Regulatory Improvement Act of 1997
Testimony Prepared for Presentation to
Committee on Affairs
U.S. Senate
September 12, 1997
By Paul R. Portney, Senior Fellow and President
Resources for the Future
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Regulatory Improvement Act of 1997
Testimony for presentation to the Committee on Governmental Affairs
U.S. Senate, September 12, 1997
by Paul R. Portney, Senior Fellow and President, Resources for the Future
Senators Thompson and Levin, and other distinguished members of the
Committee on Government Affairs. Thank you very much for inviting me here today to
testify on S.981, the Regulatory Improvement Act of 1997. Before I begin, let me say that
the views I will express here today are mine and mine alone. They should not be
attributed to Resources for the Future (RFF), the research organization for which I work;
indeed, RFF does not take institutional positions on legislative or regulatory matters.
I had the pleasure of testifying before this committee last year on the regulatory
review activities of the Office of Management and Budget’s Office of Information and
Regulatory Affairs (OIRA). You may recall from that appearance that I have spent the
better part of the last 20 years of my professional life thinking and writing about ways to
improve the quality of health, safety, and especially environmental regulation in the
United States. During that period I have seen many pieces of proposed legislation
intended to improve federal regulation. The bill that Senators Thompson and Levin have
crafted is by far the best of the lot. It successfully walks the very fine line between, on
one side, requiring so little as to be vacuous and, on the other, creating so many
requirements for affected agencies as to run the risk of making matters worse, not better.
Before I go in to my specific observations about S.981, let me make two prior
observations about regulation in general. The first has to do with the economic
significance of regulation in the United States today. According to OIRA’s recent and
very good report on the annual costs and benefits of regulations, we spend nearly $300
billion each year in this country in pursuit of environmental protection and a variety of
other safeguards for consumers and workers. Since this amounts to more than $1,000 per
person per year in the U.S., it is well worth being sure both that we are choosing the least
expensive means of accomplishing our regulatory objectives, and also that we are
pursuing only those objectives that we believe do more good than harm. There is
compelling evidence, incidentally, that a number of regulatory programs—including
some major ones such as the 1970 amendments to the Clean Air Act—do generate
benefits well in excess of their costs. It is worth scrutinizing regulation more carefully so
that we might one day say confidently that that is true of all major programs.
My second observation deals with generic regulatory reform legislation, such as
S.981, as a means of ensuring that environmental, safety, and health rules pass a
qualitative, judgmental benefit-cost test. While useful and appropriate, such bills are
simply no substitute for amending those sections of the underlying enabling statutes that
spell out how our federal regulators are to set standards. If I may be blunt, it is
hypocritical for legislators to lambaste the Administrator of the Environmental Protection
Agency for setting National Ambient Air Quality Standards for ozone and fine particulate
matter that (in the eyes of the critics) fail a benefit-cost test unless these same legislators
try to change Section 109 of the Clean Air Act to make such balancing a legal
requirement. While such an effort would be politically difficult (to say the least), it is by
far the best way to ensure reasoned and cost-effective regulation for environmental,
health, and safety purposes.
Let me now turn my attention to specific provisions of S.981. Although one
seldom discovers grist for comment in the "Findings" section of proposed legislation, that
is not the case with S.981. In particular, paragraph (2) of Section 2 states that "…[costbenefit analysis and risk assessment] do not replace the need for good judgment and
consideration of values" in formulating rules. This is exactly right, and the most we can
do in regulatory reform bills like S.981 is to encourage decisionmakers to make informed
use of cost-benefit analysis and quantitative risk assessment in forming their considered
judgments about what to do. To put the matter in a more familiar and colloquial form,
cost-benefit analysis is one of several decision tools, not a necessary and sufficient
decision rule.
I am similarly quite supportive of the language you have carefully chosen in
Section 621 (3), where you suggest that benefits and costs should only be "…quantified
to the extent feasible and appropriate and otherwise qualitatively described…" I think of
myself as being a very strong advocate of cost-benefit analysis in environmental
regulation, for instance. Yet I have no idea how I might confidently assign a dollar value
to the reduced risk of a birth defect that might result from a regulation, or—for that
matter—to the opportunity costs arising from a regulation that discourages the
development of new consumer products. As a regulator, however, I ought to have to spell
out carefully in qualitative terms—as S.981 would require me to do—the nature of these
nonquantifiable and/or nonmonetizable effects, as well as the role they played in my
decisionmaking.
Let me turn now to the requirement in Section 623(b)(2)(iv) that agencies
evaluate the benefits and costs not only of the approach they choose, but also of a
"reasonable number of reasonable alternatives." Although this provision has attracted less
attention than those pertaining to benefit-cost analysis, I believe it is a "sleeper" in S.981
that has the potential to do a great deal of good. If agencies take this requirement
seriously—more seriously, incidentally, than they have comparable provisions in a series
of presidential executive orders going back to the mid-1970s—we might be able to shave
off a chunk of the nearly $300 billion OIRA estimates we spend each year on
environmental, health, and safety regulation.
More importantly, we could do so without compromising the benefits we get from
regulations in these areas. Imagine for a moment that the savings possible from
innovative approaches are only 10 percent. (I say "only" because virtually every careful
study of regulation suggests that the savings from nontraditional approaches to
regulation, including information provision, taxes, marketable permits, deposit-refund
schemes, etc., are significantly larger.) Even a cynical public ought to warm to a $30
billion "free lunch" each year that does not compromise the quality of their environment
or the safety of the food and other products they consume each year.
Why do agencies not currently jump at such cost-effective alternatives? There are
several reasons. First, bureaucratic inertia often pushes them to "do it the way we’ve
always done it." Yet the fact that an alternative approach may, at least initially, mean
more work for the agency ought not prevent the agency from trying it if it would save
large sums of money for individual, corporate, or state and local government regulatees.
In some cases, however, the agency has little or no choice but to pursue the more
expensive route to the same goal because the enabling statute requires a technology-based
standard or some other kind of prescriptive approach. In such cases, and they are not
infrequent, it is up to Congress to amend the statutes to encourage rather than prohibit
creative alternative approaches. There, S.981—if taken seriously by the agencies and by
Congress—will call attention to the inefficiencies, illuminate the price we are paying for
them, and with luck, lead to their eventual elimination. This would be no small feat,
indeed, and would not involve you or the agencies in the messier (though still important)
questions about the balance between benefits and costs.
One last word on this subject. Those interested in real-world proof of the costsaving potential of alternative approaches need look no farther than the 1990 Clean Air
Act Amendments, specifically the cap-and-trade program put in place there to control
sulfur dioxide emissions from coal-fired electricity power plants. Taking this route
instead of requiring all affected plants to install flue gas desulfurization equipment will
eventually save rate payers as much as $4 billion annually, I estimate, or more than 50
percent of the price tag for unenlightened command-and-control. In some respects, to be
fair, sulfur dioxide control from power plants represented an ideal opportunity for
innovative regulation. But there are now and will be countless other potential
applications; I believe S.981 can help make these a reality.
If I might now, let me speak to several criticisms that have been leveled against
S.981, beginning with one directed at the "advisory committees" that would be
established under Section 632(a)(1)(A) to make recommendations to the agencies about
existing rules to be considered for possible modification.
The concern expressed is that those with a possible financial stake in agency rules
will be allowed to participate in such advisory groups unless they fail to disclose these
possible conflicts. My response takes two forms. First, it is literally impossible to find
any citizen of the United States who has no financial stake in regulation, since all of the
benefits and all of the costs ultimately accrue to individuals. Interestingly, and perhaps
subtly, each member of an environmental advocacy group bears his or her share of the
$300 billion in annual regulatory compliance costs as a consumer of gasoline, a use of
electricity, a purchaser of consumer products, and finally, as a shareholder (generally
through retirement plans) in U.S. companies. Similarly, every employee of a regulated
firm benefits in important ways from federal regulation, as do their children, since they
breathe the air, consume drinking water, and use consumer products. Thus, it is not as
easy as it may seem to determine who is disinterested and who is not, or even which way
their sympathies lie. I am not sure how one would go about divining which conflicts were
so remote as to be trivial and which are not.
What some critics want, of course, is for no employee of a regulated firm to
participate on these advisory councils. But I have served on countless committees of the
National Academy of Sciences,
and participated in the deliberations of the Executive Committee of EPA’s
Science Advisory Board, alongside businessmen and women who were as committed to
environmental protection as any of the other members, including academics and
environmental advocates. So long as all prospective members of the proposed advisory
councils are open about their interests, financial and otherwise, I see no reason
whatsoever why these councils cannot be useful in suggesting rules that might be ripe for
review. I foresee, incidentally, many opportunities for public interest advocates to
propose the review of long-standing rules where accumulated scientific or economic
evidence suggests a possible tightening of existing standards.
Let me deal more briefly with several other criticisms that have been raised in
regard to S.981. First, with respect to the claim that S.981 will force agencies to do a lot
of new work that will bog them down and slow rulemaking, I am puzzled. There is very
little that S.981 asks of regulatory agencies that they are not required to do under
Executive Order 12866. If they are not complying with the executive order, of course,
S.981 imposes new burdens on them—but burdens that are well worth imposing. But
most agencies take this executive order seriously, I believe, and hence will not be taxed
anew by the requirements of S.981.
Similarly, I have trouble understanding the claim that S.981 is a "supermandate"
in sheep’s clothing; that is, that it would "trump" statutes that are currently interpreted as
prohibiting benefit-cost comparisons. In fact, it seems quite clear to me that this is not the
case. Were I a regulator, for instance, I would have no trouble whatsoever explaining that
I had issued a rule for which the benefits were less than the costs because I was
regulating under a statute that prohibited me from considering costs. Similarly, where the
law requires technology-based standards, I could easily see myself explaining that I had
no choice under the law but to issue a standard that was not as cost-effective as another
for the simple reason that I was following statutory dictates. Current and future regulators
will find this similarly easy.
Finally, let me address the legitimate concerns some have expressed about judicial
review. First, it seems to me that this would be limited under S.981 to whether or not an
agency complied with the requirements to conduct such an analysis, but this should be
made clear if that is not the case. Secondly, I am torn as to whether courts ought to be
able to overturn rules based on the contents of the accompanying analysis. On the one
hand, courts should—and do, generally—give great deference to the views of the agency
to which rulemaking responsibility has been delegated. On the other hand (and to concoct
an admittedly far-fetched example), if an agency head decided that it was worth $1
billion to society to spare a single pigeon, I would want a panel of judges to be able to
question the appropriateness of such a determination. I hope today’s hearing will clarify
the scope of judicial review intended in S.981.
To summarize, S.981 will add statutory weight to the requirements imposed by
the last four presidents—two Republicans and two Democrats—concerning regulatory
analysis. This bill avoids the excesses of earlier regulatory reform legislation, while
retaining the best features of previous bills. It should strengthen future rules and ensure
that the many environmental, safety, and health safeguards these rules provide are had as
inexpensively as possible.
Thank you again for inviting me to appear here today. I will be happy to answer
any questions you may have.