Issa, Vitter: GAO Report Confirms EPA Fudges Costs of Regulations

August 11, 2014

Findings Reveal EPA’s Regulatory Process Lacks Transparency and Circumvents OMB Guidance

House Oversight and Government Reform Committee Chairman Darrell Issa (R-Calif.) and U.S. Sen. David Vitter (R-La.), top Republican on the Environment and Public Works Committee, today released a report by the U.S. Government Accountability Office (GAO) entitled, “Environmental Regulation: EPA Should Improve Adherence to Guidance for Selected Elements of Regulatory Impact Analyses.” Issa requested this report in September 2011 after inconsistencies in Environmental Protection Agency’s (EPA) economic analyses on multiple rules that impose costs on the economy of $100 million or more raised concerns. In January 2013, Vitter joined Issa’s request of the GAO report analyzing EPA’s economic analysis used to support major rulemakings.

“The independent study released today demonstrates that the Obama Administration failed to provide thorough, transparent cost-benefit analyses for major environmental rules that cost American jobs,” said Chairman Issa. “Rather than using a fair and open rulemaking process, EPA pushed through regulations using sloppy analysis without sufficiently informing Congress or the public of the economic impact.”

“GAO’s report confirms that EPA has a bad habit of failing to be transparent with the public on how the Agency’s red tape impacts the U.S. economy,” said Sen. Vitter. “Unfortunately, transparency is only a small part of the problem. The real challenge exists in EPA’s methodologies for claiming health and employment impacts, both of which they are fudging and is why the Science Advisory Board economics panel review and continued oversight is so critical.”

Key Findings:

EPA failed to use the economic analyses in regulatory decision-making.

         GAO reports that EPA, “did not use [economic analyses] as the primary basis for selecting the final regulatory option.” Agencies are required to conduct economic analysis because they are directed to select the regulatory approach that maximizes net benefits. Failure to use the economic analysis in the final decision-making means the regulatory approach selected may not maximize net benefits across the economy.

EPA economic analyses were unclear and confusing to the public.

         Statements of Need: EPA did not provide clear statements of need for the proposed regulatory actions. Agencies are required to provide a statement of need for the proposed regulatory action and agencies should use plain, understandable language. As GAO explained, “without a clear description of the problem the regulation is intending to address in the [economic analyses] the context and rationale for the analysis is unclear.”

         Regulatory Alternatives: EPA’s consideration of alternatives and presentation of the underlying analysis varied. In two of the seven rulemakings reviewed by GAO, only one other regulatory alternative was considered. In two other rulemakings, while EPA claims to have considered regulatory alternatives, EPA failed to include any information about the alternatives in the final economic analyses.

EPA did not consistently adhere to OMB guidance for estimating benefits and costs.

         Baselines: Office of Management and Budget (OMB) guidance requires agencies to provide a baseline of the expected state without regulation, so as to accurately compare regulatory alternatives.  However, EPA failed to provide a baseline in more than 40% of the rulemakings reviewed by the GAO.  In another rulemaking, EPA used a baseline from a 2002 regulation despite having revised certain aspects of the rule in 2006.

         Employment Analysis: EPA failed to consider the current state of the economy and employment when analyzing the effects of the regulation on employment. EPA also relied upon a study that was more than 20 years old, and the authors of the study have questioned the use of the study in regulatory analyses.

         Non-monetized Benefits and Costs: EPA did not monetize some of the key benefits and costs related to the primary purpose or key impacts of the regulatory action. Without a full attempt to monetize benefits and costs, the economic analyses will be limited in their usefulness for understanding economic trade-offs.

         Social Cost of Carbon: EPA uses a method of estimating the benefits of reducing carbon that reflect a global estimate, despite the OMB guidance requirement for domestic estimates.  The EPA’s use of a global benefit estimate creates inconsistency with the remainder of the economic analysis, thus undermining EPA’s conclusions.