Cost Benefit Analysis

•

Executive Order 12291

• RIA for all new regulations

• Benefits > Costs• Office of Information

and Regulatory Affairs (OIRA) in OMB

• 1984- 58 rules “sent back”

Executive Order 12866

• Perform RIA for “significant regulations” > $100 million

• “Costs and benefits should be understood to include both quantifiable measures ... and qualitative measures of costs and benefits that are difficult to quantify.”

• Maximize “net benefits to society

• 1992-00, 16 rules sent back

Statutory Requirements Var

• CBA Okay– Safe Drinking Water

Act (1996)

– Environmental Impact Statements

• CBA Never– Toxic Substance

Control Act

– RCRA

– Clean Air Act

– Clean Water Act

Phasedown of Lead in Gas

• “Cadillac” of cost benefit analysis

• How to estimate benefits?

• Would you rather be a lion or horse tamer?

SO2 National Ambient Air Quality Benefit Categories

Direct SO2 SO4 Particulate Matter

Mortality

• What does EPA RIA suggest about

estimation of benefits?

Section 812 Study

• Was the CAA worth it?– 1990 benefits of CAA $1.25 trillion– 1990 US Economy GDP 5 trillion

• “Assumptions underlying the estimates are often unavoidably arbitrary, they have large effects on the final results, and the effects are not always well explained.” Randall Luttner, Brookings Institute

Section 812 Baseline

• No improvement in air without CAA– 60 metro areas have

higher PM in 1990 than Moscow

• 1970 baseline benefits?

PM Mortality

• Where is PM?• Where is Grandma?

Value of a Life Year

• $ Value of Reducing Mortality in years of life gained– $293,000 or

– $100,000

• $ benefits– $16.6 trillion or

– 9.1 trillion

Particulate Matter Mortality

• EPA- Reducing PM exposure = gain 14 years

• FDA- quitting smoking = gain of 15 years

Value of Life?

• $6.1 million EPA• $2.5 million DOT• $5 million Consumer

Product Safety Commission

Spaceship Survivor

• Me, you, baby, and a 72 year old lady on spaceship, only enough O2 for 3 people. Who do you toss?

OIRA “alternative estimates” for a statistical life

• $2.3 million >70

                                                                 

Impact on BCA of air pollution?

John Graham, W’s Regulatory Czar

                                                       

Past Predictions of Costs of Regulations

Predicted ActualVOC controls $14.7 billion $.84 billion

Acid Rain Program $4.1-7.4 billion $1-2 billionCFCs in cars $1,100 $40-400

28 Major Regulations (accuracy = + 25% of estimate)

Accurate Over Under ?Total Cost 5 15 3 5

Why do CBA?

• Is CBA inherently – Stupid?– Deceitful– Anti-environmental?

• Examples Saving Lives and Saving Turtles

Selling Indulgences

Conclusions

• Thresholds

• Benefits > Costs

• Useful for assessing regulatory impact

• Incomplete tool