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Many laws administered by the Environmental Protection Agency (EPA) do not provide for weighing the costs and benefits of government action. This weighing of cost and benefits (known as cost-benefit analysis) is a critical tool to ensure that the federal government acts in the best interest of the public.
The concept of cost-benefit analysis is not complex. It’s how any rational person makes decisions. If you cross a street, you know that there is a risk of being hit by a car. Government could reduce that risk by building tunnels or ramps at every street corner and erecting fences around each block, but this is not sensible except in circumstances such as crossing superhighways. Spending the public’s money on questionable risks without regard to cost can mean that too little is spent to reduce the real risks of violent crimes and fires, for example.
Generally, the EPA regulates chemicals emitted into the environment at levels in the parts per billion, trillion, or even quadrillion range. To give these levels some perspective, one part per trillion is one square inch in 250 square miles and one part per quadrillion is a postage stamp on a letter the size of California and Oregon combined. The risks of chemical exposure at these low levels are often uncertain, undetectable, or unknown. As a result, the EPA tries to make a reasonable guess of the actual risk by exposing laboratory animals to extremely high and sometimes lethal doses of chemicals. In fact, there may be no risk at all.
Cost-benefit analysis helps regulators distinguish between uncertain risks (such as the negative effects of chlorinating water) and well known risks (such as water-borne bacteria). Many experts suggest that cost-benefit analyses of environmental regulations would result in regulations that address the most important environmental problems. Yet, cost-benefit analysis alone is not enough. The EPA is staffed by 18,000 employees who churn out thousands of pages of regulations each year. Neither the executive nor legislative branches of our government can guarantee that these regulations make sense in terms of either economics or public health.
However, the judicial branch of government can help. Judges could apply a universal, objective standard that would define "unreasonable risk" to prevent the EPA from acting arbitrarily or capriciously. This "judicial review" of federal agency decision making can be a part of the checks and balances on the power of government that the Founders of this country established over 200 years ago.
Congress was recently considering several bills intended to improve government regulations. Among them was a bill introduced by Senators Fred Thompson (R-TN) and Carl Levin (D-MI) called the Regulatory Improvement Act. The bill had similarities to previous and current Presidential Executive Orders which direct government agencies to write cost-effective rules. The bill would have encouraged cost-benefit analyses of proposed regulations, while still giving bureaucrats the option of explaining why an analysis couldn’t be done. The bill also had modest provisions for examining existing regulations for cost-effectiveness.
The original Thompson-Levin bill was flawed in that it did not mandate judicial review or cost-benefit analyses, but at least the public’s right to know about the inner workings of the Washington bureaucracy would have been enhanced. On the floor of the U. S. Senate, Senator Levin said, "We do need better cost-benefit analysis and risk assessment, more flexibility for the regulated industry to reach legislative goals in a variety of ways, more cooperative efforts between government and industry and less ‘us versus them’ attitudes."
But, even modest reform was too much for the administration. In order to gain White House support for the bill, Senators Levin and Thompson had to agree to exempt all existing regulations, exempt all regulations costing less than a half-billion dollars each, and cut out judicial review. The emasculation of this very modest bill resulted in the support of a few more Democrats who retained the right to "modify" the bill still further with unlimited amendments. Meanwhile, many environmental groups virulently oppose any reform at all.
The federal Unfunded Mandates Reform Act of 1995 illustrates what can happen to "reform" that is "improved" with exemptions. This Act was designed to prevent Washington from forcing states to spend resources on regulations that are mandated, but not funded, by the federal government. However, a recent General Accounting Office report found that 78 of 110 economically significant rules (those that cost more than $100 million in any one year) were exempt due to the many loopholes that were written into the Act.
The saga of the Regulatory Improvement Act is a lesson to all who seek to improve the environment strictly through changes in Washington. Time would be better spent if Michiganians promoted change locally, in the law and statutes of Michigan, to create a more cost-effective and reasonable regulatory structure. Change will more likely come when the states, by example, lead the way for federal reform.
The Mackinac Center for Public Policy is a nonprofit research and educational institute that advances the principles of free markets and limited government. Through our research and education programs, we challenge government overreach and advocate for a free-market approach to public policy that frees people to realize their potential and dreams.
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