FACT SHEET 12: Subjecting Agency Regulations to Additional Cost-Benefit Analysis

Source: Environmental Law Institute – Regulatory Reform
in the Trump Era

ACTOR: White House Office of Information and Regulatory Affairs

A series of Executive Orders reaching back decades, as well as several statutes, established a cost-benefit analysis for new and existing agency rules. These provisions  give the Office of Information and Regulatory Affairs (OIRA), a branch of the White House’s Office of Management and Budget, a central role in the issuance of regulations. Even without any changes to existing law, these processes will provide the new Administration with a set of tools for shaping and limiting proposed regulations. Moreover, it is possible that the Administration will alter the OIRA review process to further constrain the ability of agencies to regulate, and/or disallow consideration of the “social cost of carbon.”

Process. A series of Executive Orders issued by each president since the 1970s have required “regulatory analysis” of proposed rules; cost-benefit analysis has been required  since 1981. Currently, Executive Order 12866, issued in 1993, governs this process, as supplemented by Executive Orders 13563 and 13579, both issued by President Obama in  2011. Together these Executive Orders establish the components of the regulatory  analysis process, including (1) regulatory planning, (2) approval for new regulations, and  (3) review of existing regulations.

Regulatory Planning Process. The Executive Orders mandate a uniform regulatory planning mechanism for all federal agencies, including “independent regulatory  agencies” such as the Federal Energy Regulatory Commission or the Securities and Exchange Commission. Each agency is required to prepare a Unified Regulatory Agenda  that briefly describes each regulation under development or review. The Unified Regulatory Agenda must include a Regulatory Plan that includes “the most important significant regulatory actions that the agency reasonably expects to issue in proposed or final form.” E.O. 12866, Sec. 4(c)(1). That Order specifies the content of the Regulatory Plan and requires circulation of each Plan to other government entities.

Approval Process for New Regulations. Agencies are required to submit information to OIRA for every regulation deemed by the agency or by OIRA to be “significant.” Significant actions are those (1) having an annual economic effect of $100 million or more; (2) creating a conflict with actions of another agency; (3) affecting the impact of certain programs on beneficiaries’ rights or obligations; or (4) raising novel legal or policy issues. For such regulations, OIRA approval is required before the regulatory action can occur. These requirements do not apply to “independent regulatory agencies.”

For all significant regulatory actions, an agency must submit to OIRA an “assessment of  the potential costs and benefits of the regulatory action.” E.O. 12866, Sec. 6(a)(3)(B). For  “economically significant” actions—those with an annual economic impact of $100  million or more—a thorough cost-benefit analysis, including an analysis of alternatives, is also required.

Executive Order 13563 clarifies the criteria for agencies issuing regulations. To the extent allowable by the applicable law: (1) a regulation should be adopted only upon a reasoned determination that the benefits outweigh the costs; (2) regulations should be tailored to  minimize the burden imposed on society; and (3) the regulatory approach chosen should  maximize net benefits. Among other factors, OIRA considers these criteria in its review of each regulation.

Review Process for Existing Regulations. Executive Order 13563 requires agencies to develop a plan for periodic review of existing regulations. In developing such a plan, the  agencies must consider whether to modify, expand, or repeal existing regulations, when warranted.

Statutory Requirements. In addition to the Executive Orders’ requirements, the Unfunded Mandates Reform Act governs the issuance of regulations that may result in the  expenditure of $100 million or more, in total, by the private sector and by state, local, and tribal governments. For any such regulation, an agency must prepare a statement regarding the costs and benefits of the regulation, as well as regarding future compliance costs. OIRA is primarily responsible for monitoring agency compliance with these requirements. Under the Regulatory Flexibility Act of 1980, agencies are required to assess the impact of proposed regulations on small businesses and other “small entities.” An expansion of this statute is currently proposed (see Fact Sheet 13).

Discussion. Generally. The regulatory analysis process provides the White House with a powerful tool to shape regulations issued by government agencies and to limit the issuance of those regulations in the first instance, if it so chooses. Different OIRA  Directors have interpreted and implemented the Office’s mandate in different ways, making that selection a key political appointment. Further, it is possible that the current Administration will introduce changes to the regulatory analysis process that further constrain the ability of agencies to regulate, as it did in issuing the “two-for-one” Executive Order (see Fact Sheet 7).

Social Cost of Carbon. The Obama Administration institutionalized an assessment of the “social cost of carbon” as a component of its cost-benefit analysis. To support that process, an interagency working group produced a technical support document with recommendations for monetizing the social cost of carbon, allowing climate change impacts to be weighed alongside other costs and benefits. The working group recommended a rate of $36 per ton of CO2 equivalent for 2015. Trump Administration officials have signaled their opposition to this approach. With respect to cost-benefit analysis required by Executive Order, the Administration could either eliminate assessing the social cost of carbon altogether, or alter the technique for calculating it, which could minimize the scale of those costs in the calculation. There would be few constraints on making these changes to the OIRA review process.

Agencies could also minimize or eliminate their use of the social cost of carbon in rulemaking. In doing so, the Administration would be constrained primarily by the legal bar on agency actions that are “arbitrary or capricious.” Finally, an analysis of the social cost of carbon has also become established as part of the review under statutes such as the National Environmental Policy Act and the Energy Policy and Conservation Act, and some courts have concluded that such analysis is required. With respect to these requirements, the courts may well limit the Administration’s ability to eliminate—legally —consideration of the social cost of carbon.

Action Areas to Watch. Even if these existing cost-benefit Executive Orders are not modified by President Trump, their processes will continue to affect the issuance of any regulations considered by administrative agencies under the Trump Administration. The social cost of carbon will almost certainly be targeted in some manner, either directly or through disuse.