Fishing for a reason to regulate

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The administration has argued that these regulatory costs are justified, by asserting high “benefits” that exceed their costs. It is to the president’s credit that he has continued to require cost-benefit analysis of major rules to ensure they do more good than harm, as presidents of both parties have required in the past. But with regard to EPA, what has been less noticed than the high cost of the agency’s rules is that there is considerable reason to be skeptical about how EPA is assessing the benefits that it claims. Though environmental goals often deservedly command wide support, careful analysts have noted that EPA has overstated benefits and included things that ought not count at all. (See Dudley, 47 Business Economics 165, July 2012.) As one example, an ongoing action by EPA illustrates just how far agencies may go to find supposed “benefits” to justify new red tape.

In 2011, EPA proposed a new regulation governing the equipment that power plants and manufacturing facilities use to draw in water to prevent overheating. These water intake systems generally are not harmful to health or water quality, but EPA’s staff expressed concerns primarily about their effect on larvae and forage fish — commonly known as “bait”.  To reduce losses of such fish, EPA wants to require installation of advanced screens at 1,200 facilities and dramatically more expensive technologies to be decided later on a site-by-site basis.

EPA initially estimated that its preferred approach would impose $466 million in annual costs on power plants and energy consumers, while producing only $16 million in quantified benefits. With one dollar in costs for every three cents in fish “benefits”, this did not look like a cost-effective rule.

But then EPA got creative. The agency mailed a “survey” to several thousand households, most of whom did not even respond. Through a series of purely hypothetical questions, EPA asked people to put a dollar value on how fishbait and other aquatic organisms make them feel. The 18-page survey asked how much per month they might imagine paying to save “0.6 billion fish.” Two dollars a month? Three dollars? These sponsor-a-fish questions suggested that a couple bucks could save millions of tiny fish, with no benchmark to other environmental or economic priorities and no actual cost to the survey responders.  Respondents were also asked how much they might imagine paying to improve the “condition of aquatic ecosystems” from “48 percent pristine” to “50 percent pristine” — for those who know what a 2 percent increase in pristine-ness looks like.

Perhaps EPA regulators found the results they were fishing for. Last summer, EPA published a notice showing that its “stated preference” survey supports increasing the estimate of fish “benefits” to $2.2 billion per year. That’s about a 14,000% increase over the $16 million estimate it put out last year. If one takes this new method seriously, it suggests that for every $1 that Americans are willing to pay for fish on their dinner plate or on their hook, they are willing to pay another $140 to know the bait are swimming freely and comfortably somewhere.

This not a credible basis to justify new regulation. In the past, the Office of Management and Budget, charged with overseeing the rule-making process, and leading economists have insisted on safeguards against using surveys that pose purely hypothetical questions, rather than asking about real economic choices that people make. This approach also breaks with EPA’s own prior limitation of assessing  such intangible, “non-use values” only when looking at protections for endangered species like the humpback whale, but not for common and abundant wildlife like minows and bait.

The results of EPA’s benefits “survey”, if adopted when EPA finalizes its rule this year, could be misused to justify more than $2 billion per year in new regulatory costs under EPA’s preferred option, and nearly $7.5 billion per year for an even more intrusive and costly option still under consideration.  Energy businesses project that this could translate into up to $4.5 billion per year in costs passed on to consumers in the form of higher electric bills — the last thing families and employers need in an economy that has been stalled for too long already.

Perhaps Senators should be asking the EPA nominee whether this proposed new approach to evaluating regulatory benefits provides a worrying glimpse into what the administration’s second-term regulatory game plan may look like, with dubious methods employed to expand the reach of regulation yet again. Hopefully not. Under EPA’s latest maneuver, there would be few new burdens that regulators could not claim to justify on paper through bogus assertions of “benefits”. Permitting this tactic would enable another substantial expansion of the regulatory state, at the continued expense of the private economy.

With our national economy unfortunately continuing to lag during the worst “recovery” in American history, the federal government should not be grasping for new excuses to impose higher regulatory costs. At a minimum, senators might ask the EPA nominee to  commit the agency to using sound science, to use only valid measures of actual benefits, and to protect our environment in a reasonable way that avoids imposing unjustified costs on an economy that needs to get back to creating jobs and incomes rather than taking new regulatory actions that unnecessarily impede them. 
 
Rosen is a lawyer in Washington, D.C., who previously served as general counsel at the White House Office of Management & Budget.

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