Obfuscation at the EPA
Brannon, Ike, Batkins, Sam, Regulation
In a move reminiscent of the phantom "regulatory reform" of the Clinton administration, President Obama recently issued Executive Order 13563, calling on federal agencies to improve federal regulation and the regulatory review process. (See "Forty Years on the Regulatory Commons," p. 6.) In accordance with the order, dozens of agencies have solicited comments from the public on how best to "modify, streamline, expand, or repeal" onerous regulations that do not pass cost-benefit analysis or cannot be justified by accepted science.
While the administration may be saying what businesses want to hear on regulation, a less noticed change in its regulatory approach has the potential to undo any of its supposed efforts to improve the regulatory climate. Over the last year, the administration has quietly altered the calculus in its cost-benefit analyses by treating any worker hired by a business or government entity as a benefit to the economy because of the job created, and not as an additional cost of doing business. Such an approach stands the entire concept of cost-benefit analysis on its head. It threatens to remove the ability of the Office of Management and Budget--which is tasked to play traffic cop for regulations--to apply any sort of rigorous analysis to the raft of regulations promulgated by the various executive branch agencies every year.
The EPA's creative analyses
One agency exemplifying this confused thinking about costs and benefits is Obama's Environmental Protection Agency. According to the EPA's own Regulatory Impact Analyses (RIAs), regulations issued by the agency since the end of 2009 will impose $153.4 billion in new economic costs on businesses and result in an estimated 58,000 jobs lost. The agency estimates that compliance costs for new rules in 2011 alone will surpass $7.7 billion. Although these might sound like staggering numbers during an abbreviated period, the way the EPA produces its estimates suggests that the true figures are much higher.
Currently, several laws and executive orders require the EPA and most other administrative bodies to review new rules and conduct cost-benefit analyses, but none go so far as to spell out exactly how such analyses should be conducted. As a result of this omission, the administration appears to have carte blanche in its methodology.
For example, in the EPA's recent RIA covering Industrial, Commercial, and Institutional Boilers and Process Heaters, it found that "an increase in labor demand due to regulation may have a stimulative effect that results in a net increase in overall employment." This language was reprised verbatim in a RIA covering Commercial and Industrial Solid Waste Incineration Units as well as the revised Toxics Rule for mercury emissions. Put simply, this analysis confuses a cost for a benefit, an error that the agency seems intent on making in every new rule that has the potential to affect employment.
Economists agree that when regulations force firms to buy equipment and hire compliance officers, those burdens entail a cost. Though it maybe true that, to use language from the Process Heaters RIA, "regulated firms demand workers to operate and maintain pollution controls within those firms," it is inappropriate to attribute the forced hiring of new workers as benefits or stimulative to the economy when businesses have to absorb the costs of hiring and training new workers.
Under the EPA's economic analysis, forcing firms out of business might be a boon to the struggling legal industry and bankruptcy attorneys. As the agency has suggested in its past RIAs, times of high unemployment are optimal for imposing regulations that "increase overall employment." President Obama's new order seems to have forced the wrong sort of innovative thinking among his agencies; the tone of most RIAs makes it clear that few EPA analysts are reading Frederic Bastiat.
Furthermore, the EPA has repeatedly stated that forcing businesses to purchase pollution control equipment should be treated as a benefit, not a cost on production, for the same dubious reasons. …