Crossing the Regulatory Divide to Enhance Societal Well-Being

The U.S. Environmental Protection Agency (EPA) recently has taken a historic step to advance the “cost-benefit state,” the paradigm in which “government regulation is increasingly assessed by asking whether the benefits of regulation justify the costs of regulation.”

EPA issued an advance notice of proposed rulemaking soliciting public comment on whether and how EPA should create rules for weighing costs and benefits when implementing statutes. EPA also requested comment on specific analytic approaches to quantifying costs and benefits.

This advance notice raises many interesting issues—but most importantly, it could lead to fundamental and beneficial change that is long overdue.

Although every President since Ronald Reagan has required by executive order that executive agencies perform cost-benefit analysis for major rules and only regulate if the benefits justify the costs, the agencies all too often construe statutes in a way that precludes full compliance with these directives. In a garden-variety case, an agency interprets a legislative provision that is silent or ambiguous on the role of cost-benefit analysis—perhaps with analysis of some legislative history to support the agency’s preferred interpretation of the text—to establish a decision standard inconsistent or in conflict with the presidential order requiring cost-benefit balancing.

Yet the actual statutory text does not prohibit cost-benefit balancing. And, of course, none of the legislative history satisfied the constitutional requirements for becoming law, and thus neither requires nor authorizes violating the presidential directive. This dubious approach to statutory interpretation remains one of the greatest yet most readily addressable impediments to the cost-benefit state.

The scope of EPA’s discretion to balance benefits and costs under ambiguous statutes is critical because most environmental statutes, like other regulatory statutes, are silent or ambiguous on cost-benefit analysis. Moreover, alternatives to cost-benefit analysis, such as feasibility analysis, are inferior tools for enhancing societal well-being. Feasibility analysis involves regulating any significant risk to the extent technologically or economically feasible. Compelling evidence shows that feasibility analysis lacks a normative justification, can just as easily lead to under-regulation as to over-regulation, and should have no place in government regulation. This evidence highlights the need to reduce impediments to the cost-benefit state.

When I served at the Office of Information and Regulatory Affairs (OIRA) in the White House Office of Management and Budget, I had the opportunity to work on new regulations under a section of the Clean Water Act. The section is silent on cost-benefit balancing and instructs that the standard for cooling water intake structures should “reflect the best technology available for minimizing adverse environmental impact.” With the enthusiastic encouragement of OIRA, EPA adopted a cost-benefit standard—but the standard was initially overturned 3-0 by the U.S. Court of Appeals for the Second Circuit.

Fortunately, in Entergy Corp. v. Riverkeeper, Justices Antonin Scalia and Stephen Breyer joined in a 6-3 reversal that made quite clear EPA’s broad discretion to interpret statutes that are silent or ambiguous on benefit-cost balancing as permitting, not forbidding, such rational regulation. The Court noted that the “best” technology could be the most efficient and described as “eminently reasonable” the conclusion that the statutory “silence is meant to convey nothing more than a refusal to tie the agency’s hands as to whether cost-benefit analysis should be used, and if so to what degree.”