Daily Environment
Report TM
Reproduced with permission from Daily Environment Report,
187 DEN 20, 9/28/17. Copyright 姝 2017 by The Bureau of
National Affairs, Inc. (800-372-1033) http://www.bna.com
Water Pollution
Practitioner Insights: Shoddy
WOTUS Analyses Show Need for
Independent Look
Weighing the costs and benefits of environmental
regulations is a divisive subject. Many on the right be-
lieve that a cost-benefit analysis is the best available
method for testing whether regulations increase social
welfare. And some on the left believe that cost-benefit
analysis is a conservative scheme meant to restrain
agencies from regulating.
Both sides are mistaken, because they labor under
the misapprehension that these analyses are serious en-
deavors that are untainted by political motive. In real-
ity, cost-benefit studies by the U.S. Environmental Pro-
tection Agency are mere cogs in a political messaging
machine.
Take, for example, the release in June of a cost-
benefit analysis for a proposed rescission of an Obama-
era expansion in federal jurisdiction under the Clean
Water Act, known as the Waters of the U.S. (WOTUS)
rule. When evaluating the Trump administration’s eco-
nomic analysis, modifiers such as ‘‘rushed’’ and
‘‘shoddy’’ are too kind.
To begin with, the study is lamely derivative. When
the Obama administration promulgated the WOTUS
rule in 2015, the EPA and the U.S. Army Corps of Engi-
neers, which worked with the agency on the regulation,
published a controversial estimate that the rule likely
would engender (in 2014 dollars) $158.4 million to
$306.6 million in costs, while providing $338.9 million
to $349.5 million in benefits.
The Trump administration’s assessment issued in
June simply takes the costs from the 2015 assessment
and treats them as benefits, reasoning that they are now
avoided costs. On the other side of the ledger, the 2017
economic analysis dismisses the putative benefits quan-
tified in the 2015 study; in so doing, the agency rea-
soned that these benefits were based on dated studies.
Simply put, the 2017 analysis reverses the output of
the 2015 assessment and then ignores half the results.
COPYRIGHT 姝 2017 BY THE BUREAU OF NATIONAL AFFAIRS, INC.
According to media reports, this cursory investigation
took all of three days, and involved cherry picking of
data. One could be forgiven for wondering why this ef-
fort merited a whole analysis. Wouldn’t a press release
have sufficed?
‘Do as I say, Not as I do’ Situation The EPA’s method-
ology for the 2017 cost-benefit study is bad enough, but
its error is compounded by the fact that Administrator
Scott Pruitt was an avowed opponent of the underlying
2015 analysis. As attorney general of Oklahoma, Pruitt
signed on to a comment letter assailing the agency’s
economic analysis of the Waters of the U.S. Rule.
The letter accused the agency of having ‘‘greatly un-
derestimated the costs’’ and also having ‘‘significantly
underestimated the percentage of land that will be im-
pacted.’’ Moreover, Pruitt’s opposition to the agency’s
cost-benefits assessment was well-noted by his peers,
and was cited by Sen. Mike Rounds (R-S.D.) on the
Senate floor when he spoke earlier this year in favor of
confirming Pruitt to head the EPA.
I like and respect Administrator Pruitt. Also, I sup-
port the rollback of the WOTUS rule, which I believe is
an arbitrary and egregious expansion of executive au-
thority. Nevertheless, it is obviously and objectionably
inconsistent for Pruitt to openly oppose an agency’s
cost-assessment as being a low-ball, and then to rely on
that same disputed data for your own ends. It’s a classic
‘‘do as I say, not as I do’’ situation. Such a posture
rarely exemplifies good governance.
Politically Driven Analysis None of this is to take the
Obama administration off the hook, as the 2015 eco-
nomic assessment was no less shoddy and politically-
driven than the Trump-era investigation. Consider the
alleged $338.9 million to $349.5 million in ‘‘benefits’’
supposedly associated with an expansion in federal ju-
risdiction under the Clean Water Act. They are statisti-
cal sleight of hand that is a means to the end of politi-
cal expediency.
Virtually all of the benefits are from ‘‘compensatory
mitigation’’ as part of Clean Water Act permits for
dredging and filling jurisdictional waters. In a nutshell,
agencies can condition such permits on a commitment
by the permitted party to restore disturbed wetlands or
ISSN 1060-2976
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waterways after the project is done. The EPA projected
that the WOTUS rule would lead to this ‘‘compensatory
mitigation’’ for 1,154 acres across the U.S., and it is the
value of this environmental improvement that EPA
quantifies as a ‘‘benefit’’ of the regulatory action.
In discerning—or, more aptly, in engineering—
benefits, the 2015 analysis relied on ‘‘willingness-to-
pay’’ (WTP) surveys. The idea behind this methodology
is to elicit ‘‘stated preferences’’ rather than those re-
vealed through actual behavior. According to the EPA,
‘‘stated preference methods rely on surveys that assess
respondents WTP for goods and services, such as eco-
systems services provided by a natural landscape fea-
ture.’’
In practice, these surveys ask people how much hy-
pothetical money they would spend to afford a hypo-
thetical environmental protection to a hypothetical en-
vironment, even if they never intend to visit the location
in question. Needless to say, amassing conjectures in
this way diminishes confidence in the results. Even the
EPA concedes that WTP ‘‘is not ideal for quantifying
benefit,’’ which is a gross understatement.
Don’t Pass ‘Sniff Test’ Don’t take my word for it. A
simple example should suffice to convince you that
these ‘‘benefits’’ do not pass the sniff test. According to
the agency, about 24 million households in eight Mid-
western states (Illinois, Indiana, Kentucky, Michigan,
Minnesota, Missouri, Ohio, and Wisconsin) are willing
to pay $4.61 per household for the benefit of compensa-
tory mitigation on 141 acres of forested wetland that
were projected to become jurisdictional under the WO-
TUS rule. This works out to an almost $111 million
valuation for 141 acres, assuming a three percent dis-
count rate is used.
In order to appreciate the ludicrousness of this esti-
mate, I bring your attention to the actual (or ‘‘revealed,’’
to use economics jargon) price of forested wetlands in
the Midwest. Using a commercial real estate database, I
performed a simple search for lots between 140 and 160
acres within these same eight Midwestern states. The
search was further limited to forested lots with abun-
dant fishing; my assumption is that forested lots with
waterways that allow for fishing can serve as a reason-
able proxy for forested wetlands as defined by the EPA.
I’ll be the first to admit that this analysis is far from per-
fect. Nonetheless, it provides a rough measure of how
actual human beings value forested wetlands in real life
on a real market.
There were 25 plots that met my specifications. The
cheapest was $704 per acre; the most expensive was
$5,500 per acre.
By contrast, EPA’s 2015 economic analysis of the
WOTUS rule valued a similarly situated lot at . . . (drum
roll, please) $787,284 per acre.
Does anyone on Earth believe that the Clean Water
Act permitting process (via ‘‘compensatory mitigation’’)
renders the regulated land up to 143 times more valu-
able on a per-acre basis? Yet this silly scenario, which
amounts to nearly a third of the total putative benefits,
is representative of the benefits analyses writ large.
Taken as a whole, the history of WOTUS rule eco-
nomic analyses is an archetype of the apocryphal
phrase, ‘‘lies, damned lies, and statistics.’’ Both the
Obama and Trump administration are guilty for flip
sides of the same offense. It is a bipartisan failure.
9-28-17 COPYRIGHT 姝 2017 BY THE BUREAU OF NATIONAL AFFAIRS, INC.
Neither Analyses Required Of course, political calcu-
lus was the corrupting force. Neither of these analyses
was required by law. In the preamble to the final
Obama-era WOTUS rule, the EPA and corps explained
that ‘‘The economic analysis was done for informa-
tional purposes only, and the final decisions on the
scope of the [WOTUS rule] are not based on the consid-
eration of the information in the economic analysis.’’
On its own terms, it is a public relations stunt, rather
than a serious regulatory action.
To be sure, the Trump-era analysis was no less dis-
cretionary and ends-oriented. The New York Times re-
ports that political management asked for an analysis
demonstrating the benefits of their deregulatory action
on June 13. On June 16, they received the numbers in a
way that supported their policy goals, and proceeded
apace with the press kit.
The particular tragedy of this long-running affair is
the opportunity cost. After all the time and effort
wasted on public relations studies that don’t matter, we
still don’t have any reliable estimate of the scope of the
WOTUS rule.
Remarkably, the 2015 economic analysis was the
Obama administration’s only attempt to estimate the
reach of the rule. Yet that investigation was limited to
only a subset of the changes made by the WOTUS rule.
As a matter of fact, this proscribed methodology was
one of the many rightful charges leveled at the eco-
nomic analysis by opponents such as Pruitt.
Wasted Resources In a rational world, the resources
that were wasted on these two empty economic analy-
ses would have been better spent trying to establish an
objective measurement of how federal jurisdiction
would change. For its part, the EPA and corps claim
such an analysis is impossible. For my part, I am skep-
tical that the federal government can put a man on the
moon but it cannot estimate the reach of federal juris-
diction under the WOTUS rule.
On a broader scale, what is going on here is that gov-
ernment economists are wasting their time (and public
money) by churning out talking points for administra-
tion officials and surrogates to parrot on cable televi-
sion. In this manner, these cost-benefit analyses don’t
inform decision making; rather, they serve to justify the
decision that’s already been made.
Far from being an isolated incident, absurd cost-
benefit analysis is the norm at the EPA. Consider how
the agency evaluates the employment effect of major air
quality rules. For years, the agency relied on a model
that assumed jobs in pollution control would exceed
jobs lost in regulated industries. There was no cut-off
point, such that no matter how costly the regulation, it
always engendered job growth. EPA used this circular
model for the Mercury and Air Toxics Standards, the
Cross-State Air Pollution Rule, and the Industrial Boiler
Maximum Achievable Control Technology standards,
among others.
Take It Out of Agency Hands While I believe regula-
tory cost-benefit estimates can be a valuable analytical
tool, they won’t be of any utility until they’re taken out
of the agency’s hands. Because these analyses are
assumption-driven, they’re only as honest as the person
dictating the outcome. If a fair assessment is desired re-
gardless the political fallout, and the study actually in-
forms decision making, then the exercise is well worth
it. Alas, this happy result never happens. In real life, the
DEN ISSN 1060-2976

person dictating the outcome is a political appointee
loyal to his or her president and party. In these hands,
a cost-benefit analysis becomes just another weapon in
political warfare.
If political leadership at regulatory agencies has no
use for a disinterested analysis, then what is to be done?
For starters, it is clear that proponents of cost-benefit
analyses are mistaken to wish for more of the same. For
example, a bipartisan group of senators in the 115th
Congress introduced the Regulatory Accountability Act
(S 951), which would require all agencies to select the
‘‘most cost-effective’’ rule, unless ‘‘the additional ben-
efits of the more costly rule justify the additional costs
of that rule.’’ I applaud the senators’ bipartisan instincts
and also their intentions, but their bill would only exac-
erbate the existing state of agency duplicity by compel-
ling agencies to do more of it.
Congressional Analysis Preferable Rather than ex-
panding the executive branch’s capacity to analyze
regulations, the wiser course is for Congress to invest in
its own analytical capacity. Although Congress has the
constitutional authority to house its own investigatory
and fact-finding operation, lawmakers never have cre-
ated the means to conduct an independent assessment
of regulatory costs and benefits. This is a remarkable
state of ignorance, one that seemingly precludes effec-
tive oversight.
For example, the Congressional Review Act empow-
ers members of Congress to force an up or down vote
on resolutions that would veto significant regulations.
DAILY ENVIRONMENT REPORT ISSN 1060-2976
3
Yet it’s almost always the case that the only quantitative
assessments of these regulations are produced by
stakeholders with skin in the game (i.e., either the
agency behind the rule or special interests), which in-
variably produce dueling statistics of low reliability.
Wouldn’t it make more sense for Congress to produce
its own in-house data?
There exists a ready precedent for what I recom-
mend. In 1974, the Congress established the Congres-
sional Budget Office to create independent analyses of
budgetary and economic issues to support the Congres-
sional budget process. At the time, the whole idea was
to lessen the Congress’s reliance on budget data pro-
duced by the executive branch. This same principle
should galvanize Congress to create something like the
CBO for regulations. In 1974, Congress was fed up with
the president’s fuzzy math on the budget; in 2017, Con-
gress should be fed up with the executive branch’s
fuzzy math on regulations.
William Yeatman is a senior fellow specializing in
environmental policy, energy markets, and administra-
tive law at the Competitive Enterprise Institute, a free-
market think tank in Washington, D.C. Yeatman has
testified three times before Congress and numerous
times before state legislatures. He also has written
policy analyses for the Independence Institute, the Rio
Grande Foundation, and the U.S. Chamber of Com-
merce, among other groups.
The opinions expressed here do not represent those
of Bloomberg BNA, which welcomes other points of
view.
BNA 9-28-17