Risk Analysis and Cost-Benefit Analysis of Environmental Regulations

94-961 ENR

TABLE OF CONTENTS FOR THIS SECTION

-- -- -- Statutes Requiring Analysis of Federal Regulations
-- -- -- President Reagan's Executive Orders (Now Revoked)
-- -- -- EPA's Response to the Reagan Orders
-- -- -- Regulatory Planning and Review in the Clinton Administration .

Table 2. Key provisions of President Reagan's Executive Orders 12291 and 12498,
now revoked, and President Clinton's Executive Orders 12866 and 12875
Table 3. Characteristics of "Major Rules" and "Significant Regulatory Actions"

Statutes Requiring Analysis of Federal Regulations

Three Acts of Congress, the Regulatory Flexibility Act (5 U.S.C .601 et seq. ), the Paperwork Reduction Act, as amended, (44 U.S.C. 3501 et seq.) and the National Environmental Policy Act (42 U.S.C. 4321-4347) impose additional requirements on Federal agencies for analysis of proposed and existing regulations. The Regulatory Flexibility Act requires agencies to review proposed regulations to describe the impact of proposed rules on, or certify that they will not have a significant economic impact on a substantial number of, small entities which include small businesses, small governmental jurisdictions, and small not-for-profit organizations. It also requires consideration of possible alternatives to the regulatory proposal that will accomplish the objectives while minimizing the impact on small entities. Agencies are required to project reporting, recordkeeping, and other compliance requirements of proposed regulations. EPA's Small Business Ombudsman provides guidelines for analysis of economic impacts on small businesses. The Paperwork Reduction Act, as amended, requires agencies to assess the paperwork and reporting burden placed on the Agency and industry by proposed regulations. In addition, the National Environmental Policy Act (NEPA) requires agencies (other than EPA) to prepare an environmental impact statement for each major regulation [15 U.S.C. 793(c)(1); 33 U.S.C. 1371(c)]. The Code of Federal Regulations defines a major regulation under NEPA as a regulation that individually or together with other regulations, may have a major impact on the human environment (40 CFR § 1505,18.) "Impact" is defined as synonymous with "effects" which may be ecological, aesthetic, historic, cultural, economic, social, or health, whether direct, indirect, long-term, short-term, or cumulative (40 CFR § 1508.8.) The regulations further state, "Major reinforces but does not have a meaning independent of significantly." "Significantly," in turn, is defined with reference to the geographic and social context (for example, an impact is significant to society as a whole if it affects all humans or the Nation, while a local impact may be significant for a smaller project), and the severity of impact ("intensity").

Because they are statutory, provisions of these Acts supersede the provisions of all executive orders, discussed below, but they generally complement, rather than contradict, the provisions of the executive orders issued by President Reagan and President Clinton. The statutes do not preempt provisions of other statutes authorizing regulatory activity, however.

President Reagan's Executive Orders (Now Revoked)

Federal agencies also have conducted economic analyses in response to directives from the Chief Executive. To the extent permitted by enabling statutes, the President's Office of Management and Budget (OMB) has required all regulatory agencies to conduct increasingly detailed and quantitative analyses of costs and benefits ever since "Quality of Life" reviews were required under President Nixon. Prior to 1981, EPA's quantitative analyses of regulations aimed at pollution control (as opposed to control of commerce in toxic chemicals) emphasized costs and "affordability".(22) After February 1981, however, when President Reagan issued Executive Order 12291 (revoked in 1993) requiring agencies to perform Regulatory Impact analysis (RIA), cost-benefit analysis was required for all proposed and final "major" rules (46 Federal Register 13193, Feb. 19, 1981.) The executive orders defined "major rules" to mean any regulation likely to have an effect on the national economy of $100 million or more. Rules with a smaller economic impact were also "major" if they were likely to result in: a major increase in costs or prices for consumers, individual industries, Federal, State, or local government, or geographic regions; or a significant adverse effect on competition, employment, investment, productivity, innovation, or the ability of U.S.-based enterprises to compete with foreign-based enterprises in domestic or export markets. Proposed legislation in the 103rd Congress and the House Republican's 1994 Contract with America would codify this executive order.

The Reagan order reflected that Administration's commitment to provide "regulatory relief," by providing that "to the extent permitted by law," "regulatory action shall not be undertaken unless the potential benefits to society from the regulation outweigh the potential costs." The order required selection of regulatory objectives to maximize net benefits and of the least cost option for attaining objectives, unless existing laws prevented this approach. In general, under the Reagan and Bush Administrations, an RIA required an evaluation of all potential costs and benefits that would accompany implementation of a rule, including effects that could not be quantified in monetary terms. Agencies were required to compare the costs and benefits of the proposed rule to the alternative of no regulation as well as to other approaches that could achieve the same objective at lower costs. OMB guidelines for agencies explicitly required analysis of all major alternatives to the proposed rule.(23)

A requirement for risk analysis was not explicit in President Reagan's 1981 order but implied by the mandate to assess net benefits of environmental and health and safety regulations. Most benefits of such regulations are the risks avoided due to Federal action. In January 1985, a second executive order made the requirement for risk analysis (to the extent permitted by law) explicit. President Reagan's Executive Order 12498 (now revoked) on the Regulatory Planning Process (60 Federal Register 1036) required agencies to adopt principles contained in an August 11, 1983 report by the President's Task Force for Regulatory Relief. One principle states that "regulations that seek to reduce health or safety risks should be based upon scientific risk assessment procedures, and should address risks that are real and significant rather than hypothetical or remote."

EPA's Response to the Reagan Orders

EPA published its interpretation of the first Reagan Administration executive order in a 1983 report Guidelines for Performing Regulatory Impact Analysis.(24) These Guidelines describe how the Reagan Administration expected the directives applicable to all Federal regulatory agencies to be applied in analyses of environmental regulations controlling individual pollutants or particular waste streams.(25) The introduction to the Guidelines summarizes the requirements for Regulatory Impact Analysis (RIA) as follows:

Benefits and costs should be quantified and monetized in the RIA to the extent possible. The RIA should discuss fully benefits and costs that cannot be quantified and should assess their importance relative to those that are quantified or monetized. When many benefits cannot easily be monetized, or when law requires a specific regulatory objective, cost-effectiveness analysis may be used to evaluate regulatory alternatives.(26)

It further states that "[t]he goal of regulatory impact analysis is to develop and organize information on benefits, costs, and economic impacts so as to clarify trade-offs among alternative regulatory options." The Guidelines clearly indicate that compliance with Executive Order 12291 required risk analysis to quantify health effects.

The Guidelines permitted RIAs to vary in level of detail provided, extent to which costs and benefits were quantified, and level of precision of the information assessed. Variation also was allowed to accommodate the nature and quantity of data, available analytic techniques, resource or time constraints, or the difficulty of analyzing some environmental problems or regulatory approaches.

In quantifying potential health effects, EPA's Guidelines specified that chemical substances should be evaluated individually based on a weight-of-evidence scientific evaluation. In addition, the guidelines required discussion of particularly sensitive populations, the duration, reversibility, and nature of adverse effects and whether effects resulted from single or repeated exposures to the substance. They required estimation of the risk reduction that would be achieved by a rule, expressed as, for example, numbers of lives saved or illnesses prevented. To permit mathematical calculations of "net benefits,'' the Guidelines directed analysts to estimate the monetary value of the quantified health benefits based on studies of willingness to pay to avoid illness or cost savings such as health care costs or lost earnings.(27) The monetary value of lives saved by a regulation was required to be estimated statistically for populations.(28)

The Reagan Administration also required some economic analysis for regulations that were not major rules, and all rules were sent to OMB for review. EPA Guidelines state, ''sufficient analysis must be performed to demonstrate that the rule meets the objectives of the Executive Order. At a minimum, this should include costs and economic impact (distributional effects) analyses" (p. M3.) However, OMB routinely waived review of certain categories of rules, such as certain rules granting pesticide tolerance exemptions; OMB did not usually require cost-benefit analysis for regulations that revoked requirements (or otherwise "deregulated").(29)

Between 1981 and 1992, EPA issued 1,594 proposed rules and 1,686 final rules, including 92 major proposed rules (5.9 %) and 60 major final rules (3.6 %).(30) Formal cost-benefit analyses were prepared for approximately 80 percent of the major final rules. The number of cost-benefit analyses prepared for final non-major and all proposed rules is unknown. Several final major rules without comprehensive cost-benefit analyses had court-imposed deadlines for publication (which may have allowed too little time for a comprehensive analysis), and some other rules without analyses were withdrawn or returned to EPA by OMB for further analysis.(3l)

The quality of EPA's cost-benefit analyses for final, major rules was inconsistent according to reviews by EPA's Office of Policy, Planning and Evaluation, by Arthur Fraas, a career official in OMB, and by Morris A. (Bud) Ward, Executive Director of the Environmental Health Center, National Safety Council.(32) According to EPA, incomplete analyses in most cases were due to the inadequacy or unavailability of the necessary scientific and/or economic data. In other cases, reviewers have hypothesized that analysis may have suffered due to time constraints imposed by statutory and judicial deadlines, lack of resources to hire additional analysts, and the difficulty of quantifying such benefits as safe drinking water or clean air and of determining their worth in monetary terms.(33) Moreover, in February 1994 testimony before the Subcommittee on Environment, Energy, and Natural Resources of the House Committee on Government Operations, EPA's Assistant Administrator for Prevention, Pesticides and Toxic Substances testified that EPA has routinely adjusted the amount of analysis to the relative importance of the potential impact of a rule.(34)

Despite the uneven quality of EPA's cost-benefit analyses, the Agency's study concluded that "EPA's benefit-cost analyses have resulted in several cases of increased net benefits to society from environmental regulations" and "analyses yielded a return on investment of 1,000 to 1."(35) Between February 1981 and February 1986, EPA's investment (estimated cost of preparing a formal analysis) for a major rule ranged from $210,000 to $2,380,000 and averaged $675,000.(36) There are no figures available for more recent years or for the preparation of less comprehensive analyses for rules that were not "major" rules.

In many cases, EPA performed cost-benefit analyses but statutory provisions limited their use. According to EPA, it "was able to consider the full implications of its benefit-cost analyses when setting only 6 of the 15 regulations studied" between 1981 and 1986.(37)

Regulatory Planning and Review in the Clinton Administration

Executive Order 12866. On September 30, 1993, President Clinton signed Executive Order 12866 on Regulatory Planning and Review (58 Federal Register 51735, Oct. 4, 1993) which revoked and replaced the two Reagan Administration executive orders, Executive Order 12291 requiring RIAs and Executive Order 12498 establishing the regulatory planning process. OMB issued guidance on implementing President Clinton's order October 12, 1993.

On October 26, 1993, President Clinton issued Executive Order 12875, Enhancing the Intergovernmental Partnership, which supplements but does not supersede the requirements contained in Executive Order 12866.

The Reagan and Clinton orders are similar in many ways, but several differences exist that are likely to affect regulatory decisions where the agencies have discretionary authority to consider cost-benefit and risk analyses. Table 2 compares some key provisions relating to cost-benefit and risk analyses in the executive orders issued by Presidents Reagan and Clinton.

The expressed purpose of President Clinton's executive order is to improve the development process for Federal regulations, making it more visible to the public and more efficient and ensuring the primacy of agencies in making decisions and the integrity and legitimacy of oversight. In remarks prior to the signing of Executive Order 12866 on September 30, 1993, the President highlighted unprecedented provisions that, he said, open the regulatory process to public scrutiny while limiting involvement by the President and Vice President in the regulatory process. He directed all Federal agencies to confer with OMB and the public during the early stages of deliberations about whether and how to regulate, to record the basis for regulatory decisions, and to make the records available to the public. Another stated goal of the Clinton Administration is to expedite regulatory action. The early involvement of OMB and others in regulatory planning is intended to serve this purpose. In contrast, President Reagan's orders were intended to improve the quality but also to reduce the number of regulations, and he sought to ensure Presidential oversight of the regulatory process.

Table 2. Key provisions of President Reagan's Executive Orders 12291 and 12498,
now revoked, and President Clinton's Executive Orders 12866 and 12875

The Clinton order directs agencies to conduct cost-benefit analysis for all "significant regulatory actions." The definition of "significant regulatory action" appears to be more inclusive than the "major rule" definition of Executive Order 12291, indicating that more regulations may be subject to cost-benefit and risk analysis under the Clinton order. (However, OMB will not review rules that are not found to be significant and may not require cost assessments for such rules, as discussed below.) The Clinton Administration also defines advanced notices of proposed rulemaking as regulatory actions; such notices were not defined as rules under the Reagan Administration. The two categories of regulations are compared in Table 3.

President Clinton directs each agency to determine the significance of proposed regulatory activities initially, but authorizes OMB to designate additional rules as significant (within ten days of receiving the agency's list of planned regulatory actions). OMB also is permitted to waive review of an agency's significant regulatory actions. Under the two previous Administrations OMB had similar authority, that is, to designate rules as major and to waive review of particular major rules.

President Clinton requires each agency to "consider the degree and nature of the risks posed by various substances or activities within its jurisdiction" in setting priorities. In contrast, President Reagan required agencies to maximize net economic benefits in setting priorities.

The executive orders of Presidents Reagan and Clinton direct agencies to use different criteria in choosing regulatory objectives. Under the Reagan orders, agencies were required to pursue regulatory objectives that would "maximize net benefits", that is, achieve the greatest possible economic gain for society, to the extent permitted by law. Under the Clinton order, agencies will select regulatory objectives that address significant problems or compelling public need. Economic impacts are not considered in the choice of objectives (although prior to promulgating a regulation, agencies must determine that benefits justify costs, unless the regulation is required by law).

Having determined the targets of regulations, the Reagan Administration directed agencies to choose the regulatory alternative with the "least net cost". The Clinton Administration established three criteria for choosing a regulatory approach: maximize net benefits, minimize the overall regulatory burden for various segments of society, and design the most cost-effective regulation or alternative to achieve the objective. The philosophy of the Clinton order emphasizes the importance of net benefits. It states:

Further, in choosing among alternative regulatory approaches, agencies should select those approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity), unless a statute requires another regulatory approach [section 1(a)].

Table 3. Characteristics of "Major Rules" and "Significant Regulatory Actions"

Both the Clinton order and Guidelines for the Reagan orders require consideration of alternatives to Federal regulation such as those that rely on negotiation or economic incentives.

The Reagan orders required analysis of potential benefits, costs, and net benefits of the proposed regulation and alternatives that cost less. Costs, benefits, and net benefits for each alternative were compared to those for the alternative of no regulation. The Clinton order similarly requires analysis of all costs and benefits of the proposed regulation and alternatives, including the alternative of no regulation. It also requires analysis of net benefits (in order to choose an approach that maximizes net benefits) and cost-effectiveness of regulatory alternatives. Thus, the Clinton order appears to have a more comprehensive set of analytic requirements.

More specifically, the Reagan orders required analysts to focus on economic, adverse impacts of regulations (that is, costs) for consumers, individual industries, Federal, State, and local governments, and geographic regions. The orders required measurement of effects on competition, employment, investment, productivity, innovation, and international competitiveness. They also required consideration of the distribution of costs and benefits, that is, who pays and who gains. The Clinton order also requires analysis of the costs of enforcement and compliance to governments, regulated entities, and the public; impacts on innovation; and consideration of who pays and who gains. In addition, the Clinton Administration specifically requires analysis of benefits to the environment and public health and safety. The consistency, predictability, and flexibility of regulations must also be considered. Finally, the Clinton order explicitly requires consideration of whether the impacts are fair.

The Clinton order directs agencies to prepare and submit to OMB an annual Regulatory Plan, in which they identify their planned significant regulatory activities, including a description of how each action will reduce risks. Agencies must compare the magnitude of the risk addressed by each activity to the magnitudes of other risks within the jurisdiction of the agency. The Reagan Administration also required agencies to submit information about regulatory actions underway or planned, but no requirement existed to compare risks addressed by regulations. Instead, the Reagan order focused agency attention on regulatory action to revise or rescind existing rules.

President Clinton's Executive Order 12866 established a Regulatory Working Group to serve as a forum for interagency discussions. Topics to be addressed include comparative risk assessment, innovative regulatory techniques, and streamlined approaches for small businesses and other entities to facilitate their compliance with regulations. Interagency groups also were established under previous Administrations, often to promote coordination of regulatory activity and harmonization of risk assessment practices.

The executive orders of Presidents Reagan and Clinton require analysis to be based on scientific information. In addition, the Clinton Administration requires agencies to use the "best reasonably obtainable scientific information." President Reagan required analysis "based on adequate information" and risk assessment.

The Reagan orders prohibited Federal agencies from preempting State laws or regulations except to protect civil rights or interstate commerce. Under the Clinton order, OMB is required to meet four times per year with representatives of State, local, and tribal governments to identify planned and existing regulatory activities with potentially significant impacts. Several meetings already have taken place. Representatives of businesses, nongovernmental organizations, and the public also must be consulted about the significance of planned regulatory actions. OMB and the Small Business Administration sponsored two meetings in 1994. The Clinton order requires Federal agencies to develop a process to permit meaningful and timely input by State, local, and tribal governments in the development of regulatory proposals containing significant unfunded mandates. It prohibits the promulgation of regulations that would create a mandate upon a State, local, or tribal government, unless funds are provided by the Federal Government to pay direct costs incurred by that government or the agency provides to OMB a description of: 1) the extent of prior consultation with that government; 2) the nature of that government's concerns, 3) written communications submitted by such government, and 4) the agency's position supporting the need to issue the regulation. The order also directs Federal agencies: to review and streamline processes for waiver applications by State, local, or tribal governments, to attempt to increase opportunities for use of flexible policy approaches in jurisdictions of applicants where appropriate; and to render decisions to applicants within 120 days, notifying and explaining decisions to deny such applications in writing.

EPA's Implementation of Executive Order 12866. An interagency analytical work group is developing principles of analysis for use by all agencies and OMB under Executive Order 12866. This group will decide such technical issues as the rate that future costs and benefits will be discounted to estimate their present value.(44) Technical principles also were developed under the Reagan executive orders. Agencies also are developing implementation guidelines. The final draft of EPA's guidelines is expected to be completed by late 1994, according to EPA's Regulatory Management Division. These internal EPA guidelines will be reviewed by EPA's Science Advisory Board (SAB) and revised, if necessary. The final report may be released in mid-1995.

Since guidelines are still being developed, it is probably premature to draw conclusions about the effect of President Clinton's order. However, an OMB report on agencies' implementation of the order in the first 6 months after publication of the executive order indicates that OMB completed reviews for 42 significant EPA rules, including 21 proposed and 21 final significant rules. For comparison, between 1981 and 1992, EPA issued 60 major final rules and 92 major proposed rules. However, because these figures are not truly comparable they should be interpreted with caution. More comparable figures were not available from OMB or EPA.

OMB issued guidance for agencies April 5, 1994, on how to develop the regulatory plan. Draft regulatory plans are due at OMB June 1 each year and a unified plan for the Federal Government will be issued each fall with the semi-annual regulatory agenda (the list of regulations agencies expect to issue in the next 6 months.) The Clinton Administration issued its first regulatory agenda on November 14, 1994 (59 Federal Register 57003).(45)

EPA submitted its first plan for review of existing significant regulations on December 29, 1993. The plan describes a broad, bottom-up process by which Agency managers and the Administrator will receive nominations for regulations that should be reviewed and outlines the procedure the Agency will follow to designate significant regulations for the final list to be included in the annual Regulatory Plan. According to EPA's plan, EPA program offices will be more directly involved in planning with less intercession by the EPA Office of Policy, Planning and Evaluation than occurred during previous Administrations.

In a separate September 30, 1993 memorandum to heads of departments and agencies on agency rulemaking procedures, President Clinton directed agencies to examine their internal review procedures for regulations to determine whether and how they might be improved and streamlined. All agencies were required to report the review results to the President. EPA announced June 15, 1994 that it had developed a rule-making process which places regulations in one of three tiers based on the political sensitivity of the rule and the number of media-specific program offices and statutes that would be affected by the rule.(46) The Tier 1 rules are most politically sensitive or controversial and affect major stakeholders and several different programs in the Agency. Tier 1 rules require the most complex and detailed analysis and review processes. According to Assistant Administrator for Policy, Planning, and Evaluation David Gardiner, Tier 3 rules are not necessarily unimportant or inexpensive, but they are less complicated to address and need less review by senior Agency officials. The new process is meant to focus EPA resources where they are most needed, to produce better Tier 1 and Tier 2 rules with a stronger basis in science, and to expedite the development of rules in Tier 3. Of the 352 regulations EPA will be working on through 1995, the Agency designated 27 Tier 1 rules, 158 Tier 2 rules, and 167 Tier 3 rules.

Endnotes

22 Fraas, Arthur. The Role of Economic Analysis in Shaping Environmental Policy. Law and Contemporary Problems, Assessing the Environmental Protection Agency After Twenty Years: Law, Politics, and Economics. Durham, N.C., Duke University Press, 1991. p. 118.

23 U.S. Office of Management and Budget, Executive Office of the President. Interim Regulatory Impact Analysis Guidance. Washington, U.S. Govt. Print. Off., 1981.

24 U. S. EPA, Office of Policy Analysis. Guidelines for Performing Regulatory Impact Analysis. EPA-230-01-84-003. (December 1983).

25 The introduction to the Guidelines notes that "[t]hey are not readily applicable to regulations for generic information gathering, testing, and procedural rules. In these situations, program offices should contact EPA's Office of Policy, Planning, and Evaluation and OMB in the early stages about procedures, extent of detail, and degree of quantification appropriate for the RIA."

26 The cost-effectiveness of a regulation is generally defined as the annual cost divided by a measure of progress toward the objective. There is no single definition of the "most cost-effective regulation", but an alternative usually is selected in one of three ways: 1) by choosing the most efficient (least cost) way of achieving the objective; 2) by choosing the alternative that maximizes benefits for a particular cost; or 3) by comparing the relationship between costs and benefits for increasingly stringent regulatory alternatives, and then choosing the regulation that, relative to more and less stringent regulations, provides a significant increase in benefits for a reasonable increase in costs. (This method does not point to a single best choice but can identify regulations that obtain relatively tiny increments of protection for human health or the environment at relatively high costs) (U.S. EPA. Guidelines, p. M14.)

27 As defined above, "net benefit" is the value of the benefit less the cost, that is, the difference of costs subtracted from benefits. The benefit-cost ratio is the quotient of benefits divided by costs.

28 A more detailed discussion of these guidelines may be found in CRS Report 89-161 ENR, Health Benefits of Air Pollution Control, in the chapter by Morris A. (Bud) Ward. p. 295-378.

29 U.S. EPA. Guidelines. p. 3 (footnote).

30 Luken, Ralph A., and Arthur G. Fraas. The U.S. Regulatory Analysis Framework: A Review. Oxford Review of Economic Policy v. 9, n. 4, 1993. p. 100.

U.S. Office of Management and Budget, Executive Office of the President. Regulatory Program of the U.S. Government. Washington, U.S. Govt. Print. Off., various years.

31 Fraas. The Role of Economic Analysis in Shaping Environmental Policy. p. 11

32 Ward, Morris A. "Evaluating Health Benefits in Clean Air Act Regulatory Impact Analyses." In: Blodgett, John led.) Health Benefits of Air Pollution Control: A Discussion, p. 295-378, Washington, U.S. Congressional Research Service, 89-161 ENR, February 27, 1989. 378 p.

Fraas. The Role of Economic Analysis in Shaping Environmental Policy. p. 118.

U.S. EPA, Economic Studies Branch, Office of Policy Analysis. EPA's Use of Benefit-Cost Analysis 1981-1986. August 1987.

33 Fraas. The Role of Economic Analysis in Shaping Environmental Policy. p. 120.

U.S. Office of Management and Budget, Executive Office of the President. Report on Executive Order No. 12866. May 1, 1994. p. 34, 46.

34 Goldman, Lynn. Statement before the Subcommittee on Environment, Energy and Natural Resources and the Subcommittee on Legislation and National Security Committee on Government Operations, House of Representatives. February 1, 1994.

35 Ups. EPA. EPA's Use of Benefit-Cost Analysis 1981-1986. p. 1 and 2.

36 Ibid. p. 6-5.

37 Ibid. p. 2.

38 All rules were analyzed and sent to OMB, but only to determine whether they are likely to result in an annual effect on the economy of $100 million or more.

39 Additional criteria are specified in guidelines provided by OMB (Circular Number A-94, October 29, 1992, and the Regulatory Program of the U.S. Government for April 1 1991 to March 31, 1992, Appendix V) and EPA (cited above), but these are not included in Table 1. OMB staff have indicated that their guidelines are not expected to change as a result of the Clinton order, and EPA has not issued guidance since it reprinted its 1983 Guidelines with revised appendices in 1991. With regard to choice of a regulatory approach, OMB guidelines state that: entry into private markets should be regulated only where necessary to protect health or safety or to manage public resources efficiently; uniform quality standards for private goods or services should not be prescribed except where products are needlessly unsafe or product variations are wasteful, and voluntary private standards have failed to correct the problem; qualifications for receiving government licenses should be the minimum necessary; encourage unrestricted exchange of rights or obligations created by regulation; and the terms or conditions of Federal grants, contracts, or financial assistance should be limited to the minimum necessary to achieve the purposes for which the funds were authorized and appropriated.

40 According to page 5 of EPA's 1983 Guidelines, the benefits and costs of proposed regulations and important alternatives were to be compared to the benefits and costs in the absence of regulation, referred to as the "baseline". In addition, the Guidelines required consideration of alternatives to Federal regulation such as "negotiated voluntary actions, and market, judicial, or State or local regulatory mechanisms" and "market-oriented regulatory alternatives."

41 President Reagan's Executive Order 12612 on Federalism Considerations in Policy Formulation and Implementation is still in effect. In general, it aims to "restore the division of governmental responsibilities between the national government and the States that was intended by the Framers of the Constitution and to ensure that the principles of federalism established by the Framers guide the Executive departments and agencies in the formulation and implementation of policies (52 Federal Register 41685, Oct. 26,1987). Section 6(e)(3) of the order required agencies preparing Federalism Assessments for policies "[i]dentify the extent to which the policy imposes additional costs or burdens on the States, including the likely source of funding for the States and the ability of the States to fulfill the purposes of the policy." The order of the Clinton Administration directs Federal agencies to promulgate regulations only when necessary due to "compelling public need" and after a reasoned determination that the benefits justify costs, or when required by law. The Reagan order, as mentioned above, permitted regulation only when benefits exceeded costs, unless this approach was prevented by law.

42 OMB has notified agencies that regulatory actions containing an unfunded mandate should be submitted for review under Executive Order 12866. Since OMB only reviews significant regulatory actions, presumably the presence of an unfunded mandate qualifies a rule as significant.

43 Effects on the environment, public health or safety, actions of other agencies, budget, or novel legal or policy issues may be considered in a cost-benefit-risk analysis conducted in accord with E.O. 12291, but these effects alone are not sufficient to trigger the requirement to conduct an analysis.

44 The discount rate was 10% under President Reagan and 7% under President Bush. A 10% discount rate means that the present value of an asset or loss to be realized one year in the future is 90% of its future value.

45 The Government did not publish a unified plan in 1993.

46 Bureau of National Affairs. Daily Environment Reporter, no. 118, June 22, 1994, p. AA-1. For the complete text of EPA's Action Development Process: Regulatory and Policy Development. Guidelines for Implementation, see Section E.