Biden Said He Wants to 'Modernize Regulatory Review.' The EPA's Chemical Disaster Rule is a Great Place to Start.

James Goodwin

July 21, 2021

The Biden administration's Environmental Protection Agency (EPA) is currently seeking public input on its efforts to revamp an important Clean Air Act program called the Risk Management Plan (RMP) rule for facilities that produce, store, or use large amounts of dangerous chemicals. It is meant to prevent catastrophes — like the 2017 Arkema explosion in Crosby, Texas — which not only put human lives and health in danger (especially for the communities of color that are disproportionately overrepresented in the shadows of these facilities), but also cause costly disruption for local economies.

My CPR colleagues contributed to a timely new policy brief explaining how the EPA must be particularly attentive to the new and unique threats posed by climate change as it goes about revamping its RMP rule to prevent "double disasters" that will become increasingly common unless chemical facilities are forced to take preventative action. They presented the findings of the brief at a recent listening session that the EPA conducted as part of its input-gathering efforts, and they also submitted the document in response to the agency's call for written comments.

I joined them by submitting a second set of written comments that provided specific feedback for how the EPA should approach the "regulatory impact analysis" for the rule. This issue is important for two reasons. First, regulatory impact analyses — which historically have taken the form of a controversial approach to cost-benefit analysis — have a tremendous influence over the substance of the rule. To make this point more concretely, the current approach leads to "bad" analyses, which in turn have resulted in rules that are too weak to fulfill the agency's responsibility of protecting people and the environment.

Second, the Biden administration recognized that the current approach wasn't working, and thus issued on its first day in office a memo called "Modernizing Regulatory Review" that announced that it planned to overhaul how agencies analyze their regulations so that these analyses no longer serve as impediments to effective regulatory action. Critically, the EPA's RMP rule tees up a lot of the important issues that the Biden administration should consider as it undertakes this overhaul.

In my comments, I urge the EPA to work with the White House Office of Management and Budget (OMB, the agency charged with implementing the Biden regulatory review memo) in using the RMP rule as a "model" that informs the development of specific recommendations for modernizing and improving regulatory review. I go on to highlight some of the major issues the rulemaking implicates with regard to regulatory analysis, and a how a new, progressive approach would properly address them.

The first issue is the need to restore statutory primacy to regulatory analysis. As my comments explain, the RMP rule illustrates why this is so important. The prevailing approach to cost-benefit analysis is grounded in the controversial theory of welfare economics, which requires that regulations be designed to maximize their economic efficiency. Setting aside whether the welfare economics version of cost-benefit analysis is even practically possible (it's not), the prevailing form of regulatory analysis also systematically promotes weak and ineffective regulations relative to what agencies' statutory authorities demand. That's because nearly all existing standards direct agencies to regulate more stringently than what promotes "maximum economic efficiency."

The RMP rule illustrates this distinction. The provision of the Clean Air Act that authorizes the rule calls on the EPA to "provide, to the greatest extent practicable, for the prevention and detection of accidental releases of regulated substances and for response to such releases by the owners or operators of the sources of such releases." This statutory standard clearly directs the EPA to require a relatively high level of technology for achieving the RMP's protection goals, even if implementation is costly. By placing the thumb on the benefits' side of the scale in this manner, the Clean Air Act clearly tells the EPA to go well beyond what a cost-benefit analysis standard would.

The Biden administration should build this thinking into its broader approach to modernizing regulatory review. It should dispense with cost-benefit analysis and instead empower agencies to assess the costs and benefits of their rules according to the context-specific framework outlined in their authorizing statutes.

Second, modernized regulatory review should also address the egregious methodological flaws that are common to the welfare economics version of cost-benefit analysis. To be sure, restoring statutory primacy to regulatory analysis would mean avoiding many of these flaws altogether — that would be one of the major advantages to abandoning the use of the cost-benefit analysis, after all! In the few cases where cost-benefit analysis is either required or arguably relevant under the authorizing statute, agencies should still strive to perform the analysis in a manner that is rational and scientifically defensible.

While the RMP rule does not appear to fall in this category of rules, it nevertheless illustrates some areas where targeted methodological reforms to cost-benefit analysis would be beneficial. As my comments explain, some of the biggest practical problems with cost-benefit analysis are monetization, properly accounting for missing benefits categories, and properly accounting for low-probability, high-impact events (a.k.a. disasters) — all of which the RMP rule implicates. The EPA and OMB could use the rule as an opportunity to think through how to handle these kinds of issues for future analyses.

Finally, a modernized approach to regulatory analysis must do a better job accounting for racial justice and equity concerns, as the Biden memo correctly notes. (Given that the welfare economics version of cost-benefit analysis is racially biased, this is yet a third good reason to abandon the practice.) Again, the RMP rule provides a good vehicle for the EPA and OMB to begin exploring new methodologies and tools for considering disproportionate and cumulative burdens on marginalized communities.

For instance, many of the fenceline communities that live in close proximity to the chemical facilities covered by the RMP rulemaking are disproportionately low-wealth/low-income people and people of color. The residents of these communities face a wide range of environmental and public health harms beyond those that the RMP rulemaking is meant to address. The RMP rule's regulatory analysis should thus strive to understand and account for how the RMP-related impacts interact with and compound with these other environmental and public health burdens.

OMB has a tough job ahead in implementing the Biden Modernizing Regulatory Review memo. One step it can take to increase the chances for success is to ground its recommendations in concrete rulemakings, such as the EPA's RMP rule. Hopefully, my comments suggest a few valuable lessons that both the EPA and OMB can draw on. You can see my full set of recommendations here. The EPA is accepting written comments until July 31.

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