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Cost Benefit Analysis

Cost Benefit Analysis. Executive Order 12291. RIA for all new regulations Benefits > Costs Office of Information and Regulatory Affairs (OIRA) in OMB 1984- 58 rules “sent back”. Executive Order 12866. Perform RIA for “significant regulations” > $100 million

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Cost Benefit Analysis

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  1. Cost Benefit Analysis

  2. Executive Order 12291 • RIA for all new regulations • Benefits > Costs • Office of Information and Regulatory Affairs (OIRA) in OMB • 1984- 58 rules “sent back”

  3. Executive Order 12866 • Perform RIA for “significant regulations” > $100 million • “Costs and benefits should be understood to include both quantifiable measures ... and qualitative measures of costs and benefits that are difficult to quantify.” • Maximize “net benefits to society • 1992-00, 16 rules sent back

  4. CBA Okay Safe Drinking Water Act (1996) Environmental Impact Statements CBA Never Toxic Substance Control Act RCRA Clean Air Act Clean Water Act Statutory Requirements Var

  5. Phasedown of Lead in Gas • “Cadillac” of cost benefit analysis • How to estimate benefits? • Would you rather be a lion or horse tamer?

  6. SO2 National Ambient Air Quality Benefit Categories

  7. What does EPA RIA suggest about estimation of benefits?

  8. Section 812 Study • Was the CAA worth it? • 1990 benefits of CAA $1.25 trillion • 1990 US Economy GDP 5 trillion • “Assumptions underlying the estimates are often unavoidably arbitrary, they have large effects on the final results, and the effects are not always well explained.” Randall Luttner, Brookings Institute

  9. Section 812 Baseline • No improvement in air without CAA • 60 metro areas have higher PM in 1990 than Moscow • 1970 baseline  benefits?

  10. PM Mortality • Where is PM? • Where is Grandma?

  11. Value of a Life Year • $ Value of Reducing Mortality in years of life gained • $293,000 or • $100,000 • $ benefits • $16.6 trillion or • 9.1 trillion

  12. Particulate Matter Mortality • EPA- Reducing PM exposure = gain 14 years • FDA- quitting smoking = gain of 15 years

  13. Value of Life? • $6.1 million EPA • $2.5 million DOT • $5 million Consumer Product Safety Commission

  14. Spaceship Survivor • Me, you, baby, and a 72 year old lady on spaceship, only enough O2 for 3 people. Who do you toss?

  15. OIRA “alternative estimates” for a statistical life • $2.3 million >70 Impact on BCA of air pollution?

  16. John Graham, W’s Regulatory Czar

  17. Past Predictions of Costs of Regulations 28 Major Regulations (accuracy = + 25% of estimate)

  18. Why do CBA? • Is CBA inherently • Stupid? • Deceitful • Anti-environmental? • Examples Saving Lives and Saving Turtles

  19. Selling Indulgences

  20. Conclusions • Thresholds • Benefits > Costs • Useful for assessing regulatory impact • Incomplete tool

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