EPA Generally Used RIAs to Inform Decision Making and Varied In Adherence to OMB Guidance for Selected Elements of RIAs

EPA generally used the seven RIAs we reviewed to inform decision  making during the rulemaking process but did not always adhere to OMB  guidance for selected elements of these RIAs. According to EPA officials,  the agency most commonly used these RIAs to facilitate an iterative  process with management, identify effects of regulations, and  communicate the information supporting EPA’s regulatory decisions to  Congress and the public. Specifically, OMB guidance  states that RIAs should enable a third party to understand how the  agency arrived at its estimates and conclusions (i.e., clarity and  transparency), and Executive Order 12866 states that agencies should  provide information to the public in plain, understandable language. EPA Varied in Its Adherence to Guidance for Estimating Benefits and Costs

In the RIAs we reviewed, EPA varied in its adherence to OMB’s guidance  for estimating benefits and costs. EPA  generally adhered to OMB guidance for providing information on benefits  and costs for the regulatory alternatives under consideration and using  OMB’s recommended discount rates. EPA Faced Challenges in Two Key Areas That Limited the Usefulness of Some of the Estimates in Its RIAs

In assessing EPA’s adherence to OMB guidance, we identified two key  areas in which EPA faced challenges that limited the usefulness of some  of the estimates in its RIAs—nonmonetized benefits and costs related to  the primary purpose or key impacts of the regulatory actions and EPA’s  approach for estimating the effects of regulations on employment. OMB guidance acknowledges that monetization is not always  possible, and EPA officials said that limited data, modeling capabilities,  and time and resource constraints precluded them from monetizing these  effects in some cases. However, the officials also said that the study represented the best  reasonably obtainable data when they conducted their analyses. Without additional  information and improvements in its approach for estimating employment  effects, EPA’s RIAs may be limited in their usefulness for helping decision  makers and the public understand the potential effects of the agency’s  regulations on employment. Similarly, the 2013 update of  the technical support document references Circular A-4 in the body, but  does not include a clear overall statement of its relationship to Circular A- 4. EPA officials said, however, they did not analyze other relevant  uncertainties related to other aspects of these pollutants because of data  limitations. Also, in this RIA, EPA did not analyze the uncertainties  associated with its cost estimates. In addition, RIAs provide affected entities,  government agencies, Congress, and the public with important  information about the potential effects of new regulations, which can  result in significant benefits and costs. OMB guidance  provides best practices for conducting regulatory analysis and  communicating this information; however, EPA did not always adhere to  this guidance. In particular, EPA’s regulatory review process does not  ensure that the information about selected elements that should appear in  the analyses—such as clear descriptions of baselines and alternatives  considered—is transparent or clear, within and across its RIAs. Without  enhancements to its review process targeted at improving adherence to  OMB guidance, EPA cannot ensure that its RIAs provide the public with a  clear understanding of its decision making. First, resource and data  limitations constrained EPA’s ability to monetize certain benefits and  costs related to the primary purposes or key impacts of the rules we  reviewed, such as the health benefits of reducing hazardous air pollutants  and water quality effects. However, EPA officials were uncertain about when such information  would be available. EPA’s use of the technical support document for estimating the value  of reducing future carbon dioxide emissions and Circular A-4 for  estimating other benefits and costs in its RIAs has raised questions about  the agency’s adherence to Circular A-4 and has introduced an  inconsistency in EPA’s analyses. To clarify the relationship between OMB Circular A-4 and an Interagency  Working Group’s Technical Support document for estimating the effects  of changes in carbon dioxide emissions, and the approach agencies  should use when informing decision makers and the public of their  findings, we recommend that the Director of OMB consider taking the  following two actions:  clarify the relationship between OMB Circular A-4 and the Technical  Support Document by increasing the visibility of relevant language in  the Technical Support Document; and  continue monitoring the economic literature and working with  agencies to identify approaches for presenting social cost of carbon  estimates with other analytical results that have been discounted at  different rates to help agencies more transparently communicate  about the circumstances unique to assessing the long-term effects of  changes in carbon dioxide emissions. We  discussed these changes and clarifications with OMB staff, who said they  neither agreed nor disagreed with the revised recommendations but saw  some merit in them. Appendix I: Objectives, Scope, and Methodology

This report examines how the Environmental Protection Agency (EPA)  has used economic analyses in its decision making during the rulemaking  process and the extent to which EPA adhered to Office of Management  and Budget (OMB) guidance in conducting selected elements of the  economic analyses the agency used to support recent rulemakings.
Why GAO Did This Study

Federal regulations, especially those addressing health, safety, and the environment, can generate hundreds of billions of dollars in benefits and costs to society annually. Various statutes, executive orders, and OMB guidance direct federal agencies to analyze the benefits and costs of proposed regulations. These analyses—known as RIAs—can also provide affected entities, agencies, Congress, and the public with important information about the potential effects of new regulations.
According to OMB, EPA regulations account for the majority of the estimated benefits and costs of major federal regulations. GAO was asked to review EPA's RIAs for recent regulations. This report examines how EPA has used RIAs during the rulemaking process and the extent to which EPA adhered to OMB guidance on selected elements of RIAs for recent rules. GAO reviewed RIAs from a nonprobability sample of seven recent air, water, and other environmental regulations, assessed them against relevant OMB guidance, and interviewed agency officials.

What GAO Found

The Environmental Protection Agency (EPA) used the seven Regulatory Impact Analyses (RIA) GAO reviewed to inform decision making, and its adherence to relevant Office of Management and Budget (OMB) guidance varied. According to senior EPA officials, the agency used these RIAs to facilitate communication with management throughout the rulemaking process and communicate information that supported its regulatory decisions to Congress and the public. However, it generally did not use them as the primary basis for final regulatory decisions.
EPA generally adhered to many aspects of OMB's Circular A-4 guidance for analyzing the economic effects of regulations including, for example, considering regulatory alternatives and analyzing uncertainties underlying its RIAs. However, EPA did not always adhere to other aspects. Specifically, the information EPA included and presented in the RIAs was not always clear. According to OMB guidance, RIAs should communicate information supporting regulatory decisions and enable a third party to understand how the agency arrives at its conclusions. In addition, EPA's review process does not ensure that the information about selected elements that should appear in the analyses—such as descriptions of baselines and alternatives considered—is transparent or clear, within and across its RIAs. As a result, EPA cannot ensure that its RIAs adhere to OMB's guidance to provide the public with a clear understanding of its decision making.
In addition to using Circular A-4 (issued in 2003) to analyze the effects of regulations, EPA used more recent guidance developed by an interagency working group co-led by OMB and another White House office in 2010 for valuing carbon dioxide emissions. Applying this guidance while using Circular A-4 to estimate other benefits and costs yielded inconsistencies in some of EPA's estimates and has raised questions about whether its approach was consistent with Circular A-4. Circular A-4 does not reference the new guidance and the new guidance does not include an overall statement explaining its relationship to Circular A-4. Without increased clarity about the relationship, questions about the agencies' adherence to OMB guidance will likely persist.
In assessing EPA's adherence to OMB guidance, GAO identified two other areas in which EPA faced challenges that limited the usefulness of some of its estimates. First, EPA did not monetize certain benefits and costs related to the primary purposes or key impacts of the rules GAO reviewed, such as reducing hazardous air pollutants and water quality effects. EPA officials said resource and data limitations constrained the agency's ability to monetize these effects. OMB guidance acknowledges that monetizing effects is not always possible. However, without doing so, the public may face challenges understanding the trade-offs associated with regulatory alternatives. Second, EPA estimated effects of its regulations on employment, in part, using a study that, according to EPA officials, represented the best reasonably obtainable data when they conducted their analyses. However, the study was based on data that were more than 20 years old and may not have represented the regulated entities addressed in the RIAs. EPA officials said they are exploring new approaches for analyzing these effects but were uncertain about when such results would be available. Without improvements in its estimates, EPA's RIAs may be limited in their usefulness for helping decision makers and the public understand these important effects.

What GAO Recommends

GAO recommends that EPA improve adherence to OMB guidance and enhance the usefulness of its RIAs, and that OMB clarify the application of guidance for estimating the benefits of reducing greenhouse gas emissions. In commenting on a draft of this report, EPA stated that it generally agreed with GAO's recommendations. On behalf of OMB, in oral comments OMB staff said that they neither agreed nor disagreed with the recommendations but saw some merit in them.