The U.S. Environmental Protection Agency (EPA or Agency) issued final regulations governing cost-benefit analyses for Clean Air Act (CAA) rulemakings on December 23, 2020. The rule, titled “Increasing Consistency and Transparency in Considering Benefits and Costs in the Clean Air Act Rulemaking Process,” imposes certain requirements on the Benefit-Cost Analysis (BCA) that EPA must conduct for “significant” CAA regulations and requires EPA to consider that analysis when promulgating the regulations, unless otherwise prohibited by law. The rule seeks to force EPA to focus more on the direct benefits of a rule rather than justifying a rule based on the indirect benefits, as EPA has done with certain controversial rules in the past. However, the rule is unlikely to survive long or have much effect under the Biden administration.

The final rule defines “significant” regulations as those that are subject to Executive Order 12866, which requires a cost-benefit analysis for all federal “significant regulatory actions,” or are otherwise deemed significant by the Administrator. E.O. 12866 applies to rules that are likely to have an annual economic impact of at least $100 million or “adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or [s]tate, local, or tribal governments or communities.”

According to EPA, many of the requirements imposed by the new rule are simply codifications of best practices consistent with existing Agency guidance governing cost-benefit analyses. The rule requires EPA to include a statement of need in the preamble of significant regulations that provides a clear description of the problem being addressed by the rulemaking effort, the reasons for and significance of any failure of private markets or public institutions causing the problem, and the compelling need for the federal government to intervene to correct the problem. The Agency must also, to the extent possible, quantify and provide a monetization of the value of all benefits associated with the rulemaking. EPA must then compare these benefits to the costs associated with the rulemaking and to the benefits and costs associated with at least three other regulatory options that the Agency elected not to pursue.

In addition to the requirements applicable to the BCA process, the rule also overhauls how the Agency presents its BCA analysis and the data underlying its assessment. Notably, EPA must now include a summary of the public health and welfare benefits that pertain to the specific objective of the CAA provision(s) under which the proposed rule is promulgated. Environmental groups have expressed concern that this requirement may limit EPA’s ability to fully consider the benefits associated with a rulemaking effort. According to these groups, this may prevent the Agency from considering important indirect benefits of a given rulemaking, which may cause the Agency to disproportionately underestimate benefits associated with proposed regulations as compared to costs.

According to EPA, this rule is merely procedural, governing internal Agency practice that does not affect the rights or obligations of outside parties and thus is not subject to the delayed effective date requirements of the Administrative Procedure Act (APA). Because this rule was promulgated with an immediate effective date, the incoming Biden administration will have fewer options at its disposal for possibly reversing the rule if it wishes to do so. Most final rules issued in the waning days of the Trump administration will not become effective until the 60-day period required by the APA has elapsed, and are thus potentially subject to a so-called “claw back” memo, which is typically used by incoming administrations to pause final rules that have not yet become effective, providing time to consider the impacts of the rules and possibly retract or revise their requirements.

For more information on the CAA or cost-benefit analyses, please contact Mack McGuffey, Melissa Horne, or Mandi Moroz.