Regulatory Process in Dire Need of Reform

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EPA exemplifies how agency rulemaking pushes the boundaries of lawful policymaking.

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Modern regulations rely on dubious accounting and were created afoul of the law. Corrective legislation such as the Regulatory Accountability Act is necessary to counter this tide of ill-conceived, ill-propagated regulations. But Richard L. Revesz has argued otherwise in a thorough critique of the “anti-regulatory narrative” he believes to be pervasive in the current political climate.

Focusing particularly on environmental policy, Revesz argues that current criticism of the regulatory state ignores the societal benefits of major rules and misunderstands the respective powers of the legislative and executive branches of the federal government. 

Revesz begins his analysis by arguing that congressional inaction has led to expanded regulatory actions by the executive branch. Here, Revesz is correct: Lawmakers regularly kick the can down the road on “salient legislative items on its agenda.” I would add, though, that congressional gridlock is not always a bad thing. Consider the 2000s, one of the last significant bipartisan eras in congressional history. The four congressional sessions of the Bush Administration saw significant interparty agreement: both parties supported the curtailment of civil liberties, best exemplified by the PATRIOT Act; the authorization of the Iraq War; and a misguided biofuel mandate that likely increased food prices.

Nonetheless, the diminishing ability of majority parties to successfully implement legislative agendas has led presidential administrations to take matters into their own hands. Revesz points to environmental regulation to make his case, arguing that pollution restrictions could not be accomplished by Congress but still resulted in billions of dollars in net public benefits. As long as major federal regulations are justified by “reference to cost-benefit analysis,” he argues, executive rulemaking stemming from broad legislation such as the Clean Air Act Amendments of 1990 (CAAA) is acceptable and even desirable.

Revesz does not discuss, however, how regulatory agencies often skew systematically flawed cost-benefit analyses to bolster proposed rules. In a 2011 study of CAAA rules, EPA estimated net benefits of $1.9 trillion by 2020. To arrive at this figure, researchers compare air quality trends with a hypothetical world in which the CAAA was never implemented. EPA bizarrely assumes that, absent regulation, emissions “would increase steadily from 1990 through 2000, 2010, and 2020,” despite its own data showing pre-1990 decreases in nitrogen oxide, carbon monoxide, particulate matter, and volatile organic compound emissions.

Unfortunately, this behavior is par for the course for many regulatory agencies. Examining 108 economically significant regulations over the 2008 to 2012 period, Mercatus Center scholars Jerry Ellig and James Broughel have found that 50 percent of the time the “agency neither chose the alternative that maximized net benefits nor explained why it chose another option.” Agencies can get around many types of rational cost-benefit calculations by using a break-even analysis, which shows how much the rule would have to benefit society to justify its cost.

The U.S. Food and Drug Administration (FDA), for instance, argued that regulations protecting food from “intentional adulteration,” or contamination, were worth it so long as one catastrophic terrorist attack was “prevented every 270 to 470 years.” Forcing food producers to come up with an additional “food defense plan” for their products may achieve that goal, but there is simply no way of knowing whether this is a plausible expectation that outweighs at least $280 million in expected annual costs to producers. FDA cited only three incidents to justify these rules, and all of them happened after the food production and processing phase, which means that they would not have even been prevented by these regulations.

This kind of regulatory sausage-making is unfortunately unchecked by Congress, which, as Revesz points out, has bequeathed broad powers to executive agencies in creating rules. Revesz writes that, when it created the original Clean Air Act of 1970, “Congress decided not to name in the statute the particular pollutants that should be regulated, instead delegating to EPA the determination of what qualified as an ‘air pollutant’ for the purposes of the statute.” This method of delegation is reasonable, since lawmakers had neither the expertise nor the foresight to say which pollutants would be problematic going forward. When the regulatory stakes get high, however, agencies have a tendency to operate outside of the powers delegated by Congress.

Although the greenhouse gas endangerment finding cited by Revesz could, in theory, be justified by congressional statue, the actual process that EPA used likely violated the law. According to an Inspector General report from 2011, the agency “did not follow all required steps for a highly influential scientific assessment.” The Inspector General report also noted that EPA did not certify its compliance with the Office of Management and Budget’s or “its own peer review policies in either the proposed or final endangerment findings as required.”

EPA has engaged in more flagrant violations of the law, too. In 2015, the U.S. Government Accountability Office found that, by using appropriated funds to push for new rules on social media, for instance, EPA peddled “covert propaganda” without proper authorization.

These deviations from the law have major consequences, given that federal regulations add up to trillions of dollars in aggregate costs to the American economy. Maybe some of these major rules are worth it, and, in the words of Revesz, “save so many lives and produce such large net benefits.” If this is true, though, agencies should be prepared to devote the time and resources to a thorough accounting of the costs and benefits, in accord with Executive Order 12,866.

The high stakes of the current rulemaking process can benefit from a lengthier trial-like hearing, instead of the notice-and-comment status quo. The Regulatory Accountability Act, which has been passed by the U.S. House of Representatives, would formalize the regulatory process and ensure that agencies pass rules “on the basis of the best evidence and at the least cost.” Sensible legislation can go a long way toward bringing back the “consensus, under administrations of both parties, that regulations should be justified by reference to cost-benefit analysis,” which Revesz discussed.

Far from an attack on cost-benefit analysis, the House’s proposed legislation can save the regulatory impact analysis process from the lawlessness evident in recent years.

Ross Marchand

Ross Marchand is the director of policy for the Taxpayers Protection Alliance.

This essay is part of a three-part series, entitled Dissecting the Debate Over Regulation.