Cherry Picking, CBA, GAO and EPA
March 8th, 2005Posted by: Roger Pielke, Jr.
The Government Accountability Office (GAO) released a report yesterday critical of the cost benefit analysis (CBA) used by the Environmental Protection Agency (EPA) as justification for its proposed approach to the control or mercury. The 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… 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 har!
mful 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.”
At issue here is the inevitable conflict between having an agency responsible for developing an honest-broker approach to inventing and considering policy options while at the same time having a clear preference for one of those options. This sets the stage for a clear conflict between analysis and advocacy. It is a bit like putting an intelligence agency under the Department of Defense. As the Washington Post reported today, “the EPA had tipped the scales to favor the market-based plan.”
The GAO’s recommendation to EPA to reconsider their cost-benefit analysis does not appear to go far enough in dealing with the structural reforms needed to insure the institutional independence and authority needed to proffer analyses free from political suasion.
March 11th, 2005 at 10:45 am
It is helpful to understand what the Government Accountability Office (GAO, formerly “General Accounting Office”) does. It is Congress’ own consulting firm that provides analysis (usually of a budgetary or accounting character) in response to its clients, who are members of Congress. Members of Congress have political interests, of course, a fact that GAO understands very clearly.
In this case, the Members who requested this review were Sens. Snowe (R-ME), Jeffords (I-VT), Lieberman (D-CT), Leahy (D-VT), Carper (D-DE), Boxer (D-CA), Clinton (D-NY), Dayton (D-MN), and Lautenberg (D-NJ) (pp. 18-19). To be kind, this is not a random or representative sample of the United States Senate, nor does the group include any senator known for supporting the Bush administration’s environmental policies.
GAO describes its charge vaguely: “Congressional requesters asked us to assess the usefulness of the economic analysis underlying EPA’s proposed mercury rule for decision making” (p. 20). To better appreciate the political context of this task, the regulation in question is part of a grand political debate over whether EPA will reform certain existing regulations pursuant to its existing authorities, or whether the Clean Air Act will be amended legislatively to provide new authority not currently enshrined in law.
Several bills are being debated, including S. 131 (Inhofe, R-OK) which embodies the Administration’s Clear Skies Initiative, and S. 150 (Jeffords, I-VT) which most certainly does not. Note that in addition to being the Ranking Minority Member of Senate Environment and Public Works Committee, Sen. Jeffords is one of the senators who requested the GAO review.
This political context is essential for understanding the GAO report. Indeed, this is the first time in my memory that eight of these nine senators have displayed an interest in or support for an informative analysis of benefits and costs. (I consider Sen. Lieberman an exception; during the Clinton administration he co-sponsored legislation that would have required more benefit-cost analysis.)
I have not yet reviewed the specific EPA analysis criticized here by GAO. While I find GAO’s criticisms highly plausible, I do not find them to be newsworthy. Like every other federal regulatory agency, EPA has a long history of structuring its analyses so as to make a preferred regulatory alternative look more attractive than it really is. A notable example occurred in 1997, when EPA’s said its “best estimate” of the net social benefits of the 1970 Clean Air Act was $22 trillion. This is roughly equal to the aggregate net worth of all U.S. households in 1990. Dr. Paul Portney, a highly respected environmental economist and president of Resources for the Future, publicly characterized this estimate as “preposterous” (see http://aei-brookings.org/events/page.php?id=45).
Subsequently, Dr. Randall Lutter and I published an article focusing on the process failures that led to this “preposterous” estimate. We noted that EPA’s internal peer review procedures had failed, perhaps because no one within the Agency had the authority to do anything. This is not surprising, because regulatory analysis is performed under the thumb of regulatory program offices and not by an independent entity within the Agency. More interesting, however, was the failure of both a statutorily required Science Advisory Board peer review and an OMB-led interagency review (see http://www.cato.org/pubs/regulation/regv23n3/lutter.pdf.).
We concluded:
“EPA’s reports vividly illustrate why government
regulatory agencies should not be asked to evaluate their own programs. While self-evaluations may be useful for improving internal management, they are pernicious when
they become a basis for congressional or public views on substantive policy matters” (p. 27).
At the time we wrote our article, there was interest in establishing a freestanding Congressional Office of Regulatory Analysis (“CORA”) to perform independent regulatory oversight. However, Congress apparently was not overly thrilled with the idea of genuine independence, and it authorized (but did not fund) GAO (and not a new CORA) to perform a three-year pilot project. Unsurprisingly, nothing of significance happened.
The GAO report criticizing EPA’s analysis of its Clean Air Interstate Rule thus provides a fine irony. The press is reporting that EPA performs regulatory analysis biased in favor of its preferred alternatives, a dog-bites-man non-story if ever there was one. The press is not, however, reporting the man-bites-dog story that senators who heretofore had shown no interest in unbiased benefit-cost analysis, and had vigorously opposed such initiatives in the past, have suddenly gotten religion.