Good Science, Bad Regulation, and Toxic Risk Assessment

Regulation of toxic substances is an extremely complex, uncertain, and controversial enterprise. The regulatory process is customarily divided into two discrete functions: risk assessment ostensibly is a scientific activity that develops estimates of health hazards at varying exposure levels, while risk management is a political activity that balances competing interests and values to determine whether identified toxic risks should be considered unacceptable or tolerable. This sharp distinction between the scientific and social policy dimensions of toxics regulation is embodied in the Environmental Protection Agency\u27s (EPA\u27s) guidelines for estimating carcinogenic hazards, which provide that risk assessments must use the most scientifically appropriate interpretation and should be carried out independently from considerations of the consequences of regulatory action. The requirement for adoption of the most scientifically appropriate interpretation reflects EPA\u27s current priority on attaining good science in risk-assessment proceedings. In other words, EPA and other federal agencies now stress the need for scientifically credible risk assessments and presume that their analyses should be grounded exclusively on the best available scientific theories and data even if the resulting predictions do not achieve the degree of reliability ordinarily required for valid scientific conclusions

Tradable Pollution Permits and the Regulatory Game

This paper analyzes polluters\u27 incentives to move from a traditional command and control (CAC) environmental regulatory regime to a tradable permits (TPP) regime. Existing work in environmental economics does not model how firms contest and bargain over actual regulatory implementation in CAC regimes, and therefore fail to compare TPP regimes with any CAC regime that is actually observed. This paper models CAC environmental regulation as a bargaining game over pollution entitlements. Using a reduced form model of the regulatory contest, it shows that CAC regulatory bargaining likely generates a regulatory status quo under which firms with the highest compliance costs bargain for the smallest pollution reductions, or even no reduction at all. As for a tradable permits regime, it is shown that all firms are better off under such a regime than they would be under an idealized CAC regime that set and enforced a uniform pollution standard, but permit sellers (low compliance cost firms) may actually be better off under a TPP regime with relaxed aggregate pollution levels. Most importantly, because high cost firms (or facilities) are the most weakly regulated in the equilibrium under negotiated or bargained CAC regimes, they may be net losers in a proposed move to a TPP regime. When equilibrium costs under a TPP regime are compared with equilibrium costs under a status quo CAC regime, several otherwise paradoxical aspects of firm attitudes toward TPP type reforms can be explained. In particular, the otherwise paradoxical pattern of allowances awarded under Phase II of the 1990 Clean Air Act\u27s acid rain program, a pattern tending to favor (in Phase II) cleaner, newer generating units, is explained by the fact that under the status quo regime, a kind of bargained CAC, it was the newer cleaner units that were regulated, and which therefore had higher marginal control costs than did the largely unregulated older, plants. As a normative matter, the analysis here implies that the proper baseline for evaluating TPP regimes such as those contained in the Bush Administration\u27s recent Clear Skies initiative is not idealized, but nonexistent CAC regulatory outcomes, but rather the outcomes that have resulted from the bargaining game set up by CAC laws and regulations

Good Science, Bad Regulation, and Toxic Risk Assessment

Regulation of toxic substances is an extremely complex, uncertain, and controversial enterprise. The regulatory process is customarily divided into two discrete functions: risk assessment ostensibly is a scientific activity that develops estimates of health hazards at varying exposure levels, while risk management is a political activity that balances competing interests and values to determine whether identified toxic risks should be considered unacceptable or tolerable. This sharp distinction between the scientific and social policy dimensions of toxics regulation is embodied in the Environmental Protection Agency\u27s (EPA\u27s) guidelines for estimating carcinogenic hazards, which provide that risk assessments must use the most scientifically appropriate interpretation and should be carried out independently from considerations of the consequences of regulatory action. The requirement for adoption of the most scientifically appropriate interpretation reflects EPA\u27s current priority on attaining good science in risk-assessment proceedings. In other words, EPA and other federal agencies now stress the need for scientifically credible risk assessments and presume that their analyses should be grounded exclusively on the best available scientific theories and data even if the resulting predictions do not achieve the degree of reliability ordinarily required for valid scientific conclusions