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Benefits of Environmental Regulations Outweigh Costs, OMB Finds
October 8, 2003—The White House Office of Management and Budget (OMB) reported that societal benefits of Environmental Protection Agency regulations significantly outweighed costs of compliance between the years of 1992 and 2002. After analyzing the costs and benefits of 107 regulations promulgated by agencies across the federal government, OMB found that total benefits of federal rules were three to five times greater than total costs. Benefits were estimated at $146 billion to $230 billion annually, while costs were estimated at $36 billion to $42 billion annually. Among the government regulations evaluated, "The majority of the quantified benefits are attributable to a handful of clean-air rules issued by EPA pursuant to the 1990 amendments to the Clean Air Act," according to OMB.
In particular, the OMB report notes four EPA regulations with high benefit to cost ratios: two that limit particulate matter and NOx emissions from heavy duty engines, one that limits emissions from light duty vehicles, and one that limits sulfur dioxide release as part of the acid rain provisions of the Clean Air Act. These four rules provide combined benefits of $101 to $119 billion per year, with costs of only $8 billion to $8.8 billion per year.
The 2003 report draws much different conclusions than the 2002 version. According to the 2003 report: "In last year's report, the aggregate costs of regulations fell within the range of the estimated benefits—albeit the lower end of the range." The discrepancy results from two factors. First, the 2003 analysis covered a ten year period, whereas the 2002 analysis only covered a six and one-half year period. For this reason, the 2003 report takes into account significant acid rain provisions included in the 1990 Amendments to the Clean Air Act. Second, OMB "inadvertently subtracted incorrect cost estimates for EPA's rules establishing National Ambient Air Quality Standards for ozone and particulate matter." Correcting this mistake reduces aggregate costs by about $20 billion per year.
In addition to analyzing regulations in place, the OMB report also provides guidelines on how federal agencies should conduct regulatory analyses in the future. It recommends: more emphasis on both cost-effectiveness and benefit-costs analyses, "more systematic evaluation of benefit and cost factors that cannot be quantified or expressed in dollar units (e.g., impacts on privacy and the natural environment)," "more use of formal probability analysis for important rulemakings where the underlying science is uncertain," and "more public access to regulatory analysis documents."
"The Administration will continue to work to simplify and streamline regulations, along with ensuring that well-intentioned compliance requirements do not have the unintended effect of killing jobs," said John Graham, Administrator for the Office of Information and Regulatory Affairs, the OMB office that produced the report.
The full text of the OMB report, "Informing Regulatory Decisions: 2003 Report to Congress on the Costs and Benefits of Federal Regulations and Unfunded Mandates on State, Local, and Tribal Entities," is available online at: http://www.whitehouse.gov/omb/inforeg/2003_cost-ben_final_rpt.pdf
William K. Reilly, EPA Administrator from 1989 to 1993, commented on OMB's findings in a recent editorial in the Washington Post. That article can be accessed at: http://www.washingtonpost.com/wp-dyn/articles/A21852-2003Oct13.html.
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