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11 Chemical Industry Perspectives on Regulatory Impact Analysis Downloaded by UNIV OF CALIFORNIA SANTA BARBARA on March 31, 2018 | https://pubs.acs.org Publication Date: January 13, 1984 | doi: 10.1021/bk-1984-0239.ch011

R E N ÉD. ZENTNER University of Houston Law Center, Houston, TX 77004

This paper will address the current state of regulatory impact analysis in the health, safety, and environmental areas. In particular, it will discuss the present state of regulatory impact analysis and some evolving trends in the evaluation of environmental regulatory proposals. It will also set forth some principles being proposed by the chemical industry for application to regulatory impact analysis in the light of the current regulatory climate. In preface, i t i s worthwhile t o define " r i s k management" as i t i s understood t o be used i n t h i s symposium. By " r i s k management" i s meant the abatement of r i s k t o a s o c i a l l y acceptable l e v e l , c o n s i d e r i n g the elements o f costs and b e n e f i t s of the chances taken by i n d i v i d u a l s through exposure t o p o t e n t i a l l y hazardous environments. Such abatement i s achieved through determination and e v a l u a t i o n o f r e g u l a t o r y a l t e r n a t i v e s and sel e c t i o n of the a l t e r n a t i v e that o f f e r s the greatest b e n e f i t s at the l e a s t s o c i e t a l c o s t s . (1) By t h i s d e f i n i t i o n , most r i s k management has occurred before a h e a l t h , safety or environmental issue has come to r e g u l a tory attention. Responsible i n d u s t r i a l e n t e r p r i s e s determine and c o n t r o l the r i s k s t o which i n d i v i d u a l s are exposed through design and engineering o f manufacturing plant processes, through product formulation, r i s k - r e d u c i n g packaging and through warning labels. Thus, most r i s k s are evaluated and managed by companies as an i n t e g r a l part o f the management o f the e n t e r p r i s e . It i s only when a s o c i a l determination i s made that t h i s l e v e l o f management i s inadequate that governmental i n t e r v e n t i o n i s proposed t o f u r t h e r c o n t r o l i n d i v i d u a l exposure through imposition of r e g u l a t i o n s . Risk assessment i s thus involved i n both p r i vate and p u b l i c d e c i s i o n s o f how such exposure i s c o n t r o l l e d . This paper w i l l not deal with the s c i e n t i f i c and t e c h n i c a l aspects o f r i s k assessment. Those aspects are e x t e n s i v e l y dealt with elsewhere, and are the subject o f a growing l i t e r a t u r e of t h e i r own. (2^) This paper w i l l instead address e v a l u a t i o n of

0097-6156/84/0239-0161 $06.00/0 © 1984 American Chemical Society

Rodricks and Tardiff; Assessment and Management of Chemical Risks ACS Symposium Series; American Chemical Society: Washington, DC, 1984.

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r e g u l a t o r y devices intended t o enable s o c i e t y t o manage the hazards t o which i t i s exposed as a r e s u l t o f such human a c t i v i t i e s as i n d u s t r i a l production. I n p a r t i c u l a r , i t w i l l present the views of the Chemical Manufacturers A s s o c i a t i o n on the most r e cent P r e s i d e n t i a l Executive order mandating the use o f c o s t b e n e f i t a n a l y s i s i n r e g u l a t o r y rule-making. The v i r t u e s and v i c e s o f v a r i o u s means f o r r e g u l a t o r y cont r o l o f i n d i v i d u a l exposure t o hazardous substances have been e x t e n s i v e l y addressed i n the l i t e r a t u r e , and i t i s not the author's purpose t o address them here. Instead, t h i s paper w i l l assume that American s o c i e t y has determined that such exposure w i l l be regulated by v a r i o u s governmental agencies, authorized by appropriate l e g i s l a t i o n t o do so. The task of those r e g u l a ted, or those a f f e c t e d by the r e g u l a t i o n , i s t o be sure that such r e g u l a t i o n i s the most e f f e c t i v e means f o r a c h i e v i n g the object sought by the a u t h o r i z i n g l e g i s l a t i o n . How that d e t e r mination may be accomplished i s the subject of t h i s paper. The goodness or badness o f r e g u l a t i o n has been debated by s c h o l a r s , p u b l i c o f f i c i a l s and the regulated since s e r i o u s regul a t i o n o f American s o c i e t y began a century ago. The debate has t r a d i t i o n a l l y been conducted between advocates o f v a r i o u s regul a t o r y d e v i c e s , who supported the b e n e f i t s o f the r e g u l a t i o n , and the subjects of the r e g u l a t i o n , who complained about i t s costs. Because the b e n e f i t s o f the r e g u l a t i o n g e n e r a l l y have o f t e n been s a i d t o be f e l t by one c l a s s o f s o c i e t y and the costs borne by another, i t has seemed hard t o r e c o n c i l e these costs and b e n e f i t s . Since February, 1981, however, American r e g u l a t o r y agencies have been asked t o attempt t o do so, using c o s t benefit analysis. I n the f o l l o w i n g d i s c u s s i o n , t h i s a n a l y s i s w i l l be discussed and i t s l i m i t a t i o n s examined. Cost-Benefit A n a l y s i s as an A n a l y t i c a l Tool Cost-benefit analys i s has been an e s t a b l i s h e d a n a l y t i c a l t o o l f o r e v a l u a t i n g major p u b l i c sector p r o j e c t s f o r almost a century and a h a l f . A l though such e v a l u a t i o n s were no doubt conducted f o r e f f o r t s of t h i s k i n d throughout human h i s t o r y , the modern l i t e r a t u r e o f the method g e n e r a l l y dates from 1844, w i t h the p u b l i c a t i o n o f an essay, "On the Measurement o f the U t i l i t y of P u b l i c Works" by J u l e s Dupuit, a French engineer. Dupuit introduced h i s subject by s t a t i n g : " L e g i s l a t o r s have p r e s c r i b e d the f o r m a l i t i e s necessary f o r c e r t a i n works t o be declared of p u b l i c u t i l i t y ; political economy has not yet defined i n any p r e c i s e manner the cond i t i o n s which these works must f u l f i l l i n order t o be r e a l l y u s e f u l ; at l e a s t , the ideas which have been put about on t h i s subject appear t o us t o be vague." Those attempting t o employ c o s t - b e n e f i t a n a l y s i s f o r the evaluat i o n of contemporary p r o j e c t s w i l l recognize the same vagueness, incompleteness and i n a c c u r a c i e s experienced by Dupuit.(3) Since that time, c o s t - b e n e f i t a n a l y s i s has been employed for s y s t e m a t i c a l l y developing u s e f u l i n f o r m a t i o n about the



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d e s i r a b l e and undesirable e f f e c t s of p u b l i c sector programs or projects. I t has been described by some w r i t e r s as the p u b l i c sector analog to the p r i v a t e sector's p r o f i t a b i l i t y a n a l y s i s : the former attempts to determine whether s o c i a l b e n e f i t s of a proposed public sector activity outweigh the social costs whereas the l a t t e r attempts to determine whether the p r i v a t e b e n e f i t s , e.g. revenue, outweigh the p r i v a t e c o s t s . The method has been a p p l i e d e x t e n s i v e l y to such diverse areas as studies on a i r p o l l u t i o n c o n t r o l , consumer p r o t e c t i o n l e g i s l a t i o n , educat i o n programs, p r i s o n reform, the Trans-Alaska p i p e l i n e , a i r p o r t noise, disease c o n t r o l , i n f a n t n u t r i t i o n , r e c r e a t i o n f a c i l i t i e s , labor and manpower t r a i n i n g programs, and housing programs.(4) The common elements of c o s t - b e n e f i t a n a l y s i s are a p p l i c a b l e to a l l areas. There are four main stages: identification, c l a s s i f i c a t i o n , q u a n t i f i c a t i o n , and p r e s e n t a t i o n . Each of these stages presents i t s unique problems to the a n a l y s t , e s p e c i a l l y since the work of v a r i o u s p a r t i c i p a n t s and d i s c i p l i n e s i n a proj e c t must be combined. (_5) In the h e a l t h , safety and environment a l area, q u a n t i f i c a t i o n of h e a l t h and human welfare b e n e f i t s has proved to be an e s p e c i a l l y c o n t r o v e r s i a l t o p i c . ( 6 ) Neverthel e s s , i t i s worthwhile to consider the a p p l i c a t i o n of cost-benef i t a n a l y s i s to r e g u l a t i o n i n that area i n order to improve the q u a l i t y of r e g u l a t o r y d e c i s i o n s , and to introduce d i s c i p l i n e and r i g o r i n the making of those d e c i s i o n s . In a u t h o r i z i n g f e d e r a l agencies to r e g u l a t e exposure to hazardous substances i n the h e a l t h , safety and environmental area, the Congress has been f a r from consistent i n p r o v i d i n g economic g u i d e l i n e s for such r e g u l a t i o n . Thus, some statutes permit r e g u l a t o r y agencies to consider the economic consequences of the r e g u l a t i o n s : these include the Toxic Substances Control Act of 1976, the Consumer Products Safety Act of 1972, the Resource Conservation and Recovery Act of 1976, and the Comprehens i v e Environmental Response, Compensation and L i a b i l i t y Act of 1980. In some s t a t u t e s , however, the a b i l i t y of the agency to consider the economic e f f e c t s of r u l e s or to balance the costs against b e n e f i t s i s l e s s c l e a r ; examples of such statutes are the Occupational Safety and Health Act of 1970, and the Clean A i r Act amendments of 1970 and 1977.(2) Though the s t a t u t o r y d i r e c t i o n f o r i n c l u d i n g c o s t - b e n e f i t a n a l y s i s i n the r e g u l a t o r y process i s f a r from c o n s i s t e n t , Presidents since Gerald Ford have endeavored by other means to compel i t s use. In 1974, President Ford by Executive Order r e quired that "promulgation of r u l e s by executive agency must be accompanied by a statement which c e r t i f i e s that the i n f l a t i o n a r y impact of the proposal has been evaluated."(8) In 1978, his successor, President Jimmy Carter, issued a subsequent Executive Order s e t t i n g f o r t h as a requirement of s i g n i f i c a n t r e g u l a t i o n s that each issuing agency perform a regulatory analysis thereon.(9) That a n a l y s i s should include not only a d e s c r i p t i o n of the major a l t e r n a t i v e ways of d e a l i n g with the problem but



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a l s o an economic a n a l y s i s of each of these a l t e r n a t i v e s and a d e t a i l e d explanation of the reasons f o r choosing one a l t e r n a t i v e over the others. It i s thus evident that the President as w e l l as Congress and the agencies i t has authorized t o regulate have begun t o recognize the * need t o grapple with the s o c i e t a l costs that h e a l t h , safety and environmental r e g u l a t i o n s incur i n achieving their beneficial objectives. The S o c i e t a l Background f o r Comparing Regulatory Costs and Benefits Before going on t o discuss the new r u l e s f o r evaluat i n g r e g u l a t i o n s , i t i s worthwhile t o consider the s o c i a l atmosphere i n which the c o s t - b e n e f i t debate i s being conducted. For the l a s t several years, there has been i n c r e a s i n g , though minority, p u b l i c concern over the growth of r e g u l a t i o n of society. As Table I r e v e a l s , over the l a s t f i v e years the p u b l i c has become i n c r e a s i n g l y c r i t i c a l of r e g u l a t i o n .

Table I .

Perception

of Problems with "Big Government" (10) (General P u b l i c )

We hear a l o t of t a l k these days about the problem of 'big government. Which of the f o l l o w i n g problems do you think of when you think about what's wrong with our government today? 1976 1978 1980 1981 1

Perceived Red

Problems

tape & too much paperwork

57%

54%

63%

67%

25%

24%

34%

44%

33%

34%

41%

42%

Too much r e g u l a t i o n of citizen's private lives Invasions of p r i v a c y

Too much r e g u l a t i o n of free market system 21% 20% 28% 35% Thus, c u r r e n t l y about a t h i r d of the p u b l i c b e l i e v e s that the free market system i s regulated too much, up from about a f i f t h f i v e years ago. Moreover, there i s general p u b l i c r e c o g n i t i o n that while the costs of government r e g u l a t i o n increase business costs, those costs are passed on t o the consumer. Table I I r e v e a l s that t h i s perception has been r e l a t i v e l y unchanged over the l a s t s i x years.


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Table I I .

165

Regulatory Impact Analysis P u b l i c Understanding of the Costs of Regulation (General P u b l i c )

(11)


In your opinion, does conforming t o government standards f o r clean a i r , greater product safety, e t c . , involve extra spending for business? 1981 1975 1977 1979 Yes No Don't know/no answer

83% 8% 9%

85% 9% 6%

71% 16% 13%

78% 14% 8%

(Among those answering "yes" above) Do you f e e l that business: Reduces i t s earnings i n order to get the money to conform to these standards

5%

6%

5%

Passes the costs on consumers i n the form of higher p r i c e s

80%

80%

81%

Don't know/no answer

15%

14%

14%

9%

82% 9%

While around three quarters o f the p u b l i c recognize that government r e g u l a t i o n increases business c o s t s , more than three quart e r s of these or about two t h i r d s of the p u b l i c understand that these costs are r e f l e c t e d i n higher p r i c e s . In l i g h t of these data, a fundamental issue i s t h e r e f o r e whether the p u b l i c b e l i e v e s r e g u l a t o r y b e n e f i t s outweigh the problems created by r e g u l a t i o n . The data show that, as Table I I I i n d i c a t e s , a majority see h e a l t h , safety and environmental r e g u l a t i o n s as being g e n e r a l l y b e n e f i c i a l .


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Table I I I .

RISKS

B e n e f i t s Versus the Problems o f Régulâtions(12) (General P u b l i c 1981)


Here i s a l i s t of areas where r e g u l a t i o n s have been passed i n the l a s t decade or two. T e l l me f o r each one whether you think, on balance, the b e n e f i t s have outweighed the problems, or the problems have outweighed the b e n e f i t s . B e n e f i t s Outweigh Problems Outweigh Don't Know the Problems the B e n e f i t s

Food safety Product safety Worker safety Water p o l l u t i o n Air pollution I n d u s t r i a l waste disposal

%

%

%

74 68 66 60 56

1 23 24 33 37

7 9 10 7 8

53

35

12

C o n v i c t i o n that food safety r e g u l a t o r y b e n e f i t s outweigh the problems i s , however, f a r greater than that f o r i n d u s t r i a l waste disposal. F i n a l l y , there seems f a i r l y r e l i a b l e evidence that the American p u b l i c b e l i e v e s that the government should consider r e gulatory costs when i s s u i n g new r u l e s . In a recent survey, Cambridge Reports, Inc., found that more than three times as many Americans b e l i e v e d that cost should be considered as thought i t should be ignored, as Table IV i n d i c a t e s . Table IV.

Consider Costs of Régulât ion?(13) (General P u b l i c )

Some people say that the government should consider how much a new r e g u l a t i o n w i l l cost consumers before they decide t o make i t a law. Other people say that when i t comes t o p r o t e c t i n g consumers, the government should not even consider how much i t might c o s t . Which o f these views i s c l o s e r t o your opinion? 1979 1981 Government should

consider

Government should

not consider

Don't know

cost cost

70%

71%

18%

19%

13%

10%

Thus, i t appearβ that there i s p u b l i c support f o r agency c o n s i d e r a t i o n of r e g u l a t o r y costs i n the issuance of r e g u l a t i o n s . From these data, some conclusions can be drawn. The f i r s t


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i s that concerns over s o c i e t a l c o n t r o l s appear to be i n c r e a s i n g . Second, though the p u b l i c understands that consumers u l t i m a t e l y bear r e g u l a t o r y costs, for h e a l t h , s a f e t y and environmental cont r o l s they b e l i e v e that r e g u l a t o r y b e n e f i t s c u r r e n t l y outweigh r e g u l a t o r y problems. Nevertheless, a strong p u b l i c majority b e l i e v e s that r e g u l a t o r y costs should be considered i n i s s u i n g regulations.

The 1981 Executive Order S h o r t l y a f t e r taking o f f i c e , President Reagan e s t a b l i s h e d the Task Force on Regulatory R e l i e f under the chairmanship of V i c e President Bush. On February 17, 1981 the President authorized broad r e g u l a t o r y oversight for the Task Force, working with the O f f i c e of Management and Budget. The document p r o v i d i n g that a u t h o r i z a t i o n i s Executive Order 12291, whose stated purposes are to reduce the burdens of e x i s t i n g and future r e g u l a t i o n s , increase f e d e r a l agency a c c o u n t a b i l i t y for r e g u l a t o r y a c t i o n s , minimize d u p l i c a t i o n and c o n f l i c t of r e g u l a t i o n s , and insure well-reasoned régulât ions.(14) B a s i c a l l y , the Executive Order r e q u i r e s that i n i s s u i n g new r e g u l a t i o n s and i n reviewing o l d ones, the i s s u i n g agency undertake r e g u l a t o r y a c t i o n only when 1. A need f o r r e g u l a t i o n i s adequately demonstrated; 2. The p o t e n t i a l b e n e f i t s outweigh the p o t e n t i a l costs and adverse e f f e c t s ; and 3. The most c o s t - e f f e c t i v e and l e a s t burdensome approach i s established. Thus, the Executive Order r e q u i r e s that agencies a f f e c t e d by the order employ c o s t - b e n e f i t c r i t e r i a i n developing and issuing regulations. The t o o l to be a p p l i e d for that purpose i s the Regulatory Impact A n a l y s i s . The nature of the Regulatory Impact A n a l y s i s (RIA) is s p e c i f i e d i n S e c t i o n 3 of the Executive Order. In general, such analyses are required only f o r r u l e s which the i s s u i n g agency determines are major r u l e s . The order defines a major r u l e as any r e g u l a t i o n l i k e l y to r e s u l t i n 1. An annual e f f e c t on the economy of $100 m i l l i o n or more; 2. A major increase i n costs or p r i c e s f o r consumers, i n d i v i d u a l i n d u s t r i e s , f e d e r a l , s t a t e , or l o c a l government agencies, or geographic regions, or 3. S i g n i f i c a n t adverse e f f e c t s on competition, employment, investment, p r o d u c t i v i t y , innovation, or on the a b i l i t y of United States-based e n t e r p r i s e s to compete with f o r e i g n based e n t e r p r i s e s i n domestic or export markets. Thus, the process of determining whether or not a proposed r u l e i s a major r u l e r e q u i r i n g an RIA w i l l develop considerable data r e q u i r e d for the cost side of any subsequent c o s t - b e n e f i t analysis. Information required i n the RIA includes 1. A d e s c r i p t i o n of the p o t e n t i a l b e n e f i t s of the r u l e , i n c l u d i n g any b e n e f i c i a l e f f e c t s that cannot be q u a n t i f i e d i n monetary terms, and the i d e n t i f i c a t i o n of those l i k e l y to r e c e i v e the b e n e f i t s ;



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2. A d e s c r i p t i o n of the p o t e n t i a l costs of the r u l e , i n c l u d ing any adverse e f f e c t s that cannot be q u a n t i f i e d i n monet a r y terms, and the i d e n t i f i c a t i o n of those l i k e l y t o bear the c o s t s ; 3. A determination of the p o t e n t i a l net b e n e f i t s of the r u l e , i n c l u d i n g an e v a l u a t i o n of e f f e c t s that cannot be q u a n t i f i e d i n monetary terms; 4. A d e s c r i p t i o n of a l t e r n a t i v e approaches that could subs t a n t i a l l y achieve the same r e g u l a t o r y goal at lower cost, together with an a n a l y s i s of t h i s p o t e n t i a l b e n e f i t and costs and a b r i e f explanation of the l e g a l reasons why such a l t e r n a t i v e s , i f proposed, could not be adopted; and 5. Unless covered by the description required under (preceding) paragraph (4) an explanation o f any l e g a l r e a sons why the r u l e cannot be based on the requirements set f o r t h i n S e c t i o n 2 of t h i s Order. The RIA thus encompasses both the information required f o r a c o s t - b e n e f i t a n a l y s i s of the proposed r u l e , and f o r a determinat i o n of the c o s t - e f f e c t i v e n e s s of the r e g u l a t o r y approach i n c o r porated t h e r e i n . It i s important to recognize that the required d e s c r i p t i o n s of both costs and b e n e f i t s include both e f f e c t s q u a n t i f i a b l e i n monetary terms, e f f e c t s q u a n t i f i a b l e i n other than monetary terms, and e f f e c t s that cannot be q u a n t i f i e d . In the h e a l t h , safety and environment area, these u n q u a n t i f i a b l e e f f e c t s w i l l include such d i f f i c u l t l y - a d d r e s s a b l e elements as a e s t h e t i c values; disease, pain and s u f f e r i n g and t h e i r a l l e v i a t i o n ; and, u l t i m a t e l y , the value of l i f e . I t has, of course, been pointed out that there are important d i f f e r e n c e s between economic regul a t i o n and r e g u l a t i o n d e a l i n g with h e a l t h , safety and environment. As one w r i t e r has pointed out, the b e n e f i t s side o f c o s t b e n e f i t studies i n t h i s area includes improved q u a l i t y of l i f e as w e l l as p o s i t i v e economic side e f f e c t s , and the former defy accurate e s t i m a t i o n . Moreover, the comparison of costs and b e n e f i t s i s beset by serious methodological d i f f i c u l t i e s and r e quires the analyst t o make value-laden assumptions.(15) Accordi n g l y , the a p p l i c a t i o n of Regulatory Impact A n a l y s i s t o h e a l t h , safety and environmental r e g u l a t i o n w i l l not only present metho d o l o g i c a l challenges but w i l l no doubt generate extensive cont r o v e r s y as w e l l . Regulatory Impact Analyses so prepared are required t o be reviewed by the D i r e c t o r of the O f f i c e of Management and Budget, subject t o the d i r e c t i o n of the P r e s i d e n t i a l Task Force on Regul a t o r y R e l i e f . Thus, Executive Order 12291 a f f o r d s two r e g u l a t o r y review l e v e l s , one by OMB and p o t e n t i a l l y one by the Task Force. The OMB, as an agency of the Executive O f f i c e of the President, i s i n a p o s i t i o n t o ensure that both the l e t t e r and the s p i r i t of Executive Order 12291 are followed i n RIAs produced by the s e v e r a l agencies.



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Executive Order 12291 i s not, however, g e n e r a l l y a p p l i c a b l e to a l l f e d e r a l agencies. In f a c t , i t s p e c i f i c a l l y exempts those f e d e r a l agencies designated by statute as "independent r e g u l a tory agencies." Independent regulatory agencies thus not included i n the requirement to conduct RIAs and which have h e a l t h , safety and environmental r e s p o n s i b i l i t y include the Mine Enforcement Safety and Health Review Commission, the Nuclear Regulatory Commission, and the Occupational Safety and Health Review Commission. Moreover, i n t h e i r 1981 Cotton Dust d e c i s i o n , the U.S. Supreme Court has determined that the OSHA statute does not r e q u i r e c o s t - b e n e f i t determinations when r e g u l a t i o n s are issued thereunder.(16) Just what information i s required i n RIA, and what t e c h n i ques are required to produce those data for each a f f e c t e d agency remain unclear. At the time of w r i t i n g t h i s paper, i t was gene r a l l y understood that EPA and other a f f e c t e d agencies were preparing g u i d e l i n e s for preparation of RIAs that would a f f o r d a d d i t i o n a l i n s i g h t i n t o t h e i r approach to these documents. The proposal to employ c o s t - b e n e f i t methods i n r e g u l a t o r y impact a n a l y s i s i s not without i t s c r i t i c s . In a November, 1981 address at a U n i v e r s i t y of V i r g i n i a Law School meeting, U.S. Senator Robert T. S t a f f o r d opposed the use of c o s t - b e n e f i t a n a l y s i s i n environmental i s s u e s . His comments about the c o s t b e n e f i t a n a l y s i s are summed up i n the f o l l o w i n g p o i n t s : In h i s opinion, monetizing costs and b e n e f i t s converts an i n t a n g i b l e r i g h t - h e a l t h to a property r i g h t , which i s then " i n v o l u n t a r i l y a l i e n a t e d . " Under such a system, the government would create a system i n which the p o l l u t e r would have the r i g h t to i n j u r e others because i t would cost him too much to avoid harming them. The system would be skewed i n favor of p o l l u t i o n because b e n e f i t s are d i f f i c u l t to determine but costs are e a s i l y calculated. He f u r t h e r suggests that the use of economic a n a l y s i s to e v a l u ate h e a l t h - r e l a t e d r u l e s jeopardized a l l other r i g h t s i n American society.(17) Since t h i s view i s shared by other commentators and c o n s t i tuencies, i t i s l i k e l y that the debate over a p p l i c a t i o n of Executive Order 12291 w i l l be a long one. The Chemical Industry P o s i t i o n As t h i s paper has shown, c o s t b e n e f i t a n a l y s i s has now been incorporated i n t o the r e g u l a t o r y process of many, though not a l l , agencies d e a l i n g with h e a l t h , safety and the environment. The American chemical industry i s , of course, profoundly a f f e c t e d by those agencies, since t h e i r r u l e s deal with i t s operations, i t s products, i t s wastes and i t s relation to the communities i n which chemical plants are located. It i s t h e r e f o r e worthwhile to examine what the p o s i t i o n of the industry i s toward c o s t - b e n e f i t a n a l y s i s i n r e g u l a t o r y impact determinations.



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The American chemical industry i n c l u d e s , o f course, a wide range o f companies i n a v a r i e t y of a c t i v i t i e s and c u r r e n t l y em ploys over a m i l l i o n workers, about 1% o f the U.S. labor f o r c e . A prominent v o i c e f o r that industry i s the Chemical Manufactur ers A s s o c i a t i o n , a trade a s s o c i a t i o n i n c l u d i n g around two hun dred member companies. As part o f i t s a c t i v i t i e s , CMA has taken an i n c r e a s i n g l y strong advocacy r o l e , speaking out r e s p o n s i b l y on n a t i o n a l issues a f f e c t i n g the chemical industry i n general. In l a t e 1980, a s p e c i a l CMA work group concluded that c o s t b e n e f i t analyses were being i n c r e a s i n g l y employed i n r e g u l a t o r y decision-making. Such a n a l y s i s were being performed i n incon s i s t e n t way β, and were flawed by a lack o f s c i e n t i f i c a l l y acceptable data and inadequate d e f i n i t i o n of the terms employed. Moreover, there seemed t o be no agreed-upon methodology f o r the conduct o f these analyses. At that time, CMA e s t a b l i s h e d a com mittee o f i n d u s t r y experts who embarked upon a concentrated e f f o r t t o develop p r i n c i p l e s and d e f i n i t i o n s f o r use i n c o s t b e n e f i t studies i n the h e a l t h , safety and environment f i e l d . As a r e s u l t of t h i s e f f o r t , during 1981, the A s s o c i a t i o n developed a p o l i c y f o r r e g u l a t o r y impact a n a l y s i s of h e a l t h , safety and environmental r e g u l a t i o n s . That p o l i c y i s now being made pub lic. 08) In that p o l i c y , CMA has unequivocally stated that r e g u l a t o r y agencies should perform r e g u l a t o r y impact analyses t o make governmental decision-making processes more e f f e c t i v e . The A s s o c i a t i o n b e l i e v e s that improved a n a l y s i s at the beginning of a r e g u l a t o r y proposal w i l l allow workable and e f f e c t i v e r u l e s t o be i n place sooner. Economic, s c i e n t i f i c and t e c h n i c a l issues should be included i n the a n a l y s i s . The Chemical Manufacturers A s s o c i a t i o n has recommended the f o l l o w i n g g u i d e l i n e s f o r conducting RIAs: Regulations should be adopted when (1) a need f o r regu l a t i o n has been demonstrated, (2) costs bear a reason able r e l a t i o n s h i p t o b e n e f i t s , and (3) the most cost e f f e c t i v e approach i s adopted; Regulatory impact a n a l y s i s should not include q u a n t i f i c a t i o n o f i n t a n g i b l e s i n monetary terms; Regulatory agencies should use "good science" i n de f i n i n g both the need f o r a r e g u l a t i o n and the b e n e f i t s i n terms of r i s k r e d u c t i o n i t w i l l provide; and Regulatory agencies should evaluate a l t e r n a t i v e ap proaches t o r e g u l a t i o n . These g u i d e l i n e s thus introduce some new concepts i n t o the RIA procedure, as w e l l as support concepts already embodied i n Ex e c u t i v e Order 12291. CMA b e l i e v e s that r e g u l a t i o n i n the h e a l t h , safety and environmental area should be adopted only when i t m a t e r i a l l y reduces r e a l hazards. Regulations should be adopted only where they w i l l s i g n i f i c a n t l y reduce r i s k . Moreover, regulations should not be used t o induce small changes or t o reduce already



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minor r i s k s . J u s t i f i c a t i o n for a r e g u l a t i o n should be based on s c i e n t i f i c data that c l e a r l y i d e n t i f y the hazard to be reduced and show to what extent the r e g u l a t i o n w i l l reduce the hazard. C a l c u l a t i o n of costs and b e n e f i t s should go beyond mere accounting procedures. CMA b e l i e v e s that the a n t i c i p a t e d cost of a r e g u l a t i o n should include both the d i r e c t costs of comp l y i n g with i t and i t s i n d i r e c t costs throughout the economy. S i m i l a r l y , the b e n e f i t s to be included are the d i r e c t and i n d i r e c t b e n e f i t s of the r e g u l a t i o n . CMA a l s o supports the c o s t - e f f e c t i v e n e s s requirement of Executive Order 12291. I t b e l i e v e s that r e g u l a t o r y agencies should analyze the p o t e n t i a l costs and b e n e f i t s of reasonable a l t e r n a t i v e s f o r achieving r e g u l a t o r y goals. Non-regulatory approaches, such as economic i n c e n t i v e s , can be more e f f e c t i v e and l e s s c o s t l y than r e g u l a t i o n s . Agencies should a l s o consider a l t e r n a t i v e methods of regulatory control. Such a l t e r n a t i v e s might include f l e x i b l e comp l i a n c e deadlines, performance standards, variances and exceptions. F i n a l l y , CMA urges that a r e g u l a t i o n should take the l e a s t burdensome approach that w i l l achieve i t s goals. Resources are wasted whenever a r e g u l a t i o n imposes requirements not d i r e c t l y r e l a t e d to i t s o b j e c t i v e s . Two points not addressed e x p l i c i t l y i n the Executive Order that are dealt with by CMA are the value of human l i f e , and the importance of good s c i e n t i f i c information. CMA has stated i n i t s p o s i t i o n that r e g u l a t o r y agencies should not place a d o l l a r value on human l i f e , other h e a l t h e f f e c t s such as pain and suff e r i n g , or a e s t h e t i c s . Such q u a n t i f i c a t i o n i s not meaningful to s o c i e t y , and the use of mechanistic c o s t / b e n e f i t r a t i o for d e c i sion-making would be unwise. Regulatory impact a n a l y s i s should provide decision-makers with as much information as p r a c t i c a b l e to ensure that r e g u l a t i o n s express human as w e l l as economic values. L i k e many other commentators, CMA has been concerned over the poor q u a l i t y of data that have been employed for making r u l e s i n the h e a l t h , safety and environmental areas. Accordingl y , CMA urges i n i t s g u i d e l i n e s that agencies should use q u a n t i t a t i v e r i s k assessment s that are based on s u b s t a n t i a l evidence. Unsupported assumptions or s e r i o u s l y flawed s c i e n t i f i c studies form a poor b a s i s for r e g u l a t i o n . Analyses should be reviewed by independent s c i e n t i s t s to ensure that the data are v a l i d and that i n t e r p r e t a t i o n s are correct. Thus, independent peer review i s an important element of the CMA p o s i t i o n , though one not covered by the Executive Order. Issuance of the p o l i c y p o s i t i o n of the Chemical Manufacturers A s s o c i a t i o n i s only an e a r l y step i n the r o l e CMA expects to play i n the n a t i o n a l debate over c o s t - b e n e f i t a n a l y s i s i n regulatory a f f a i r s . A number of CMA committees are a c t i v e l y engaged i n examining the many issues involved, and worthwhile c o n t r i b u t i o n s to the debate from the chemical industry are l i k e l y .


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Conclusions The issuance of Executive Order 12291 has now made c o s t - b e n e f i t a n a l y s i s a necessary part of the issuance of some f e d e r a l r u l e s . At t h i s time, b i l l s i n both houses of Congress are being c o n s i dered t o expand the scope o f c o s t - b e n e f i t a n a l y s i s and to e l e vate i t t o l e g i s l a t i v e s t a t u s . C e n t r a l issues i n the debate include that o f how t o deal with such values as human pain and s u f f e r i n g and u l t i m a t e l y with human l i f e . As yet, no agreed-upon methodology f o r c a r r y i n g out the necessary c a l c u l a t i o n s e x i s t s . Moreover, the f i e l d of debate has t o date been occupied mainly by s c i e n t i s t s , engineers and economists. Accordingly, i t can be expected t h a t , as such new p a r t i c i p a n t s as the moral philosophers and s o c i a l s c i e n t i s t s j o i n the d i s c u s s i o n , new issues w i l l be r a i s e d and new i n s i g h t s gained. Some conclusions can nevertheless be drawn. I t seems c l e a r from the survey research data that the American p u b l i c i s concerned over the increase i n s o c i a l r e g u l a t i o n , and that there i s growing i n t e r e s t i n i n t r o d u c i n g the cost f a c t o r i n t o agency considerations. I t can reasonably be concluded t h a t , so long as Executive Order 12291 r e q u i r e s regulatory impact a n a l y s i s , c o s t b e n e f i t a n a l y s i s w i l l play that f u n c t i o n . Nevertheless, the nature of the debate i s very l i k e l y t o change i n ways not yet a n t i c i p a t e d by the present p a r t i c i p a n t s .

Literature Cited 1.

See in this regard, "The Point Is...A Summary of Public Issues Important to the Dow Chemical Company," No. 48, January 11, 1982 (Dow Chemical Co., Midland, Mich.). 2. See for example AAAS Special Symposium No. 65, Risk in the Technological Society, Ed. by C. Hohenemser and J.X. Kasperson, (Westview Press, Boulder, Colo. 1982). 3. Peter G. Sassone and William A. Schaeffer, Cost-Benefit Analysis: A Handbook, p.3 (Academic Press, New York, 1978). 4. Lee G. Anderson and Russell F. Settle, Benefit-Cost Analysis: A Practical Guide, p.1 (Lexington Books, D.C. Heath & Co., Lexington, Mass., 1977). 5. Anderson and Settle, loc. cit., pp.1-2. 6. See for example Steven Kelman, "Cost-Benefit Analysis, An Ethical Critique," Across the Board, pp.74-82, July-August 1981. 7. The writer is indebted to Mr. T. H. Rhodes who conducted this analysis. And cf. Michael S. Baram, "Cost-Benefit Analysis: An Inadequate Basis for Health, Safety and Environmental Decision-Making" Ecology Law Quarterly 8 pp.473531 (1980), Footnote 1.


11.

8. 9. 10.


11. 12. 13 14. 15. 16.

17.

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Executive Order No. 11821, Nov. 29, 1974, 39 F. R. 41502, Amended by Executive Order No. 11,949, Dec. 31, 1976, 42 F. R. 1017. Executive Order No. 12044, March 23, 1978, 43 F. R. 12661. Yankelovich, Skelly & White, Inc. Corporate Priorities 1981, Table A-1.6 (New York, 1981). Yankelovich, Skelly & White, Inc., loc. cit., Table A-2.5. Yankelovich, Skelly & White, Inc., loc. cit., Table A-2.16. Cambridge Reports, Inc., The Cambridge Report 27, p.214 (Cambridge Mass., 2d Quarter 1981). 46 Federal Register No.33, Feb. 19, pp.13193-13198. Nicholas A. Ashford, "The Limits of Cost-Benefit Analysis in Regulatory Decisions," Technology Review pp.70-72, May 1980. And cf. M. S. Baram, loc. cit. AMERICAN TEXTILE MANUFACTURERS INSTITUTE, INC., ET AL. v. DONOVAN, SECRETARY OF LABOR, ET AL., No. 79-1429., SUPREME COURT OF THE UNITED STATES, 49 U.S.L.W. 4720 June 17, 1982, together with No. 79-1583, National Cotton Council of America v. Donovan, Secretary of Labor, et al., also on certiorari to the same court, 101 S. Ct. 2478, 69 L. Ed. 2d. 185. Remarks of U.S. Senator Robert T. Stafford at the Conference for Toxic Substances Pollution, The Environmental Law Institute, University of Virginia Law School, Nov. 23, 1981. Chemical Manufacturers Association, Policy for Regulatory Impact Analysis of Health, Safety and Environmental Regulations, (Washington, D.C. 1981).

RECEIVED October 14, 1983


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