"[P]eople acting in a group can accomplish things which no individual acting alone could even hope to bring about." - FDR

News & Analysis | REG•WATCH Blog | Press Room

Friday, August 17, 2007

Cost-Benefit Analysis: More Trouble than It's Worth

The Government Accountability Office (GAO) has released a report critiquing two EPA cost-benefit analyses on an oil spill prevention regulation. In 2002 and 2006, EPA amended the Spill Prevention, Control and Countermeasure (SPCC) rule which requires oil-storage facilities to prepare plans in the event of an oil leak or spill. Because the amendments to the rule could have a significant impact on the economy, the White House required EPA to prepare cost-benefit analyses of both sets of amendments.

GAO found that EPA's cost-benefit analyses were flawed. The report criticizes EPA for assuming, in the identification of costs, facilities were already in compliance with the original rule. GAO asserts, citing White House guidelines, EPA should not have jumped to this conclusion. By assuming all facilities were in compliance, EPA likely understated the costs of the amendments to the regulation thereby weakening the economic justification for issuing the amendments.

The original SPCC rule was issued in 1973. Facilities had up to 30 years to comply. If facilities weren't in compliance, that hardly seems like a reason for EPA to forego further development. Where's the investigation as to why oil-storage facilities are having trouble complying with this rule? (The requester of this report, Sen. James Inhofe (R-OK), is no friend of the environment, and likely has no interest in examining why oil-storage facilities may be breaking the law, only in attacking EPA.)

Of course, the real issue here is the ridiculousness of cost-benefit analysis in rulemaking. The Bush White House designed its cost-benefit guidelines in order to force agencies to develop estimates that make regulations appear more costly. EPA issued the amendments to the SPCC rule in order to reduce the so-called burden of the regulation. Even so, EPA was forced to prepare a detailed cost-benefit analysis.

The complexity of the current cost-benefit analysis system and the disproportionate focus on quantitative costs rather than qualitative benefits are two primary contributors to the lack of speed and responsiveness in the regulatory process.