Abstract: Over the last half decade, a variety of federal legislative proposals for limiting greenhouse gas (GHG) emissions have been put forward, most of which would set a price on carbon. As of early 2013, the one politically plausible policy appears to be a carbon tax, passed as part of a larger fiscal reform package. Meanwhile, the US Environmental Protection Agency has begun regulating GHG emissions from a variety of sources using its authority under the Clean Air Act. It may be necessary to choose between these two policies, however. The Waxman–Markey cap-and-trade bill that failed in 2009 would have preempted much of this authority, and it appears likely that a carbon tax law would do the same. But how can one make this choice? What are the key questions and issues to consider? The purpose of this paper is to compare these policies. Our aim here is therefore not to determine whether an exchange is wise or unwise. Instead, our intention is to give policymakers and other interested readers an impartial assessment of both policies and, in particular, the features that are important to a comparative evaluation. We don’t give answers, but hope at least to give the right questions to ask.

Abstract: The U.S. Environmental Protection Agency’s (EPA) proposed greenhouse gas (GHG) performance standards for power plants are an important step forward in regulating GHGs in terms of both their substantive impact and legal precedent. Nevertheless, we have some concerns with the proposal, which we discuss in the following comments submitted to the agency. The majority of our comments are directed to ways that EPA can increase certainty for the industry—reducing costs and, possibly, improving environmental outcomes. We highlight two specific areas of concern. First, the current proposal contributes to the significant uncertainty facing existing sources. Second, EPA’s proposed averaging option for new facilities that will install carbon capture-and-storage (CCS) technology in the future, although intended to create a flexible pathway, unfortunately creates some new regulatory uncertainty. We also comment on EPA’s decision to combine most coal and gas generators into a single source category. We believe this decision is legally valid and practically important, and that EPA should resist pressure to reconsider.

Abstract: EPA is in the process of regulating U.S. greenhouse gas (GHG) emissions using its powers under the Clean Air Act. The likely next phase of this regulatory program is performance standards under Section 111 of the act for coal plants and petroleum refineries, which the agency has committed to finalize by the end of 2012. Section 111 appears to allow use of flexible, market-based regulatory tools. In this paper, we discuss one such tool, tradable standards. Tradable standards appear to be a legally and politically viable choice for the agency, and evidence suggests they are substantially more cost-effective than traditional performance standards. The paper discusses implementation issues with tradable standards, including categorization, banking, and phased implementation, as well as broader issues with the Section 111 rulemaking process as it relates to state-level GHG regulatory efforts.

Abstract: In their recent paper, “Efficient Pollution Regulation: Getting the Prices Right” (henceforth, EPR), Muller and Mendelsohn describe a broader, more appealing concept of efficiency that incorporates information on damages caused by emissions from specific sources: “The science and economics related to pollution control”, they write, “have advanced to the point where regulations can now move from cost-effectiveness to efficiency.” We argue that despite the appeal of the EPR solution, its conclusion that source-specific marginal damage estimates are ready for use in regulations is simply incompatible with the empirical evidence presented in EPR. In particular, we explore the implications of the EPR finding of negative marginal damages from NOx emissions for many heavily populated counties. The associated nonconvexities, we show, imply that the source-specific trading ratios that EPR advocates lead to unattractive outcomes not likely to be efficient. We also discuss how the EPR assumption that the regulators know damages with certainty oversimplifies key aspects of efficient air pollution regulation.

Abstract: Recent legislation has prompted federal regulatory agencies inside and outside the executive branch to develop numerous new major regulations. The Wall Street Reform and Consumer Protection Act alone contains more than 300 provisions expressly stating that rulemaking is required or permitted, although there is uncertainty about the number of rules because some provisions give regulatory agencies authority but not an obligation to issue a rule, some provisions may result in multiple rules, and rules may be used to implement yet other provisions that do not explicitly require or grant rulemaking (Copeland 2010). In summer 2010, the Commodities Futures Trading Commission (CFTC) released a list of 30 areas of rulemaking to implement the Wall Street Reform and Consumer Protection Act (CFTC 2010). The CFTC, like other “independent” regulatory commissions, develops and issues regulations outside the process of regulatory planning and review of the 1993 Executive Order 12866, continued in President Obama’s Executive Order 13563, “Improving Regulation and Regulatory Review” (President Obama 2011). These executive orders, like President Reagan’s 1981 Executive Order 12291, extend to regulatory agencies whose heads serve at the pleasure of the President, such as the Environmental Protection Agency and the Food and Drug Administration, but not to agencies intended to be independent of the President, whose heads can be removed only for cause. These independent agencies include the Consumer Product Safety Commission (CPSC), the Nuclear Regulatory Commission (NRC), the Federal Trade Commission (FTC), the Securities and Exchange Commission (SEC), and the Federal Reserve Board. Regulations from these independent regulatory commissions (IRCs) are typically developed without adherence to the Executive Order 12866, which requires that major regulations be subject to an analysis of benefits and costs. Here we address the practice of regulatory impact analysis at IRCs. We explore whether information available to the public about the expected consequences of regulatory decisions by IRCs is comparable to or less specific than that made available by executive branch agencies issuing comparable regulations. We focus on only those agencies identified by the federal Office of Management and Budget (OMB) as having issued major final regulations over the past 10 years. We ignore other independent regulatory commissions and agencies, including some identified as such by statute (i.e., the Federal Deposit Insurance Corporation, the Federal Housing Finance Board, the Federal Maritime Commission, the Mine Enforcement Safety and Health Review Commission, the National Labor Relations Board, the Occupational Safety and Health Review Commission, and the Postal Rate Commission) (Paperwork Reduction Act, Section 3502(5)). We do not consider regulatory actions by some agencies that are clearly important, such as the International Trade Commission, whose mission includes administering the U.S. trade remedy laws within its mandate in a fair and objective manner. We do not assess whether final regulations recently issued by these agencies might rise to the level of “major,” nor do we explore the quality of any economic analysis they may conduct in support of regulations.

Abstract: Until recently, most attention to U.S. climate policy has focused on legislative efforts to introduce a price on carbon through cap and trade. In the absence of such legislation, the Clean Air Act is apotentially potent alternative. Decisions regarding existing stationary sources will have the greatest effect on emissions reductions. The magnitude is uncertain, but plausibly 10 percent reductions in greenhouse gas emissions from 2005 levels could be achieved at moderate costs by 2020. This is comparable to the reductions that would have been achieved under the Waxman-Markey legislation in the domesticeconomy. These measures do not include the switching of fuels, which could yield further reductions. The ultimate cost of regulation under the act hinges on the stringency of standards and the flexibility allowed. A broad-based tradable performance standard is legally plausible and would provide incentives comparable to the proposed legislation, at least in the near term.

Abstract: This study compares and contrasts regulatory and related practices—in particular, regulatory decisionmaking, risk assessment and planning processes, inspection and compliance, and organization structure, budgets, and training—of the Minerals Management Service (MMS, now the Bureau of Ocean Energy Management, Regulation, and Enforcement, or BOEMRE) with those of the Federal Aviation Administration (FAA) and the Environmental Protection Agency (EPA). Comparing MMS practices withthose of other federal agencies that also manage low-probability but high-consequence environmental risks provides a basis for identifying opportunities for enhancing regulatory capacity and safety performance in managing deepwater energy exploration and production. Our research finds important differences in processes for setting standards; peer review contribution to the rulemaking process; establishment of tolerable risk thresholds; and training of key staff. The paper concludes with several recommendations for how various EPA and FAA practices might be modified and used at BOEMRE to strengthen its regulatory and risk management processes.

Abstract: Federal regulatory policy and the evaluation of regulations using benefit-cost analysis continue to be quite contentious. Advocates for more regulation claim that benefit-cost analysis loses information andimpedes our understanding of the real beneficial consequences of regulatory action. Against this backdrop, economists and advocates of economic analysis have sought to improve the quality and technical content of benefit-cost analysis. This paper examines key changes made by the 2003 guidelines in Circular A-4 for regulatory analysis issued by the U.S. Office of Management and Budget in an effort to strengthen such analysis. This paper discusses the motivation and basis for these changes—the treatment of discount rates and uncertainty and the cost-effectiveness analysis for rules affecting health and safety—and evaluates the EPA’s response to the A-4 changes in its analysis of environmental rules.