Clean Air Act:

Observations on EPA's Cost-Benefit Analysis of Its Mercury Control Options

GAO-05-252: Published: Feb 28, 2005. Publicly Released: Mar 7, 2005.

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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.

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.

Status Legend:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: To improve the usefulness of the agency's economic analysis for informing decision makers and the public, and to help ensure consistency with OMB guidance for economic analysis and as the agency revises its economic analysis prior to selecting a mercury control option, the EPA Administrator should include monetary estimates, where possible, of the human health benefits of reductions in mercury emissions from power plants or, at a minimum, provide qualitative information on how these benefits are likely to compare under the two options over a consistent time frame, reflecting full implementation of both options.

    Agency Affected: Environmental Protection Agency

    Status: Closed - Not Implemented

    Comments: EPA did not implement this recommendation in its 2005 Clean Air Mercury Rule. This rule has been vacated by the courts, and EPA is now developing new rule. However, the proposed rule and supporting documentation will not be completed until 2010 or 2011.

    Recommendation: To improve the usefulness of the agency's economic analysis for informing decision makers and the public, and to help ensure consistency with OMB guidance for economic analysis and as the agency revises its economic analysis prior to selecting a mercury control option, the EPA Administrator should ensure that the agency documents its analysis supporting the final rule and consistently analyzes the effect that different levels of mercury control would have on cost-and-benefit estimates under each policy option.

    Agency Affected: Environmental Protection Agency

    Status: Closed - Not Implemented

    Comments: EPA did not implement this recommendation in its 2005 Clean Air Mercury Rule. This rule has been vacated by the courts, and EPA is now developing new rule. However, the proposed rule and supporting documentation will not be completed until 2010 or 2011.

    Recommendation: To improve the usefulness of the agency's economic analysis for informing decision makers and the public, and to help ensure consistency with OMB guidance for economic analysis and as the agency revises its economic analysis prior to selecting a mercury control option, the EPA Administrator should analyze and fully document the economic effects of each policy option by itself, as well as in combination with the interstate rule, over their full implementation periods.

    Agency Affected: Environmental Protection Agency

    Status: Closed - Not Implemented

    Comments: EPA did not implement this recommendation in its 2005 Clean Air Mercury Rule. This rule has been vacated by the courts, and EPA is now developing new rule. However, the proposed rule and supporting documentation will not be completed until 2010 or 2011.

    Recommendation: To improve the usefulness of the agency's economic analysis for informing decision makers and the public, and to help ensure consistency with OMB guidance for economic analysis and as the agency revises its economic analysis prior to selecting a mercury control option, the EPA Administrator should further analyze uncertainties surrounding estimates of costs and benefits, as directed by OMB guidance, and evaluate how these uncertainties could affect overall estimates of the rule's impacts.

    Agency Affected: Environmental Protection Agency

    Status: Closed - Not Implemented

    Comments: EPA did not implement this recommendation in its 2005 Clean Air Mercury Rule. This rule has been vacated by the courts, and EPA is now developing new rule. However, the proposed rule and supporting documentation will not be completed until 2010 or 2011.

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