Transcript Executive Order 12291

Cost Benefit Analysis
•
Executive Order 12291
• RIA for all new
regulations
• Benefits > Costs
• Office of Information
and Regulatory Affairs
(OIRA) in OMB
• 1984- 58 rules “sent
back”
Executive Order 12866
• Perform RIA for
“significant regulations” >
$100 million
• “Costs and benefits should
be understood to include
both quantifiable
measures ... and
qualitative measures of
costs and benefits that are
difficult to quantify.”
• Maximize “net benefits to
society
• 1992-00, 16 rules sent
back
Statutory Requirements Var
• CBA Okay
– Safe Drinking Water
Act (1996)
– Environmental Impact
Statements
• CBA Never
– Toxic Substance
Control Act
– RCRA
– Clean Air Act
– Clean Water Act
Phasedown of Lead in Gas
• “Cadillac” of cost
benefit analysis
• How to estimate
benefits?
• Would you rather be a
lion or horse tamer?
SO2 National Ambient Air
Quality Benefit Categories
Direct SO2 SO4
Mortality
Particulate
Matter
• What does EPA RIA suggest about
estimation of benefits?
Section 812 Study
• Was the CAA worth it?
– 1990 benefits of CAA $1.25 trillion
– 1990 US Economy GDP 5 trillion
• “Assumptions underlying the estimates are
often unavoidably arbitrary, they have large
effects on the final results, and the effects
are not always well explained.” Randall
Luttner, Brookings Institute
Section 812 Baseline
• No improvement in air
without CAA
– 60 metro areas have
higher PM in 1990
than Moscow
• 1970 baseline 
benefits?
PM Mortality
• Where is PM?
• Where is Grandma?
Value of a Life Year
• $ Value of Reducing
Mortality in years of life
gained
– $293,000 or
– $100,000
• $ benefits
– $16.6 trillion or
– 9.1 trillion
Particulate Matter Mortality
• EPA- Reducing PM
exposure = gain 14
years
• FDA- quitting
smoking = gain of 15
years
Value of Life?
• $6.1 million EPA
• $2.5 million DOT
• $5 million Consumer
Product Safety
Commission
Spaceship Survivor
• Me, you, baby, and a
72 year old lady on
spaceship, only
enough O2 for 3
people. Who do you
toss?
OIRA “alternative estimates” for
a statistical life
• $2.3 million >70
Impact on BCA of air pollution?
John Graham, W’s
Regulatory Czar
Past Predictions of Costs of Regulations
Predicted
Actual
VOC controls
$14.7 billion $.84 billion
Acid Rain Program $4.1-7.4 billion $1-2 billion
CFCs in cars
$1,100 $40-400
Accurate Over Under ?
Total Cost
5
15
3
5
28 Major Regulations (accuracy = + 25% of estimate)
Why do CBA?
• Is CBA inherently
– Stupid?
– Deceitful
– Anti-environmental?
• Examples Saving Lives and Saving Turtles
Selling Indulgences
Conclusions
• Thresholds
• Benefits > Costs
• Useful for assessing regulatory impact
• Incomplete tool