Deregulatory Cost-Benefit Analysis and Regulatory Stability

Cost-benefit analysis (“CBA”) has faced significant opposition during most of its tenure as an influential agency decisionmaking tool. As advancements have been made in CBA practice, especially in more complete monetization of relevant effects, CBA has been gaining acceptance as an essential part of reasoned agency decisionmaking. When carefully conducted, CBA promotes transparency and accountability, efficient and predictable policies, and targeted retrospective review. This Article highlights an underappreciated additional effect of extensive use of CBA to support agency rulemaking: reasonable regulatory stability. In particular, a regulation based on a well-supported CBA is more difficult to modify for at least two reasons. The first reason relates to judicial review. Courts take a “hard look” at agency findings of fact, which are summarized in a CBA, and they require justifications when an agency changes course in ways that contradict its previous factfinding. A prior CBA provides a powerful reference point; any updated CBA supporting a new course of action will naturally be compared against the prior CBA, and the agency will need to explain any changes in CBA inputs, assumptions, and methodology. The second reason relates to the nature of CBA. By focusing on the incremental costs and benefits of a proposed change, CBA can make it difficult for an agency to justify changing course, especially when stakeholders have already relied on the prior policy. Together, these forces constrain the range of changes that agencies could rationally support. CBA thus promotes regulatory stability around transparent and increasingly efficient policies. But, admittedly, this CBA-based stabilizing influence gives rise to several objections. This Article responds to, among others, concerns about democratic accountability and, most importantly, the use of alternative methods of policy modification. Overall, the Article concludes that CBA and judicial review of CBA play a desirable role in stabilizing regulatory policy across presidential administrations

Blowing Hot Air: An Analysis of State Involvement in Greenhouse Gas Litigation

In Massachusetts v. EPA (2007), the U.S. Supreme Court interpreted the Clean Air Act ( CAA ) to require the Environmental Protection Agency ( EPA ) to regulate greenhouse gas emissions1 from motor vehicles if the EPA Administrator finds that the emissions endanger public health and welfare ( Endangerment Finding ). In December 2009, the Administrator made such an Endangerment Finding, obligating the EPA to work with the National Highway Traffic Safety Administration ( NHTSA ) to develop average fuel economy and greenhouse gas emission standards for new light-duty vehicles. After issuing proposals and reviewing comments from the public, the two agencies announced their groundbreaking final regulation ( Tailpipe Rule ) in May 2010. The regulation of greenhouse gases from mobile sources under the CAA, however, triggered further greenhouse gas permit requirements for some stationary sources ( Triggering Interpretation ). This prompted the EPA to finalize permitting rules tailored to greenhouse gas emissions from stationary sources ( Tailoring Rule ), spawning legal challenges. This Note, at its heart, untangles the motivations behind an important group involved in this litigation: the states. Industry groups, environmental groups, and states filed more than seventy lawsuits challenging or supporting at least one of the EPA\u27s four actions, namely the Endangerment Finding, the Tailpipe Rule, the Triggering Interpretation, and the Tailoring Rule. Significantly, thirty-seven states have either directly filed lawsuits or requested to intervene in support of or against at least one of the four actions. These lawsuits have been consolidated into three cases before the U.S. Court of Appeals for the District of Columbia Circuit ( D.C. Circuit ). The litigation frenzy highlights a trend: states are increasingly using the legal system to advance environmental goals

Mineral Royalties: Historical Uses and Justifications

Governments and private landowners have collected royalties on mineral resources for centuries. When comprehensive measures to account for the environmental externalities of mineral extraction are politically or practically unavailable, federal and state governments may consider adjusting royalty rates as an expedient way to account for these externalities and benefit society. One key policy question that has not received attention, however, is whether a royalty rate can and should be manipulated in this way, assuming statutory discretion to do so. This article fills that gap by evaluating the argument for increasing federal or state fossil fuel royalty rates through historical, theoretical, and practical lenses. To that end, this article in turn considers the meaning of royalties, the economic justifications for royalties, the legislative history of the implementation of federal royalties, and the considerations that private landowners have relied upon in setting royalties. This article concludes that it would be appropriate for governments to adjust mineral royalty rates to account for negative externalities not otherwise addressed by regulation or to otherwise promote public welfare. Such use of royalties is consistent with the historical record. Royalties have been used as pragmatic policy tools from almost their inception, and federal and state governments have often exercised their existing statutory discretion to adjust mineral royalty rates to promote public welfare

Efficiency and Equity in Regulation

The Biden Administration has signaled an interest in ensuring that regulations appropriately benefit vulnerable and disadvantaged communities. Prior presidential administrations since at least the Reagan Administration have focused on ensuring that regulations are efficient, maximizing the net benefits to society as a whole, without considering who benefits or who loses from these policies. Critics of this process of regulatory review have celebrated President Biden’s initiative, hoping that distributional analysis and the pursuit of equity will displace traditional tools and interests such as cost-benefit analysis and the pursuit of efficiency. Meanwhile, supporters of the current process are concerned that pursuing equity will come at significant cost to efficiency and ultimately leave everyone worse off. This framework--efficiency versus equity-—is misguided and counterproductive in many cases. As an initial matter, all regulations have distributional consequences, and the traditional arguments for ignoring these consequences are outdated or wrong. Understanding distributional effects and considering equity in regulation is long overdue. But current agency practice is often far from efficient, and there are opportunities to advance equity by improving the efficiency of regulations. In fact, neutral procedures such as cost-benefit analysis are more likely to benefit disadvantaged groups than is raw politics, whatever the intention, at least based on experience in regulatory policy. Furthermore, cost-benefit analysis and efficiency considerations more generally could help avoid outcomes that are, in their implementation, inequitable. This Article supports these arguments by drawing on examples from the environmental context, where considerations of equity and efficiency have often been thought to conflict. Importantly, it highlights how thinking about both equity and efficiency can help regulators identify ways to promote both using their existing authorities. And, in particular, it argues that funding and subsidy programs could be deployed in connection with regulatory actions to help realize equitable outcomes. This Article articulates some simple rules of thumb agencies could use to identify these contexts and thoughtfully deploy their resources, and it compares this approach to broader proposals to consider equity in regulation more generally

Regulatory Fracture Plugging: Managing Risks to Water From Shale Development

Debates about the desirability of widespread shale development have highlighted outstanding uncertainty about its health, safety, and environmental impacts—most prominently, its water-contamination risks—and the ability of current institutions to deal with these impacts. States, the primary regulators of oil and gas extraction, face pressure from the energy industry, local communities, and, in some cases, the federal government to strike the right balance between energy production and the health and safety of individuals and the environment—an elusive balance given the ongoing risk uncertainty. This dynamic is not especially unique to fracking, or even oil and gas extraction; instead, this dynamic, characterized by tradeoffs between environmental protection and economic development under risk uncertainty, is a common theme of environmental risk regulation. Regulators at every level of government weigh and evaluate potential interventions against this background. This Article contributes to a symposium held at Texas A&M School of Law that explores the advantages and disadvantages of various government interventions in the environmental context in an effort to identify ideal risk-management tools under various circumstances. It argues that the most important considerations for identifying risk-management tools in the environmental context are risks, incentives, and cost-benefit analysis. These cornerstone principles provide a useful framework for environmental policy in general, especially in situations that involve heterogeneous and uncertain risks. By paying attention to risk, incentives, and cost-benefit analysis, government regulators are more likely to promote optimal levels of environmental quality and avoid unintended, or even perverse, consequences. To demonstrate the usefulness of these concepts concretely, this Article applies them to the fracking context, focusing on the most prominent risks from widespread shale development, risks to water from shale gas extraction. It identifies risk-management gaps in tort litigation, insurance markets, and regulation schemes and suggests potential solutions

The Economic Significance of Insignificant Rules

We know relatively little about the economic impacts of "minor" or "insignificant" rules because they are not typically analyzed. Yet, these rules could be important, particularly when we consider their aggregate impacts. We provide an economic analysis of one proposed rule to control hazardous air pollutants, which is not considered to be economically significant. This rule is of particular interest because it is likely to be the first in a long series of rules that EPA will use to address residual risk from hazardous air pollutants over the next several years. We find that the proposed controls that EPA considers are not likely to pass a benefit-cost test. Furthermore, we suggest that agencies consider applying a rule of thumb that would specify a threshold level of risk reduction that needs to be achieved before some kinds of regulation are considered. We believe that it is important to consider the impact of small rules more carefully at all levels of government. One way of addressing the problem would be to choose a list of small rules at random and examine their economic consequences. This research could provide insights into the potential economic importance of such rules. It could also provide information on how to utilize analysis more effectively to improve regulatory policy.

The Hierarchy and Performance of State Recycling and Deposit Laws

States can foster recycling of waste materials through a variety of policies. The majority of the states have recycling laws for waste products such as glass, plastic, cans, and paper. These laws vary in terms of stringency. The hierarchy we developed orders the laws as follows: laws that make recycling mandatory, laws that require the provision of recycling opportunities, laws that require the development of a recycling plan, and laws that specify a recycling goal. Based on national recycling data with over 400,000 observations, we find that the amount of recycling households undertake increases with the degree of stringency of the legal structure. Other legal recycling initiatives consist of laws that have established deposit policies, which a minority of states have done. Deposit policies establish financial incentives to promote recycling. States with deposit policies exhibit higher recycling rates for glass, plastic, and cans than states that have not enacted such laws. The higher recycling rates, for paper in the bottle deposit states, may reflect a broader impact of deposit policies on households’ recycling behavior for products not covered by the deposits

Discontinuous Behavioral Responses to Recycling Laws and Plastic Water Bottle Deposits

Economic theory predicts that individual recycling behavior gravitates toward extremes—either diligent recycling or no recycling at all. Using a nationally representative sample of 3,158 bottled water users, this article finds that this prediction is borne out for consumer recycling of plastic water bottles. Both water bottle deposits and recycling laws foster recycling through a discontinuous effect that converts reluctant recyclers into diligent recyclers. Within this context, a number of factors influencing recycling emerge. The warm glow from being both an environmentalist and an environmental group member is about equal to the monetary value of 5 cent bottle deposits. Respondents from states with stringent recycling laws and bottle deposits have greater recycling rates. Consistent with recycling being a threshold response, the efficacy of these policy interventions is greater for those who do not already recycle, have lower income, and do not consider themselves to be environmentalists.