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1.2. Regulatory Impact Analysis

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Environmental Economics Research at EPA

The 1982 report Baseline Concepts for Regulatory Impact Analysis (EE0112) focuses exclusively on the baseline issue. Many of the concepts developed here are incorporated in the agency’s Guidelines for Performing Regulatory Impact Analysis (EE0228A) published by the agency in 1983. The guidelines represent the agency’s effort to develop a consistent approach among its program offices in the way the agency responds to the requirements of Executive Order 12291. In outline form these guidelines call for the following information in agency RIAs: - quantify environmental effects - define baselines - analyze cost-effectiveness
The guidelines were supplemented with appendices (EE0228B) that provide additional details and present case study examples of how to conduct the regulatory impact analyses called for in the executive order.

In 1993 the Clinton Administration issued Executive Order 12886 which modifies the earlier executive order in certain respects. The OMB guidance under E.O. 12886 calls for the following information, again expressed in outline form:

General principles
Evaluation of alternatives (including economic instruments)
Intergenerational analysis
Risk and uncertainty
Assumptions used in the analysis
International trade effects
Nonmonetized benefits and costs
Distributional effects and equity

Benefits estimation
Market commodities
Indirect market commodities
Non-market commodities
Valuing health and safety

Cost estimation
General considerations
Real costs versus transfers

This background illustrates the Agency's need for determining the economic benefits and costs of pollution control regulations as well as the net benefits (equal to the benefits minus the costs). The determination of net benefits is often referred to as benefit-cost or cost-benefit analysis. Accordingly, one of the most important objectives of EPA economic research has been to improve the Agency's capability to determine economic benefits and costs as well as to do cost-benefit analysis. Three major sections of this report therefore deal with EPA sponsored research to improve its ability to do economic benefits, economic costs, and cost-benefit analyses.

The agency is currently in the process of developing revised guidelines for economic analysis prepared under this new executive order. As a first step in the process of developing the guidelines, the agency is preparing ‘consistency papers’ on many of the sub-issues such as the choice of baseline, uncertainty, and discounting.

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