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Perpetuating Puffery: An Analysis of the Composition of OMB's Reported Benefits of Regulation

Abstract

The Office of Management and Budget reports that the benefits of regulations issued over the last decade exceed the costs by an order of magnitude. But how accurate are those estimates? Over 80 percent of total reported regulatory benefits derive from three sources: (1) reductions of fine particles in the air as a direct result of regulation, (2) the co-benefits achieved from ancillary reductions in these particles as an indirect result of regulation, and (3) private savings for which agencies have offered no market failure explanation. This article critically examines the approaches and assumptions behind these estimates, and suggests that the reported benefits should be viewed with some skepticism.

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Notes

  1. The “Regulatory Right to Know Act” (Section 624 of the Treasury and General Government Appropriations Act of 2001, Pub. L. No. 106–554, 31 U.S.C. §1105 note) required OMB to submit an accounting statement and report that included “(1) an estimate of the total annual costs and benefits (including quantifiable and nonquantifiable effects) of Federal rules and paperwork, to the extent feasible—(A) in the aggregate; (B) by agency and agency program; and (C) by major rule; (2) an analysis of impacts of Federal regulation on State, local, and tribal government, small business, wages, and economic growth; and (3) recommendations for reform.” “Major” is a term defined in a separate statute; but, since it relies on the same $100 million threshold as EO 12866, OMB appears to use the two terms interchangeably in its report.

  2. The number of major and significant regulations was derived using the search engine at www.reginfo.gov. Total regulations published are reported by the Office of the Federal Register.

  3. The Small Business Administration Office of Advocacy publishes reports on the total costs of regulation, but these focus on cost impacts on small- and medium-sized entities, and do not attempt to measure benefits.

  4. OMB [2012] reports data on a fiscal year basis, except for its comparisons across presidential administrations. Figure 1 is comparable to Figure 1-1 in the report with some adjustments. Benefits claimed by OMB in a year are included here, whereas, to avoid double counting benefits, OMB removes benefits from previous years when more recent regulations would require actions to achieve reductions previously claimed. Thus, the estimates in these columns are not additive, but we believe this approach provides a more accurate comparison between years.

  5. The uncertainties listed by OMB are: (1) Inhalation of fine particles is causally associated with premature death at concentrations near those experienced by most Americans on a daily basis. (2) All fine particles, regardless of their chemical composition, are equally potent in causing premature mortality. (3) The impact function for fine particles is approximately linear within the range of ambient concentrations under consideration, which includes concentrations below the National Ambient Air Quality Standard. (4) The forecasts for future emissions and associated air quality modeling are valid. (5) Some rules apply a national dollar benefit-per-ton estimate of the benefits of reducing directly emitted fine particulates from specific source categories. (6) The value of mortality risk reduction is taken largely from studies of the willingness to accept risk in the labor market and might not necessarily apply to people in different stages of life or health status [OMB 2012, footnote 18].

  6. Table 5–8 of EPA [2011a] presents the age cohorts and life expectancy of the beneficiaries of reduced PM2.5 exposure.

  7. The Act requires EPA to revise the standards every five years, though this schedule sometimes slips. As of this writing, EPA is poised to propose a new NAAQS for PM2.5 in the summer of 2012.

  8. As of this writing, EPA has proposed to lower the national ambient air quality standard for PM2.5 to between 12 and 13 ug/m3, still higher than the levels for which it derives co-benefits in other regulations. https://www.federalregister.gov/articles/2012/06/29/2012-15017/national-ambient-air-quality-standards-for-particulate-matter.

  9. Smith identifies the following as being issued in proposed or final form in 2011 for which all or most of the benefits derive from ancillary reductions in PM2.5: National Emission Standards for Hazardous Air Pollutants for Major Sources: Industrial, Commercial, and Institutional Boilers and Process Heaters (2060-AQ25); Risk and Technology Review for Ferroalloys Production (2060-AQ11); National Emission Standards for Hazardous Air Pollutants From Coal- and Oil-Fired Electric Utility Steam Generating Units and Standards of Performance for Electric Utility Steam Generating Units (2060-AP52); National Emission Standards for Hazardous Air Pollutants for Area Sources: Industrial, Commercial, and Institutional Boilers (2060-AM44); Commercial and Industrial Solid Waste Incineration Units; Response to Remand of New Source Performance Standards and Emission Guidelines (2060-AO12).

  10. EPA provides links to several fact sheets and technical support documents at: www.epa.gov/mats/actions.html

  11. EPA estimates that in 2005, children exposed to mercury (from all sources) experience a decline of 0.1068 IQ points (relative to no exposure), for a total of 25,545 IQ points nationwide. Without the regulation, EPA estimates that in 2016, exposed children will face a 0.1000 IQ point decrement for a total of 24,419 IQ points nationwide (a 4 percent improvement). With the regulation in 2016, the analysis predicts exposed children will experience a 0.0979 IQ point decrement, for a total of 23,909 IQ points nationwide (a 3 percent improvement over the no-rule scenario).

  12. “Due to methodology and data limitations, we did not attempt to monetize the health benefits of reductions in HAPs in this analysis” [EPA 2011b, pp. 4–72].

  13. The RIA states, “While benefits occurring below the standard may be less certain than those occurring above the standard, EPA considers them to be legitimate components of the total benefits estimate” [EPA 2011b, p. 23].

  14. For a thorough discussion of this issue, see Smith [2011b].

  15. Cox gets this factor by assigning weights of 50 percent to assumptions regarding association and causality, which he suggests is generous, given available data.

  16. In the case of the MATS, the search for side effects caused the benefits to rise by a multiple of 15,000 to 66,000, while the costs rose not at all.

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Additional information

This paper is based on a presentation at the NABE Washington Policy Conference, March 26, 2012.

*Susan E. Dudley directs the George Washington University Regulatory Studies Center and is a research professor in the Trachtenberg School of Public Policy & Public Administration. She founded the Center in 2009 to improve regulatory policy by raising awareness of regulations' effects through research, education, and outreach. As the Presidentially appointed Administrator of the Office of Information and Regulatory Affairs (OIRA) of the U.S. Office of Management and Budget from April 2007 through January 2009, she was responsible for reviewing agency regulations and producing two reports on the benefits and costs of regulation in which she confesses to perpetuating puffery.

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Dudley, S. Perpetuating Puffery: An Analysis of the Composition of OMB's Reported Benefits of Regulation. Bus Econ 47, 165–176 (2012). https://doi.org/10.1057/be.2012.14

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Keywords

  • regulation
  • social benefits
  • benefit‐cost analysis
  • economic measurement
  • environmental protection
  • Office of Management and Budget
  • Environmental Protection Agency