Recent action by the Trump administration to rescind a controversial Obama-era rule has sparked a debate among agency officials and economists about calculating the benefits of regulatory action. The rule, known as Waters of the United States (WOTUS), extends jurisdiction of the Clean Water Act to small waterways and wetlands upstream of large water bodies. The US Environmental Protection Agency’s (EPA’s) 2015 regulatory impact analysis of the rule calculated annual costs of between $158 million and $465 million, with annual benefits estimated to be between $339 million and $572 million. Net benefits were projected to be between $100 million and $350 million per year. The Trump administration is now proposing to rescind the rule, thus turning the costs of the rule into cost savings and the benefits into benefits foregone. EPA’s 2017 analysis of the elimination of the rule found cost savings equal to the costs of the original rule, but benefits foregone only 10 percent of the benefits in the Obama rule. Thus, the Trump administration argues that rescinding the rule would result in large net benefits to society.
What resulted in such a dramatic drop in benefits, and which analysis is most legitimate? The 2017 analysis excludes benefits tied to wetlands (i.e., generally speaking, those related to recreational value as well as “non-use” values associated with healthy ecosystems) on the basis that the available valuation studies are “outdated” and “unreliable.” At least on one level, the debate is therefore a technical question about the quality of the studies used by the Obama-era EPA to analyze the original rule. In addition, we should also ask what responsibilities the Trump administration has in evaluating the relevant evidence in its new analysis.
To assess the reliability of such technical evidence, economists use common criteria, some of which are the age of a study (a proxy for how up-to-date it is in capturing preferences and using the best methods), the number of studies, and the appropriateness of the study’s context for policy purposes. The Trump administration argues that estimates of the wetlands benefits are outdated because they are based entirely on studies published prior to 2000. However, the methodologies have not changed all that much since 2000 and are widely accepted and commonly used. In addition, public preferences for protecting ecosystems, which underlie estimates of ecological benefits, have either strengthened toward protection or remained the same, as highlighted by Boyle, Kotchen, and Smith in a recent article in Science. If anything, the value of benefits foregone in rescinding the rule would therefore be higher than previously estimated. Thus, study age is not a compelling reason for zeroing out benefits in this case.
The number of studies cited in the 2015 regulatory impact analysis and their applicability for valuing the waters targeted by the WOTUS rule is another matter. Although the literature on ecosystem valuation is extensive, many studies focus on large water bodies, coastal areas, and highly prized wetlands (such as the Everglades). Relatively few studies have looked at the value of smaller upstream bodies of water, such as those that would fall under the rule.
Even so, when the Trump administration examined the rule again, instead of simply zeroing out the wetlands benefits, it could have looked for more appropriate and recent studies. Boyle, Kotchen, and Smith listed 10 studies published since 2000 that could have been used to recalculate wetlands benefits for this analysis. Of those, at least a few are consistent with the types of studies used in the 2015 analysis, and seem on point regarding wetlands in forested areas specifically. A 2003 study by Azevedo, Herriges, and Kling estimates recreational benefits from wetlands in Iowa, for example. Additionally, research from 2010 by Jenkins et al. develops values for restoring wetlands in the Mississippi Alluvial Valley on a hectare basis, and work by Newell and Swallow in 2013 surveys residents on the value of preserving Rhode Island’s wetlands.
If the Trump administration wanted to produce a more technically sound regulatory impact analysis for the WOTUS rule, it could have reviewed these studies to update its metric for quantifying wetlands benefits. Failing that, instead of excluding the wetlands benefits altogether, the administration could have included a sensitivity analysis representing a range of benefits—incorporating EPA’s earlier studies and others as needed to fairly capture uncertainty about these benefits.
The administration has a right to rescind a rule even if the cost savings from doing so are less than the foregone benefits—but no one is served by analyses that are not fully and fairly conducted.