Policy Integrity recently submitted public comments to the Food and Drug Administration (FDA) on its proposed rule to deem certain tobacco products, such as electronic cigarettes and cigars, subject to regulation. We believe the FDA may be dramatically understating the benefits from consumer behavior changes due to regulation of new tobacco products.
Developing a more balanced and accurate presentation of benefits is essential, both to highlight the social value of this rule, and to set the right precedent for analyzing future regulations of tobacco (and other addictive, status-driven consumer products).
We believe the proposed rule analysis needs some important economic adjustments, including:
- The FDA must justify its discounting decision. The agency essentially discounts 70 percent of the rule’s potential benefits to account for consumers’ lost pleasure from not smoking. The percentage seems to have been arbitrarily selected from a range of estimates in a single study, and the lack of transparent explanation violates best practices for regulatory analysis.
- The analysis must recognize that tobacco products are “positional goods” – their value depends strongly on how they compare with things owned by others. Tobacco regulation is a cooperative solution that allows consumers to achieve what they could not in the non-cooperative open market: an aggregate reduction in smoking that does not radically upset status hierarchies.The FDA should consider what portion of the allegedly positive consumer welfare from smoking is derived from tobacco’s positional nature, and adjust its findings accordingly.
- In its valuation of health outcomes, the FDA should account for dread and suffering. Research suggests that people’s willingness-to-pay to avoid a cancer death may be roughly double the valuation of avoiding instantaneous death. As such, the analysis of a rule that can prevent cancer and other long-latency diseases should reflect costs from morbidity and suffering, not just mortality (other agencies, such as EPA, already account for these factors in regulatory analysis).
Much more detail on these and other points can be found in our full comments.
Richard Revesz, director of the Institute for Policy Integrity, testified at a U.S. House of Representatives Committee on Energy and Commerce hearing on July 11 to discuss the proper role of the federal government in environmental regulation. At the hearing, entitled, “Constitutional Considerations: States vs. Federal Environmental Policy Implementation,” Revesz discussed a series of instances in which federal action is desirable.
A portion of Revesz’s testimony focused on fugitive methane emissions from fracking. “Fugitive methane’s interstate—and, indeed, international—impacts make it particularly well suited to federal regulation,” Revesz told the committee. Due to these interstate spillovers, Revesz recommended additional federal performance standards to constrain greenhouse gas emissions from upstream sources like natural gas wells, pipelines, and storage tanks. “Upstream gas infrastructure is already subject to performance standards for the emission of volatile organic compounds and hazardous air pollutants. While those standards have the co-benefit of reducing methane emissions, directly regulating methane would generate significant additional reductions.”
In addition to his discussion of regulating methane emissions, Revesz spoke about interstate externalities and the Clean Air Act, and the federal government’s preemption of more stringent state environmental standards. The full text of his testimony is available here and a video of the hearing is available here.
Issue(s): Energy and Environment
On June 30, Policy Integrity submitted comments to the Bureau of Land Management (BLM) regarding the proposed establishment of a program to capture, use, or destroy methane that is released through underground mining operations on federal lands. Coal mining releases large quantities of methane, a potent greenhouse gas, which most mine operators vent directly into the atmosphere. As a result, coal mining is the United States’ fourth largest source of methane emissions, accounting for 10 percent of emissions in 2012.
Technology exists to safely capture and exploit mine methane for profit. Even where capture is impractical, it is possible to abate mine methane’s climate impacts by converting the methane to carbon dioxide (a less potent greenhouse gas) through thermal oxidation or flaring. To encourage the efficient capture or abatement of mine methane, BLM should adopt the following policies:
- BLM should explicitly grant all coal lessees the right to capture and use or sell any methane that is released as a consequence of mining activities.
- BLM should adjust the royalty rates it charges coal lessees to reflect the social costs and unrealized commercial value of vented mine methane.
Policy Integrity will continue to monitor BLM’s rulemaking process as a part of our focus on the regulation of methane emissions.
The centerpiece of the Obama Administration’s effort to address climate change through executive action is now a known quantity with the release of the EPA’s proposed carbon pollution guidelines for existing power plants. The rule, pursuant to Section 111(d) of the Clean Air Act, would cut carbon pollution from power plants 30 percent from 2005 levels by 2030 and allow states to use flexible approaches to meet this target.
The proposed guidelines seek to reduce pollution from the country’s largest source of greenhouse gas emissions and end a flawed regulatory framework that has incentivized utilities to keep the oldest and dirtiest plants running decades longer than expected. Policy Integrity has long argued that regulating existing plants is a crucial step, and our recent policy brief analyzes the debate around these guidelines.
The EPA’s proposed guidelines should be lauded for their use of broad, market-based compliance mechanisms and the inclusion of mass-based emission caps (though each state’s default cap will be rate-based). The 30 percent target would likely allow the United States to meet its commitment to the United Nations to cut overall carbon pollution 17 percent by 2020, and results in a rule that is eminently cost-benefit-justified (the EPA estimates the rule will cost the economy $7.3 billion to $8.8 billion annually and lead to benefits of $55 billion to $93 billion, primarily by preventing premature deaths and mitigating respiratory diseases).
Policy Integrity will submit public comments on the proposed guidelines in the coming months. Our recent public comments on the EPA’s emissions standards for new power plants can be found here.
Issue(s): Energy and Environment
On May 16, we submitted joint comments on the social cost of carbon to two Department of Energy energy efficiency rules and to another energy efficiency rule proposed jointly by the Department of Housing and Urban Development and the Department of Agriculture. They are substantially similar to those we submitted for EPA’s proposed New Source Performance Standards rule on May 9th. The comments to DOE are available here, and the comments to HUD are available here.
Both sets of comments make recommendations that, if taken, would maximize the impact of the rules:
EPA should consider the cost savings associated with a flexible, multi-year compliance period when determining the “degree of emission limitation achievable” under the “best system of emission reduction” for coal-fired generating units.
Given that EPA’s forthcoming rule for greenhouse gas emissions from existing power plants is likely to encourage emissions trading between existing coal- and gas-fired units, EPA should group its performance standards for new coal- and gas-fired units within a single regulatory subpart. Treating all types of generating unit as a single source category will put future trading on a stronger legal footing.
EPA should expand its proposed performance standards to encompass all greenhouse gases emitted by generating units, not just carbon dioxide.
EPA should also make clear that carbon capture and storage can be “adequately demonstrated” without referring to projects funded by the Energy Policy Act of 2005.
Finally, EPA should explain more fully why it exempts oil-fired and peak-demand units from the proposed standards.