A recent Associated Press investigation shows the Environmental Protection Agency has been using new statistics to assign monetary values to the lives potential regulations will save. "The 'value of a statistical life' is $6.9 million, the Environmental Protection Agency reckoned in May – a drop of nearly $1 million from just five years ago," according to AP.

The value of a statistical live, or VSL, is an estimate of how much a person would be willing to pay to reduce their risk of death by some set proportion. Technically, the VSL approach does not value a human life but rather a "statistical life." The benefit to society monetized in the approach represents a reduced risk of death for a population, not a certain avoidance of death for an individual.

Realistically, when it's time to study the potential effects of a regulation, federal agencies estimate the number of lives the regulation will save, then multiply that figure by the VSL. Essentially, the federal government is saying the value of a person's life is equivalent to whatever dollar figure statisticians and economists come up with.

AP provides a good description of the policymaking impact:

Though it may seem like a harmless bureaucratic recalculation, the devaluation has real consequences.

When drawing up regulations, government agencies put a value on human life and then weigh the costs versus the lifesaving benefits of a proposed rule. The less a life is worth to the government, the less the need for a regulation, such as tighter restrictions on pollution.

Consider, for example, a hypothetical regulation that costs $18 billion to enforce but will prevent 2,500 deaths. At $7.8 million per person (the old figure), the lifesaving benefits outweigh the costs. But at $6.9 million per person, the rule costs more than the lives it saves, so it may not be adopted.

Of course, the real travesty here is that federal officials actually allow the VSL to influence their decision when they're considering a new federal standard. If a regulation has the potential to save hundreds or thousands of lives, shouldn't that be enough to prod policymakers into action? Is it necessary to assign a dollar value to everything…and everyone?

For now, the answer is "yes." Officials at EPA and other agencies are forced into playing a game that only makes sense in Washington D.C.'s perverse political climate. The Bush White House, for example, is more than happy to reject proposed regulations if the monetized compliance costs exceed monetized benefits (as they did recently with an EPA recycling rule.)

Benefits such as quality of life, ecological preservation, or even a reduced number of deaths have no bearing on the Office of Management and Budget's decisions — unless they are translated into dollars and cents. Anyone advocating for newer or stronger public protections has a Catch 22 on their hands: Either refuse to place a value on the greatest benefits of a new regulation, saved lives, and see the policy rejected by the White House or attacked by industry lobbyists; or go through the ridiculous (and morally questionable) exercise of placing a dollar value on a human life.

On last night's Colbert Report, Stephen Colbert pokes fun at the ridiculousness of using VSL to make decisions about regulation. Watch it here:

For a description of how VSL undermines public protections, see the OMB Watch report, Polluted Logic: How EPA's ozone standard illustrates the flaws of cost-benefit analysis.

In today's New York Times, public policy mediator Susan Podziba writes an op-ed which uses two recent and tragic New York City crane accidents, which killed nine people, as an entree into the rulemaking process at the Occupational Safety and Health Administration (OSHA).

OSHA has had a rule to improve safety for crane and derrick workers in its regulatory pipeline for years. The pending rule, which would update an outdated policy from 1971, is welcomed by worker safety advocates and industry alike. Podziba tells the story of how the proposal was developed:

From July 2003 to July 2004, representatives of labor unions, crane manufacturers, crane operators, contractors, crane rental companies, builders, crane owners, billboard installers, insurance companies, electrical power line owners and safety experts met to discuss virtually all hazards associated with cranes — and how to prevent them. The deliberations were governed under the Federal Advisory Committee Act, which meant that the public could attend the sessions and address the representatives.

The group reached consensus on a set of revised crane standards. OSHA officials participated in the negotiations and contributed their expertise in writing enforceable regulations. According to OSHA's analysis, these standards would prevent 37 to 48 worker deaths per year. The draft regulations are about 120 pages long, and include important new requirements like the testing and certification of crane operators and the oversight of crane assembly and disassembly.

From the first day of deliberations — in accordance with the process, called negotiated rulemaking — the parties operated under this assumption: If this balanced group of stakeholders and the government could agree on a standard, then OSHA would publish it in the Federal Register as its proposed rule. After OSHA publishes a draft rule, the public has 60 days to comment before the final rule is published and becomes law.

Since then, the rulemaking has come to a grinding halt — even though the bulk of the work is already done. Why? Maybe it's because the Bush administration is ideologically opposed to new worker safety regulations. OSHA has issued only two significant new rules in seven-and-a-half years: one mandating employers pay for personal protective equipment (a no brainer) and one setting an exposure limit for chromium (required by a court deadline and not nearly as strong as the underlying science supported).

Or, maybe it's because of government-wide rulemaking process requirements. Celeste Monforton at the Pump Handle blog says, after the crane rule was written, "OSHA took nearly two years to prepare" a cost-benefit analysis. Monforton also says the rule was further slowed by the Small Business Regulatory Enforcement Fairness Act which requires OSHA give businesses a sneak preview of new rules and an opportunity for the Small Business Administration Office of Advocacy to pressure OSHA to make changes.

Whatever the reason, the two recent crane accidents are a tragic reminder of how OSHA inaction can have real world consequences.

Podziba and Monforton also remind readers of the new White House memo setting deadlines for regulations agencies want to finalize during the Bush administration. Since the proposal deadline has already passed, crane and derrick workers will have to wait until at least 2009 to see the standard finalized.

Today, OMB Watch launched a web-based Regulatory Resource Center at www.ombwatch.org/regresources. The Resource Center provides tips for advocates who want to get involved in regulatory decision making and educational resources for anyone interested in how the federal regulatory process works.

The first part of the Regulatory Resource Center is the Advocacy Center. The Advocacy Center shows users how to comment on federal regulations and provides instructions for using Regulations.gov, the government's portal for public comments. The Advocacy Center also has instructions for filing a petition for rulemaking and tips on how to find rules in the Federal Register.

The second part of the Resource Center is the Policy Library. The Policy Library contains a flowchart showing how rules move through the regulatory pipeline; a list and brief description of rulemaking agencies; background information describing how the regulatory process works from beginning to end; and a glossary of common terms relating to regulation. The Policy Library also has a reference section, which provides links to legislation, executive orders, and government reports on regulatory policy.

In October 2007, OMB Watch released a developmental version of the Regulatory Resource Center and surveyed the public for comments and ideas. Responses to the survey were overwhelmingly positive. A number of respondents complimented OMB Watch on its efforts to centralize all information about the regulatory process in one place. One respondent called it "a tremendous gift to citizens and to students."

OMB Watch will continue to improve the site based on public needs, comments, and concerns. We welcome and encourage feedback at any time. Please e-mail us with your comments at RegResources@ombwatch.org.

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Big oil is knocking on the White House's door looking for sympathy over an EPA proposal to tighten the national standard for ozone, aka smog. On January 25, representatives from ExxonMobil and the American Petroleum Institute met behind closed doors with officials from EPA and the White House Office of Management and Budget's Office of Information and Regulatory Affairs (OIRA). (Frank O'Donnell at the Blog for Clean Air has the full story.)

EPA's bid to tighten the ozone standard (from the current level of 0.084 ppm to somewhere between 0.070 and 0.075 ppm) has raised the ire of many industry representatives and anti-regulatory lobbyists like the National Association of Manufacturers. Detractors of the proposed ozone-reduction rule claim it would impose big costs on polluters and result in economic hardships for companies, employees, and consumers.

There are two big problems with that argument. First, the Clean Air Act prohibits EPA from considering economic impact when regulating ozone. The Supreme Court has upheld the prohibition. EPA must use the best available science to set a standard that will protect public health, regardless of compliance costs.

Second, those who claim big costs are relying on a deeply flawed cost-benefit analysis prepared by EPA and OIRA. Cost-benefit analysis in public policy is rarely helpful, and EPA's ozone rule is a good example of just how ridiculous it can be.

For one of the options EPA is considering (0.070 ppm), the cost-benefit analysis concluded potential costs of $20 billion or potential benefits of $23 billion. How is anyone supposed to draw a meaningful conclusion from a $43 billion range?

Furthermore, ozone exposure can shorten lives. Therefore, reducing ozone pollution can help people live better and live longer. How can anyone put a price tag on that?

For a more detailed discussion, read a recent opinion column from OMB Watch available at OurFuture.org: "How Bush Undermines Government Regulation"

(For a really detailed discussion, read OMB Watch's report, Polluted Logic: How EPA's ozone standard illustrates the flaws of cost-benefit analysis.)

Check out a new opinion column by OMB Watch titled, "How Bush Undermines Government Regulation," available at the Campaign for America's Future website.

The column discusses how cost-benefit analysis in regulatory decision making can be a barrier to the promise of good government:

By using cost-benefit analysis and forcing regulators onto an economic playing field, detractors of government regulation have perverted its image into one of job loss and higher consumer prices.

Instead, we should look for the virtue in regulation — the ability of the government to keep workers safe, clean the environment, protect civil liberties, and save lives.

Read it here: "How Bush Undermines Government Regulation,"

The nonprofit group Environmental Defense has released a new analysis showing that a one-year delay in the implementation of a diesel emissions reduction rule could result in 1,400 premature deaths, 3,000 heart attacks, and 24,000 asthma attacks.

The regulatory process is often slowed to a halt under the weight of analytical burdens and political pressure from top agency officials or the White House. Environmental Defense's analysis proves regulatory delay is not just a government management issue — it's a public health issue.

According to Environmental Defense, the rule has been in development since at least 2004:

In 2004, EPA announced plans to put in place new standards for the nation's fleet of diesel locomotives and ships by mid-2006, but missed the deadline. In March 2007, EPA Administrator Stephen Johnson issued draft federal standards that would reduce particulate pollution and smog-forming nitrogen oxides from each engine by 80 percent or greater when fully phased in.

The analysis uses EPA's own data to prove that implementing the rule in 2008 would yield substantially greater public health benefits than implementing the rule in 2009. (See Environmental Defense's PowerPoint slides for side-by-side comparisons.)

EPA plans to issue the final rule in March. However, the rule is currently being reviewed by the White House Office of Information and Regulatory Affairs which could water down the regulation or impose further delay if it so chooses.

Yesterday, The New York Times published an article on new electricity producer regulations in Hong Kong which would tie electricity prices to a producer's emission levels:

The 10-year agreement reached this week between the Hong Kong government and the territory's two companies — Hong Kong Electric and CLP — authorizes the companies to charge electricity rates that will give them a 9.99 percent return on assets.

If either company exceeds regulatory limits for any pollutant, however, it would be required to charge customers less, reducing its allowed rate of return by 0.2 to 0.4 percentage point.

If the companies manage to cut their pollution more than required, then they are allowed to raise prices to the point where they effectively earn bonuses of 0.05 to 0.1 percentage point on their rate of return.

Like most pollution regulations in the U.S., this one creates an economic incentive for industry to comply. But the U.S. usually uses government-imposed financial penalties or, in the case of sulfur dioxide (and possibly greenhouse gases in the future), a cap-and-trade system.

In those regulatory schemes, polluters wind up paying the federal government. In Hong Kong, polluters would be penalized by having their revenue reduced when prices are lowered. This puts money directly back into the pockets of consumers. When electricity producers meet or exceed compliance requirements, consumers pay a little more.

Here's the interesting part: In the U.S., when the federal government collects fines Americans benefit in the form of improved government services, lower taxes, or both; but those benefits may not be realized for years and the average person likely would not even notice them.

Moreover, if a government-imposed fine leads to lower taxes, that disproportionately benefits the top 50 percent of income earners (who contribute 97 percent of tax revenue). In Hong Kong's scheme, the money goes back to all consumers based on consumption levels, which would disproportionately improve the marginal utility of low-income earners.

Oh yeah, and those low-income earners, they're the ones disproportionately affected by pollution in the first place.

When producers are in compliance with the regulations, consumers — regardless of wealth status — pay a little more for the benefits of cleaner air and water.

Reg•Watch isn't sure this would ever work in the U.S., but it could be a more equitable alternative to the kinds of regulations we usually turn to.

Sen. Kit Bond (R-MO) has introduced an amendment to the Farm, Nutrition and Bioenergy Act (H.R. 2419) which would add another analytical burden to the regulatory process. Bond's amendment would require federal agencies to perform additional impact analyses on any rules that may affect a "substantial number of agricultural entities." Because of the way the amendment is written, this designation could apply to almost any business or even entire industries.

In addition to the analytical requirements, the amendment would force EPA and the Department of the Interior (two big environmental regulatory agencies) to convene special panels of agricultural industry representatives who would be allowed to review and edit rules before they are released to the public.

For more information, see a factsheet OMB Watch has sent to all Senate members. Ultimately, the amendment could further slow the rulemaking process and give industry representatives yet another opportunity to alter public policy.

The Senate may consider Bond's amendment as early as this afternoon. Call your senators and tell them to oppose Bond amendment 3771. Senate office phone numbers: senate.gov/general/contact_information/senators_cfm.cfm

Update on the Bond Amendment

Reg•Watch often complains about the flaws of cost-benefit analysis and the overemphasis policy makers place on it as a tool in decision making. However, when discussing cost-benefit analysis in the abstract, it is difficult to show the practical problems associated with its use.

For a case example showing just how problematic cost-benefit analysis can be, read OMB Watch's new analysis, Polluted Logic: How EPA's ozone standard illustrates the flaws of cost-benefit analysis in regulatory decision making.

Polluted Logic tracks EPA's current revision of the national standard for ozone and shows how the use of cost-benefit analysis in the rulemaking has been useless to policy makers and has only complicated the debate over whether to tighten the standard.

As the paper discusses, EPA's ozone standard serves as a case example of some of the big problems with cost-benefit analysis in regulatory decision making:

• Cost-benefit analysis is problematic for health, environment, civil rights, and safety rulemakings because of the magnitude of intangible and invaluable benefits;
• Cost-benefit analysis often runs counter to congressional intent expressed in federal law; and
• Cost-benefit analysis allows the White House Office of Information and Regulatory Affairs to manipulate regulations to serve an intended ideological agenda.

Download the paper here: Polluted Logic: How EPA's ozone standard illustrates the flaws of cost-benefit analysis in regulatory decision making.

The European Commission and the White House Office of Management and Budget have released a joint draft report titled, "Review of the application of EU and US regulatory impact assessment guidelines on the analysis of impacts on international trade and investment."

The report describes the system by which the European Union (EU) and the U.S. examine proposed regulations for their potential impacts on foreign parties and/or international trade.

The report shows the EU's system for assessing the international impacts of regulation is more developed than that of the U.S. and recommends more thoughtful consideration of such impacts in future policy-making efforts.

In its discussion of the U.S. system for assessing international impact, the report almost exclusively examines Circular A-4, OMB's guidance for the preparation of cost-benefit analyses for proposed and final regulations. According to the report, "Circular A-4 does not offer clear guidance on how to consider the international trade and investment effects of US regulation." However, "In practice, US Regulatory Impact Analyses often acknowledge that many direct impacts on foreign entities are passed on to the U.S. economy."

The report also hints OMB may issue an executive directive on the subject or at least amend Circular A-4 to more explicitly include international impact assessment.

Reg•Watch has two initial concerns with requiring this type of assessment. First, the assessment would add an additional layer of study to a regulatory process already thick with analytical requirements. That could mean more delay in the issuance of regulations.

Second, couching an international impact assessment in terms of cost-benefit analysis may skew the quantified effects toward the cost side of the ledger, something OMB has been prone to do during the Bush administration. In an increasingly global society, assessing international impacts is useful; but the impacts are not solely economic. As we have seen with the seemingly endless stories of dangerous Chinese imports, a regulatory system can impact health, welfare and peace of mind.

Stay tuned to Reg•Watch for updates on this issue.

EPA Deputy Administrator has put up an interesting post on his blog "Flow of the River." EPA is in the middle of a rulemaking which would tighten the air quality standard for ozone, a.k.a. smog. The Clean Air Act requires EPA to set the standard based on public health considerations. Peacock writes,

I have something to say today for the sake of those many states, cities, counties and other local entities that have been commenting on EPA's proposal to tighten the National Ambient Air Quality Standard (NAAQS) for ozone:

THE LAW DOES NOT ALLOW THE ADMINISTRATOR TO CONSIDER COSTS WHEN HE REVIEWS A NAAQS.

And the emphasis is his!

Opponents of a tighter ozone standard (including industry lobbyists and the White House) consistently complain the regulation may have an adverse economic impact. But EPA is legally prohibited from considering economic costs, or benefits for that matter, in setting the standard. As Peacock writes, "when commenting on a NAAQS proposal if you feel the urge to raise the cost of compliance, save your breath."

Kudos to Peacock for using his public forum to set the record straight.

OMB Watch is preparing to launch a web-based Regulatory Resource Center, and we need your help in making it useful. We have made a developmental site available here: www.ombwatch.org/regresources.

Please consider taking some time to review the site. If you would like to provide us with feedback, please take our short survey on the appeal and usefulness of the site. We appreciate your feedback.

Our goal is to provide a comprehensive resource for concerned citizens, advocates and decision makers. The Resource Center will provide the public, media, lawmakers and non-governmental organizations with a central location to learn about the federal regulatory process. The Resource Center will include background material as well as advocacy resources for those who want to make their voices heard.

Yesterday, 22 members of the House of Representatives wrote to EPA Administrator Stephen Johnson urging him to tighten the national standard for ozone, a.k.a. smog. In June, EPA proposed a range of 0.070 parts per million (ppm) to 0.075 ppm for the new standard. The current standard is 0.084 ppm.

While any standard within EPA's proposed range would be an improvement, it may not be good enough. As the congressmen point out:

The EPA's panel of expert science advisors, the Clean Air Scientific Advisory Committee (CASAC), unanimously found that the smog standard "needs to be substantially reduced to protect human health, particularly in sensitive subpopulations." . . . CASAC called for [a] standard of .060 to .070 ppm. Experts on lung health, including the American Thoracic Society and the American Lung Association, are calling for a standard of .060 ppm given the strength of the scientific evidence.

The congressmen's point is important because the Clean Air Act requires EPA to periodically revise the standard in order to protect public health and to make decisions that "reflect the latest scientific knowledge." The bipartisan group (16 Democrats and six Republicans) concludes by asking Johnson to adopt a standard within CASAC's recommended range.

Unfortunately, the congressmen miss another key aspect of the Clean Air Act. The Act prohibits EPA from considering monetary costs or benefits when setting the standard. EPA must set the standard solely based on public health considerations. Later, when EPA provides the regulated community with guidance on how to use pollution reduction methods to meet the standard, economics are considered.

Nonetheless, the letter makes an economic argument: "It is interesting to note that studies have shown that there are large economic benefits to lowering the air pollution burden on public health and the environment."

Even when a tighter ozone standard would be an economic boon, EPA cannot consider the monetary benefits. An economically beneficial regulation may be good policy, but it is inappropriate to argue the point here, based on the language in the Clean Air Act. The debate over EPA's revision to the ozone standard must be one of science and public health, not economics.