Geoscience Reference
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executive orders. The most important is Executive Order 12866, which requires
benefit-cost analyses of proposed and final regulations that qualify as “signifi-
cant” regulatory actions. The Safe Drinking Water Act, the Toxic Substances
Control Act, and the Federal Insecticide, Fungicide, and Rodenticide Act require
EPA to weigh benefits and costs in regulatory actions. Some environmental leg-
islation requires benefit and cost evaluations outside the regulatory process. The
leading example is Section 812 of the Clean Air Act Amendments of 1990,
which requires EPA to develop periodic reports to Congress that estimate the
economic benefits and costs of provisions of the act; program offices are respon-
sible for regulatory impact assessments in their fields. EPA's National Center
for Environmental Economics offers a centralized source of technical expertise
for economic assessments in the agency.
Evaluations of EPA economic assessments indicate that they can be useful
and influential. For example, an early evaluation of economic assessments (EPA
1987) found that “economic analyses improve environmental regulation. EPA's
benefit-cost analyses have resulted in several cases of increased net societal
benefits of environmental regulations.” The report also found that “benefit-cost
analysis often provides the basis of stricter environmental regulations.…For
example, the most dramatic increase in net benefits ($6.7 billion) from EPA's
[regulatory impact assessments] resulted from a recommendation for much
stricter standards—to eliminate lead in motor fuels.” The report also noted that,
“alternatively, benefit-cost analysis may reveal regulatory alternatives that
achieve the desired degree of environmental benefits at a lower cost.”
There are many uncertain and potentially controversial dimensions associ-
ated with the use of benefit-cost analysis as conducted for regulatory impact
assessments. In principle, such analyses identify, quantify, and monetize the
multiple outcomes of an environmental decision or policy into a single indicator
of economic efficiency. If multiple alternatives are considered in the analyses,
benefit-cost analyses can support a solutions orientation by incorporating eco-
nomics factors into the risk-based decision-making paradigm described earlier.
Apart from procedural details, there is debate about the validity of economic
concepts of value for environmental and some other goods (for example, the
value of life), the capacity of economics to measure some types of values, the
discounting of future costs and benefits, the treatment of uncertainty and irre-
versibility, and the relevance of economic efficiency, as one among many socie-
tal objectives, to environmental decisions (EPA 1987; Ackerman and Heinzer-
ling 2004; Posner 2004; Sunstein 2005). Despite the controversies, the
importance of benefit-cost analysis for regulatory impact assessments is recog-
nized almost universally. Harrington et al. (2009) have produced a useful set of
recommendations to improve the technical quality, relevance to decision-
making, and transparency of regulatory impact assessments and their treatment
of new scientific information and balance of efficiency and distributional con-
cerns. If implemented, a number of those recommendations would help integrate
benefit-cost analysis with other tools to support systems thinking, including a
focus on comparing multiple policy alternatives, making decisions given multi-
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