Download Saving Lives through Administrative Law and Economics PDF

TitleSaving Lives through Administrative Law and Economics
Author
LanguageEnglish
File Size634.0 KB
Total Pages146
Document Text Contents
Page 1

(395)

_________________

ARTICLE
_________________

SAVING LIVES THROUGH ADMINISTRATIVE LAW
AND ECONOMICS

JOHN D. GRAHAM †

This Article examines the recent history and the future of federal lifesaving
regulation. The Article argues that, considering both philosophical and practi-
cal perspectives, lifesaving regulation informed by benefit-cost analysis (BCA)
has compelling advantages compared to regulation informed by the main alter-
natives to BCA. Contrary to the popular belief that BCA exerts only an an-
tiregulation influence, I show, based on firsthand experience in the White
House from 2001 to 2006, that BCA is also an influential tool in protecting or
advancing valuable lifesaving rules, especially in a pro-business Republican
administration. Various criticisms of BCA that are common in the legal litera-
ture are shown to be unconvincing: the tool’s alleged immorality when applied
to lifesaving situations, its supposed indeterminacy due to conceptual and em-
pirical shortcomings, and the alleged biases in the way benefits and costs are
computed. But the Article also pinpoints problems in the benefit-cost state, and
opportunities for improvement in the process of lifesaving regulation. Innova-
tions in analytic practice, coupled with improvements in the design of regula-
tory systems, are proposed to strengthen the efficiency and fairness of federal life-
saving regulation. The Article’s suggestions provide a menu of promising
reforms for consideration by the new administration and the new Congress as
they take office in January 2009.


Dean, Indiana University School of Public and Environmental Affairs. I would like

to thank Matthew Adler, James Hammitt, Howard Kunreuther, Robert Hahn, Cass Sun-
stein, and Jonathan Wiener for helpful comments on a previous draft of this Article.
Useful comments were also gathered at seminars hosted by the law schools at the Uni-
versity of Chicago and the University of Pennsylvania. Meena Fernandez and Amber
Moreen of RAND provided helpful brainstorming, comments, and research assistance.

Page 2

396 University of Pennsylvania Law Review [Vol. 157: 395

INTRODUCTION......................................................................................397
I. FOUNDATIONS OF BCA ..................................................................404

A. Welfarism .............................................................................405
B. The Pareto Criterion ..............................................................408
C. Kaldor-Hicks Efficiency .........................................................410
D. From Kaldor-Hicks to BCA ....................................................411
E. Evaluating the Kaldor-Hicks Test ..........................................414

1. Single Versus Repeated Applications.....................414
2. Unjust Distributions of Income and Wealth..........420
3. Willingness to Pay or Willingness to Accept?.........423
4. Summary of KH Evaluation ....................................430

II. BCA AND ITS ALTERNATIVES..........................................................431
A. How to Use BCA ...................................................................432

1. The “Hard” Test......................................................432
2. The “Soft” Test ........................................................433
3. The Procedural Requirement ................................434
4. Evaluation of the BCA Approaches........................435

B. Alternatives to BCA...............................................................438
1. Absolutism...............................................................438
2. Feasibility.................................................................442
3. Intuitive Balancing..................................................447

III. THE REALITY OF THE BENEFIT-COST STATE...................................448
A. Methodological Advances in BCA ..........................................451
B. Early Examples of OIRA’s Pro-Lifesaving Role........................452
C. OIRA’s Strategy, 2001–2006.................................................456

1. Unprecedented Openness......................................458
2. Revival of the “Return Letter” ................................459
3. Invention of the “Prompt Letter”...........................460
4. Shorter OIRA Reviews ............................................463
5. Emphasis on Information Quality..........................464

D. OIRA as an Advocate of Lifesaving
Regulation, 2001–2006 ................................................... 465

1. Reducing Diesel-Engine Exhaust ...........................466
2. Reducing Sulfur and Nitrogen Oxides from

Coal Plants...............................................................469
3. Increasing the Fuel Efficiency of

Cars and Light Trucks ............................................474
E. The Benefits and Costs of Federal Rules, 1981–2006 ..............481

IV. TECHNICAL CHALLENGES IN BCA OF LIFESAVING RULES ..............483
A. Are Life-Threatening Hazards Quantifiable? ..........................483
B. Are Lifesaving Benefits and Monetary Costs Commensurate?...488
C. Are the Results of BCA Indeterminate? ...................................490
D. Are the Results of BCA Biased Against Lifesaving? .................494

1. The Amount of Lifesaving......................................494

Page 73

2008] Saving Lives 467

joined forces to protect an existing rule and to bring to fruition a new
major lifesaving regulation.310

The story begins in 2000, near the end of the Clinton administra-
tion, when the EPA issued a multibillion-dollar regulation of refiners
and engine suppliers. The aim was to slash by 90% the amount of die-
sel exhaust from heavy trucks on the highway. Although engine sup-
pliers were expected to incur some of the costs, the bigger invest-
ments were to be made at refineries, where the sulfur content of
diesel fuel was to be reduced dramatically. The rule was a bitter pill
for the refining industry, which had struggled financially through
much of the 1980–2000 period.311

Soon after President Bush took office, conservative think tanks
and industry representatives requested that the EPA’s 2000 highway
diesel rule be reconsidered. The Mercatus Center of George Mason
University argued in a comment to OIRA that the EPA had not pre-
pared an adequate BCA to support the 2000 highway diesel rule. And
since OIRA had requested nominations of rules for reconsideration,
the Mercatus suggestion to reconsider the highway diesel rule came at
an opportune time.312

OIRA reviewed the highway diesel rule, but came to a different
conclusion from the Mercatus Center. The rule was certainly expen-
sive, as it was projected to cost about $4.3 billion per year in 2030.
However, the EPA also estimated that the rule would prevent 8300
cases of premature death, 5500 cases of chronic bronchitis, and
361,400 asthma attacks each year. The estimated benefits in 2030
were huge—about $70.4 billion per year, or a ratio of benefit to cost
of about 16 to 1.

Based on the benefit-cost results, OIRA decided to support the
EPA in opposition to any reopening of the highway diesel rule. This
decision, which created an unusual OIRA-EPA alliance, caused con-

310
In 2007, the EPA extended similar requirements to diesel locomotives and ma-

rine vessels. Control of Emissions of Air Pollution from Locomotive Engines and Ma-
rine Compression-Ignition Engines Less Than 30 Liters per Cylinder, 72 Fed. Reg.
15,938 (proposed Apr. 3, 2007) (codified in scattered parts of 40 C.F.R.).

311
See Ana Campoy, Refiners Cash In on High Gasoline Prices, WALL ST. J., May 18,

2007, at A10 (“For decades, there was too much refining capacity in the U.S., margins
were crummy and many companies were closing or selling off refineries.”).

312
See OFFICE OF INFO. & REGULATORY AFFAIRS, OFFICE OF MGMT. & BUDGET, MAK-

ING SENSE OF REGULATION: 2001 REPORT TO CONGRESS ON THE COSTS AND BENEFITS
OF REGULATIONS AND UNFUNDED MANDATES ON STATE, LOCAL, AND TRIBAL ENTITIES
105 (2001) (summarizing the regulatory-reform nomination on the highway diesel rule
submitted to OIRA by the Mercatus Center).

Page 74

468 University of Pennsylvania Law Review [Vol. 157: 395

sternation among some White House offices that felt OIRA should be
working aggressively to reduce the cost burdens of regulation on
business. When explaining this decision to senior administration offi-
cials, OIRA made effective use of the findings from BCA.

Rather than delay or weaken the highway diesel rule, OIRA began
to consider whether the same fumes should be reduced from the large
number of off-road diesel engines used in construction, agriculture,
and mining. OIRA staff believed that the EPA possessed the legal au-
thority to regulate these off-road engines. But there was no statutory
requirement or deadline to do so, and the Clinton EPA had not cov-
ered this sector in the 2000 rule.

In 2002, OIRA began to draft a prompt letter requesting that the
EPA regulate off-road diesel engines.313 When we met informally with
the EPA to discuss the prompt, EPA staff insisted that the rulemaking
was already a priority. We therefore agreed to undertake an unprece-
dented EPA-OMB rulemaking collaboration, which was announced in
2002 via press release.314

To make a long story short, the EPA issued an ambitious rule in
2004 calling for a 90% reduction in the exhaust from diesel engines
used in the nonroad sector.315 Although the rule was costly, the esti-
mated ratio of benefits to costs was roughly 40 to 1 by 2030.316 Despite
large scientific uncertainties, the agency’s probability analysis showed
a very high likelihood (over 90%) that the benefits of the rule would
exceed the significant costs.317

Aided by this impressive benefit-cost case, OIRA helped the EPA
persuade other federal agencies and the White House that another
multibillion-dollar regulation of the refining industry was worthwhile.
The rule was issued without any court order, with no statutory dead-
line in the Clean Air Act, and with no commitment made by the
President during the 2000 campaign. In the absence of the favorable

313
See Graham, supra note 292, at 175.

314
See Press Release, U.S. Envtl. Prot. Agency, EPA and OMB Working to Speed

the Reduction of Pollution from Nonroad Diesel Engines ( June 7, 2002), available at
http://www.epa.gov/otaq/press2002.htm (follow link for press release).

315
Control of Emissions of Air Pollution from Nonroad Diesel Engines and Fuel,

69 Fed. Reg. 38,958 ( June 29, 2004) (codified in scattered parts of 40 C.F.R.).
316

2005 OIRA REGULATORY REPORT, supra note 8, at 98 tbl.A-1 (estimating bene-
fits of $83 billion and annual costs of $2.1 billion in 2030).

317
See EPA, FINAL REGULATORY ANALYSIS: CONTROL OF EMISSIONS FROM NONROAD

DIESEL ENGINES, at ES-2 (2004) (“Despite the uncertainty inherent in the benefit-cost
analysis for this rule, the results strongly support a conclusion that the benefits will
substantially exceed costs.”).

Page 145

2008] Saving Lives 539

seemed to be a signal of more protectionist rules from the EU in the
years ahead.

The EU was objecting to the slow pace at which the United States
was developing a regulatory program to slow global climate change.
President Bush’s 2001 decision not to seek ratification of the Kyoto
Protocol exacerbated already poor relations with the EU on the cli-
mate issue.620 The EU also began to register complaints about the un-
intended side effects of the Sarbanes-Oxley antifraud legislation and
the slew of new homeland security regulations issued soon after 9/11.

In order to prevent future regulatory disputes, officials in both the
United States and the EU should recognize that more dialogue needs
to occur when legislation or regulation is in the developmental stages.
In the period from 2001 to 2004, OIRA made an aggressive effort to
enhance communication between the European Commission and
United States regulators. OIRA actually encouraged the Commis-
sion’s better-regulation agenda.621 The coordination efforts acceler-
ated in the period from 2005 to 2007, especially when the Commis-
sion created a centralized Impact Assessment Board with responsibility
for reviewing the quality of impact assessments prepared by the Com-
mission.622

To build on the improving regulatory relationships, the United
States government and the Commission should develop mutual “early
warning” systems about lifesaving regulations that are under develop-
ment. A lifesaving rule that is promising on one side of the Atlantic is
likely to have application on the other side as well. If these rules have
trade implications, the early warning may facilitate discussions and
fixes that can avoid long, arduous, and expensive trade disputes.

To overcome gridlock at regulatory agencies, OIRA and the Secre-
tary General’s Office in the European Commission need to nudge
regulators in the direction of harmonizing a suite of existing rules that
currently complicate trade between the United States and the EU.

620
See Wiener, supra note 186, at 457 (discussing the European negotiators’ criti-

cisms of United States greenhouse-gas-emissions proposals).
621

See Communication from the Commission to the Council, the European Parliament, the
European Economic and Social Committee and the Committee of the Regions, A Strategic Review
of Better Regulation in the European Union, at 10-12, COM (2006) 689 final (Nov. 14,
2006) (establishing goals for progress in the EU’s better-regulation program). OIRA
also urged the Commission to create an OIRA-like unit, in part to facilitate such dialogue.

622
See Memorandum, European Comm’n, supra note 38, at 1-2 (notifying that the

quality control work of the Impact Assessment Board will begin “immediately”). On
the history and details of the EU’s Better Regulation program, see generally Wiener,
supra note 186, at 448-518.

Page 146

540 University of Pennsylvania Law Review [Vol. 157: 395

Without nudges from centralized oversight units, regulators on both
sides of the Atlantic are likely to dig in, defend their turf, and resist
more harmonization of conflicting rules. The more the United States
and EU can find consensus on lifesaving regulations, the more likely it
is that the rapidly growing economies of the developing world will co-
operate in a consistent approach that facilitates world trade and
global prosperity, as well as lifesaving.

Similer Documents