Measuring Actual Regulatory Costs And Benefits
September 17, 1999
The Environmental Protection Agency (EPA) issues and enforces regulations having substantial costs and benefits. In 1997, the Office of Management and Budget (OMB) estimated that federal environmental regulations cost about $144 billion annually and produce benefits of about $162 billion. However, cost-benefit assessments after regulations are issued have rarely been done, reports the General Accounting Office.
- The EPA prepares detailed cost-benefit analyses for all economically significant regulations -- including those expected to have an annual economic impact of $100 million or more.
- But of the 101 economically significant regulations the EPA issued from 1981 through 1998, only five were the subject of retrospective studies, all of which were completed from 1997 through 1999.
- These studies covered regulations to control acid rain, phase out chlorofluorocarbons, and reduce air pollution through improved vehicle inspection and maintenance.
Retrospective studies have been useful, says the GAO -- for example, by providing insights into a new, market-based regulatory approach to reduce emissions that cause acid rain. These studies found that the actual costs of reducing emissions were lower than initially estimated. Based on these findings, a legislative proposal to further limit emissions has been introduced.
The EPA says retrospective studies are difficult to do because, among other things, corporate accounting and financial records do not typically capture the information necessary to determine the incremental costs of complying with federal environmental regulations.
Also, it is extremely difficult to quantify actual benefits. One reason is there is often a significant time lag between the elimination or major reduction of pollutants and any change in illness rates.
To determine whether existing environmental regulations need to be retained or improved, the GAO recommends the EPA study the actual costs and benefits of such regulations, including when and how to use retrospective studies.
Source: "Assessing the Impacts of EPA's Regulations Through Retrospective Studies," GAO/RCED-99-250, September 14, 1999, General Accounting Office.
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