In addition to its proposed mercury rule, EPA has proposed another rule  for power plants, the Clean Air Interstate Rule, which is intended to reduce  emissions of nitrogen oxides and sulfur dioxide beginning in 2010. EPA’s Economic Analysis Is of Limited Use for Informing Decision Makers about the Economic Trade-offs of Different Policy Options

We identified four major shortcomings in the economic analysis underlying  EPA’s proposed mercury rule that limit its usefulness for informing decision  makers and the public about the economic trade-offs of the two options. Second, EPA did not document some of its  analysis or provide consistent information on the anticipated economic  effects of different mercury control levels under the two options. Third, the  agency did not estimate the economic benefits directly related to decreased  mercury emissions. EPA Did Not Consistently Analyze Each Policy Option or Provide a Complete Accounting of Costs and Benefits

EPA’s estimates of the costs and benefits of its two proposed policy options  are not comparable because the agency used inconsistent approaches in  analyzing the two options. In contrast,  EPA analyzed the effects of the cap-and-trade option in combination with  the proposed interstate rule by combining the costs and benefits of the two  proposed rules without separately identifying and documenting those  associated with the cap-and-trade option alone. They also said it would have been useful to analyze the  technology-based option alongside the interstate rule, but the agency did  not do so because of time constraints. First, while EPA provides substantial information on its analysis of the  technology-based option in the documents supporting its economic  analysis of the proposed rule, the agency does not do so for the  cap-and-trade option. In contrast, the agency provides only  a summary of its findings for the cap-and-trade option in the rule’s  preamble and refers to its findings as “rough estimates” that are based on  consideration of available analysis of the interstate rule, the  technology-based option, and the proposed Clear Skies legislation. EPA  does not describe specifically how the agency used this analysis of other  proposed rules and legislation to estimate the costs and benefits of the  cap-and-trade option, and it does not identify the key analytical  assumptions underlying its cost-and-benefit estimates. Instead, EPA estimated only some of the health  benefits it anticipates would occur from decreased exposure to fine  particles and discussed other impacts qualitatively. In addition, EPA did not analyze the key uncertainties surrounding its  benefit estimates. In  doing this work, we did not independently estimate the costs or benefits of  the mercury control options, evaluate EPA’s process for developing the  options, or assess legal issues surrounding the extent to which the options  comply with the provisions of the Clean Air Act or its amendments.
Why GAO Did This Study

Mercury is a toxic element that can cause neurological disorders in children. In January 2004, the Environmental Protection Agency (EPA) proposed two options for limiting mercury from power plants, and plans to finalize a rule in March 2005. The first would require each plant to meet emissions standards reflecting the application of control technology (the technology-based option), while the second would enable plants to either reduce emissions or buy excess credits from other plants (the cap-and-trade option). EPA received over 680,000 written comments on the proposal. EPA is directed by statute and executive order to analyze the costs and benefits of proposed rules, and the agency summarized its analysis underlying the two options in the proposal. In this context, GAO was asked to assess the usefulness of EPA's economic analysis for decision making. In doing so, GAO neither independently estimated the options' costs and benefits nor evaluated the process for developing the options or their consistency with the Clean Air Act, as amended.

What GAO Found

GAO identified four major shortcomings in the economic analysis underlying EPA's proposed mercury control options that limit its usefulness for informing decision makers about the economic trade-offs of the different policy options. First, while Office of Management and Budget (OMB) guidance directs agencies to identify a policy that produces the greatest net benefits, EPA's analysis is of limited use in doing so because the agency did not consistently analyze the options or provide an estimate of the total costs and benefits of each option. For example, EPA analyzed the effects of the technology-based option by itself, but analyzed the effects of the cap-and-trade option alongside those of another proposed rule affecting power plants, the Clean Air Interstate Rule (the interstate rule), without separately identifying the effects of the cap-and-trade option. As a result, EPA's estimates are not comparable and are of limited use for assessing economic trade-offs. EPA officials said they analyzed the cap-and-trade option alongside the interstate rule because the agency views the two proposed rules as complementary. Nonetheless, to provide comparable estimates, EPA would have to analyze each option alone and in combination with the interstate rule. Second, EPA did not document some of its analysis or provide information on how changes in the proposed level of mercury control would affect the cost-and-benefit estimates for the technology-based option, as it did for the cap-and-trade option. Third, EPA did not estimate the value of the health benefits directly related to decreased mercury emissions and instead estimated only some secondary benefits, such as decreased exposure to harmful fine particles. However, EPA has asked for comments on a methodology to estimate the benefits directly related to mercury. Fourth, EPA did not analyze some of the key uncertainties underlying its cost-and-benefit estimates.