Environmental Decisions in the Face of Uncertainty (2013) / Chapter Skim
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3 Uncertainty in Technological and Economic Factors in EPA's Decision Making
3 Uncertainty in Technological and Economic Factors in EPA's Decision Making
Pages 73-106
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From page 73... ...
In this chapter the committee discusses the uncertainty in those factors. Although these three factors are not independent -- for example, the estimates of human health risks influence the economic analysis, and technology availability contributes to economic analyses -- the committee discusses them separately.
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From page 74... ...
, EPA is required to develop effluent standards for sources of water pollution based on the "best practicable control technology currently available"6 (BPT) , or the "best available technology economically achievable"7 (BAT)
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From page 75... ...
represents the best available economically achievable performance of plants in the industrial subcategory or category. The factors considered in assess ing BAT include the cost of achieving BAT effluent reductions, the age of equip ment and facilities involved, the process employed, potential process changes, non-water quality environmental impacts, including energy requirements and other such factors as the EPA Administrator deems appropriate.
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From page 76... ...
for contaminants solely on the basis of human health risks.10 In contrast, the enforceable drinking-water standard promulgated under the SDWA -- termed the maximum contaminant level (MCL) -- is the "level that may be achieved with the use of the best available technology, treatment techniques, and other means that EPA finds are available (after examination for efficiency under field conditions, not solely under laboratory conditions)
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From page 77... ...
Learning how technologies develop over time and how EPA's regulatory decisions affect that development could help improve the agency's models of technological factors and decrease the uncertainty in agency decisions. EPA sometimes has the statutory authority, or the precedent, to consider both available technologies and technologies that are anticipated to be available.
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From page 78... ...
would limit the corrosion caused by exhaust gas recirculation emission-control technologies. In a separate rule EPA later required a significant reduction in the amount of sulfur in diesel fuels beginning with the 2007 model year.
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From page 79... ...
. In the context of environmental 12 For example, Executive Order 12866 requires analyses of the costs and benefits of "significant regulatory actions." A "significant regulatory action" is defined as "any regulatory action that is likely to result in a rule that may: (1)
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From page 80... ...
It is designed to identify the least expensive way of achieving a given environmental quality target or the way of achieving the greatest improve ment in some environmental target for a given expenditure of resources. regulations, the overall objective of both BCA and CEA is to compare different regulatory options,13 different combinations of regulatory options, or the value of different regulatory options.14 In BCA both benefits and costs are expressed in monetary units, whereas CEA is intended to identify 13 Potential regulatory options include the option of taking no regulatory action.
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From page 81... ...
It can be defined as the sum of all opportunity costs incurred as a result of the regulation. These opportunity costs consist of the value lost to society of all the goods and services that will not be produced and consumed if firms comply with the regulation and reallocate resources away from production activities and towards pollution abatement.
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From page 82... ...
. Social cost is narrower than the "total cost," which is considered in a number of regulatory impact analyses and includes costs beyond the social costs.
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From page 83... ...
Cost Analysis Compliance Costs Compliance costs are the costs incurred in complying with a proposed regulatory rule, and they include those costs incurred by parties complying with the regulations (for example, the costs to install emission-control technologies in an industrial facility)
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From page 84... ...
EPA's decision documents rarely present a range of costs that represents the uncertainty in estimates of engineering costs,15 and often it is not clear what assumptions underlay the computation of those cost estimates. For example, the summary of a 2000 regulatory impact analysis for arsenic in drinking water included tables listing the monetized health benefits from avoided cases of bladder and lung cancers and containing estimated compliance costs (EPA, 2000b)
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From page 85... ...
The simplest approach for dealing with such uncertainty is to assume complete compliance -- in other words, 100 percent enforcement. EPA's guidelines recommend that when conducting regulatory impact analyses, analysts should, as a general rule, assume full compliance (100 percent)
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From page 86... ...
Whatever level of enforcement is assumed should be assumed throughout the analysis, including in the computation of benefits. A few studies have compared the compliance costs estimated in regulatory impact analyses to estimates of actual compliance costs incurred after a regulation has been put into effect (Harrington, 2006; Harrington et al., 1999; OMB, 2005)
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From page 87... ...
That uncertainty can, however, be qualitatively described, and potential ranges of costs can be used to provide decision makers with information on the effects of potential uncertainty on the estimates of the cost of different regulatory options. Costs Imposed Economy Wide The second broad category of costs consists of those costs imposed on other parties by increased prices (EPA, 2010)
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From page 88... ...
. There are also dynamic versions of CGE models that consider a broader range of longer-term effects, including technological changes, which have the potential to capture the long-term effects of regulatory rules on labor supply, savings, the growth of classes of inputs, and input productivity (RTI International, 2008)
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From page 89... ...
Once the parameters of an assessment are established, estimating benefits requires establishing baseline values for the endpoints of interest, estimating the changes that would occur in those endpoints with different regulatory options (that is, the marginal effects of the policy or rule) , and attaching a monetary value to a given endpoint (that is, valuing those endpoints)
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From page 90... ...
Many of the uncertainties associated with estimates of baseline benefits are deep uncertainties which will not be able to be resolved within the timeframe needed. In the face of such a high degree of uncertainty, transparency in the assumptions and analytic methods used to estimate baseline benefits is important in order to allow decision makers and stakeholders to understand how those benefits are estimated.
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From page 91... ...
Those endpoints could be related to the effects that a regulation had on human health or on such things as access to a park or clean air or community health. The monetary value placed on these things reflects society's maximum willingness to pay and is generally expressed per unit change in the endpoint -- for example, how much society is willing to pay for each life-year saved or each day of hospitalization averted (EPA SAB, 2009; NRC, 2004)
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From page 92... ...
Contingent valuation has been used to place value on nonmarket items, such as the worth of access to a park or of clean air or of community health. Many studies that use contingent valuation address ecological issues, such as the value of preserving bald eagles, wetlands, forests, or visibility at national parks (Breedlove, 1999)
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From page 93... ...
The Superfund site cleanup program provides EPA with the opportunity and mandate to consider public values, and it is one for which EPA has evaluated community concerns. For example, the Hudson River PCBs Superfund Site New York Record of Decision (EPA, 2002a)
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From page 94... ...
For example, once a person has indicated a willingness to pay $5 for clean air, if asked about valuing another item, such as Yosemite National Park or the other 57 national parks, he or she will also often say $5. The "willingness" to pay $5 is actually a signal that the person cares about the environment, and it does not indicate that the person, upon reflection, would actually be willing to pay $5.
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From page 95... ...
Therefore, it is less important to choose a discount rate than it is to provide information about how different discount rates affect the analysis of a regulation. 17 Social trust is discussed further in Chapter 6.
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From page 96... ...
. Monte Carlo simulations are widely used in business applications and also, as mentioned in Chapter 2, for estimating human health risks (Marshall et al., 2009; Thompson et al., 1992)
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From page 97... ...
When estimating the cost associated with implementing the proposed arsenic rule, EPA used a Monte Carlo simulation to forecast "a
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From page 98... ...
In reviewing EPA's cost estimates for the arsenic rule, the Arsenic Cost Working Group of the National Drinking Water Advisory Council noted that the "value of existing national cost estimates is now limited by the large uncertainty associated with the estimated outcomes" and recommended that the EPA "clearly explain the limitations of each estimate and quantify the uncertainty associated with the Arsenic Rule estimates" (Arsenic Cost Working Group to the National Drinking Water Advisory Council, 2001, p.
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From page 99... ...
. Other factors -- such as environmental justice, political climate, and public sentiment -- and their uncertainty, however, are not taken into account in the analyses of human health risk, economics, and technological availability, despite their influence on decisions.
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From page 100... ...
Although social considerations such as environmental justice and the political climate affect EPA's decisions and there is uncertainty in those factors and how they influence decisions, there is seldom any discussion concerning just how those factors and their uncertainty affect a decision. KEY FINDINGS • EPA considers a number of factors in addition to human health risks when making regulatory decisions.
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From page 101... ...
That effect of that climate on decisions is not always transparent, adding to the uncertainty in decisions. • The methods and use of uncertainty analyses for technological, eco nomic, and other factors are not as well established as for the un certainties in human health risk estimates.
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From page 102... ...
:65–84. Arsenic Cost Working Group to the National Drinking Water Advisory Council.
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From page 103... ...
2000b. Proposed Arsenic in Drinking Water Rule regulatory impact analysis.
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From page 104... ...
2009. Reforming regulatory impact analysis.
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From page 105... ...
1992. Monte Carlo techniques for quantitative uncertainty analysis in public health risk assessments.
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