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entitled 'Drinking Water: Revisions to EPA’s Cost Analysis for the 
Radon Rule Would Improve Its Credibility and Usefulness' which was 
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United States General Accounting Office: 
GAO: 

Report to Congressional Committees: 

February 2002: 

Drinking Water: 

Revisions to EPA’s Cost Analysis for the Radon Rule Would Improve Its 
Credibility and Usefulness: 

GAO-02-333: 

Contents: 

Letter: 

Results in Brief: 

Background: 

EPA’s Cost Analysis Has a Number of Strengths: 

Limitations of EPA’s Cost Analysis Reduce Its Credibility and
Usefulness: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments: 

Scope and Methodology: 

Appendix I: Adjustments to EPA’s Best Estimates of Total National Costs 
to Address Limitations in EPA’s Economic Analysis: 

Appendix II: GAO Contact and Staff Acknowledgments: 

[End of section] 

United States General Accounting Office: 
Washington, DC 20548: 

February 22, 2002: 

The Honorable James T. Walsh:; 
Chairman: 
The Honorable Alan B. Mollohan: 
Ranking Minority Member: 
Subcommittee on VA, HUD, and Independent Agencies: 
Committee on Appropriations: 
House of Representatives: 

The Honorable Barbara A. Mikulski: 
Chairman: 
The Honorable Christopher S. Bond: 
Ranking Minority Member: 
Subcommittee on VA, HUD, and Independent Agencies: 
Committee on Appropriations: 
United States Senate: 

The National Academy of Sciences has estimated that about 20,000 lung
cancer deaths occur in the United States each year from exposures to
radon, a naturally occurring radioactive gas found in soil, rock 
formations, and water. The vast majority of these deaths result from 
the inhalation of radon that has been released to indoor air from soil 
beneath homes. However, about 160 of these deaths are estimated to stem 
from inhalation of radon that has evaporated from drinking water. The 
Safe Drinking Water Act, as amended, mandates that the Environmental 
Protection Agency (EPA) issue a regulation setting a drinking water 
standard for radon. In setting the standard, EPA must, among other 
things, consider the costs and benefits of control programs for radon 
from other sources, such as air. While EPA does not directly regulate 
radon in indoor air,[Footnote 1] the Safe Drinking Water Act authorizes 
EPA to set a drinking water standard that allows states and water 
systems to offset high radon levels in drinking water with reductions 
of radon levels in indoor air. 

In a proposed rule issued in November 1999, EPA presented a unique and
complex drinking water regulation that used the framework for regulating
radon specified in the Safe Drinking Water Act. Under the proposed 
radon rule, states and water systems could, for the first time, choose 
one of two different standards, or limits, for a drinking water 
contaminant. The first standard reflects the typical regulatory 
approach under the Safe Drinking Water Act—that is, it imposes a health-
based limit on the level of radon in drinking water and requires water 
systems to provide drinking water that does not exceed the limit. The 
second standard, called the alternative standard, allows considerably 
higher levels of radon in drinking water, but may be used only when an 
EPA-approved program to reduce radon in indoor air is also implemented. 
The alternative standard allows higher levels of radon in drinking 
water because the associated health risks are offset by reduced 
exposure to radon in indoor air. EPA believes that the most cost-
effective approach to reducing the health risks associated with radon 
in water is to use the alternative standard, along with a program to 
reduce radon levels in indoor air. 

EPA estimated that the benefits of its proposed rule—consisting almost 
entirely of reduced cancer deaths—would be worth $362 million annually. 
EPA estimated that the annual cost of implementing the rule would range 
from $60 million to $408 million, with $121 million as EPA’s best 
estimate.[Footnote 2] EPA’s cost estimates are designed to reflect the 
typical costs that water systems would incur to monitor water and 
install treatment technologies, when needed, to comply with the 
regulation. The estimates also reflect the administrative costs that 
states and water systems would incur to implement programs encouraging 
homeowners to reduce radon in indoor air and homeowners’ costs to do 
so. As of February 2002, EPA has not yet developed a schedule for 
issuing the final rule. 

Citing the significant financial implications of the 1999 proposed 
rule, the conference report accompanying EPA’s fiscal year 2001 
appropriations act directed us to report on the financial impacts of 
the proposed radon rule and encouraged EPA to consider our findings 
prior to finalizing the rule. As agreed with your offices, this report 
identifies the (1) strengths and (2) limitations of EPA’s cost analysis 
for the proposed rule. Because the scope of our review was limited to 
EPA’s cost analysis, we did not evaluate EPA’s analysis supporting the 
benefits the agency expects the proposed rule to provide. EPA officials 
said the agency plans to revise its estimate of the benefits in the 
final rule. 

Results in Brief: 

EPA’s analysis of the costs to implement the proposed radon rule has a 
number of strengths. First, EPA’s estimates of the typical costs for 
water systems to purchase and install radon removal technologies—a key 
determinant of total national costs—are reasonable for estimating 
national compliance costs. Most of the radon removal technologies that 
EPA’s cost analysis assumes will be used most frequently are already 
being used by a number of water systems across the country to remove 
radon and other contaminants, and EPA’s cost estimates are generally 
within the ranges of costs reported in case studies on these 
technologies. Other strengths of the analysis include EPA’s (1) use of 
recommendations from an expert panel in estimating water systems’ costs 
for construction, engineering, and labor needed to install and maintain 
radon removal equipment and (2) development of a range of annual cost 
estimates, rather than a single estimate, to account for uncertainty 
about the extent to which the less costly alternative standard will be 
adopted by states. 

EPA’s analysis of the national annual costs of complying with its 
proposed radon drinking water rule has several limitations that, if 
corrected, would likely increase EPA’s best estimate of these costs. 
Specifically, EPA: 

* made two errors in estimating the various costs associated with 
programs to reduce radon levels in indoor air under the alternative 
standard—one that understated radon testing and mitigation costs by 
about $37 million and another that overstated administrative costs by 
about $31 million— resulting in a combined understatement of costs by 
about $6 million; and; 

* excluded from its analysis “mixed” water systems, which use a mix of 
groundwater and surface water sources, effectively understating 
compliance costs by approximately $17 million. 

Correcting these errors and including the mixed water systems alone 
would increase EPA’s estimate by about 20 percent, from about $121 
million to about $145 million (see appendix I). Other aspects of EPA’s 
analysis may have further understated total compliance costs, although 
by an unknown amount. For example, EPA assumed that more water systems 
than suggested by some evidence would choose the less-costly 
alternative standard. In addition, EPA may have insufficiently 
considered potential costs faced by water systems to alleviate concerns 
about the use of water treatment technologies that would vent radon 
near homes, schools, or other population centers. Further, EPA’s cost 
analysis reflects inadequate quality assurance, does not consistently 
comply with EPA’s guidelines calling for clarity and transparency in 
presenting economic analyses, and includes a number of inaccuracies. 
For example, the economic analysis contains inconsistent and inaccurate 
information about an important cost factor as well as unclear or 
conflicting information about the responsibility for certain costs, and 
it omits assumptions underlying a key cost determinant. EPA has taken 
steps to improve the agency’s quality assurance process, but it is not 
clear that these steps will be sufficient to identify and correct 
deficiencies like those we found. 

Because of the limitations we identified, we are making several 
recommendations aimed at improving EPA’s cost analysis for the radon 
rule and its economic analyses in general. In commenting on a draft of 
this report, EPA officials from the Offices of Water; Air and 
Radiation; and Policy, Economics, and Innovation generally agreed with 
our findings and recommendations, providing some technical and 
editorial suggestions that we have incorporated into the report, as 
appropriate. However, while agreeing that the proposed rule contained 
the errors and other inaccuracies we identified, the Office of Water 
did not agree that an effect of these errors was reduced credibility of 
EPA’s cost analysis. While our report identifies a number of strengths 
of the cost analysis, these strengths do not offset or negate the 
effects of the errors and inaccuracies we found. We continue to believe 
that, collectively, the limitations we identified reduced both the 
credibility and usefulness of the cost analysis for the radon rule. 

Background: 

The majority of the estimated cancer deaths in the United States 
associated with radon are related to the inhalation of radon in outdoor 
or indoor air. Specifically, the National Academy of Sciences has 
estimated that about 700 deaths occur from inhaling radon in outdoor 
air and more than 19,000 deaths occur each year from inhaling radon in 
indoor air.[Footnote 3] Some radon in indoor air is derived from the 
evaporation of drinking water, and the academy estimated that about 160 
of these 19,000 deaths are associated with such releases. In addition, 
the academy estimated that consumption of drinking water containing 
radon causes about 23 deaths from stomach cancer each year. EPA relied 
on the academy’s estimates of radon health risks in developing the 
proposed rule on radon in drinking water. 

EPA’s proposed radon rule applies to water systems that include only 
groundwater and those that include both ground and surface water 
(rivers and lakes), referred to as mixed systems.[Footnote 4] Radon is 
usually present in only negligible amounts in surface water because 
this water is exposed to the air and the radon in it will tend to be 
released to the air. Groundwater originating in underground aquifers is 
not similarly exposed to air. As a result, high levels of radon are 
sometimes found in groundwater that collects and flows under the 
earth’s surface. Radon levels in groundwater vary across the country, 
with the highest levels in New England and the Appalachian uplands of 
the Middle Atlantic and Southeastern states. There are also isolated 
areas in the Rocky Mountains, California, Texas, and the upper midwest 
where radon levels tend to be higher than the U.S. average. According 
to EPA, at the state level, high levels of radon in drinking water can 
occur in areas with low levels of radon in the soil (thus low levels in 
indoor air) and vice versa. 

1996 Safe Drinking Water Amendments Require EPA to Establish a Radon 
Standard: 

Under the Safe Drinking Water Act, EPA sets health-based, legally 
enforceable standards limiting the level of drinking water contaminants 
that can adversely affect public health. In developing a standard, EPA 
establishes a health-based goal at a level that causes no known or 
anticipated adverse health effects and that allows an “adequate margin 
of safety.” If a contaminant, such as radon, is likely to cause cancer, 
EPA generally sets the goal at zero. After setting the goal, EPA 
typically issues a regulation establishing an enforceable standard, 
called a maximum contaminant level, that is as close to the health-
based goal as is feasible, considering the available technology, 
treatment techniques, and costs. Under the 1996 amendments, when 
proposing a standard, EPA is also required to perform an economic 
analysis to determine whether the benefits of the standard justify the 
costs. If the benefits do not appear to be justified, EPA may adjust 
the standard to a level that “maximizes health risk reduction benefits 
at a cost that is justified by the benefits.” 

The 1996 amendments also included a number of provisions specific to a 
radon standard. First, the amendments required EPA to withdraw its 1991 
proposed rule on radon. Before issuing a new proposed rule on radon, 
EPA was required to obtain from the National Academy of Sciences an 
assessment of the health risks from radon in drinking water and arrange 
for the academy to assess the health risk reduction benefits from 
various measures to reduce radon levels in indoor air. In addition, EPA 
was also required to (1) publish and seek public comment on its 
analyses of the costs and health risk reduction benefits for standards 
being considered for radon in drinking water and (2) respond to all 
significant public comments received on the analyses in the preamble 
for the proposed rule. In setting a radon standard for drinking water, 
EPA was also required, under the amendments, to consider the costs and 
benefits of programs to reduce radon exposures from other sources, such 
as indoor air. 

The amendments specified that if the drinking water standard is more 
stringent than necessary to reduce the concentration of radon in indoor 
air from drinking water to a level equivalent to the national average 
concentration of radon found in outdoor air, then EPA must also 
promulgate an alternative standard (alternative maximum contaminant 
level). The alternative standard must be set at a level that would 
result in a concentration of radon in indoor air from drinking water 
equivalent to the national average concentration of radon in outdoor 
air. The alternative standard would allow more radon in drinking water 
than the more stringent standard. To offset the higher level, the water 
systems that use the alternative standard must be covered by an EPA-
approved program to reduce radon in indoor air. Such a program could be 
managed by either states or water systems. To be approved, a program’s 
expected health risk reduction benefits must be equal to or greater 
than the health risk reduction benefits that would result from 
compliance with the more stringent standard for radon in drinking 
water. Finally, the 1996 amendments required EPA to propose a new radon 
rule in 1999 and to promulgate it within 12 months. EPA issued the 
proposed rule in 1999. As of February 2002, EPA has not yet developed a 
schedule for issuing a final rule. 

EPA Developed a Proposed Radon Rule and a Supporting Economic Analysis: 

In developing the proposed rule, EPA obtained and relied on assessments 
conducted by the National Academy of Sciences and issued its economic 
analysis for public comment in February 1999.5 When EPA issued the 
proposed radon rule in November 1999, it set the health goal at zero, 
proposed a standard of 300 picocuries per liter of water, and proposed 
an alternative standard of 4,000 picocuries per liter to be used in 
conjunction with state or water system programs that reduce radon in 
indoor air.[Footnote 6] 

In the economic analysis supporting the proposed radon rule, EPA 
indicated that 46 percent of the 40,863 groundwater systems that would 
be subject to the rule would, in the absence of any additional 
treatment, exceed the standard of 300 picocuries. (The majority of 
these water systems serve 500 or fewer customers.[Footnote 7]) Further, 
EPA estimated that if these systems had to comply with the more 
stringent standard, the systems would incur costs of about $2.5 billion 
to purchase and install radon treatment technologies, or about $233 
million each year for 20 years. EPA estimated that the total annual 
cost of the rule would be about $408 million,[Footnote 8] as follows: 

* $233 million to purchase and install radon treatment technologies, 

* $152 million to operate and maintain the treatment technologies, 

* $14 million to monitor water for radon, 

* $6 million to administer these activities, and, 

* $2.5 million for states to oversee the water systems. 

However, EPA estimated that the vast majority of water systems would 
not incur any water treatment costs because they would be subject to 
the alternative standard of 4,000 picocuries. EPA estimated that only 
about 4 percent of water systems subject to the rule have radon levels 
in excess of the alternative standard. EPA provided lower-bound, best, 
and upper-bound cost estimates that reflect varying assumptions about 
the proportion of states and local water systems that would choose the 
alternative standard and thus implement programs to reduce radon levels 
in indoor air, as follows: 

* EPA’s upper-bound estimate of $408 million annually assumed that all 
water systems would be subject to the more stringent water standard. 

* EPA’s best estimate of $121 million annually assumed that about two-
thirds of water systems would be subject to the less stringent 
alternative standard. 

* EPA’s lower-bound estimate of $60 million annually assumed that about 
97 percent of water systems would be subject to the less stringent 
alternative standard. 

The benefits that EPA estimates would be provided by the proposed rule— 
$362 million annually—are the same under all the scenarios, differing 
only in the extent to which the lives are saved because of water 
treatment versus reductions of radon in indoor air. Considering these 
costs and benefits, along with more subjective benefits and costs that 
EPA did not quantify,[Footnote 9] EPA determined that the costs of the 
proposed rule were justified by the benefits. EPA stated that in making 
this determination, the agency also considered that costs would be 
substantially less than $408 million annually if most states implement 
indoor air programs, allowing water systems to comply with the less 
stringent water standard. Regarding the benefits, we note that EPA’s 
estimates of future benefits in the proposed rule were not discounted 
(reduced) to present value, although the cost of purchasing and 
installing radon equipment was appropriately discounted. According to 
EPA officials, EPA will discount the benefits in the final rule in 
response to recommendations from the Science Advisory Board. 

EPA’s Guidelines for Preparing Economic Analyses highlight the 
importance of economic analyses in making informed policy choices and 
specify criteria for effective presentation of economic analyses, such 
as the cost analysis supporting EPA’s proposed radon rule.[Footnote 10] 
Primary criteria include clarity and transparency of all aspects of the 
analyses and descriptions of all important data sources, key 
assumptions, and their justifications. In addition, EPA’s Office of 
Water has a quality management plan to guide its quality assurance and 
control activities, specifying which types of such activities are 
necessary and the various procedures for conducting quality reviews. 
The quality assurance elements include internal peer review, external 
peer review, external agency review, and stakeholder meetings, among 
other measures. 

EPA’s Cost Analysis Has a Number of Strengths: 

EPA’s cost analysis has a number of strengths. First, and most 
importantly, the estimates of the typical costs for a water system to 
remove radon are reasonable for the purpose of estimating the rule’s 
national costs. The estimates of typical costs are for currently used 
technologies whose effectiveness is generally known and for which 
published cost data are available. Moreover, these estimates have been 
improved by input from a blue ribbon panel of drinking water and cost 
experts and other stakeholders. Further, while some concerned parties 
questioned several of EPA’s assumptions on water treatment issues—such 
as the extent to which water systems would have to address certain 
water quality issues and how they would be addressed—our review 
indicated that EPA generally had a reasonable basis for its 
assumptions. Another strength of the analysis is that EPA estimated a 
range of costs to account for uncertainty about the approach that 
states will use to comply with the rule. 

EPA’s Estimates of Typical Costs for Water Treatment Are Reasonable for 
Estimating National Costs: 

EPA’s estimates of the typical costs for water systems to purchase, 
install, and operate radon removal technologies—a key determinant of 
total national costs to implement the proposed rule—are reasonable for 
use in estimating national compliance costs. To estimate the typical 
costs for a system to remove radon from drinking water, EPA generally 
assumed the use of aeration technologies that have been commonly used 
by water systems to remove radon and other contaminants, such as 
volatile organic compounds.[Footnote 11] EPA estimated radon removal 
costs for eight size categories of water systems, ranging from those 
that serve between 25 to 100 people to those serving between 100,000 
and 1 million people. EPA’s cost estimates for systems to purchase and 
install treatment technologies ranged from about $45,000 for the 
smallest systems to more than $6 million for the largest—or about 
$4,200 to $580,000 per year for 20 years. In addition, EPA estimated 
operations and maintenance costs ranging from about $3,600 per year for 
the smallest systems to about $440,000 for the largest. 

Information on the cost of installing aeration technologies is 
available in published case studies, which EPA used to cross-check its 
estimates. For example, in 1998, the American Water Works Association 
published a guide for water utilities to use for evaluating and 
selecting radon treatment technologies that includes construction cost 
information for 33 water treatment sites, including 12 very small 
facilities, and performance information for most of the sites. EPA’s 
technology cost estimates are generally within the ranges of costs 
identified in this and in other case studies. Such data are not always 
available to inform regulatory cost estimates. For example, in 
estimating costs for its arsenic rule, EPA had to rely on more limited 
data because some of the technologies for removing arsenic from 
drinking water are not commonly used. 

Moreover, EPA’s estimates of the typical costs for a water system to 
remove radon have benefited from the recommendations of an expert panel 
of water design and cost engineers from utilities, state and federal 
agencies, consulting firms, and public utility regulatory commissions. 
Following the reauthorization of the Safe Drinking Water Act, EPA 
convened the panel to help improve the accuracy of the agency’s cost 
estimates for all drinking water regulations. EPA’s cost analysis for 
the radon rule relies on the panel’s recommendations in estimating a 
water system’s cost for construction, engineering, and labor needed to 
install and maintain radon removal equipment. For example, based on the 
panel’s recommendations, EPA increased its estimates of the labor costs 
to operate and maintain such equipment to include not only base 
salaries but also fringe and other benefits.[Footnote 12] 

In addition, EPA incorporated advice from other stakeholders in 
developing its estimates. For example, in response to comments that its 
initial estimates were not adequate, EPA increased its radon technology 
costs for pumps and blowers needed to operate aeration equipment. 

Although some stakeholders said that EPA did not increase its 
technology cost estimates sufficiently, our analysis of the key issues 
they raised indicates that EPA generally used reasonable assumptions in 
developing its estimates, as the following examples show. 

* Some parties commented that EPA did not include adequate costs for 
water systems to remove iron and manganese from water. These parties 
said that water systems would, in many cases, need to remove iron and 
manganese from their water before it is aerated so as not to damage the 
aeration equipment. However, EPA assumed that water systems that need 
to treat for iron and manganese would generally be able to add 
chemicals to neutralize these elements, which is less expensive than 
removing them. Based on estimates of the number of water systems with 
elevated levels of iron and manganese, EPA included costs for 25 
percent of small systems (systems serving fewer than 10,000 people) and 
15 percent of large systems (systems serving more than 10,000 people). 
In addition, EPA assumed that systems with levels of iron and manganese 
too high for chemical neutralization would already be removing these 
elements because high levels of these elements result in unacceptable 
discoloration of water. Because these removal costs would not be 
incurred as a result of the radon rule, EPA’s cost estimates do not 
include them. We believe that EPA’s assumptions are reasonable for the 
purpose of estimating national costs. 

* Some parties commented that EPA did not include adequate costs for 
water systems to disinfect water that might be contaminated by microbes 
during aeration. For example, a stakeholder said that the cost 
estimates may be understated for clearwells—wells or tanks that are 
needed to hold water so that it can be disinfected. This comment 
stemmed from two conflicting sets of cost estimates for clearwells, one 
much higher than the other, which EPA included in a supporting report 
on technology costs. EPA used the lower estimates in its cost analysis. 
EPA officials told us that the higher estimates were incorrect and were 
inadvertently included in the supporting report and that the lower 
estimates—generated by EPA’s cost model for aeration technologies—were 
correct. The lower estimates are consistent with EPA’s guidance manual 
for disinfecting drinking water and incorporate best engineering 
judgment.[Footnote 13] We note that national costs for clearwells may 
be overstated because EPA included these costs for all systems that add 
radon treatment. However, as case studies show, a number of systems 
(particularly those that already disinfect their water) will be able to 
use existing clearwells. 

* A stakeholder commented that EPA did not include adequate costs to 
address the increased corrosiveness of water resulting from aeration. 
We believe, however, that EPA’s addition of such costs for a small 
portion of water systems is appropriate based on information from the 
National Academy of Sciences and case studies indicating that aeration 
does not generally increase the corrosiveness of water. 

* A stakeholder commented that EPA might have understated treatment 
costs for large water systems because it underestimated the number of 
treatment sites at these systems. Underestimating the number of 
treatment sites that potentially need to have radon treatment 
technologies would understate costs because costs increase as the 
number of sites needing radon treatment increases. In its cost 
analysis, EPA estimated that there were an average of 13.1 treatment 
sites for groundwater systems serving between 100,000 and 1,000,000 
customers.[Footnote 14] In contrast, the stakeholder commented that its 
survey of water systems serving over 100,000 customers indicated the 
correct number of average treatment sites would be 23.8. We believe, 
however, that EPA’s estimate was adequately supported, based on our 
review of EPA’s assumptions and data as well as the information 
provided by the stakeholder. For example, the stakeholder’s estimate of 
23.8 sites included systems serving more than 1,000,000 customers and 
therefore was not directly comparable to EPA’s estimate. When, as part 
of our review, the stakeholder provided us with an estimate that was 
consistent with EPA’s size categories, the estimate was 14.7—a number 
reasonably close to EPA’s estimate of 13.1. Further, our limited review 
of the stakeholder’s data indicates that such data would need to be 
evaluated for accuracy and representativeness. Specifically, in 
reviewing information about 4 of the 102 survey respondents, we found 
that an entity identified as having 650 sites—an atypically high number 
[Footnote 15]— was incorrectly classified as a single system. This 
entity represents a number of affiliated water districts of varying 
sizes in different locations, each with its own rate structure. The 
stakeholder acknowledged that these water districts should have been 
analyzed as individual water systems, not aggregated into one system. 
[Footnote 16] 

In finding that EPA’s technology cost estimates are appropriate for 
estimating national costs, we recognize that some systems would incur 
higher costs than EPA estimates and others would incur lower costs. 
Costs for individual water systems—even those of similar size—would 
vary depending on factors such as the technologies selected and the 
site-specific conditions, including water quality and management 
skills. EPA’s estimates should not be interpreted as being 
representative of the individual decisions that thousands of water 
systems will make on the basis of their unique circumstances. 

EPA Supported Its Assumption about States’ Compliance with the Rule: 

In developing its best estimate of total national costs for the rule, 
EPA assumed that 50 percent of states would implement EPA-approved 
indoor air programs that have expected health risk reduction benefits 
equal to or greater than the benefits that would result from compliance 
with the more stringent drinking water standard. As a result, the vast 
majority of local water systems in those states would not have to 
mitigate radon levels in drinking water because only those with radon 
levels in excess of 4,000 picocuries (the alternative standard) would 
have to reduce the radon in the water.[Footnote 17] EPA’s assumption 
was supported by the results of a survey of state indoor air and 
drinking water officials conducted by the American Water Works 
Association.[Footnote 18] Fifty percent of the survey respondents 
indicated that they probably would adopt the indoor air option, and 9 
percent indicated that they definitely would. 

EPA’s assumption about the decisions states would make is also 
supported by extensive discussions between EPA and state 
representatives and recognizes the potential difficulties that may 
dissuade some states from implementing the option. Most states already 
conduct indoor air programs for radon. To comply with the proposed 
rule, states would have to upgrade their existing programs by setting 
quantitative risk reduction goals, reporting on progress toward those 
goals, and allowing for extensive public participation in developing 
the indoor air programs. According to EPA, program officials from many 
states believe they would be able to comply with these requirements 
without too much difficulty. Furthermore, officials from many states 
believe that it makes good public health sense to mitigate radon levels 
through indoor air, rather than water, because indoor air risks are 
much higher than drinking water risks and indoor air mitigation is more 
cost-effective. However, other states are not inclined to use the 
indoor air option to comply with the rule because of concerns about 
potential public relations problems that could arise because of 
different protections people will receive, depending upon where they 
live. Specifically, the executive director of the Association of State 
Drinking Water Administrators told us that states are greatly concerned 
about explaining to the public that the same level of radon in drinking 
water is safe in some states but unsafe in others, depending on whether 
the state adopted the indoor air option. She stated that trading the 
drinking water risks of the community for the indoor air risks of 
relatively few residents would cause substantial public confusion. 
Similarly, the National Academy of Sciences stated that concerns 
regarding the equity of risk trading “might ultimately constitute the 
deciding factor” in whether the air mitigation option is undertaken. A 
program official from one state told us that her state would likely not 
adopt the air mitigation option partially because the unequal treatment 
of radon risks could lead to court cases. 

Nonetheless, according to EPA officials, their estimate that 50 percent 
of the states would upgrade their indoor air programs to comply with 
the radon drinking water rule may be conservative. These officials told 
us that after several workshops EPA held with the states in late 2000, 
nearly two-thirds of the state program managers indicated that they 
would likely adopt the indoor air option. However, an EPA official 
acknowledged that some state program managers that favor the program 
may not be the ones making this decision, and therefore some of these 
“likely” states may not adopt the program. This recognition 
corroborates a potential impediment that program officials from some 
states had discussed with us—that is, adopting the indoor air option 
could be subject to the approval of the legislature or the governor. As 
a result, the decisions of the state program managers may be subject to 
political processes, the outcomes of which cannot be certain. Overall, 
we believe that EPA had a reasonable and supported basis for its 
assumption, reflected in its best estimate of costs, that 50 percent of 
states would choose the indoor air option, as the assumption reflects 
the potential disincentives that could prevent some states from 
participating. 

EPA’s Estimates Include a Range of Costs to Account for Uncertainty 
about How States Would Choose to Comply with the Rule: 

Another strength of EPA’s cost analysis for the proposed radon rule is 
that it provided a range of national annual compliance costs to address 
the uncertainty about how states would choose to comply with the rule. 
EPA’s designation of a range helps decisionmakers and the public 
understand how costs could vary depending on how the rule is 
implemented, and it is consistent with EPA’s guidelines for preparing 
economic analyses, as well as with guidance issued by the Office of 
Management and Budget in 2000. Because it is generally less costly to 
reduce radon risks in indoor air than in drinking water, the estimated 
costs of compliance with the radon rule are lower when more states are 
assumed to implement indoor air programs. Reflecting a range of 
potential responses, EPA’s cost estimates range from $60 million to 
$408 million per year.[Footnote 19] EPA designated $121 million as its 
best, or most likely, estimate of annual costs. 

Limitations of EPA’s Cost Analysis Reduce Its Credibility and 
Usefulness: 

EPA’s analysis of the national annual cost of complying with its 
proposed radon drinking water rule has several limitations that, if 
corrected, would likely increase EPA’s best estimate of national costs. 
Specifically, EPA made two errors in estimating the annual costs 
associated with programs to reduce radon levels in indoor air under the 
alternative standard—one that understated radon testing and treatment 
costs by about $37 million and another that overstated administrative 
costs by about $31 million. Correcting the two errors would increase 
EPA’s best estimate of national annual costs for the proposed rule by 
about $6 million. In addition, EPA excluded from its analysis mixed 
water systems—those that get their water from a mix of both groundwater 
and surface water sources—which effectively understates compliance 
costs by approximately $17 million. Correcting these errors and 
including the mixed water systems alone would increase EPA’s estimate 
by about 20 percent, from about $121 million to about $145 million. 
Other aspects of EPA’s analysis may have underestimated total 
compliance costs, although by an unknown amount. Specifically, EPA: 

* assumed that more water systems than suggested by some evidence would 
choose the less-costly alternative standard and; 

* insufficiently considered potential costs faced by water systems that 
remove radon from water using aeration facilities—which vent the radon 
to the outside air—located near homes, schools, or other population 
centers. 

Further, EPA’s cost analysis reflects a lack of quality assurance in 
certain important respects. For example, the analysis contains 
inconsistent and inaccurate information about an important cost factor 
and unclear or conflicting information about the responsibility for 
certain costs, and omits the assumptions underlying a key cost 
determinant. EPA has taken steps to improve its quality assurance 
process, but it is not clear that they will be sufficient to identify 
and correct deficiencies like those we identified. 

EPA Miscalculated Costs for the Rule’s Indoor Air Option: 

In estimating costs for reducing radon levels in indoor air under the 
alternative water standard, EPA made two errors—one that understated 
the costs of testing and treating indoor air for radon by about $37 
million and another that overstated administrative costs to implement 
and oversee the programs by about $31 million. Correcting the two 
errors would increase EPA’s best estimate of national annual costs for 
the proposed rule by about $6 million. (See appendix I.) 

EPA’s first error resulted in an underestimate of the annual costs for 
reducing radon levels in indoor air that the agency expects will be 
borne by individual households. EPA multiplied its assumed cost of 
testing and treating for radon in indoor air per life saved 
($700,000)[Footnote 20] by the expected number of lives saved per 
year,[Footnote 21] and then amortized the result over 20 years at a 
discount rate of 7 percent. However, EPA should not have amortized the 
result because it represents costs that would be incurred every year. 
For example, in its best estimate, EPA assumed that 59 lives[Footnote 
22] would be saved every year at a total cost of $41 million (59 lives 
times $700,000 per life). EPA then amortized the $41 million over 20 
years, resulting in an estimated annual cost of $3.9 million, even 
though the $41 million cost would be incurred each year. EPA officials 
acknowledged that they should not have amortized the $41 million cost 
and told us that they intend to correct this error in EPA’s economic 
analysis for the final rule. 

The second error occurred because EPA inadvertently included costs to 
administer and oversee indoor air programs of water systems that will 
not implement such programs. EPA’s estimate did not reflect the fact 
that regardless of whether the states choose to implement indoor air 
programs, water systems with radon levels below 300 picocuries would be 
required only to monitor the radon level in their water. They would not 
be required to treat their water, nor would they be required to 
implement their own indoor air programs. The estimate also did not 
reflect that water systems with radon levels above 4,000 picocuries are 
unlikely to implement indoor air programs because they would be 
required to treat their water regardless of whether they implement 
these programs. As a result, EPA’s best estimate of national annual 
costs included $53 million in costs associated with oversight and 
administration of about 18,400 water systems’ indoor air programs, 
inadvertently including costs for about 10,800 water systems. We 
estimate that correcting this error would reduce costs associated with 
oversight and administration of water systems’ indoor air programs to 
about $22 million. EPA plans to correct both errors in its economic 
analysis for the final rule. 

EPA Excluded Certain Systems That Would Be Subject to the Rule: 

EPA’s cost analysis excluded mixed water systems, which get their water 
from a combination of groundwater and surface water sources, even 
though these systems would be subject to the radon rule. EPA officials 
told us that they did not include costs for mixed systems in the 
economic analysis because of data limitations and because their 
preliminary analysis indicated that including the mixed water systems 
in its analysis would not have a significant effect on the total annual 
cost of complying with the rule. However, EPA did include mixed systems 
in its economic analysis for the January 2001 arsenic rule. An EPA 
official told us that there does not seem to be a strong technical 
basis for handling mixed systems differently in the two rules. In 
January 2002, EPA officials told us that the agency would consider 
including costs for these systems in the economic analysis for the 
final rule. We estimate that including mixed systems in EPA’s best 
estimate would further increase total annual costs by about $17 million 
(see appendix I).[Footnote 23] Including these systems would also 
increase the estimated benefits of the proposed rule.[Footnote 24] 

EPA May Have Underestimated Compliance Costs for Some Water Systems: 

A key factor in EPA’s cost estimate is the extent to which programs to 
mitigate radon levels in indoor air would supplant the more costly 
approach of mitigating radon levels through water treatment. While 
EPA’s assumption about the number of states that would adopt indoor air 
programs is well supported, we found that its assumption about the 
number of local water systems that would do so is not and appears to be 
overly optimistic. A decrease in the estimated number of systems 
choosing the less expensive approach would increase the total annual 
cost of compliance. 

In the 50 percent of states where EPA did not assume selection of the 
indoor air option, EPA assumed that 90 percent of local water systems 
would elect the alternative standard and establish their own indoor air 
programs. According to EPA officials, the assumption was based solely 
on the premise that water systems would choose the least costly 
approach to mitigating radon risks. EPA officials acknowledged that 
they did not collect any data on the extent to which water systems 
would establish air programs. 

This data limitation reduces the credibility of EPA’s optimistic 
assumption in light of questions that have been raised about the 
likelihood of small water systems adopting air programs. For example, 
EPA’s assumption conflicts with the opinions of the National Academy of 
Sciences and state and industry associations. Specifically, the 
National Academy of Sciences reported in 1999 that “non-economic 
considerations” could play a large role in a local water system’s 
decision about whether to use an indoor air program to meet the rule’s 
requirements. According to the academy’s report, experience with 
certain provisions of the Clean Water Act indicates that small entities 
have had difficulties dealing with complex federal program 
requirements. While EPA may be correct in its assertion that the 
requirements for indoor air programs are not as complex as the 
requirements cited by the academy, small water systems may have 
limitations or concerns that could lead them to choose compliance with 
the more stringent standard. For example, the executive director of the 
Association of State Drinking Water Administrators told us that local 
water companies, especially the small ones, will not want to be 
involved in public meetings, goal setting, and program monitoring and 
reporting— activities required under the proposed rule’s indoor air 
option. The National Association of Water Companies, a trade 
association representing the nation’s privately owned drinking water 
utilities, expressed similar doubts in its comments on the proposed 
rule: “We believe that the prospect of water systems implementing local 
(indoor air) programs in the absence of state programs is unrealistic… 
Tracking new home construction and remedial venting of existing homes 
is far removed from the chartered objectives of community water 
systems, not to mention the expectations of water ratepayers.” In our 
view, these are reasonable concerns. 

The academy also raised concerns that the indoor air option may not be 
practical for some local water systems that have elevated radon in 
their water but not in their customers’ indoor air. EPA acknowledges 
that elevated radon in drinking water and in indoor air may not occur 
in the same geographic area. Program officials from several states 
concurred that the indoor air option may be problematic for some local 
water systems for this reason. One of these officials also said that 
using the indoor air option would not work nearly as well at the local 
level as it would at the state level. The official explained that 
because states have a larger geographic area than local water systems, 
states would have a much better chance to offset one area’s elevated 
radon in drinking water by mitigating another area’s indoor air radon. 

Considering the evidence indicating a fair amount of uncertainty about 
the extent to which local water systems, in the absence of a state 
program, would choose the indoor air option to comply with the rule, 
EPA’s assumption that 90 percent of systems would do so appears overly 
optimistic. As discussed previously, the uncertainty about adopting the 
indoor air option is particularly strong for small water systems—the 
majority of systems subject to the rule. Adjusting EPA’s assumptions to 
reflect less optimistic scenarios would increase the total national 
cost estimate for the proposed rule. For example, assuming that 75 
percent, instead of 90 percent, of local water systems would choose the 
indoor air option would increase national annual costs by $23 million; 
assuming 50 percent of systems would choose the option increases the 
estimated national annual cost by $61 million (see app. I). In January 
2002, EPA officials told us that in finalizing the economic analysis 
for the rule, they plan to include a range of costs based on different 
assumptions about how many water systems will adopt indoor air 
programs. EPA’s planned use of varying assumptions about the choices of 
water systems would appropriately reflect the uncertainty associated 
with the responses of water systems. (As discussed previously, EPA’s 
proposed rule already included a range of costs to reflect uncertainty 
about how many states would adopt indoor air programs.) 

EPA May Have Underestimated the Costs to Address the Risks from Radon 
Emitted during Aeration: 

EPA’s cost estimates may not adequately account for the additional 
costs to address the health risks from radon that would be emitted into 
outdoor air as it is removed from drinking water through aeration. 
These risks may be of particular concern where water treatment 
facilities that remove radon in water and vent it into the air would be 
located close to homes and schools and other population centers. In 
these cases, water systems may face public relations problems due to 
residents’ concerns. Credible information on the estimated risks from 
such emissions could help water systems address such concerns. 

However, we found that EPA’s analysis of these health risks has some 
limitations that tend to underestimate the risks and reduce its 
credibility. The limitations stem from the use of outdated health risk 
data and the outdated air quality model EPA used to develop its 
estimate of risk from emissions for the proposed radon rule. 
Specifically, EPA’s estimates of the risks from radon emitted during 
aeration inadvertently did not incorporate updated information from the 
National Academy of Sciences. EPA officials said that updated 
information from the academy indicated that the health risk from 
exposure to radon was about 2.5 times higher than its previous 
estimate. While EPA incorporated this revision in its estimates of the 
risks from radon in drinking water, it erred by not doing so for its 
estimates of the risks associated with radon emissions from aeration. 
Furthermore, EPA used the deficient health risk data in an outdated 
1988 model that the agency acknowledged has substantial limitations, 
even though the agency had newer models available. Specifically, EPA’s 
documentation of the 1988 air quality model states that the resulting 
estimates of human health risks associated with radon emitted during 
aeration are (1) “preliminary in nature and should be used with 
caution,” and (2) “do not account for the additive impact of emissions 
from plants located close to one another.” 

A 1999 study commissioned by a water district in California suggests 
that EPA’s 1988 model may understate these health risks. Specifically, 
the study includes a comparison of the estimated health risks 
associated with using aeration technologies to remove radon from the 
district’s water first using the 1988 model, and then using an updated 
EPA model. In this site-specific analysis, the risk estimate developed 
from the updated model was five times higher than the estimate 
developed using EPA’s 1988 model. 

In discussing this issue, EPA officials told us that they may update 
the final rule’s estimates of the health risks from radon emissions by 
incorporating the academy’s updated risk information and using updated 
air quality models. However, the officials said that taking these steps 
would not substantially change the overall risk estimates for exposures 
to radon emissions from water treatment shown in the proposed rule. 
They also said that the health risks associated with emissions of radon 
from treatment plants would still be negligible compared to the risks 
of radon in water. While the officials agreed that higher risk 
estimates could lead to higher national costs to implement the rule, 
they believe the cost increases would be insignificant. However, 
without an updated risk estimate using current data and models, water 
systems may have difficulty addressing concerns their customers may 
raise about the risks—actual or perceived— of radon treatment. These 
concerns could increase costs if, for example, customers demand more 
expensive technologies to reduce risks associated with treating water 
for radon.[Footnote 25] Along these lines, we note that in commenting 
on the proposed rule, the American Water Works Association pointed out 
that “the perception of risk is often as important as the actual risks 
when siting any industrial process, including water treatment systems. 
The mitigation of such concerns of the citizenry can result in 
substantially increased costs...” 

EPA’s Cost Analysis Indicates Inadequate Quality Assurance: 

EPA’s cost analysis for the proposed radon rule does not consistently 
comply with EPA guidance calling for clarity and transparency of all 
aspects of the analyses and inclusion of all important data sources, 
key assumptions, and their justifications. These presentation 
deficiencies, as well as analytical errors, occurred despite the 
agency’s quality assurance process. As a result, the credibility of the 
analysis was reduced and the ability of affected parties to provide 
informed comments was hampered. 

Documents Were Not Uniformly Clear, Accurate, and Consistent: 

EPA’s guidelines for preparing economic analyses state that EPA should 
strive for maximum clarity and transparency of all aspects of the 
assessments and clearly describe all important data sources, key 
assumptions, and their justifications. The guidelines also say that the 
presentation should highlight the key elements that dominate modeling 
frameworks and its results and address uncertainties by identifying 
ranges for inputs and results. We found a number of instances in which 
EPA did not comply with its guidance. For example: 

* EPA’s proposed rule and the accompanying regulatory impact analysis 
contain inconsistent and inaccurate information about an important cost 
factor—the number of sites at which each water system would have to 
monitor radon concentrations and potentially install treatment 
technologies. In both documents, EPA states that it assumed treatment 
would occur at each well with a radon level higher than the applicable 
drinking water standard. Tables presenting numbers of wells accompany 
these statements. However, EPA actually assumed that testing and 
treatment would occur at sites known as “entry points” where water from 
multiple wells is often combined. Because there are many fewer entry 
points than wells, assuming treatment at each entry point instead of 
each well leads to a much lower national cost estimate. Comments on the 
proposed rule show that affected parties were confused about how EPA 
could have arrived at its national cost estimate by assuming treatment 
at each well, as EPA incorrectly indicated it had done. 

* EPA’s documents are not clear about whether implementing an indoor 
air program in lieu of treating radon in drinking water is a choice or 
a requirement for small local water systems—because the documents 
contain conflicting statements. Both the proposed rule and the economic 
analysis state that small water systems “must” implement an indoor air 
program if there is no state indoor air program that meets the rule’s 
requirements. However, both documents also state that small water 
systems may “choose” to either implement an indoor air program or 
comply with the more stringent water standard. In fact, under the 
proposed rule, implementing an indoor air program would be a choice— 
not a requirement—for small local water systems, just as it is for 
large water systems. These conflicting statements confused some 
affected parties about the proposed rule’s requirements and the 
associated costs. 

* Both the proposed rule and the economic analysis lack transparency 
and clarity about who would incur the costs to test and, if necessary, 
treat indoor air for radon. The documents incorrectly indicate that 
state and community water systems would pay to test indoor air and 
reduce radon levels in homes under the proposed rule’s alternative 
standard. However, EPA officials told us that, in fact, households 
would be expected to bear most of these costs and that EPA intends to 
clarify this in the final rule. By misstating who would bear a 
substantial portion of the costs of the proposed rule, EPA did not 
disclose that the success of this rule depends on the ability of states 
and water systems to persuade thousands of households to spend a total 
of about $41 million each year to reduce their health risks from 
exposure to radon in indoor air. As discussed previously, EPA also 
erred in estimating these annual costs in the proposed rule, reporting 
them as $3.9 million. 

* EPA’s documents do not disclose the agency’s assumptions regarding 
how many systems would need to remove 50 percent, 80 percent, or 99 
percent of the radon in their water under the proposed rule. Because 
costs increase with the level of radon removed, the number of systems 
assumed to fall into each of the removal categories is a key 
determinant of the total national cost of the proposed rule. EPA’s 
omission of these assumptions prevented stakeholders from readily 
assessing the reasonableness of EPA’s cost estimate. 

* EPA’s proposed rule is unclear about whether EPA accounted for the 
additional costs to reduce the risks from radon that would be emitted 
into outdoor air as it is removed from drinking water through aeration. 
For example, in the proposed rule, EPA first states that its cost 
estimates do not include the additional costs associated with reducing 
the risks from such radon emissions. Yet later in the proposed rule, 
EPA states that its cost estimates do include these additional costs. 
EPA’s confusing presentation contributed to affected parties’ concerns 
that EPA’s estimates had not accounted for any of these additional 
costs. In fact, EPA did include some costs for reducing the risks from 
radon that would be emitted through aeration,[Footnote 26] as shown by 
documentation that EPA provided to us. However, as noted previously, 
EPA may have understated these costs because it underestimated the 
health risks associated with radon emissions generated by aeration 
equipment. 

We also found that stakeholders questioned certain cost estimates, in 
part, because of the lack of clarity and transparency about cost 
elements in the documents supporting the rule. For example, as 
discussed previously, EPA cited two sets of cost estimates for 
clearwells. In addition, regarding the costs for treating iron and 
manganese, EPA said in its proposed rule that it included some costs 
for this task, but said in its regulatory impact analysis that it 
excluded them. 

Some of the flaws we identified in the cost analysis for the radon rule 
are similar to those that we previously identified in EPA’s economic 
analyses for other rules. For example, in 1997 we reported that in 
several of the analyses we reviewed, EPA did not describe certain key 
assumptions used to estimate costs and benefits.[Footnote 27] 

EPA’s Quality Assurance Process Did Not Identify Analytical Errors and 
Documentation Flaws in the Cost Analysis: 

The analytical errors and documentation flaws that we identified in 
EPA’s proposed rule and cost analysis were not detected or corrected by 
the agency’s quality assurance process. EPA officials said that the 
Office of Water has a quality management plan that guides its quality 
assurance and control activities, specifying which types of such 
activities are necessary and the various procedures for conducting 
quality reviews. The quality assurance elements include internal peer 
review, external peer review, external agency review, and stakeholder 
meetings, among other measures. According to EPA officials, the primary 
quality assurance elements that EPA relied on for the proposed radon 
rule were: 

* the National Academy of Sciences’ assessments of the health risks 
from radon; 

* recommendations from an expert panel on the costs water systems would 
incur for construction, engineering, and labor related to installing 
radon water treatment equipment; 

* recommendations from EPA’s National Drinking Water Advisory Council 
on issues related to the analysis of costs and benefits of drinking 
water regulations in general; 

* recommendations from EPA’s Science Advisory Board valuing the 
benefits of cancer cases avoided in environmental regulations in 
general; 

* comments received at three national meetings with stakeholders; and; 

* meetings with the American Water Works Association to examine 
technical components of the rulemaking. 

In addition, EPA published its health risk reduction and cost analysis 
for public comment more than 6 months prior to issuing a proposed rule 
on radon. The expert groups and the public comments provided EPA with 
valuable information that it used to improve key components of the 
proposed rule during its development. However, these reviews did not 
provide a detailed, comprehensive review of the completed cost analysis 
supporting the proposed radon rule. 

EPA’s economic analyses do not undergo external peer review nor have 
they typically undergone formal internal peer review by experts outside 
of the program offices that prepared them. We have previously stated 
that important economic analyses supporting regulations should receive 
peer review—the critical evaluation of scientific and technical work 
products by independent experts—to enhance the quality, credibility, 
and acceptability of both the analyses and the associated agency 
decisions.[Footnote 28] Experts in economic analysis have also noted 
the importance of peer review. For example, a diverse panel of renowned 
economists recommended in a 1996 paper[Footnote 29] that peer review of 
economic analyses be used for regulations with potentially large 
economic impacts. In addition, the Presidential/Congressional 
Commission on Risk Assessment and Risk Management reported that 
agencies did not give enough attention to the quality and 
interpretation of economic analyses and recommended that these analyses 
receive adequate peer review. 

EPA has recognized the need to improve the quality of its economic 
analyses, and in August 2001, the EPA Administrator approved the 
implementation of the recommendations of an agency work group to, among 
other things, require internal review of EPA’s major rules and the 
economic analyses supporting them. As part of this effort, EPA’s 
National Center for Environmental Economics has begun to develop a 
process to systematically review economic analyses for the agency’s 
major rules. The center has developed a draft “Economic Regulatory 
Review Summary and Critique,” dated December 12, 2001, that includes a 
lengthy checklist the center may use to review key data, assumptions, 
and modeling techniques used in the analyses and the transparency and 
clarity of the economic analyses. The center’s reviews of the economic 
analyses prepared by EPA’s program offices could provide the agency 
with meaningful internal peer review of its economic analyses. 

Implementation of the regulatory work group’s recommendation that the 
economic analyses supporting major rules undergo internal peer review 
has the potential to improve the quality of EPA’s rules and eliminate 
some of the errors and other limitations we identified in the proposed 
radon rule. EPA’s National Center for Environmental Economics has 
already conducted several internal peer reviews of economic analyses 
supporting major rules as case studies, and EPA has found that such 
reviews can produce meaningful results. For example, the center’s 
director told us that one of the peer reviews served as a forum for 
airing differences of opinion among program office and legal staff on 
whether and how to account for pre-existing subsidies. As a result of 
discussions of this issue during the internal peer review, the proper 
accounting method was selected. If the subsidies had not been properly 
recognized and accounted for, the costs of the rule would have been 
understated by about $700 million. 

The draft checklist that the center is developing to peer review 
economic analyses contains many questions divided into nine sections: 
regulation description, baseline, benefits, costs, economic impact 
analysis, equity assessment, discounting, sensitivity analysis, and 
summary and critique of the entire economic analysis. The sections on 
costs and the summary and critique of the economic analysis include the 
following: 

* Was the proper modeling approach used to assess the economic costs? 

* Were relevant and high quality data sources used? 

* Did the analysis address all significant economic costs? 

* Are all of the data sources and assumptions clearly described? 

* Is the analysis generally clear and transparent? 

The questions in the draft are reasonable and specifically address some 
of the problems we identified with the proposed radon rule, such as the 
lack of clarity and transparency. However, the questions do not 
incorporate basic quality assurance checks for accuracy and consistency 
that could better ensure that the agency’s economic analyses do not 
contain errors such as inappropriately amortized costs. The errors that 
EPA made in conducting and presenting its economic analysis supporting 
the radon rule could, in most cases, have been easily avoided with 
basic quality assurance checks for accuracy and consistency. 

While EPA’s proposed radon rule was issued before the agency started to 
implement its new regulatory review process, the director of EPA’s 
National Center for Environmental Economics told us that the drinking 
water rule on radon will be subject to the review process before the 
rule is finalized. 

Conclusions: 

In developing its proposed rule on radon in drinking water, EPA sought 
and was generally responsive to advice from experts and stakeholders, 
which strengthened important aspects of the cost analysis supporting 
the proposed rule. However, because of the limitations we identified in 
EPA’s cost analysis, the agency did not provide policymakers and 
stakeholders with complete and reliable estimates of the expected 
compliance costs of the proposed rule and who would bear them. 
Identifying the regulatory costs that water systems are expected to 
incur is particularly important in light of the anticipated financial 
demands on water systems to enhance security and comply with other 
pending drinking water regulations. It is also important to accurately 
estimate the costs that households would have to incur—on a voluntary 
basis—to remove radon from the indoor air in their homes to reduce 
radon health risks as anticipated by the rule. The limitations in EPA’s 
cost analysis and presentation also hampered the ability of interested 
parties and the public to provide informed comments to EPA. Whether 
addressing these limitations would change EPA’s conclusion that the 
rule is economically justified is not known given that EPA will also be 
revising its estimate of the benefits in the final rule, for example, 
to respond to recommendations from the Science Advisory Board that 
estimates of benefits be discounted to present value. 

EPA appears to be moving in the right direction by requiring internal 
peer reviews of the economic analyses supporting its major rules and 
starting to develop standard procedures for these reviews. The internal 
peer reviews—if properly and routinely conducted—should improve the 
credibility and usefulness of the agency’s economic analyses and 
improve its regulatory actions overall. While we continue to believe 
that some economic analyses may also warrant external peer review, 
there are signs that an internal peer review process could produce 
meaningful results at EPA. In our view, the agency’s efforts to 
establish standard procedures for the reviews of economic analyses 
could help the agency ensure that its reviews are thorough and 
consistent. Yet it is not clear whether EPA’s review procedures, as 
presently drafted, would be sufficiently rigorous and detailed to 
identify some of the errors we identified, such as the accounting error 
that incorrectly amortized an annual cost over a 20-year period. 
However, EPA still has the opportunity to build in such procedures. 

Recommendations for Executive Action: 

To improve the credibility and usefulness of its economic analysis for 
the final drinking water rule on radon, we recommend that the 
administrator, EPA, require the Office of Water to: 

* correct its cost estimates for testing for and treating radon in 
indoor air and disclose that homeowners are expected to bear these 
costs, 

* correct its estimates of states’ and water systems’ costs for 
administration of indoor air programs, 

* include mixed water systems in its economic analysis, 

* revise its economic analysis to include less optimistic assumptions 
about how many water systems will use indoor air programs to comply 
with the rule, and, 

* revise its estimate of the risks from radon emitted during water 
treatment by incorporating the National Academy of Sciences’ increased 
estimate of these risks, and by using the agency’s current air quality 
models, and assess the extent to which the revised risk estimate would 
change costs. 

To better ensure the quality of economic analyses for the radon rule and
other major rules prepared by EPA, we also recommend that the 
administrator, EPA, require the agency to expeditiously implement
standard procedures for conducting internal peer reviews of its economic
analyses. These procedures should include quality assurance measures to
identify errors in calculations; check the reasonableness of assumptions
and methodologies; and ensure that the documentation of the analyses is
clear, transparent, accurate, and complete. 

Agency Comments: 

We provided EPA with a draft of this report for its review and comment.
In response, officials from the Offices of Water; Air and Radiation; and
Policy, Economics, and Innovation generally agreed with our findings and
recommendations. The officials provided some technical and editorial
suggestions that we have incorporated into the report, as appropriate.
However, while agreeing that the proposed rule contained the errors and
other inaccuracies we identified, the Office of Water did not agree 
that an effect of these errors was reduced credibility of EPA’s cost 
analysis. While our report identifies a number of strengths of EPA’s 
cost analysis, these strengths do not offset or negate the effects of 
the errors and misstatements we found. We continue to believe that, 
collectively, the limitations we identified reduced both the 
credibility and usefulness of the cost analysis for the radon rule. For 
example, we believe that the credibility of EPA’s estimates was reduced 
by an analytic error and a presentation error that EPA made related to 
an important cost component—the cost of testing and treating indoor air 
for radon. The analytic error involved EPA estimating annual costs of 
$4 million, when the correct estimate is about $41 million. The 
presentation error involved EPA indicating that states and local water 
systems would bear these costs, when such costs would actually be borne 
largely by individual households. We believe that correcting these and 
other errors would, in fact, improve the credibility and usefulness of 
the analysis to policymakers and stakeholders. 

Scope and Methodology: 

To assess the strengths and limitations of EPA’s cost estimate for the 
November 1999 proposed radon rule, we reviewed the two primary EPA 
documents describing the agency’s cost analysis; namely, the proposed 
rule and the agency’s economic analysis supporting the rule (the 
regulatory impact analysis). In addition, we reviewed key EPA documents 
that the agency used to support its economic analysis, including 
Technologies and Costs for the Removal of Radon from Drinking Water; 
Methods, Occurrence, and Monitoring Document for Radon in Drinking 
Water; Technical Support Document for the 1992 Citizen’s Guide to 
Radon; and the October 1999 supporting statement for information 
collection request for radon. We reviewed case studies identifying the 
costs associated with installing and maintaining aeration equipment, 
including Critical Assessment of Radon Removal Systems for Drinking 
Water Supplies published by the American Water Works Association 
Research Foundation and the American Water Works Association in 1998. 
In addition, we met with EPA officials responsible for the proposed 
rule and the economic analysis to obtain information about key 
assumptions and methodologies. These officials provided us with 
internal documents, such as costing models and spreadsheets that 
supported the analysis, which we also reviewed. We reviewed stakeholder 
comments made on the proposed rule, including those by the American 
Water Works Association, the National Rural Water Association, and the 
Association of State Drinking Water Administrators. We met with 
representatives of the American Water Works Association and interviewed 
water treatment professionals who have experience with radon removal. 

Because the scope of our review was limited to assessing EPA’s cost 
estimate, we reported on, but did not evaluate, EPA’s estimates of the 
expected benefits of the proposed rule. As also agreed with your 
offices, we reviewed the assumptions EPA used in its cost models to 
generate its water treatment estimates, but we did not validate the 
costing models or the data EPA used in developing its cost estimates. 
For several of the analytical limitations we identified, we developed 
estimates of the change in EPA’s estimated costs if EPA were to correct 
its analysis (see app. I). We developed these estimates based on 
information from EPA’s primary documents and additional internal 
documents that we obtained from EPA officials. We did not have a basis 
to estimate increased costs that water systems might incur if EPA 
updated its estimate of the health risks from radon that would be 
emitted into outdoor air as it is removed from drinking water through 
aeration. We conducted our work from May 2001 through January 2002 in 
accordance with generally accepted government auditing standards. 

We will send copies of this report to the administrator, EPA, and make 
copies available to others who request them. If you or your staff have 
questions about this report, please call me on (202) 512-3841. 

Signed by: 

John B. Stephenson: 
Director, Natural Resources and Environment: 

[End of section] 

Appendix I: Adjustments to EPA’s Best Estimates of Total National Costs 
to Address Limitations in EPA’s Economic Analysis (Dollars in 
millions): 

Cost components: Water: Capital; 
EPA’s best estimate: $23.1; 
EPA’s best estimate corrected for two accounting errors: $23.1; 
EPA’s best estimate corrected for two accounting errors and including 
mixed systems[A]: $26.0; 
EPA’s best estimate corrected for two accounting errors; including 
mixed systems; and adjusting overly optimistic assumption from 90% of 
systems to 75% of systems: $44.6; 
EPA’s best estimate corrected for two accounting errors; including 
mixed systems; and adjusting overly optimistic assumption from 90% of 
systems to 50% of systems: $75.6. 

Cost components: Water: Operations and Maintenance; 
EPA’s best estimate: $15.5; 
EPA’s best estimate corrected for two accounting errors: $15.5; 
EPA’s best estimate corrected for two accounting errors and including 
mixed systems[A]: $17.4; 
EPA’s best estimate corrected for two accounting errors; including 
mixed systems; and adjusting overly optimistic assumption from 90% of 
systems to 75% of systems: $29.6; 
EPA’s best estimate corrected for two accounting errors; including 
mixed systems; and adjusting overly optimistic assumption from 90% of 
systems to 50% of systems: $49.8. 

Cost components: Water: Monitoring; 
EPA’s best estimate: $14.1; 
EPA’s best estimate corrected for two accounting errors: $14.1; 
EPA’s best estimate corrected for two accounting errors and including 
mixed systems[A]: $15.9; 
EPA’s best estimate corrected for two accounting errors; including 
mixed systems; and adjusting overly optimistic assumption from 90% of 
systems to 75% of systems: $15.9; 
EPA’s best estimate corrected for two accounting errors; including 
mixed systems; and adjusting overly optimistic assumption from 90% of 
systems to 50% of systems: $15.9. 

Cost components: Water: System Administration; 
EPA’s best estimate: $2.5; 
EPA’s best estimate corrected for two accounting errors: $2.5; 
EPA’s best estimate corrected for two accounting errors and including 
mixed systems[A]: $2.5; 
EPA’s best estimate corrected for two accounting errors; including 
mixed systems; and adjusting overly optimistic assumption from 90% of 
systems to 75% of systems: $2.5; 
EPA’s best estimate corrected for two accounting errors; including 
mixed systems; and adjusting overly optimistic assumption from 90% of 
systems to 50% of systems: $2.5. 

Cost components: Water: Subtotal; 
EPA’s best estimate: $61.3; 
EPA’s best estimate corrected for two accounting errors: $61.3; 
EPA’s best estimate corrected for two accounting errors and including 
mixed systems[A]: $68.1; 
EPA’s best estimate corrected for two accounting errors; including 
mixed systems; and adjusting overly optimistic assumption from 90% of 
systems to 75% of systems: $98.8; 
EPA’s best estimate corrected for two accounting errors; including 
mixed systems; and adjusting overly optimistic assumption from 90% of 
systems to 50% of systems: $150.1. 

Cost components: Indoor Air: Testing and treatment[B]; 
EPA’s best estimate: $3.9; 
EPA’s best estimate corrected for two accounting errors: $41.2; 
EPA’s best estimate corrected for two accounting errors and including 
mixed systems[A]: $51.3; 
EPA’s best estimate corrected for two accounting errors; including 
mixed systems; and adjusting overly optimistic assumption from 90% of 
systems to 75% of systems: $47.2; 
EPA’s best estimate corrected for two accounting errors; including 
mixed systems; and adjusting overly optimistic assumption from 90% of 
systems to 50% of systems: $40.5. 

Cost components: Indoor Air: System administration of Systems' indoor 
air programs; 
EPA’s best estimate: $45.1; 
EPA’s best estimate corrected for two accounting errors: $18.6; 
EPA’s best estimate corrected for two accounting errors and including 
mixed systems[A]: $19.1; 
EPA’s best estimate corrected for two accounting errors; including 
mixed systems; and adjusting overly optimistic assumption from 90% of 
systems to 75% of systems: $15.9; 
EPA’s best estimate corrected for two accounting errors; including 
mixed systems; and adjusting overly optimistic assumption from 90% of 
systems to 50% of systems: $10.6. 

Cost components: Indoor Air: State oversight of systems' indoor air 
programs; 
EPA’s best estimate: $7.8; 
EPA’s best estimate corrected for two accounting errors: $3.3; 
EPA’s best estimate corrected for two accounting errors and including 
mixed systems[A]: $3.4; 
EPA’s best estimate corrected for two accounting errors; including 
mixed systems; and adjusting overly optimistic assumption from 90% of 
systems to 75% of systems: $2.9; 
EPA’s best estimate corrected for two accounting errors; including 
mixed systems; and adjusting overly optimistic assumption from 90% of 
systems to 50% of systems: $2.0. 

Cost components: Indoor Air: State administration of states' indoor air 
programs[C]; 
EPA’s best estimate: $2.9; 
EPA’s best estimate corrected for two accounting errors: $2.9; 
EPA’s best estimate corrected for two accounting errors and including 
mixed systems[A]: $2.9; 
EPA’s best estimate corrected for two accounting errors; including 
mixed systems; and adjusting overly optimistic assumption from 90% of 
systems to 75% of systems: $2.9; 
EPA’s best estimate corrected for two accounting errors; including 
mixed systems; and adjusting overly optimistic assumption from 90% of 
systems to 50% of systems: $2.9. 

Cost components: Indoor Air: Subtotal; 
EPA’s best estimate: $59.8; 
EPA’s best estimate corrected for two accounting errors: $66.1; 
EPA’s best estimate corrected for two accounting errors and including 
mixed systems[A]: $76.7; 
EPA’s best estimate corrected for two accounting errors; including 
mixed systems; and adjusting overly optimistic assumption from 90% of 
systems to 75% of systems: $68.9; 
EPA’s best estimate corrected for two accounting errors; including 
mixed systems; and adjusting overly optimistic assumption from 90% of 
systems to 50% of systems: $56.0. 

Cost components: Total costs; 
EPA’s best estimate: $121.1; 
EPA’s best estimate corrected for two accounting errors: $127.4; 
EPA’s best estimate corrected for two accounting errors and including 
mixed systems[A]: $144.8; 
EPA’s best estimate corrected for two accounting errors; including 
mixed systems; and adjusting overly optimistic assumption from 90% of 
systems to 75% of systems: $167.8; 
EPA’s best estimate corrected for two accounting errors; including 
mixed systems; and adjusting overly optimistic assumption from 90% of 
systems to 50% of systems: $206.1. 

Note: Line items may not sum to totals due to rounding. 

[A] Our estimate of the costs for mixed systems is based on an estimate 
that EPA developed and we reviewed. The estimate includes 1,074 mixed 
water systems receiving more than 50 percent of their water from 
groundwater sources. However, it does not include the costs for three 
systems serving more than 1,000,000 customers that receive some of 
their water from groundwater sources and that EPA believes would incur 
costs to comply with the radon rule. We did not develop an estimate for 
these costs, which should also be included in EPA’s cost estimate for 
the final radon rule. 

[B] EPA assumes that most of these costs will be borne by individual 
homeowners. 

[C] EPA’s best estimate assumes 25 states will have indoor air 
programs, but its estimate of state administration costs is based on 
costs for 23 states. According to EPA, the estimate in the final rule 
will include costs for 25 states. 

Source: GAO’s analysis of EPA data. 

[End of table] 

[End of section] 

Appendix II: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Christine Fishkin (202) 512-6895: 

Staff Acknowledgments: 

Other key contributors to this report include David Goldstein, Timothy 
Guinane, Patricia Manthe, Cynthia Norris, and Amy Webbink. 

[End of section] 

Footnotes: 

[1] According to EPA, the agency does not have the statutory authority 
to directly regulate radon in indoor air. 

[2] EPA reported its estimates of the costs and benefits of the radon 
rule in 1997 dollars. 

[3] National Academy of Sciences, Risk Assessment of Radon in Drinking 
Water, Washington, D.C.: 1999. 

[4] The proposed rule excludes certain groundwater systems: (1) 
nontransient noncommunity water systems are excluded on the basis that 
the more limited exposure to radon from drinking water in the schools, 
hospitals, and factories in this category results in lower health risks 
compared with life-time exposures in homes and (2) transient 
noncommunity water systems are excluded because most people who use 
such facilities (service stations, campgrounds) do so only 
occasionally. 

[5] U.S. Environmental Protection Agency, Radon in Drinking Water 
Health Risk Reduction and Cost Analysis (Washington, D.C.: Feb. 26, 
1999). 

[6] A picocurie is one trillionth of a curie, a unit of radioactivity. 

[7] Most (96 percent) groundwater systems serve 10,000 or fewer 
customers; 67 percent of the systems serve 500 or fewer customers. 

[8] Most of the estimated cost—$405 million—would be borne by water 
systems. 

[9] These nonquantified benefits and costs include, among other items, 
customer comfort from knowing that radon is being removed from their 
water and customer anxiety about living near treatment plants that emit 
radon gas. 

[10] EPA replaced its 1983 Guidelines for Performing Regulatory Impact 
Analyses with Guidelines for Preparing Economic Analyses in September 
2000. EPA was using draft revised guidelines for economic analyses when 
the proposed radon rule was issued. The criteria for effective 
presentation of economic analyses were substantially the same in the 
1999 draft guidelines and the issued guidelines. 

[11] Aeration technologies force air through drinking water and strip 
away contaminants, which are then vented into outdoor air. 

[12] EPA analysts had previously assumed labor rates for water 
treatment professionals to be about $15 per hour. For the proposed 
rule, EPA adjusted labor rates to add fringe and other benefits, 
resulting in hourly labor costs ranging from $28 to $52, depending on 
the size of the water system. 

[13] U.S. Environmental Protection Agency, Guidance Manual for 
Compliance With the Filtration and Disinfection Requirements for Public 
Water Systems Using Surface Water Sources (Washington, D.C.: March 
1991). 

[14] This is the largest category of groundwater systems for which EPA 
included costs. According to EPA, its review of the two groundwater 
systems that serve more than 1 million customers indicated that these 
systems would not have to treat for radon. 

[15] According to the stakeholder’s survey data, most large systems 
have an average of 11 sites. 

[16] Because this system serves more than 1,000,000 customers, its 
inclusion distorted the stakeholder’s estimate of 23.8 sites per system 
but did not distort its subsequent estimate of 14.7 sites. 

[17] EPA estimates that 1,776 systems nationwide have radon levels 
above 4,000 picocuries. 

[18] American Water Works Association, State Response to the Proposed 
Multimedia Mitigation Program Option, Washington, D.C.: 2000. 

[19] EPA’s estimates are in 1997 dollars. 

[20] This assumption is based directly on an estimate described in 
EPA’s Technical Support Document for the 1992 Citizen’s Guide to Radon 
(May 1992). EPA did not adjust the estimate, which was reported in 1991 
dollars, for inflation because it believed that testing and treatment 
costs had not increased since 1991. 

[21] EPA’s estimate of the number of lives saved per year assumes that 
the indoor air programs adopted in conjunction with the less stringent 
drinking water standard would save the same number of lives as 
compliance with the more stringent standard. This assumption is based 
on the requirements of the 1996 amendments to the Safe Drinking Water 
Act. 

[22] EPA estimated that if all systems were required to comply with the 
alternative standard of 300 picocuries, 62 lives would be saved each 
year. However, in the case of EPA’s best estimate, about 95 percent of 
systems either would be in states with indoor air programs or would 
implement their own indoor air programs, so indoor air programs would 
be expected to save 59 lives (95 percent of the 62 lives that would be 
saved assuming that all systems were required to comply with the more 
stringent standard of 300 picocuries). 

[23] Our estimate of the costs for mixed systems is based on an 
estimate that EPA developed and we reviewed. The estimate includes 
1,074 mixed water systems receiving more than 50 percent of their water 
from groundwater sources. It does not include the costs for three 
systems serving more than 1,000,000 customers that receive some of 
their water from groundwater sources and that EPA believes would incur 
costs to comply with the radon rule. We did not develop an estimate for 
these systems, which should also be included in EPA’s cost estimate for 
the final radon rule. 

[24] Of the limitations we found, the exclusion of mixed systems is the 
only one that has an effect on EPA’s estimates of the benefits of the 
rule. 

[25] One alternative technology, granular activated carbon (GAC), is 
much more costly than aeration for all but the very smallest water 
systems. This technology does not vent radon into the air during 
treatment but collects the radon in filters. 

[26] Specifically, EPA’s analysis assumed that (1) no systems serving 
populations smaller than 3,301 would face additional costs to address 
emissions from water treatment because EPA believes that these small 
systems are generally located in rural areas where emissions would not 
be a concern and (2) 15 percent of systems that serve populations 
larger than 3,300 and that install aeration treatment would incur 
additional costs to address emissions, at an average annual cost of 
$39,000 per system. This cost represents a 35-percent increase to these 
systems’ average costs for treating and monitoring their water for 
radon. 

[27] U.S. General Accounting Office, Air Pollution: Information 
Contained in EPA’s Regulatory Impact Analyses Can be Made Clearer, 
[hyperlink, http://www.gao.gov/products/GAO/RCED-97-38] (Washington, 
D.C.: Apr. 14, 1997). 

[28] U.S. General Accounting Office, Regulatory Reform: Comments on S. 
981—The Regulatory Improvement Act of 1997, [hyperlink, 
http://www.gao.gov/products/GAO/T-GGD/RCED-97-250] (Washington, D.C.: 
Sept. 12, 1997). 

[29] Arrow, Kenneth J. et al., Benefit-Cost Analysis in Environmental, 
Health, and Safety Regulation: A Statement of Principles (the American 
Enterprise Institute, the Annapolis Center, and Resources for the 
Future, 1996). 

[End of section] 

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