The Ruse of Regulatory Reform

NOTE: This column was originally published at NationalReview.com.

President Obama’s speech to the U.S. Chamber of Commerce last week did anything but signal a rapprochement with America’s demoralized private sector. The Chamber has tirelessly assailed the Obama EPA’s many new rules, which burden industries with onerous regulations and could cost more than a trillion dollars yearly. Obama’s attempts to mollify the organization – chiefly by touting a review of federal regulations that is not likely to bring relief from any of them – fell flat.

Most of the president’s speech to the Chamber was typical: He scolded businesses for not being thankful that he had preserved existing tax rates, and berated them for not investing precisely where and how he wanted them to. The only tangible relief he offered was the delay of new EPA greenhouse-gas rules for “biomass” – which affect probably far fewer than 1 percent of private businesses.

This speech to the Chamber was one in a series of what appear to be carefully designed, symbolic overtures to the private sector – overtures along the not-so-economically-astute lines of “I really like business and I get it that you must have profits.” A revealing item in this series is the president’s January 18 executive order on “Improving Regulation and Regulatory Review,” which ordered the aforementioned review of business regulations. The order begins with the usual rhetoric that that “our regulatory system must protect public health, welfare, safety and the environment while promoting economic growth . . . and job creation” – but it also says the system must use the least burdensome tools and “take into account benefits and costs” to avoid chilling job creation. This language is reminiscent of Ronald Reagan, who first required cost-benefit analysis of proposed rules in 1981. In presenting the order to the public, Obama echoed Reagan even more closely, writing in the Wall Street Journal that America’s free markets are “the greatest force for prosperity the world has ever known.” He directed his agencies to find the “proper balance between free commerce” and necessary regulations.

The order reads as if an ardent champion of limited government wrote it, except for one glaring caveat. When calculating costs and benefits, the order instructs, agencies should consider “values that are difficult or impossible to quantify, including equity, human dignity, fairness and distributive impacts.” This loophole swallows the entire review. How might the amorphous, politically charged value of “fairness” figure into a debate about a proposed rule for industrial boilers that would cost $1.2 billion and put 798,000 jobs at risk? The injection of “values” into cost-benefit analyses replaces reasoned analysis with the preferred policy of the executive branch. This is especially true because the order tasks the agencies themselves with conducting the reviews. If Congress will not redistribute income according to this administration’s preferred formula, then “redistributive impacts” evidently can be addressed through agency rulemaking.

Notions of fairness and redistributive impacts already have reared their head in some of EPA’s rulemakings of the last two years. In a July 2010 memo, EPA administrator Lisa Jackson issued new regulatory guidance directing EPA to integrate environmental justice “into the fabric of EPA process” so that each EPA action has “a particular focus on disadvantaged or vulnerable groups.” Indeed, social justice was part of EPA’s justification for the endangerment finding that greenhouse gases are pollutants harmful to human health. Climate change, EPA claimed, will “add further stress to an existing host of social problems in cities” that “accentuate disparities . . . in the American health care system.” With this progression from carbon dioxide to inner-city problems to health care, EPA creates a smooth, extra-legal path to unlimited federal jurisdiction, with values as the impetus.

The ruse in the president’s “Regulatory Review” is transparent among EPA decisionmakers. Shortly after the president signed his order, EPA expressed confidence that the agency would not need to change any current or pending rules. Because the Clean Air Act requires exclusively health-based regulatory standards independent of cost, EPA can readily claim that most of its rules are immune to restraints based on economic impact. In addition, much as the Obama administration estimated “jobs created or saved” to defend the stimulus, EPA regularly estimates comically huge macroeconomic “cost savings” from the public-health benefits of its regulations: “In fact, EPA’s rules consistently yield billions in cost savings that make them among the most cost-effective in the government.”

Although they are regrettably now accepted by the Office of Management and Budget, EPA’s methods of estimating the economic benefits of its rules are pitifully vague and speculative. For example, EPA calculates the dollars “saved” from a heightened ozone standard by estimating how much air quality will improve under the new standard, estimating the effects that better air will have on health, and then assigning dollar values to the number of work days and lives “not lost” as a result of the new standards under these estimates.

But their methods of estimation are remarkably flawed. To estimate the effect of air quality on health, EPA collects hospital records from a sample of cities and then counts the number of patient treatments or deaths that can be vaguely tied to pulmonary or cardiological conditions. EPA then conflates causation with murky correlation: It assumes that if these visits and deaths are more prevalent in areas with higher ozone levels, the disparity must be caused by the higher ozone levels. Among the glaring flaws in this approach is that EPA assumes people breathe the highest monitored ozone level 24 hours per day. In fact, indoor ozone levels, in which most people live and work, are 90 percent lower than the outdoor values monitored by the EPA.

And sometimes the science EPA relies on undermines its own conclusions. One of the major epidemiological studies that EPA is using to justify the proposed new ozone standard (as low as 60 parts per billion) looked at hospital records in 95 cities over 14 years. Of those 95 cities, only six had both unusually high ozone levels and unusually high premature mortality. Los Angeles, the city with the worst ozone problem, was not among the six. Such flimsy science prompted a former chairman of EPA’s Scientific Advisory Committee to testify before Congress that EPA’s decision to lower the ozone standard “is a policy judgment based on a flawed and inaccurate presentation of the science that should inform policy decisions.”

Meaningful, rigorous cost-benefit analysis of EPA rules could deter environmentally unnecessary and overly burdensome regulation – which is just what Obama claims he’s trying to do. The parameters and metrics of such analyses, however, must be objective. The president’s formal addition of “values” into the matrix for analysis of cost, benefit, and effectiveness defeats the entire purpose of such an analysis.

Kathleen Hartnett White was commissioner and chairman of the Texas Commission on Environmental Quality from 2001 to 2007 and is senior fellow and director of the Armstrong Center for Energy and Environment at the Texas Public Policy Foundation.