Regulatory Reform

Good regulatory policy requires a balance of benefits and costs, a careful weighing of what the policy will accomplish against what society must give up in exchange. While some regulatory statutes encourage or require such balancing, several major pieces of environmental and occupational safety and health legislation have been interpreted to prohibit this weighing of pros and cons when specific rules are designed. For this reason, one goal of many would-be regulatory reforms has been to introduce at least a qualitative, if not a quantitative, balancing of benefits and costs into the laws which empower agencies to issue specific regulations.

Executive efforts

In spite of its stated intention of rationalizing federal regulation, the Reagan administration to date has shied away from embracing this sort of reform. For instance, the administration has made no effort to introduce benefit-cost comparisons into either the Clean Air or Clean Water Acts, even though both are up for reauthorization before Congress. However, like the Ford and Carter administrations, the present administration is forcing regulatory agencies to pay attention to and publicize the costs of regulations, even where they are prohibited by law from taking costs into account in setting regulatory standards. The vehicle for this effort is Executive Order 12291, issued less than a month after President Reagan took office. Among other things, it requires all regulatory agencies to conduct "regulatory impact analyses" to identify and, where possible, quantify the costs and units expected to result from a proposed regulation. Moreover, agencies are required (to the extent permitted by law) to choose regulations to "maximize the net benefits to society," a goal dear to the hearts of many economists and policy analysts.

While this oversight role will be of some use, meaningful balancing of environmental and other social goals will require changes in all the regulatory enabling statutes that now prohibit economic and other costs from being considered in standard setting. Such changes will be difficult to win, but would accomplish another worthy aim in the process—standardizing regulatory legislation. It makes little sense to maintain, as at present, that costs should be taken into account when protecting the public against pesticide hazards or unsafe consumer products, but should not be considered in setting ambient air, water, or workplace exposure standards. Comprehensive regulatory reform could address this schizophrenic approach at the same time it introduced balancing into the law.

Congressional reforms

Not to be outdone by executive branch efforts, Congress is considering several important regulatory reform bills. One bill, S.1080, which would amend the Administrative Procedure Act (APA), would, with some differences, add the force of law to the mandate in Cost Executive Order 12291 that regulatory agencies identify the costs and benefits associated with proposed rules. And it would instate other important changes in the regulatory process. For instance, it would amend a section of the APA and require more justification from regulatory agencies on the validity of their action; it would encourage more public participation in rule-making, including the possible cross-examination of those whose work or findings were used in establishing proposed regulations; and it would direct all regulatory agencies to review and analyze within ten years all their existing major rules and regulations and impacts.

However, even this approach does not address the real cause of many regulatory problems—inappropriate enabling legislation. Rather than mandate Band-Aid requirements for economic analysis, Congress would do better to review the prohibitions on using such analysis in standard setting. While it is at it, Congress might address one part of the Clean Air Act where many feel it went too far in the direction of specificity—the emissions standards for automobiles. In the 1970 amendments to the Clean Air Act, Congress itself specified these emissions standards rather than directing the administrator of the Environmental Protection Agency to do so, as it has done with emissions standards for stationary sources. Since current research suggests that these mobile source standards are very difficult to justify in light of their costs, Congress could direct the EPA to review these standards and propose new ones where the evidence seems to warrant. As a general rule, moreover, Congress ought to focus on establishing broad directions for policy and delegate to regulatory agencies the responsibility for highly detailed standards.

Simpler reforms

Not all regulatory reform initiatives involve introducing benefit-cost comparisons to standard setting. Much less controversial are reforms that reduce the cost to society of meeting some predetermined environmental or other social goals, and opportunities abound for such savings in the regulatory arena. They arise mainly where existing regulation takes the form of uniform controls on offending activities that are insensitive to special circumstances, or where regulations specify not only what is to be accomplished, but also how it should be done. In the latter cases, relatively inexpensive means of accomplishing the same ends often are precluded. To their credit, both the current and past administrations have worked to permit more flexibility in specifying individual controls and to allow those regulated to meet social goals however best they see fit.

The EPA has led the way in reforming its rules to save society money while at the same time accomplishing its goals. This is the effect of its "bubble" policy—whereby a plant can increase its emissions of a pollutant from one source if it effects an equal reduction in emissions of that same pollutant elsewhere at the plant—as well as its "offset" policy, which allows a new polluter to enter a dirty area if it strikes a bargain with another polluter in that area to reduce its pollution by even more than the prospective newcomer would emit. Both these policies implicitly attach an economic value to clean air and assure that any given amount of environmental quality is "purchased" as cheaply as possible.

Both policies could be expanded considerably to the benefit of both the economy and the environment. Given this fact, and the often-expressed commitment of the Reagan administration to use the market rather than direct governmental intervention to achieve social goals, it is surprising that the current EPA leadership has been so unenthusiastic about these marketlike approaches to environmental quality. While they have recently "rediscovered" the Carter administration's bubble policy, top management at the EPA appears to view the more promising offset as anathema. In so doing, they ignore a rare opportunity to relieve the regulatory burden on business while preserving or even improving the quality of the environment.