SAB to Discuss the Retrospective Study of the Costs of EPA Regulations

EPA has announced two public teleconferences of the SAB Environmental Economics Advisory Committee to discuss its draft review of EPA’s White Paper “Retrospective Study of the Costs of EPA Regulations: An Interim Report” (March 2012 draft). The public teleconferences will be held on Friday, September 7, 2012 from 11 a.m. to 3 p.m. (Eastern Daylight Time) and Friday, November 2, 2012 from 11 a.m. to 3 p.m. (Eastern Daylight Time). The teleconferences will be conducted by telephone only.

EPA’s white paper “Retrospective Study of the Costs of EPA Regulations: An Interim Report” (March 2012 draft) summarizes EPA’s initial findings from a small number of pilot case studies that attempt to evaluate the costs of EPA’s regulations after they were implemented (ex post). To improve future benefit-cost analyses, EPA is seeking to compare its predictions of costs (ex ante costs) with actual (ex post) costs and, if they differ substantially, to understand why. EPA has requested the SAB’s review of its approach to assessing ex post costs as detailed in its draft paper. One of the regulations included in the five case studies was the Arsenic Rule.

The SAB draft report includes some general determinations about actual costs of regulations: “The case studies in this report do not aim to estimate ex post costs of these EPA actions. Rather, they examine key drivers of compliance costs to see if informed judgments (weighing the evidence) can be made about whether ex post costs are higher or lower than the estimates of ex ante costs. While a number of the case studies are suggestive of overestimation of costs ex ante, we do not consider the current evidence to be conclusive. First, they only represent a small subset of regulatory and other policy actions taken by the EPA. Second, conducting ex post analysis has proven more challenging than anticipated. With regard to data, these challenges have included the inability to identify qualified industry experts that did not also work on the rule and limited access to industry data. Analytic challenges have included how to evaluate a highly heterogeneous industry with a limited set of information, how to form a reasonable counterfactual, and how to disentangle the costs of compliance from other factors, to name a few.”

The report did make some specific observations about arsenic Rule costs and challenges in making effective comparisons between original estimates and actual costs.

• Unfortunately, the data available to compare ex post and ex ante costs are very limited.
• Comprehensive cost information for the treatment technologies installed or other mitigation strategies pursued by water systems affected by the Arsenic Rule is not available.
• These data also reflect costs of treatment technologies and do not capture the frequency of use or the costs associated with non-treatment options such as blending or source switching.
• Despite our best efforts, our data do not provide enough coverage of CWSs to make any assessment of how ex post costs deviate from EPAs ex ante estimates.
• The heterogeneity of the affected water systems presents major obstacles to comparing ex post and ex ante costs.
• In addition to the heterogeneity of sites, it is also challenging to distinguish costs attributable to compliance with the arsenic Rule from costs incurred by systems as a result of complying with other regulations or to meet other needs of the system.
• Because the number of observations in our data set is very small compared to the number and heterogeneity of the systems affected by the Arsenic Rule, we cannot draw any conclusions regarding EPA’s technology cost estimates.

For more details see the draft report. The arsenic Rule discussion is on pages 166–242. Additional information on the upcoming teleconferences and other activities of this SAB Committee is available on their website.