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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 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-
Practitioner Insights: Shoddy fort merited a whole analysis. Wouldn’t a press release
WOTUS Analyses Show Need for have sufficed?
Independent Look ‘Do as I say, Not as I do’ Situation The EPA’s method-
ology for the 2017 cost-benefit study is bad enough, but
Weighing the costs and benefits of environmental its error is compounded by the fact that Administrator
regulations is a divisive subject. Many on the right be- Scott Pruitt was an avowed opponent of the underlying
lieve that a cost-benefit analysis is the best available 2015 analysis. As attorney general of Oklahoma, Pruitt
method for testing whether regulations increase social signed on to a comment letter assailing the agency’s
welfare. And some on the left believe that cost-benefit economic analysis of the Waters of the U.S. Rule.
analysis is a conservative scheme meant to restrain The letter accused the agency of having ‘‘greatly un-
agencies from regulating. derestimated the costs’’ and also having ‘‘significantly
Both sides are mistaken, because they labor under underestimated the percentage of land that will be im-
the misapprehension that these analyses are serious en- pacted.’’ Moreover, Pruitt’s opposition to the agency’s
deavors that are untainted by political motive. In real- cost-benefits assessment was well-noted by his peers,
ity, cost-benefit studies by the U.S. Environmental Pro- and was cited by Sen. Mike Rounds (R-S.D.) on the
tection Agency are mere cogs in a political messaging Senate floor when he spoke earlier this year in favor of
machine. confirming Pruitt to head the EPA.
Take, for example, the release in June of a cost- I like and respect Administrator Pruitt. Also, I sup-
benefit analysis for a proposed rescission of an Obama- port the rollback of the WOTUS rule, which I believe is
era expansion in federal jurisdiction under the Clean an arbitrary and egregious expansion of executive au-
Water Act, known as the Waters of the U.S. (WOTUS) thority. Nevertheless, it is obviously and objectionably
rule. When evaluating the Trump administration’s eco- inconsistent for Pruitt to openly oppose an agency’s
nomic analysis, modifiers such as ‘‘rushed’’ and cost-assessment as being a low-ball, and then to rely on
‘‘shoddy’’ are too kind. that same disputed data for your own ends. It’s a classic
To begin with, the study is lamely derivative. When ‘‘do as I say, not as I do’’ situation. Such a posture
the Obama administration promulgated the WOTUS rarely exemplifies good governance.
rule in 2015, the EPA and the U.S. Army Corps of Engi-
neers, which worked with the agency on the regulation, Politically Driven Analysis None of this is to take the
published a controversial estimate that the rule likely Obama administration off the hook, as the 2015 eco-
would engender (in 2014 dollars) $158.4 million to nomic assessment was no less shoddy and politically-
$306.6 million in costs, while providing $338.9 million driven than the Trump-era investigation. Consider the
to $349.5 million in benefits. alleged $338.9 million to $349.5 million in ‘‘benefits’’
The Trump administration’s assessment issued in supposedly associated with an expansion in federal ju-
June simply takes the costs from the 2015 assessment risdiction under the Clean Water Act. They are statisti-
and treats them as benefits, reasoning that they are now cal sleight of hand that is a means to the end of politi-
avoided costs. On the other side of the ledger, the 2017 cal expediency.
economic analysis dismisses the putative benefits quan- Virtually all of the benefits are from ‘‘compensatory
tified in the 2015 study; in so doing, the agency rea- mitigation’’ as part of Clean Water Act permits for
soned that these benefits were based on dated studies. dredging and filling jurisdictional waters. In a nutshell,
Simply put, the 2017 analysis reverses the output of agencies can condition such permits on a commitment
the 2015 assessment and then ignores half the results. by the permitted party to restore disturbed wetlands or

COPYRIGHT 姝 2017 BY THE BUREAU OF NATIONAL AFFAIRS, INC. ISSN 1060-2976


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waterways after the project is done. The EPA projected Neither Analyses Required Of course, political calcu-
that the WOTUS rule would lead to this ‘‘compensatory lus was the corrupting force. Neither of these analyses
mitigation’’ for 1,154 acres across the U.S., and it is the was required by law. In the preamble to the final
value of this environmental improvement that EPA Obama-era WOTUS rule, the EPA and corps explained
quantifies as a ‘‘benefit’’ of the regulatory action. that ‘‘The economic analysis was done for informa-
In discerning—or, more aptly, in engineering— tional purposes only, and the final decisions on the
benefits, the 2015 analysis relied on ‘‘willingness-to- scope of the [WOTUS rule] are not based on the consid-
pay’’ (WTP) surveys. The idea behind this methodology eration of the information in the economic analysis.’’
is to elicit ‘‘stated preferences’’ rather than those re- On its own terms, it is a public relations stunt, rather
vealed through actual behavior. According to the EPA, than a serious regulatory action.
‘‘stated preference methods rely on surveys that assess To be sure, the Trump-era analysis was no less dis-
respondents WTP for goods and services, such as eco- cretionary and ends-oriented. The New York Times re-
systems services provided by a natural landscape fea- ports that political management asked for an analysis
ture.’’ demonstrating the benefits of their deregulatory action
In practice, these surveys ask people how much hy- on June 13. On June 16, they received the numbers in a
pothetical money they would spend to afford a hypo- way that supported their policy goals, and proceeded
thetical environmental protection to a hypothetical en- apace with the press kit.
vironment, even if they never intend to visit the location The particular tragedy of this long-running affair is
in question. Needless to say, amassing conjectures in the opportunity cost. After all the time and effort
this way diminishes confidence in the results. Even the wasted on public relations studies that don’t matter, we
still don’t have any reliable estimate of the scope of the
EPA concedes that WTP ‘‘is not ideal for quantifying
WOTUS rule.
benefit,’’ which is a gross understatement.
Remarkably, the 2015 economic analysis was the
Don’t Pass ‘Sniff Test’ Don’t take my word for it. A Obama administration’s only attempt to estimate the
simple example should suffice to convince you that reach of the rule. Yet that investigation was limited to
these ‘‘benefits’’ do not pass the sniff test. According to only a subset of the changes made by the WOTUS rule.
the agency, about 24 million households in eight Mid- As a matter of fact, this proscribed methodology was
western states (Illinois, Indiana, Kentucky, Michigan, one of the many rightful charges leveled at the eco-
Minnesota, Missouri, Ohio, and Wisconsin) are willing nomic analysis by opponents such as Pruitt.
to pay $4.61 per household for the benefit of compensa-
Wasted Resources In a rational world, the resources
tory mitigation on 141 acres of forested wetland that
that were wasted on these two empty economic analy-
were projected to become jurisdictional under the WO-
ses would have been better spent trying to establish an
TUS rule. This works out to an almost $111 million
objective measurement of how federal jurisdiction
valuation for 141 acres, assuming a three percent dis- would change. For its part, the EPA and corps claim
count rate is used. such an analysis is impossible. For my part, I am skep-
In order to appreciate the ludicrousness of this esti- tical that the federal government can put a man on the
mate, I bring your attention to the actual (or ‘‘revealed,’’ moon but it cannot estimate the reach of federal juris-
to use economics jargon) price of forested wetlands in diction under the WOTUS rule.
the Midwest. Using a commercial real estate database, I On a broader scale, what is going on here is that gov-
performed a simple search for lots between 140 and 160 ernment economists are wasting their time (and public
acres within these same eight Midwestern states. The money) by churning out talking points for administra-
search was further limited to forested lots with abun- tion officials and surrogates to parrot on cable televi-
dant fishing; my assumption is that forested lots with sion. In this manner, these cost-benefit analyses don’t
waterways that allow for fishing can serve as a reason- inform decision making; rather, they serve to justify the
able proxy for forested wetlands as defined by the EPA. decision that’s already been made.
I’ll be the first to admit that this analysis is far from per- Far from being an isolated incident, absurd cost-
fect. Nonetheless, it provides a rough measure of how benefit analysis is the norm at the EPA. Consider how
actual human beings value forested wetlands in real life the agency evaluates the employment effect of major air
on a real market. quality rules. For years, the agency relied on a model
There were 25 plots that met my specifications. The that assumed jobs in pollution control would exceed
cheapest was $704 per acre; the most expensive was jobs lost in regulated industries. There was no cut-off
$5,500 per acre. point, such that no matter how costly the regulation, it
By contrast, EPA’s 2015 economic analysis of the always engendered job growth. EPA used this circular
WOTUS rule valued a similarly situated lot at . . . (drum model for the Mercury and Air Toxics Standards, the
roll, please) $787,284 per acre. Cross-State Air Pollution Rule, and the Industrial Boiler
Maximum Achievable Control Technology standards,
Does anyone on Earth believe that the Clean Water
among others.
Act permitting process (via ‘‘compensatory mitigation’’)
renders the regulated land up to 143 times more valu- Take It Out of Agency Hands While I believe regula-
able on a per-acre basis? Yet this silly scenario, which tory cost-benefit estimates can be a valuable analytical
amounts to nearly a third of the total putative benefits, tool, they won’t be of any utility until they’re taken out
is representative of the benefits analyses writ large. of the agency’s hands. Because these analyses are
Taken as a whole, the history of WOTUS rule eco- assumption-driven, they’re only as honest as the person
nomic analyses is an archetype of the apocryphal dictating the outcome. If a fair assessment is desired re-
phrase, ‘‘lies, damned lies, and statistics.’’ Both the gardless the political fallout, and the study actually in-
Obama and Trump administration are guilty for flip forms decision making, then the exercise is well worth
sides of the same offense. It is a bipartisan failure. it. Alas, this happy result never happens. In real life, the

9-28-17 COPYRIGHT 姝 2017 BY THE BUREAU OF NATIONAL AFFAIRS, INC. DEN ISSN 1060-2976
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person dictating the outcome is a political appointee Yet it’s almost always the case that the only quantitative
loyal to his or her president and party. In these hands, assessments of these regulations are produced by
a cost-benefit analysis becomes just another weapon in stakeholders with skin in the game (i.e., either the
political warfare. agency behind the rule or special interests), which in-
If political leadership at regulatory agencies has no variably produce dueling statistics of low reliability.
use for a disinterested analysis, then what is to be done? Wouldn’t it make more sense for Congress to produce
For starters, it is clear that proponents of cost-benefit its own in-house data?
analyses are mistaken to wish for more of the same. For There exists a ready precedent for what I recom-
example, a bipartisan group of senators in the 115th mend. In 1974, the Congress established the Congres-
Congress introduced the Regulatory Accountability Act sional Budget Office to create independent analyses of
(S 951), which would require all agencies to select the budgetary and economic issues to support the Congres-
‘‘most cost-effective’’ rule, unless ‘‘the additional ben- sional budget process. At the time, the whole idea was
efits of the more costly rule justify the additional costs to lessen the Congress’s reliance on budget data pro-
of that rule.’’ I applaud the senators’ bipartisan instincts duced by the executive branch. This same principle
and also their intentions, but their bill would only exac- should galvanize Congress to create something like the
erbate the existing state of agency duplicity by compel- CBO for regulations. In 1974, Congress was fed up with
ling agencies to do more of it. the president’s fuzzy math on the budget; in 2017, Con-
gress should be fed up with the executive branch’s
Congressional Analysis Preferable Rather than ex- fuzzy math on regulations.
panding the executive branch’s capacity to analyze William Yeatman is a senior fellow specializing in
regulations, the wiser course is for Congress to invest in environmental policy, energy markets, and administra-
its own analytical capacity. Although Congress has the tive law at the Competitive Enterprise Institute, a free-
constitutional authority to house its own investigatory market think tank in Washington, D.C. Yeatman has
and fact-finding operation, lawmakers never have cre- testified three times before Congress and numerous
ated the means to conduct an independent assessment times before state legislatures. He also has written
of regulatory costs and benefits. This is a remarkable policy analyses for the Independence Institute, the Rio
state of ignorance, one that seemingly precludes effec- Grande Foundation, and the U.S. Chamber of Com-
tive oversight. merce, among other groups.
For example, the Congressional Review Act empow- The opinions expressed here do not represent those
ers members of Congress to force an up or down vote of Bloomberg BNA, which welcomes other points of
on resolutions that would veto significant regulations. view.

DAILY ENVIRONMENT REPORT ISSN 1060-2976 BNA 9-28-17