Specifically, EPA’s guidance stipulates that the level and precision of analyses in RIAs depend on the quality of the data, scientific understanding of the problem to be addressed through regulation, resource constraints, and the specific requirements of the authorizing legislation. Extent to Which Economic Assumptions Were Identified, Explained, and Subjected to Sensitivity Analysis

Eight of the RIAs that we examined did not clearly identify the values assigned for key economic assumptions, such as the discount rate and value of human life, used to assess the economic viability of the regulations. Furthermore, we found that in the RIAs that identified key economic assumptions the rationale for the values used was not always explained. While EPA’s guidance suggests that RIAs account for uncertainties in such values by conducting sensitivity analyses that show how benefit-cost estimates vary depending on what values are assumed, many RIAs used only a single value and did not always provide a clear explanation. Five of the 23 RIAs did not indicate whether the estimated future benefits and costs were discounted. The discount rate can have a significant effect on the estimated impact of an environmental regulation. For example, one RIA assumed a value of human life that ranged from $1.6 million to $8.5 million, and another, prepared in the same year, assumed a value of human life that ranged from $3 million to $12 million. Although some RIAs did not assign dollar values to benefits, all 23 of the RIAs we examined contained other quantitative or qualitative information on the benefits of the proposed regulations. When benefits cannot be assigned dollar values, quantifying the benefits, such as a reduced incidence of deaths and illnesses, helps clarify the impact of proposed regulations. While it was not always clear how many alternatives or what types of alternatives were considered, our examination of the 23 RIAs indicated that 6 of them compared a single alternative, which was the regulatory action being proposed, to the baseline, which was the situation likely to occur in the absence of the regulation—the status quo. All other RIAs compared two or more alternatives to the baseline. EPA officials acknowledged that some of the RIAs did not include executive summaries and agreed that executive summaries that include information such as descriptions of the difficulties in assigning dollar values to benefits, uncertainties of the data, and regulatory alternatives are useful. Recommendations

To help EPA decisionmakers and the Congress better understand the implications of proposed regulatory actions, we recommend that the EPA Administrator, ensure that RIAs identify the (1) value, or range of values, assigned to key assumptions, along with the rationale for the values selected; (2) sensitivity of benefit and cost estimates when there are major sources of uncertainty; and (3) alternatives considered, including those not subjected to benefit-cost analyses.
Why GAO Did This Study

GAO reviewed the Environmental Protection Agency's (EPA) 23 regulatory impact analyses (RIA) supporting air quality regulations, focusing on whether the RIAs clearly describe: (1) key economic assumptions subject to uncertainty and the sensitivity of the results to these assumptions; (2) the extent to which benefits and costs were quantified for the proposed regulatory action; and (3) the extent to which alternative approaches were considered.

What GAO Found

GAO noted that: (1) while certain key economic assumptions, such as the discount rate and the value of human life, can have a significant impact on the results of benefit-cost analyses and are important to the regulations being proposed, eight of the RIAs did not identify one or more of these assumptions; (2) furthermore, in the RIAs that identified key economic assumptions, the rationale for the values used was not always explained; (3) for example, one RIA assumed a value of life that ranged from $1.6 million to $8.5 million and another, prepared in the same year, assumed a value of life that ranged from $3 million to $12 million; (4) in neither instance did the RIAs provide a clear explanation of the rationale for the values that were selected; (5) even though EPA's guidance suggests that RIAs account for any uncertainties in the values of key assumptions by conducting sensitivity analyses, which show how benefit and cost estimates vary depending on what values are assumed, 13 RIAs used only a single discount rate; (6) all 23 RIAs assigned dollar values to the estimated costs of proposed regulations, however, 11 of the RIAs assigned dollar values to the estimated benefits; (7) according to EPA officials, assigning dollar values to potential benefits is difficult because of the uncertainty of scientific data and the lack of market data on some of these effects; (8) all of the RIAs contained some quantitative or qualitative information on the expected benefits, such as a reduced incidence of mortality and illness; (9) while the number and the types of alternatives considered in the 23 RIAs were not always clear, GAO's examination indicated that six of the RIAs compared a single alternative, which was the regulatory action being proposed, to the baseline, which was the situation likely to occur in the absence of regulation, the status quo; (10) the remainder compared two or more alternatives to the baseline; (11) resource constraints and the specific requirements of authorizing legislation, which sometimes limits EPA's options, were factors influencing the extent to which alternatives were considered; (12) ten of the RIAs GAO examined did not include executive summaries, even though these summaries can be a significant benefit to decisionmakers; and (13) EPA officials acknowledged that some of the RIAs did not include executive summaries and agreed that executive summaries, by providing easily accessible information, can be useful to decisionmakers.