On April 19 and 20, the Environmental Economics Advisory Committee of EPA’s Science Advisory Board (SAB) held the first two of three scheduled teleconferences to discuss EPA’s draft white paper, ‘‘Retrospective Study of the Costs of EPA Regulations: An Interim Report.” The retrospective cost study presents case studies of several EPA regulations and is intended to evaluate how well EPA’s predicted (ex ante) regulatory costs estimates align with actual (ex poste) costs incurred by regulated entities. Where differences between ex ante and ex poste costs exist, the study hopes to identify any systematic costing issues that can be addressed to enhance the accuracy of cost-benefit analyses supporting EPA’s regulatory development process. EPA has specifically asked that the SAB conduct a “review of its approach to assessing ex post costs as detailed in its draft paper.”
During the calls, the SAB committee members listened to background presentations on each of the case studies included in the draft report and discussed their initial reactions. Overall, the committee members endorsed the goal of the study, but had some reservations with its current structure. Several committee members expressed that the current analyses represented too much of an ad hoc approach focused on determining the degree to which the ex ante and ex poste costs matched. While such analyses are important (though there was some debate on how important), committee members felt that the study’s goals would be better served within a more coherent analytical framework focused on determining the broader systematic issues with developing cost estimates that can lead to a divergence in ex ante and ex poste costs. Estimations of ex poste costs often face significant data challenges that can lead to misleading conclusions that may not be particularly useful in identifying the broader costing issues that the EPA is trying to identify.
The one drinking water regulation included in the draft study, the Arsenic Rule, provides a good example of some of the critiques expressed by the committee members. The Arsenic Rule case study focused on an analysis of capital and O&M costs, concluding that costs were generally overestimated for larger systems and underestimated for smaller systems. However, the analyses relied on a very limited data set, leading to results that have little statistical significance. Also problematic for the analysis is what was not considered, including the costs of dealing with treatment residuals and the full range of administrative costs, issues important to Arsenic Rule cost evaluations. By focusing on only a limited portion of the rule, quantitative analyses of ex ante versus ex poste costs may have very limited value, which supports the committee members’ recommendation that a focus on broader issues in the costs estimation is warranted.
The next call of the SAB committee is scheduled for July 12, at which time it will discuss its draft recommendations for better assessing ex poste costs as tasked by EPA. AMWA continues to monitor the process and evaluate the potential to provide meaningful comment or additional data that would help inform the SAB panel’s deliberations.