency conducting the analysis of the effects of alternative actions. Regulatory analysis will sometimes show that a proposed action is misguided, but it can also demonstrate that well-conceived actions are reasonable and justified.

Where all significant benefits and costs can be quantified and expressed in monetary units, benefit-cost analysis provides decisionmakers with a clear indication of the most efficient alternative, that is, the alternative that generates the largest net benefits to society ignoring distributional effects. This is useful information for the public to receive, even when economic efficiency is not the only or the overriding public policy objective.

It will not always be possible to assign monetary values to all of the important benefits and costs, and when it is not, the most efficient alternative will not necessarily be the one with the largest net-benefit estimate. In such cases, you should exercise professional judgment in determining how important the non-quantifiable benefits or costs may be in tipping the analysis one way or the other, but you should not use non-quantifiables as “trump cards,” especially in cases where the measured net benefits overwhelmingly favor a particular alternative. When there are other competing public policy objectives, as there often are, they must be balanced with efficiency objectives.

What Should Go Into a Regulatory Analysis?

A good regulatory analysis should include the following three basic elements:

(1) A statement of the need for the proposed action.

(2) An examination of alternative approaches.

(3) An evaluation of the benefits and costs of the proposed action and the main alternatives identified by the analysis.

To properly evaluate the benefits and costs of regulations and their alternatives, you will need to do the following:

• Explain how the actions required by the rule are linked to the expected benefits. For example, indicate how additional safety equipment will reduce safety risks. A similar analysis should be done for each of the alternatives.

• Identify a baseline. Benefits and costs are defined in comparison with a clearly stated alternative. This is normally a “no action” baseline, what the world would be like if the proposed rule was not adopted.

• Identify the expected undesirable side-effects and ancillary benefits of the proposed regulatory action and the alternatives. These should be added to the direct costs and benefits as appropriate.

With this information, you should be able to assess quantitatively the benefits and costs of the proposed rule and its alternatives. When your analysis is complete, you should present a summary of the benefit and cost estimates for each alternative, sometimes called a “regulatory accounting statement,” so that readers can evaluate them.

As you proceed through your regulatory analysis, you should seek out the opinions of those who will be directly affected by the regulation you are considering as well as the views of those individuals and organizations with special knowledge or insight into the regulatory issues. Consultation can be useful in making sure your analysis addresses all of the relevant issues and that you have access to all the pertinent data. Early consultation can be especially helpful. You should not limit consultation to the final stages of your analytical efforts.

A good analysis is transparent. It should be possible for anyone reading the report to see clearly how you arrived at your estimates and conclusions. For transparency's sake, you should state in your report what assumptions were used, such as the discount rates or the monetary value of a statistical life. It is usually helpful to provide a sensitivity analysis to reveal whether, and to what extent, the results of the analysis are influenced by plausible changes in the main assumptions.

You will find that you cannot conduct a good regulatory analysis according to a formula. The conduct of high-quality analysis requires competent professional judgment. Different regulations may call for different emphases in the analysis, depending on the nature and complexity of the regulatory issues and the sensitivity of the benefit and cost estimates to the key assumptions.

I. Why Regulatory Action is Needed

Before proceeding with a regulatory action, you must demonstrate that the proposed action is necessary. Executive Order 12866 states that “Each agency shall identify the problem that it intends to address (including, where applicable, the failures of private markets or public institutions that warrant new agency action) as well as assess the significance of that problem.” This means that you should try to explain whether the action is intended to address a significant market failure or to meet some other compelling public need such as improving governmental processes or promoting distributional fairness, privacy, or personal freedom. If you are trying to correct a significant market failure, the failure should be described both qualitatively and (where feasible) quantitatively, and you should show that a government intervention is likely to do more good than harm. For other interventions, you should also provide a demonstration of compelling social purpose and the likelihood of effective action.

If your regulatory intervention results from a statutory or judicial directive, you should describe the specific authority for your action, the extent of discretion available to you, and the regulatory instruments you might use.

A. There Is a Market Failure or Other Social Purpose To Address

The major types of market failure include: externality, market power, and inadequate or asymmetric information. Correcting market failures is a reason for regulation, but it is not the only reason. Other possible justifications include improving the functioning of government, removing distributional unfairness, or promoting privacy and personal freedom.

1. Externality

An externality occurs when one party's actions impose uncompensated benefits or costs on another. Environmental problems are a classic case of externality—for example, the smoke from a factory may adversely affect the health of local residents while soiling the property in nearby neighborhoods. Common property resources that may become congested or overused, such as fisheries or the broadcast spectrum, represent a second example. “Public goods,” such as defense or basic scientific research, provide a positive externality, where provision of the good to some individuals cannot occur without providing the same benefits free of charge to other individuals.

2. Market Power

Firms exercise market power when they reduce output below what would be offered in a competitive industry. They may exercise market power collectively or unilaterally. Government action can be a source of market power, for example, if regulatory actions exclude low-cost imports. Generally, regulations that increase market power should be avoided. However, there are some circumstances in which government may choose to validate a monopoly. If a market can be served at lowest cost only when production is limited to a single producer—local gas and electricity distribution services, for example—a natural monopoly is said to exist. In such cases, the government may choose to approve the monopoly and to regulate its prices and production decisions.

3. Inadequate or Asymmetric Information

Market failures may also result from inadequate or asymmetric information. The market will often supply less than the appropriate level of information because it is infeasible to exclude people from reaping the benefits from the information others have provided even though they have not paid for the information. The providers will not willingly supply the socially optimal quantity of information, unless they are paid for it, and that may not be possible.

Because information, like other goods, is costly, your evaluation will need to do more than demonstrate the possible existence of less than optimal or asymmetric information. Even though the market may supply a less than an optimal amount of information, the amount it does supply may be reasonably adequate and therefore not require government regulation. Sellers do have an incentive to provide information through advertising that can increase sales by highlighting distinctive characteristics of their products. Buyers may also obtain reasonably adequate information about product characteristics through other channels, for example, if a buyer's search costs are low (as when the quality of a good can be determined by inspection at the point of sale), if a buyer has previously used the product, if the seller offers a warranty, or if adequate information is provided by third parties.

In the case of uncertain information about low-probability high-consequence events,

markets may underreact or overreact depending on the rules-of-thumb and other mental assumptions that people use to cope with difficult issues. Regulators should be aware of such mental quirks and not adopt policies based on a misunderstanding of the underlying reality.

4. Other Social Purposes

There are justifications for regulations in addition to correcting market failures. A regulation may be appropriate when you have a clearly identified measure that can make government operate more efficiently. In other cases, regulation may be used to reduce unfairness. Regulatory action may also be appropriate to protect privacy or to promote civil rights or permit more personal freedom.

B. Showing That Regulation at the Federal Level Is the Best Way To Solve the Problem

Even where a market failure clearly exists, you should consider other means of dealing with the failure before turning to regulation. Alternatives to regulation include the courts acting through the product liability system, antitrust enforcement, consumer-initiated litigation, or workers' compensation systems.

In assessing whether Federal regulation is the best solution, you should also consider the possibility of regulation at the State or local level. In some cases, the nature of the market failure may itself suggest the most appropriate governmental level of regulation. For example, problems that spill across State lines (such as acid rain whose precursors are transported widely in the atmosphere) are probably best addressed by Federal regulation. More localized problems, including those that are common to many areas, may be more efficiently addressed locally.

A diversity of regulation may generate gains for the public as governmental units compete with each other to serve the public, but duplicative regulations can also be costly. Where Federal regulation is clearly appropriate, for example, to address interstate commerce issues, you should try to examine whether it would be more efficient to reduce State and local regulation. For example, the burdens on interstate commerce arising from different State and local regulations such as compliance costs for firms operating in several States, may exceed any advantages associated with the diversity of State and local regulation. Your analysis should consider the possibility of reducing as well as expanding State and local rulemaking.

The role of federal regulation in facilitating U.S. participation in global markets should also be considered. Harmonization of U.S. and international rules may require a strong Federal regulatory role. Concerns that new U.S. rules could act as non-tariff barriers to imported goods should be evaluated carefully.

C. The Presumption Against Economic Regulation

Government actions can be unintentionally harmful, and even useful regulations can impede the efficiency with which markets function. For this reason, there is a presumption against certain types of regulatory action. In light of both economic theory and actual experience, a particularly demanding burden of proof is required to demonstrate the need for any of the following types of regulations:

• Price controls in competitive markets;

• Production or sales quotas in competitive markets;

• Mandatory uniform quality standards for goods or services if the potential problem can be adequately dealt with through voluntary standards or by disclosing information of the hazard to buyers or users; or

• Controls on entry into employment or production, except (a) where indispensable to protect health and safety (
e.g.,
FAA tests for commercial pilots) or (b) to manage the use of common property resources (
e.g.,
fisheries, airwaves, Federal lands, and offshore areas).

II. Alternative Approaches To Consider

Once you have determined that Federal regulatory action is appropriate, you will need to consider alternative regulatory approaches. Ordinarily, it will be possible to eliminate some alternatives through a preliminary analysis, leaving a manageable number of alternatives to be evaluated according to the formal principles of the Executive Order. The number and choice of alternatives selected for detailed analysis is a matter of judgment. There must be some balance between thoroughness and the practical limits on your analytical capacity. With this qualification in mind, you should nevertheless explore modifications of some or all of a regulation's attributes or provisions to identify appropriate alternatives. The following is a list of alternative regulatory actions that you should consider:

A. Different Choices Defined by Statute

When a statute establishes a specific regulatory requirement and the agency plans to exercise its discretion to adopt a more stringent standard, you should examine the benefits and costs of reasonable alternatives that reflect the range of the agency's statutory discretion, including the specific statutory requirement.

B. Different Compliance Dates

The timing of a regulation may also have an important effect on its net benefits. For example, costs of a regulation may vary substantially with different compliance dates for an industry that requires a year or more to plan its production runs efficiently. In this instance, a regulation that provides sufficient lead time is likely to achieve its goals at a much lower overall cost than a regulation that is effective immediately, although delay would also typically lower the value of the benefits.

C. Different Enforcement Methods

Compliance alternatives for Federal, State, or local enforcement include on-site inspections, periodic reporting, and compliance penalties structured to provide the most appropriate incentives. When alternative monitoring and reporting methods vary in their costs and benefits, you should consider promising alternatives in identifying the most appropriate enforcement framework. For example, in some circumstances random monitoring or parametric monitoring will be less expensive and nearly as effective as continuous monitoring in achieving compliance.

D. Different Degrees of Stringency

In general, both the benefits and costs associated with a regulation will increase with the level of stringency (although marginal costs generally increase with stringency, whereas marginal benefits may decrease). You should study alternative levels of stringency to understand more fully the relationship between stringency and the size and distribution of benefits and costs among different groups.

E. Different Requirements for Different Sized Firms

You should consider setting different requirements for large and small firms basing any difference in the standards on perceptible differences in the costs of compliance or in the expected benefits. The balance of costs and benefits can shift depending on the size of the firms being regulated. Small firms may find it more costly to comply with regulation, especially if there are large fixed costs required for regulatory compliance. On the other hand, it is not efficient to place a heavier burden on one segment of a regulated industry solely because it can better afford the higher cost; this has the potential to load costs on the most productive firms, costs that are disproportionate to the damages they create.

You should also remember that a rule with a significant impact on a substantial number of small entities will trigger the requirements set forth in the Regulatory Flexibility Act.

F. Different Requirements for Different Geographic Regions

Rarely do all regions of the country benefit uniformly from government regulation and it is also unlikely that costs will be uniformly distributed across the country. Where there are significant regional variations in costs and/or benefits, you should consider the possibility of setting different requirements for the different regions.

G. Performance Standards Rather Than Design Standards

Performance standards are generally superior to engineering or design standards because performance standards give the regulated parties the flexibility to achieve regulatory objectives in the most cost-effective way. This is only possible, of course, if there is more than one feasible way to meet the performance standard. In general, you should consider setting a performance standard if performance can be measured or reasonably imputed and where controlling performance provides a scope appropriate to the problem the regulation seeks to address. For example, compliance with air emission standards can be allowed on a plant-wide, firm-wide, or region-wide basis rather than vent by vent, provided this does not produce unacceptable local air quality outcomes (such as “hot spots” from local pollution concentration).

H. Market-Oriented Approaches Rather Than Direct Controls

Market-oriented approaches that use economic incentives should be explored. These alternatives include fees, penalties, subsidies, marketable permits or offsets, changes in liability or property rights (including policies that alter the incentives of insurers and insured parties), and required bonds, insurance or warranties.

I. Informational Measures Rather Than Regulation

If intervention is contemplated to address a market failure that arises from inadequate or asymmetric information, informational remedies will often be the preferred approach. Measures to improve the availability of information include government establishment of a standardized testing and rating system (the use of which could be made mandatory or left voluntary), mandatory disclosure requirements (
e.g.
, by advertising, labeling, or enclosures), and government provision of information (
e.g.
, by government publications, telephone hotlines, or public interest broadcast announcements). A regulatory measure to improve the a

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A03-2542. Public record. Not legal advice.