EPA Rescinds Trump-Era Rule on Evaluation of Benefits and Costs in Clean Air Act Rulemaking

Originally published in the September 2023 issue of Bench & Bar of Minnesota Environmental Law Update, Minnesota State Bar Association.

On July 13, 2023, the EPA published a final rule rescinding the agency’s 2020 Trump-era rule titled “Increasing Consistency in Considering Benefits and Costs in the Clean Air Act Rulemaking Process” (the Benefit-Cost Rule or Rule). 88 Fed. Reg. 44710 (2023).

Background

In many instances, the EPA is required to prepare an economic impact assessment (EIA) prior to promulgating or revising a standard or regulation under the Clean Air Act (CAA) (42 U.S.C. § 7401 et seq.). See 42 U.S.C. § 7617(a) (requiring consideration of, e.g., the costs of compliance, the potential inflationary or recessionary effects of the standard or regulation, the effects on competition with respect to small businesses, and the effects on consumer costs and energy use). In addition, EPA is subject to various executive orders that require the estimation of costs and benefits any time an agency develops “economically significant” regulations. For example, in 1993, President Clinton issued Executive Order 12866, which mandates that agencies “assess both the costs and the benefits of the intended regulation and, recognizing that some costs and benefits are difficult to quantify, propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs,” and “base its decisions on the best reasonably obtainable scientific, technical, economic, and other information concerning the need for, and consequences of, the intended regulation.”

Executive Order 12866 defines an “economically significant” regulation as any rule that may “have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities.” In addition. the Office of Management and Budget’s (OMB’s) Circular A–4, provides guidance to Federal agencies on the development of regulatory analysis as required under Executive Order 12866 and a variety of related authorities, and the EPA’s Guidelines for Preparing Economic Analyses, complements Circular A-4 by providing guidance on analyzing the benefits, costs, and economic impacts of regulations and policies, including assessing the distribution of costs and benefits among various segments of the population.

The Benefit-Cost Rule

On December 23, 2020, the EPA attempted to revise, update and codify these practices in the final Benefit-Cost Rule, which established procedural requirements governing the preparation, development, presentation, and consideration of BCAs, including risk assessments used in the BCA, for significant rulemakings conducted under the CAA. The Rule defined BCA as “an evaluation of both the benefits and costs to society as a result of a policy and the difference between the two.” 85 Fed. Reg. 84130 (2020).

The Benefit-Cost Rule consisted of four elements. First, it required EPA to prepare a BCA for all significant proposed and final regulations under the CAA. Second, the Rule required EPA to develop the BCA using the best available scientific information and in accordance with best practices from the economic, engineering, physical and biological sciences. The Rule codified best practices for the preparation, development, presentation, and consideration of BCAs, and required that risk assessments used to support BCAs follow best methodological practices for risk characterization and risk assessment. Third, the Rule imposed additional procedural requirements to increase transparency in the presentation and consideration of the BCA results. Specifically, the Rule required the preamble of significant proposed and final CAA regulations to include a summary presentation of the overall BCA results for the rule, including total benefits, costs and net benefits. Fourth, the Rule required the EPA to consider the BCA in promulgating regulations, except where prohibited.

After publication, several parties filed petitions for review of the Benefit-Cost Rule in the U.S. Court of Appeals for the District of Columbia. These consolidated cases are currently in abeyance.

Rescinding the Benefit-Cost Rule

On January 20, 2021, President Biden signed Executive Order 13990, directing the EPA to review all regulations and policies undertaken by the previous administration, and rescind or revise any that do not protect public health and the environment. The EPA conducted a comprehensive review of the Benefit-Cost Rule and concluded that regulations promulgated in the Rule were inadvisable, not needed, and untethered to the CAA. The EPA stated that, in some cases, the Rule could have hindered the EPA's compliance with the CAA and may not have even furthered the Rule's stated purposes of consistency and transparency.

On May 13, 2021, the EPA issued an interim final rule to rescind the Benefit-Cost Rule, and a press release stating that the Rule “imposed procedural restrictions and requirements that would have limited EPA’s ability to use the best available science in developing Clean Air Act regulations, and would be inconsistent with economic best practices”.

In its final rule rescinding the Benefit-Cost Rule, the EPA explained that it would rescind the Rule for several reasons:

1. First, it failed to articulate a rational basis justifying its promulgation. EPA explained the Rule did not provide any record evidence that the guidance and administrative processes already in place presented problems that justified the mandate imposed by the Rule, and there was no discussion of how the Rule would have improved the Agency's ability to accomplish the CAA's goals to protect and enhance air quality.
2. Second, the Rule's expansion of BCA to all “significant” CAA rulemaking would require EPA to conduct resource-intensive BCAs without justifying why such expansion was necessary or appropriate.
3. Third, best practices for conducting a high-quality BCA evolve over time and cannot be established using a set formula. The EPA explained that the codification of specific practices would have prevented situation-specific tailoring of the regulatory analysis to proposed policies. In addition, the Rule contained a number of provisions that promoted particular types of data that could have conflicted with the use of best scientific practices or arbitrarily caused the Agency to disregard important or high-quality data.
4. Fourth, the Rule required the EPA to present net-benefit calculations in regulatory preambles in a manner that would have been misleading and inconsistent with economic best practices. Specifically, the Rule required a presentation of only the benefits “that pertain to the specific objective (or objectives, as the case may be) of the CAA provision or provisions under which the significant regulation is promulgated” (85 Fed. Reg. 84130 (2020)). The Rule also required that if any benefits and costs accrue to non-U.S. populations, they must be reported separately to the extent possible. EPA also explained that the “purpose of a BCA is to assess the economic efficiency of policies, and in order to do so accurately, net benefits are calculated by subtracting total costs from total benefits, regardless of whether the benefits and costs arise from intended or unintended consequences and regardless of the particular recipients of the benefits or costs” (88 Fed. Reg. 44710 (2023)).
5.  Fifth, the Rule did not reconcile its requirement that the Agency consider the BCA in promulgating regulations with the substantive mandates of the CAA. The EPA explained that statute, not Agency procedural rules, dictate what the Agency may or may not consider in the context of exercising authority, and that the Rule failed to align with the varied ways in which Congress either granted authority to or directed the EPA to consider benefits, costs, and other factors.
6. Sixth, the Rule failed to provide any support for its contention that the pre-existing process was deficient. The EPA explained that the Agency’s pre-existing administrative process and procedures provide ample consistency and transparency, and that the Rule’s new procedures were unwarranted.

In its final rule, the EPA asserted that the administrative processes already in place before the Benefit-Cost Rule was promulgated provided ample consistency and transparency in the rulemaking process. This final rule took effect on August 14, 2023.