Our new regulatory report offers guidance on how how the EPA can improve its cost-benefit analysis for a new proposed rule regulating the dispersants used to clean up oil spills and other major pollution events. In January 2015, the EPA proposed revisions to the National Oil and Hazardous Substances Pollution Contingency Plan, which provides oversight for pollution response efforts. In its proposed rule, the EPA added new listing criteria for oil dispersant ingredients, revised efficacy and toxicity testing protocols, and clarified the evaluation for removing products from the required schedule, among other changes. The proposed regulations are designed to ensure that chemical and biological agents used in cleanup efforts meet efficacy and toxicity requirements and that, through the listing process, the pollution response community and dispersant consumers have sufficient information to make informed decisions. We submitted this regulatory report to the EPA as our public comments on the proposed rule.
The regulatory report outlines a series of suggested changes to strengthen the proposed rule and its economic analysis, including:
- EPA should quantify and monetize the rule’s benefits and costs to the extent feasible;
- EPA should more clearly describe the qualitative costs and benefits of the rule; and
- Strong ingredient disclosure policies should be used, given that companies have disclosed ingredients in analogous regulatory contexts.
We believe that this rule could help increase transparency and stimulate innovation.
Issue(s): Energy and Environment
Policy Integrity recently filed public comments on the Bureau of Ocean Energy Management’s (BOEM’s) new offshore leasing proposal, suggesting that the agency update its use of “option value” to improve its valuation of offshore resources. We have long suggested that government agencies engaged in leasing decisions should consider option value—a financial concept widely used in markets that places value on delaying irreversible decisions until more information is available. Largely as the result of our efforts, BOEM’s Proposed 2017-2022 Outer Continental Shelf Oil and Gas Leasing Program incorporates option value concepts for the first time.
Our comments urge BOEM to take additional steps to strengthen its analysis in line with best practices and the mandate to balance economic, social, and environmental values. Specifically, we suggest that BOEM should:
- Use option value to better inform its five-year offshore leasing program and to help determine the optimal size, timing, and location of lease sales;
- Take meaningful steps to quantify the option value associated with leasing in each Outer Continental Shelf region;
- Transparently weigh option value when deciding where and when to issue leases, and only issue leases if the economic, social, and environmental benefits outweigh the costs; and
- Clarify in the program how option value will be incorporated into later development stages, for example, by adjusting minimum bids, rents, and royalties to compensate the public for the full value of the rights conveyed.
In the appendix to our comments, we provide economic methodologies that can help BOEM move forward with option value calculation. We will continue our dialogue with the agency to help spur progress on these important issues.
Policy Integrity senior advisor Michael Livermore represented the plaintiff in Center for Sustainable Economy v. Jewell, a lawsuit challenging the Bureau of Ocean Energy Management’s (BOEM’s) 2012-2017 leasing plan for the Gulf of Mexico and the Alaskan coast. The Center for Sustainable Economy (CSE) argued that incomplete and flawed economic analysis leads the government to sell resource leases too quickly and too cheaply, potentially costing the American public billions of dollars and leading to high-risk drilling. Today, the U.S. Court of Appeals for the D.C. Circuit ruled against CSE in the case. However, part of the ruling could lead to major changes in how the government values the natural resources it leases.
Livermore argued that government agencies engaged in leasing decisions should account for option value—a concept widely used in financial markets that analyzes the value of delaying irreversible decisions until more information is available. Applied properly, an option value analysis would guide leasing away from areas with the greatest uncertainty, and help BOEM optimally time leases.
The court’s decision acknowledges that there is “a tangible present economic benefit to delaying the decision to drill for fossil fuels to preserve the opportunity to see what new technologies develop and what new information comes to light.”
The court found that BOEM’s failure to quantify option value was reasonable at this time because the methodology is not yet “readily quantifiable.” It stated: “Our holding is a narrow one…the agency is not permitted to substitute qualitative assessments for well-established quantitative methods whenever it deems such substitutions convenient.” The court further noted: “Had the path been well worn, it might have been irrational for Interior not to follow it.”
“The ruling strongly suggests that advancements in option value research could compel the government to alter its leasing practices and better quantify risks,” said Livermore. “This change could pay enormous dividends to the American public.”
The Institute for Policy Integrity is currently exploring new research on the quantification of option value, with the aim of improving natural resource valuation and leasing decisions at BOEM and other federal agencies.
The sections of the court’s opinion that pertain to option value can be found here.
Issue(s): Energy and Environment
The Supreme Court will soon hear a challenge to the EPA’s Mercury and Air Toxics Standards (commonly known as the MATS rule). Policy Integrity has submitted an amicus brief in support of the EPA for this case.
The case focuses on whether the EPA unreasonably refused to consider costs in determining whether to regulate hazardous air pollutants emitted by electric utilities. As our brief argues, the MATS rule reflects the EPA’s rational consideration of costs and benefits during the appropriate phase of the rulemaking process, consistent with statutory design, federal executive orders, case law, longstanding regulatory precedents, and analytical best practices.
The MATS rule is massively cost-benefit justified, delivering tens of billions of dollars in net benefits each year, including thousands of lives saved annually plus other significant health and environmental improvements. When all direct and indirect effects are quantified, this rule’s monetized benefits (independent of any existing air quality standards) range from $37–$90 billion per year, substantially outweighing the $9.7 billion in costs. The EPA followed standard best practices in its economic analysis, as was confirmed by the Office of Information and Regulatory Affairs. For these and other reasons, our brief argues that Court should affirm the judgment of the court of appeals and uphold the MATS rule.
The Court will hear oral argument for this case on March 25th.
The U.S. Court of Appeals for the D.C. Circuit will soon hear the first set of cases challenging President Obama’s signature climate change initiative—the EPA’s Clean Power Plan. We recently filed an amicus brief for West Virginia v. EPA, one of the cases challenging the as-yet unfinalized regulation.
The case focuses on whether the EPA has the authority to regulate greenhouse gases from power plants in the face of the uncertainty about the content of Clean Air Act section 111(d), due to the different House and Senate amendments to the provision passed in 1990.
Our brief addresses two main points:
- Ever since Section 111(d) was amended in 1990, the EPA has consistently, over 25 years and through administrations of both parties, interpreted the provision in ways that would support the agency’s ability to issue a flexible pollution regulation like the Clean Power Plan.
- Petitioners’ reading of Section 111(d) could prevent the agency from using that section’s flexible compliance mechanisms, which could force the agency to use other command-and-control style regulations that impose higher costs.
The brief can be found here.
Oral argument will take place on April 16.