Information Contained in EPA's Regulatory Impact Analyses Can Be Made Clearer
RCED-97-38: Published: Apr 14, 1997. Publicly Released: Apr 14, 1997.
- Full Report:
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.
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.
Recommendation for Executive Action
Status: Closed - Implemented
Comments: In September 2000, EPA issued Guidelines for Preparing Economic Analyses which provide guidance on the conduct and presentation of information in EPA's benefit-cost and economic analyses (RIAs). The guidance addresses the issues included in GAO's recommendation: the valuation of benefits, presentation of uncertainties in analysis, and consideration of regulatory alternatives. In addition, EPA is developing procedures for enhanced reviews of RIAs to better ensure the consistency and thoroughness of major economic products.
Recommendation: To help EPA decisionmakers and the Congress better understand the implications of proposed regulatory actions, the Administrator, EPA, should 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.
Agency Affected: Environmental Protection Agency