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1.3. Statutory Obligations for Economic Analysis

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Environmental Economics Research at EPA

A 1983 report by the Environmental Law Institute A Technical Analysis of Economic-Based Regulation in Environmental Rulemaking (EE0199) examines seven of EPA’s governing statutes and assesses how and where the use of economic analysis is authorized. Though a bit dated by now, this report is very informative in explaining how and where economic analysis is likely to be useful to the EPA.

The seven statutes can be divided into three broad categories of authorities: goal setting (e.g., ambient quality standards for air and water); standard setting and permitting, which translate the goals into legally enforceable limits for individual facilities; and monitoring and enforcement activities. Economics plays almost no role in goal setting, at least in any formal sense authorized by the statutes. Cost considerations play a major role in standard setting for individual facilities and industries, but an explicit balancing of costs and benefits is required only by FIFRA and TSCA. Cost and benefit information could be used to a great extent in enforcement actions under all of the statutes, since these are largely the province of states and great discretion is given to the states in this area.

A decade later, the Environmental Law Institute issued the report Implementation Opportunities for Economic Incentives for Environmental Pollution Control (EE-0328) which explored opportunities under the statutes for greater use of economic incentives.

Economic analysis also plays a role outside the rulemaking process. Throughout the major environmental statutes are requirements that EPA make special reports on costs, costs and benefits, financing methods, impacts on competitiveness, impacts on poor and minority communities and so forth. A few of these special reports are highlighted below.

Section 812 of the Clean Air Act Amendments of 1990 required that EPA perform a retrospective assessment of the benefits and costs resulting from regulations promulgated by EPA pursuant to the act. EPA issued that report The Benefits and Costs of the Clean Air Act, 1970 to 1990 (EE-0295) in October 1997. The cost portion is based largely on EPA’s 1990 report Environmental Investments: The Cost of a Clean Environment (EE-0294A), but the benefits portion of the analysis contains a great deal of new work. The principal finding is that aggregate benefits from regulations imposed under the Clean Air Act are many times the costs. Some individual regulatory actions have had unexpected effects. For example, the control of sulfur dioxide by the acid rain program produces benefits of approximately $40 billion per year and costs of less than $2 billion. These figures are far better than initial early estimates that placed the cost at $5-6 billion annually and questioned whether there would be significant benefits.

Both the Clean Air Act and the Clean Water Act have requirements that the EPA report periodically on the costs experienced as a consequence of those statutes. In addition to those mentioned in the previous paragraph, these reports are listed in the series title view of the the Environmental Economics Report Manager under Environmental Investments. A more detailed discussion of these reports can be found under EPA Cost Studies.

The Clean Water Act of 1972 contained a requirement that EPA investigate alternative financing methods for the municipal wastewater construction grant program. Several of the EPA studies prepared in response to that requirement are discussed under subsidies.

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