[Federal Register Volume 85, Number 247 (Wednesday, December 23, 2020)]
[Rules and Regulations]
[Pages 84130-84157]
[FR Doc No: 2020-27368]

Vol. 85

Wednesday,

No. 247

December 23, 2020

Part II

Environmental Protection Agency

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40 CFR Part 83

Increasing Consistency and Transparency in Considering Benefits and
Costs in the Clean Air Act Rulemaking Process; Final Rule

Federal Register / Vol. 85 , No. 247 / Wednesday, December 23, 2020 /
Rules and Regulations

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 83

[EPA-HQ-OAR-2020-0044; FRL 10018-56-OAR]
RIN 2060-AU51

Increasing Consistency and Transparency in Considering Benefits
and Costs in the Clean Air Act Rulemaking Process

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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SUMMARY: This rule establishes processes that the Environmental
Protection Agency (EPA) will be required to undertake in promulgating
regulations under the Clean Air Act (CAA) to ensure that information
regarding the benefits and costs of regulatory decisions is provided
and considered in a consistent and transparent manner. The EPA is
establishing procedural requirements governing the preparation,
development, presentation, and consideration of benefit-cost analyses
(BCA), including risk assessments used in the BCA, for significant
rulemakings conducted under the CAA. Together, these requirements will
help ensure that the EPA implements its statutory obligations under the
CAA, and describes its work in implementing those obligations, in a way
that is consistent and transparent.

DATES: This final rule is effective December 23, 2020, but does not
apply to final rules for which a proposal was published prior to the
effective date.

ADDRESSES: The EPA has established a docket for this action under
Docket ID No. EPA-HQ-OAR-2020-0044. All documents in the docket are
listed on the http://www.regulations.gov website. Although listed in
the index, some information is not publicly available, e.g., CBI or
other information whose disclosure is restricted by statute. Certain
other material, such as copyrighted material, is not placed on the
internet and will be publicly available only in hard copy form.
Publicly available docket materials are available electronically
through http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Leif Hockstad, Office of Air Policy
and Program Support, Office of Air and Radiation, Environmental
Protection Agency, Mail Code 6103A,1200 Pennsylvania Avenue NW,
Washington, DC 20460;<PHONE_NUMBER>; email address:
<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION: Preamble acronyms and abbreviations. The EPA
uses multiple acronyms and terms in this preamble. While this list may
not be exhaustive, to ease the reading of this preamble and for
reference purposes, the EPA defines the following terms and acronyms:

ANPRM Advanced Notice of Proposed Rulemaking
BCA Benefit-cost analysis
BenMAP Benefits Mapping and Analysis Program (BenMAP)
CAA Clean Air Act
CBI Confidential business information
CFR Code of Federal Regulation
CRA Congressional Review Act
EPA Environmental Protection Agency
IOM Institute of Medicine
NAAQS National Ambient Air Quality Standards
NHTSA National Highway Traffic Safety Administration
NPRM Notice of Proposed Rulemaking
IRIS Integrated Risk Information System
ISA Integrated Science Assessments
PII Personally identifiable information
SAB Science Advisory Board
WTA Willingness-to-accept
WTP Willingness to pay

    Organization of this document. The following outline is provided to
aid in locating information in this preamble.

I. Executive Summary
    A. Purpose of the Regulatory Action
    B. Summary of the Major Provisions of the Regulatory Action
II. General Information
    A. Does this action apply to me?
    B. What is the Agency's authority for taking this action?
III. Background
    A. Summary of Executive Orders, Guidances, and Court Rulings
Related to Regulatory BCA
    B. Summary of Proposed Rule
IV. Description of the Final Rule
V. Responses to Significant Comments
    A. Purpose of the Action
    B. Authority To Promulgate a Procedural Rule
    C. Definitions
    D. Preparation and Consideration of BCA in Rulemaking
    E. Best Practices for the Development of BCA
    1. Key Elements of a BCA
    2. Statement of Need
    3. Regulatory Options
    4. Baseline
    5. Measuring Benefits and Costs
    6. Methods for Estimating Benefits and Costs
    7. Selecting and Quantifying Health Endpoints in a BCA
    8. Uncertainty Analysis
    9. Principle of Transparency
    F. Requirements for the Presentation of BCA Results
    G. Additional Comment Responses
    1. Planning for Retrospective Analysis
    2. Comments Pertaining to Executive Order 12898
VI. References
VII. Statutory and Executive Order Reviews
    A. Executive Order 12866: Regulatory Planning and Review and
Executive Order 13563: Improving Regulation and Regulatory Review
    B. Executive Order 13771: Reducing Regulations and Controlling
Regulatory Costs
    C. Paperwork Reduction Act
    D. Regulatory Flexibility Act
    E. Unfunded Mandates Reform Act
    F. Executive Order 13132: Federalism
    G. Executive Order 13175: Consultation and Coordination With
Indian Tribal Governments
    H. Executive Order 13045: Protection of Children From
Environmental Health Risks and Safety Risks
    I. Executive Order 13211: Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution or Use
    J. National Technology Transfer and Advancement Act
    K. Executive Order 12898: Federal Actions To Address
Environmental Justice in Minority Populations and Low-Income
Populations
    L. Congressional Review Act

I. Executive Summary

A. Purpose of the Regulatory Action

    Thorough and careful economic analysis is informative for
developing sound environmental policies. High quality economic analyses
enhance the effectiveness of environmental policy decisions by
providing policy makers and the public with information needed to
assess the likely consequences of various actions or options.
Transparency about how these economic analyses are developed and how
they are used in decision-making is essential to allowing interested
parties to hold decision makers accountable for their decisions. BCA, a
type of economic analysis, can serve an integral informative role in
the regulatory development process. It provides detailed information
about the value of benefits and costs of a policy to affected parties
and whether a policy change has the potential to improve the aggregate
well-being of society.
    The purpose of this action is to codify procedural best practices
for the preparation, development, presentation, and consideration of
BCA in regulatory decision-making under the CAA. This codification will
help ensure that the EPA implements its statutory obligations under the
CAA, and describes its work in implementing those obligations, in a way
that is consistent and transparent. This transparency is important to
allow interested parties to understand and evaluate the adequacy and
accuracy of the BCA and the role the analysis

played in significant regulatory decision-making.
    The Agency is taking this action pursuant to CAA section 301(a). 42
U.S.C. 7601(a)(1). Section 301(a)(1) provides authority to the
Administrator ``to prescribe such regulations as are necessary to carry
out his functions'' under the CAA. Such authority extends to internal
agency procedures that increase the Agency's ability to provide
consistency and transparency to the public in regard to the rulemaking
process under the CAA. See NRDC v. EPA, 22 F.3d 1125, 1148 (D.C. Cir.
1994) (``[Section 301] is sufficiently broad to allow the promulgation
of rules that are necessary and reasonable to effect the purposes of
the Act.'').

B. Summary of the Major Provisions of the Regulatory Action

    This final rule consists of three elements. First, it requires the
EPA to prepare a BCA for all future significant proposed and final
regulations under the CAA. The rule also requires that the Agency
consider the BCA in promulgating the regulation except where the
statutory provision or provisions under which a significant regulation
is promulgated prohibit it.
    Second, the rule requires EPA to develop the BCA using the best
available scientific information and in accordance with best practices
from the economic, engineering, physical, and biological sciences. The
final rule codifies best practices consistent with the EPA's Guidelines
for Preparing Economic Analyses (hereafter ``Guidelines'') and the
Office of Management and Budget's (OMB) Circular A-4, and also requires
that risk assessments used to support BCAs should follow best
methodological practices for risk characterization and risk assessment.
    Third, the rule imposes additional procedural requirements to
increase transparency in the presentation and consideration of the BCA
results. Specifically, the rule provides that the preambles of
significant proposed and final CAA regulations must include a section
that contains:
    a. A summary presentation of the overall BCA results for the rule,
including total costs, benefits, and net benefits;
    b. An additional reporting of the public health and welfare
benefits that pertain to the specific objective(s) of the CAA
provision(s) under which the rule is promulgated;
    c. A transparent presentation of how specific costs contemplated in
the CAA provision(s) under which the rule is promulgated (to the extent
specified), relate to total costs, to the extent possible; and
    d. When the CAA statutory provision or provisions under which the
rule is promulgated permit consideration of the BCA, a description of
how the Agency considered the BCA.
    Together, these requirements will help ensure that the EPA
implements its statutory obligations under the CAA in a way that is
consistent and transparent. The provisions of the final rule codify
best practices for the preparation, development, presentation, and
consideration of BCA as articulated in the principles and requirements
of Executive Order 12866. This final rule does not change any other
requirements pertaining to CAA rules specified in executive orders and
existing guidance documents. For example, this final rule does not
change the requirements for what types of analysis should be included
in regulatory impact analyses prepared under E.O. 12866.

II. General Information

A. Does this action apply to me?

    This rule does not regulate the conduct or determine the rights of
any entity or individual outside the Agency, as this action pertains
only to internal EPA practices. However, the Agency recognizes that any
entity or individual interested in EPA's regulations may be interested
in this rule. For example, this rule may be of particular interest to
entities and individuals concerned with how the EPA conducts BCA.

B. What is the Agency's authority for taking this action?

    The Agency is taking this action pursuant to CAA section 301(a). 42
U.S.C. 7601(a)(1). Section 301(a)(1) provides authority to the
Administrator ``to prescribe such regulations as are necessary to carry
out his functions'' under the CAA. Such authority extends to internal
agency procedures that increase the Agency's ability to provide
consistency and transparency to the public in regard to the rulemaking
process under the CAA. See NRDC v. EPA, 22 F.3d 1125, 1148 (D.C. Cir.
1994) (``[Section 301] is sufficiently broad to allow the promulgation
of rules that are necessary and reasonable to effect the purposes of
the Act.'').
    This is a rulemaking of agency organization, procedure, or
practice. This procedural rule would not regulate any person or entity
outside the EPA and would not affect the rights or obligations of
outside parties. As a rule of Agency procedure, this rule is exempt
from the notice-and-comment and delayed effective-date requirements set
forth in the Administrative Procedure Act. See 5 U.S.C.
553(a)(2),(b)(A),(d). Nonetheless, the Agency voluntarily sought public
comment on the proposed rule because it believed that the information
and opinions supplied by the public would inform the Agency's views.
Vt. Yankee Nuclear Power Corp. v. Nat. Res. Def. Council, Inc., 435
U.S. 519, 524 (1978) (``Agencies are free to grant additional
procedural rights in the exercise of their discretion.'') In addition,
even assuming arguendo that the notice-and-comment requirements of the
Act applied to this action, EPA has determined that there would be good
cause, consistent with 5 U.S.C. 553(d)(3), for making this final rule
effective immediately because the goals of the rule, ensuring
transparency and consistency in BCAs for significant CAA rulemakings,
are crucial for ensuring confidence in EPA decision-making. Because
this is a procedural rule that only applies internally to ensure that
EPA follows existing best practices with respect to BCA and to ensure
that EPA explains how EPA considered the results, the rationale for
delayed effectiveness to allow time to adjust to the new requirements
does not apply.
    In addition, the EPA received comments and recommendations on the
proposed rule from the EPA Science Advisory Board (SAB), pursuant to
its statutory duties to offer advice and comments on the scientific and
technical basis of certain planned EPA actions pursuant to the
Environmental Research, Development, and Demonstration Authorization
Act of 1978 (ERDDAA).\1\ Finally, the EPA also reviewed comments
received from the SAB during the course of its review of the
forthcoming update of the EPA's Guidelines.\2\
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    \1\ The ERDDAA requires the EPA to make available to the SAB
proposed criteria documents, standards, limitations, or regulations,
together with relevant scientific and technical information on which
the proposed action is based. On the basis of this information, the
SAB may provide advice and comments. The SAB final report on the
proposed rule is available at: https://yosemite.epa.gov/sab/sabproduct.nsf/0/82e89c7a596e9efa852585a50064d32e!OpenDocument&TableRow=2.3#2.
    \2\ Information about the SAB review of the forthcoming update
of the EPA's Guidelines is available at: https://yosemite.epa.gov/sab/sabproduct.nsf//LookupWebProjectsCurrentBOARD/30D5E59E8DC91C2285258403006EEE00?OpenDocument.
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III. Background

A. Summary of Executive Orders, Guidances, and Court Rulings Related to
Regulatory BCA

    As the EPA works to advance its mission of protecting public health
and

the environment, it seeks to ensure that its analyses of regulatory
decisions provided to the public continue to be rooted in sound,
transparent, and consistent approaches to evaluating benefits and
costs.
    The Supreme Court noted in Michigan v. EPA that ``[c]onsideration
of cost reflects the understanding that reasonable regulation
ordinarily requires paying attention to the advantages and the
disadvantages of agency decisions.'' Michigan v. EPA, 135 U.S. 2699,
2707 (2015). Many environmental statutes, including the CAA,
contemplate the consideration of costs as part of regulatory decision-
making in many instances. Several of these statutes, including the CAA,
contain provisions that explicitly require some form of cost
consideration when establishing a standard. Additionally, several other
statutory provisions use terminology that in context implicitly direct
or allow the EPA to consider costs, alone or in conjunction with
benefits and other factors. For example, section 112(n)(1)(A) of the
CAA directs the Administrator to ``regulate electric utility steam
generating units under [section 112], if the Administrator finds such
regulation is appropriate and necessary.'' ``Read naturally in the
present context, the phrase `appropriate and necessary' requires at
least some attention to cost.'' Michigan, 135 S. Ct. at 2707 (2015).
Therefore, in light of the varying statutory provisions in the CAA that
apply to or otherwise address cost consideration, the Agency is
finalizing procedural requirements to provide analysis to the public
that will present all of the benefits and costs in a consistent manner
for all significant CAA rulemakings.
    Thorough and careful economic analysis is informative for
developing sound environmental policies. High quality economic analyses
enhance the effectiveness of environmental policy decisions by
providing policy makers and the public with information needed to
systematically assess the likely consequences of various actions or
options. BCA, a type of economic analysis, can serve an integral
informative role in the regulatory development process. In general
terms, a BCA is an evaluation of both the benefits and costs to society
as a result of a policy and the difference between the two (i.e., the
calculation of net benefits (benefits minus costs)). It provides
information about whether a policy change has the potential to improve
the aggregate well-being of society.
    The usefulness of BCA in informing the development of environmental
regulations has been recognized both within and outside government for
decades. As discussed below, Presidential Executive Orders and statutes
have been in place for decades formally requiring the preparation of
BCA in the development of major Federal regulations, and the courts
have examined the use of BCA in several regulatory contexts. In
addition, the usefulness of formal BCA in informing regulatory policy
debates on protecting and improving public health, safety, and the
natural environment has been emphasized in the academic literature. For
example, as explained in seminal work by prominent economists Arrow et
al. (1996a, 1996b), BCA ``can provide an exceptionally useful framework
for consistently organizing disparate information, and in this way, it
can greatly improve the process and, hence, the outcome of policy
analysis. If properly done, BCA can be of great help to agencies
participating in the development of environmental regulations . . .''
(1996b). Arrow et al. recommend that ``Benefit-cost analysis should be
required for all major regulatory decisions,'' and that ``the precise
definition of `major' requires judgment.''
    Benefit-cost analyses have been an integral part of executive
branch rulemaking for decades. Presidents since the 1970s have issued
executive orders requiring agencies to conduct analysis of the economic
consequences of regulations as part of the rulemaking development
process. President Ford's 1974 Executive Order (E.O.) 11821 required
government agencies to prepare inflation impact statements before
issuing major regulations.\3\ These inflation impact statements
essentially turned into benefit-cost analyses based on the
understanding that a regulation would not be truly inflationary unless
its costs to society exceeded the benefits it produced,\4\ and the E.O.
was renamed as Economic Impact Statements with E.O. 11949 in 1976.\5\
President Carter's 1978 E.O. 12044, Improving Government Regulations,
included formal requirements for conducting regulatory analysis at a
minimum ``for all regulations which will result in (a) an annual effect
on the economy of $100 million or more; or (b) a major increase in
costs or prices for individual industries, levels of government or
geographic regions.'' \6\ Regulatory analyses under E.O. 12044 were
required to contain ``a succinct statement of the problem; a
description of the major alternative ways of dealing with the problem
that were considered by the agency; an analysis of the economic
consequences of each of these alternatives and a detailed explanation
of the reasons for choosing one alternative over the others.''
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    \3\ Executive Order 11821--Inflation Impact Statements, Federal
Register, VOL. 39, NO. 231--Friday, November 29, 1974 (pages 41501-
41502) .
    \4\ https://obamawhitehouse.archives.gov/omb/inforeg_chap1#tnfrp.
    \5\ Executive Order 11949--Economic Impact Statements, Federal
Register, VOL. 42, NO. 3--Wednesday, January 5, 1977 (page 1017).
https://www.govinfo.gov/content/pkg/FR-1977-01-05/pdf/FR-1977-01-05.pdf.
    \6\ Executive Order 12044--Improving Government Regulations,
Federal Register, VOL 43, NO. 58--Friday, March 24, 1978 (Pages
12659-12670).
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    In 1981, President Reagan issued E.O. 12291, Federal Regulation,
which imposed the first requirements for conducting formal benefit-cost
analysis in the development of new major Federal regulations. Among its
provisions, E.O. 12291 explicitly required that: ``(a) Administrative
decisions shall be based on adequate information concerning the need
for and consequences of proposed government action; (b) Regulatory
action shall not be undertaken unless the potential benefits to society
for the regulation outweigh the potential costs to society; (c)
Regulatory objectives shall be chosen to maximize the net benefits to
society; (d) Among alternative approaches to any given regulatory
objective, the alternative involving the least net cost to society
shall be chosen; and (e) Agencies shall set regulatory priorities with
the aim of maximizing the aggregate net benefits to society, taking
into account the condition of the particular industries affected by
regulations, the condition of the national economy, and other
regulatory actions contemplated for the future.'' \7\ Under E.O. 12291,
major regulations included ``any regulation that is likely to result
in: (1) An annual effect on the economy of $100 million or more; (2) A
major increase in costs or prices for consumers, individual industries,
Federal, State, or local government agencies, or geographic regions; or
(3) Significant adverse effects on competition, employment, investment,
productivity, innovation, or on the ability of United States-based
enterprises to compete with foreign-based enterprises in domestic or
export markets.''
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    \7\ Executive Order 12291--Federal Regulation, Federal Register,
Vol 46--February 19, 1981 (Page 13193).
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    In 1993, E.O. 12291 was revoked and replaced by President Clinton's
E.O. 12866, Regulatory Planning and Review, which is still in effect
today. E.O. 12866

requires that for all significant regulatory actions pursuant to
Section 3(f), an agency provide ``an assessment of the potential costs
and benefits of the regulatory action, including an explanation of the
manner in which the regulatory action is consistent with a statutory
mandate . . .'' For regulatory actions meeting criteria listed under
Section 3(f)(1)--that is, any regulatory action that is ``likely to
result in a rule that may . . . have an annual effect on the economy of
$100 million or more or adversely affect in a material way the economy,
a sector of the economy, productivity, competition, jobs, the
environment, public health or safety, or State, local, or tribal
governments or communities''--E.O. 12866 further requires that this
assessment include a quantification of benefits and costs to the extent
feasible. In addition, E.O. 12866 states that, to the extent permitted
by law, agencies ``should assess both the costs and the benefits of the
intended regulation and, recognizing that some costs and benefits are
difficult to quantify, propose or adopt a regulation only upon a
reasoned determination that the benefits of the intended regulation
justify its costs''; ``in choosing among alternative regulatory
approaches . . . should select those approaches that maximize net
benefits (including potential economic, environmental, public health
and safety, and other advantages; distributive impacts; and equity),
unless a statute requires another regulatory approach''; and that
``[e]ach agency shall base its decisions on the best reasonably
obtainable scientific, technical, economic, and other information
concerning the need for, and consequences of, the intended
regulation.''
    In 1995, the Unfunded Mandates Reform Act of 1995 (UMRA) included
analytical requirements for all regulatory actions that include federal
mandates ``that may result in the expenditure by State, local, and
tribal governments, in the aggregate, or by the private sector, of $100
million or more (adjusted annually for inflation) in any one year.'' An
action contains a federal mandate if it imposes an enforceable duty on
state, local or tribal governments, or the private sector. The
analytical requirements under UMRA are similar to the analytical
requirements under E.O. 12866, and thus the same analysis may permit
compliance with both analytical requirements.\8\
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    \8\ While the analytical requirements are the same, the dollar
thresholds do not exactly coincide because the $100 million
threshold is not adjusted for inflation under E.O. 12866.
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    More recent Executive Orders also reaffirm the requirements and
principles in E.O. 12866. E.O. 13563, issued in 2011 and still in
effect today, reaffirms the requirements and other principles and
definitions in E.O. 12866 and embraces benefit-cost analysis: ``In
applying these principles, each agency is directed to use the best
available techniques to quantify anticipated present and future
benefits and costs as accurately as possible.'' \9\ More recently, E.O.
13777, issued in 2017, directs agencies to identify regulations that
``impose costs that exceed benefits.'' \10\ E.O. 13783, also issued in
2017, similarly reaffirms the importance of benefit-cost analysis: ``In
order to ensure sound regulatory decision-making, it is essential that
agencies use estimates of costs and benefits in their regulatory
analyses that are based on the best available science and economics.''
\11\
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    \9\ https://obamawhitehouse.archives.gov/the-press-office/2011/01/18/executive-order-13563-improving-regulation-and-regulatory-review.
    \10\ Enforcing the Regulatory Reform Agenda (82 FR 12285, March
1, 2017).
    \11\ https://www.govinfo.gov/content/pkg/FR-2017-03-31/pdf/2017-06576.pdf.
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    The Office of Management and Budget's (OMB's) Circular A-4 (OMB
2003), which remains in effect today, provides guidance to Federal
agencies on the development of regulatory analysis as required under
E.O. 12866 and a variety of related authorities.\12\ In developing
Circular A-4, OMB first developed a draft that was subject to public
comment, interagency review, and external peer review. As summarized in
E.O. 13783, ``. . . OMB Circular A-4 . . . was issued after peer review
and public comment and has been widely accepted for more than a decade
as embodying the best practices for conducting regulatory cost-benefit
analysis.'' \13\ The document encourages transparency in practices,
including the expression of costs and benefits in monetary units that
allow for the evaluation of ``incremental benefits and costs of
successively more stringent regulatory alternatives'' such that an
agency can ``identify the alternative that maximizes net benefits.''
\14\
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    \12\ https://obamawhitehouse.archives.gov/omb/circulars_a004_a-4/. Circular A-4 refines and replaces OMB's ``best practices''
document of 1996, which was issued as a guidance in 2000 and
reaffirmed in 2001. All these versions of the 1996 document were
superseded by Circular A-4.
    \13\ https://www.govinfo.gov/content/pkg/FR-2017-03-31/pdf/2017-06576.pdf.
    \14\ https://obamawhitehouse.archives.gov/omb/circulars_a004_a-4/.
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    EPA's Guidelines for Preparing Economic Analyses (hereafter, the
Guidelines) \15\ complements Circular A-4 by providing the Agency with
more detailed peer-reviewed guidance on how to conduct BCA and other
types of economic analyses for both environmental regulatory actions
and non-regulatory management strategies, with the intent of improving
compliance with E.O. 12866 and other executive orders and statutory
requirements (e.g., Small Business Regulatory Enforcement Fairness Act
of 1996 provisions). The Guidelines are updated periodically--building
on work issued in 1983 (then titled Guidelines for Performing
Regulatory Impact Analysis), 2000, and most recently in 2010--to
account for growth and development of economic tools and practices. The
Guidelines establish a scientific framework for analyzing the benefits,
costs, and other economic impacts of regulations and policies,
including assessing the distribution of costs and benefits among
various segments of the population. In addition to presenting the well-
established scientific foundations for economic analysis, the
Guidelines incorporate recent advances in theoretical and applied work
in the field of environmental economics. Updates of the Guidelines are
led by the EPA's National Center for Environmental Economics in
consultation with economists from across the Agency and OMB. All
chapters undergo an external peer review, either through EPA's Science
Advisory Board or through independent reviews by external experts,
prior to be being finalized.\16\
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    \15\ https://www.epa.gov/environmental-economics/guidelines-preparing-economic-analyses.
    \16\ The EPA is in the process of a periodic update of the
Guidelines. The EPA anticipates that among the changes within this
update, the current Section <IP_ADDRESS>, ``Impacts on employment'', will
be replaced with a discussion based on more recent literature and
feedback from the Economy Wide Modeling Science Advisory Board
Panel. For more details regarding Chapter 9, see: https://www.epa.gov/sites/production/files/2017-09/documents/ee-0568-09.pdf.
For more details regarding the update of the Guidelines in general,
see: https://yosemite.epa.gov/sab/sabproduct.nsf//LookupWebProjectsCurrentBOARD/30D5E59E8DC91C2285258403006EEE00?OpenDocument.
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    Given the history described above pertaining to the use of BCA by
executive agencies, and given that several statutes, including the CAA,
include provisions that require some form of cost consideration, the
federal courts have also developed significant case law regarding
regulatory cost consideration and the usefulness of BCA. This case law
addresses when, and if, such use is required or permissible and how it
may be employed in reasoned decision-making.

As a general matter, while certain statutory provisions may prohibit
reliance on BCA or other methods of cost consideration in decision-
making,\17\ such provisions do not preclude the Agency from providing
additional information regarding the impacts of a proposed or final
rule to the public. For example, while the CAA prohibits the EPA from
considering cost when establishing or revising requisite National
Ambient Air Quality Standards (NAAQS) for criteria pollutants,\18\ the
EPA nonetheless provides Regulatory Impact Analyses (RIAs) \19\ to the
public for these rulemakings.\20\
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    \17\ See, e.g., Whitman v. Am. Trucking Ass'ns, 531 U.S. 457
(2001) (holding that Section 109(b) of the CAA unambiguously barred
cost considerations when setting the National Ambient Air Quality
Standards.
    \18\ Id.
    \19\ A regulatory impact analysis, or ``regulatory analysis''
for brevity, as prepared under E.O. 12866, consists of a benefit-
cost analysis and any related cost-effectiveness analyses and
assessments of economic and distributional impacts (OMB 2003).
    \20\ See, e.g., U.S. EPA, Regulatory Impact Analysis of the
Proposed Revisions to the National Ambient Air Quality Standards for
Ground-Level Ozone (2014), https://www3.epa.gov/ttn/ecas/regdata/RIAs/20141125ria.pdf.
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    The Supreme Court has held that agencies may conduct and consider a
BCA even when a statute does not explicitly require one. In Entergy
Corp. v. Riverkeeper, Inc., 556 U.S. 208, 222-224 (2009), the Supreme
Court clarified that neither American Textile Mfrs. Inst. V. Donovan,
452 U.S. 490 (1981) (American Textile Mfrs.) nor Whitman v. Am.
Trucking Ass'ns, 531 U.S. 457 (2001) (American Trucking), stands for
the broad proposition that statutory silence in regard to a potential
factor always implies prohibition of consideration of that factor.
Therefore, the Supreme Court concluded that the EPA was permitted to
use BCA in determining the content of regulations promulgated under
Clean Water Act section 1326(b). The Court reasoned ``that [CWA] Sec.
1326(b)'s silence is meant to convey nothing more than a refusal to tie
the agency's hands as to whether cost-benefit analysis should be used,
and if so to what degree.'' Id. at 222; see also id. at 212, 219-20,
226.
    The Supreme Court noted that its decisions in American Trucking and
American Textile Mfrs. ``do not undermine this conclusion.'' 556 U.S.
at 223. The Court highlighted that in American Trucking, it had held
that the text of section 109 of the Clean Air Act, ``interpreted in its
statutory and historical context . . . unambiguously bars cost
considerations'' when air quality standards are set pursuant to that
provision. American Trucking, 531 U.S. at 471, quoted in Entergy Corp.,
556 U.S. at 223. The Entergy Corp. Court further elaborated that
``[t]he relevant 'statutory context' [in American Trucking] included
other provisions in the [CAA] that expressly authorized consideration
of costs, whereas Sec.  109 did not.'' 556 U.S. at 233. The Court
concluded, not that American Trucking stands for the proposition that
statutory silence always unambiguously bars cost consideration, but,
rather that American Trucking ``stands for the rather unremarkable
proposition that sometimes statutory silence, when viewed in context,
is best interpreted as limiting agency discretion.'' 556 U.S. at 223.
The Court further noted that in American Textile, the Court had relied,
in part, on the absence of mention of BCA in the statute to hold that
the agency was not required to conduct a BCA when setting certain
health and safety standards. 556 U.S. at 223. ``[U]nder Chevron, that
an agency is not required to [engage in cost-benefit analysis] does not
mean that an agency is not permitted to do so.'' Id. Thus, the Supreme
Court has confirmed that a statute need not have explicitly required
that the agency conduct a BCA in its decision-making process for the
agency to do so.
    The Supreme Court additionally acknowledged in Entergy Corp. that
``whether it is `reasonable' to bear a particular cost may well depend
on the resulting benefits.'' 556 U.S. at 225-226. This concept was
further elaborated upon by the Court in Michigan v. EPA, which held, in
the context of the term ``appropriate and necessary'' contained in
Section 112(n)(1)(A) of the CAA, that the term required consideration
of cost. 135 S. Ct. 2699, 2706 (2015). In doing so, the Supreme Court
stated that ``[o]ne would not say that it is even rational, never mind
`appropriate,' to impose billions of dollars in economic costs in
return for a few dollars in health or environmental benefits'',
concluding that ``[n]o regulation is `appropriate' if it does
significantly more harm than good.'' Id. at 2707. The D.C. Circuit
recently echoed this concept in Mingo Logan Coal Co. v. EPA. While the
D.C. Circuit panel ultimately concluded that the cost issue had been
forfeited by petitioners, in response to then Judge Kavanaugh's dissent
which argued that cost consideration should be required, the panel
stated, ``[i]ndeed, we do not quibble with his general premise--and
that of the many legal luminaries he cites--that an agency should
generally weigh the costs of its action against its benefits.'' 829
F.3d 710, 723 (D.C. Cir. 2016). In general, when cost consideration is
either required or permitted by the CAA, the courts have not mandated a
specific approach for cost consideration but have granted the Agency
broad discretion in determining its methodology. See Michigan, 135 S.
Ct. at 2711 (``We need not and do not hold that the law unambiguously
required the Agency, when making this preliminary estimate, to conduct
a formal cost-benefit analysis in which each advantage and disadvantage
is assigned a monetary value. It will be up to the Agency to decide (as
always, within the limits of reasonable interpretation) how to account
for cost.''); see also Sierra Club v. Costle, 657 F.2d 298, 345 (D.C.
Cir. 1981) (``[S]ection 111(a) explicitly instructs the EPA to balance
multiple concerns when promulgating a NSPS.''); id. at 321 (``The text
gives the EPA broad discretion to weigh different factors in setting
the standard.''); Lignite Energy Council v. EPA, 198 F.3d 930, 933
(D.C. Cir. 1999) (``Because section 111 [of the CAA] does not set forth
the weight that [should be] assigned to each of these factors, we have
granted the agency a great degree of discretion in balancing them'');
Husqvarna AB v. EPA, 254 F.3d 195, 200 (D.C. Cir. 2001) (``Section 213
[of the CAA] . . . simply directs the EPA to consider cost. . . .
Because section 213 does not mandate a specific method of cost
analysis, we find reasonable the EPA's choice to consider costs on the
per ton of emissions removed basis.'').
    Additionally, courts have noted the usefulness of BCA and have
utilized the information provided therein to inform their analysis when
reviewing agency regulations. Several of these cases utilize
information from agency-created BCAs and/or RIAs as evidence that an
agency ignored alternatives or acted in an arbitrary and capricious
manner when taking action.
    For example, in Advocates for Highway and Auto Safety v. FMCSA, 429
F.3d. 1136 (D.C. Cir. 2005), the D.C. Circuit relied in part on a BCA
in invalidating, as arbitrary and capricious, a final rule promulgated
by Federal Motor Carrier Safety Administration (FMCSA) intended to
ensure that drivers of commercial motor vehicles received adequate
training. In its analysis, the D.C. Circuit highlighted an incongruity
between methods of training shown to be effective and the final rule,
noting that ``[f]rom a purely economic perspective, the agency's
disregard of the Adequacy Report [containing a BCA] is baffling in
light of the evidence in the record.'' Id. at 1146. The D.C. Circuit
pointed to a training regimen that ``according to the agency's

own calculations, [would] produce benefits far in excess of costs.''
Id. Noting the agency's findings that ``the program's estimated 10-year
cost of between $4.19 billion to $4.51 billion would yield a benefit
ranging from $5.4 billion to $15.27 billion, depending on analytic
assumptions,'' the court concluded that the BCA for the rule ``lends no
support to FMCSA's position. In the final rule, FMCSA says practically
nothing about the projected benefits.'' Id.
    In Public Citizen, Inc. v. Mineta, 340 F.3d 39 (2nd Cir. 2003), the
Second Circuit determined that a National Highway Traffic Safety
Administration (NHTSA) rule regarding tire pressure monitoring system
(TPMS) requirements was arbitrary and capricious, as the NHTSA BCA
showed that alternatives would be safer and more cost-effective. The
court stated that it may ``be difficult to weigh economic costs against
safety benefits. But the difficulty of the task does not relieve the
agency of its obligation to perform it under [certain vehicle safety
laws] and State Farm.'' Id. at 58 (citing Motor Vehicles Mfrs. Ass'n v.
State Farm Mut. Auto. Ins. Co., 463 U.S. 29 (1983)). The Second Circuit
observed that NHTSA ``instead, presents us with a rulemaking record
that does not explain why the costs saved were worth the benefits
sacrificed.'' Id. The court noted that the BCA ``discloses that the
added cost for a system that worked all of the time, rather than half
of the time, was less than $10 per car, and that the adoption of the
four-tire, 25 percent standard alone was the most cost effective means
of preventing crashes caused by significantly under-inflated tires.''
Id.
    Finally, in NRDC v. EPA, 824 F.2d 1258 (1st Cir. 1987), the First
Circuit vacated, in part, and remanded rules for long-term disposal of
high-level radioactive waste under Nuclear Waste Policy Act of 1982
based in part on the Agency's selection of a 1,000-year design
criterion rather than a longer-term one. The court determined that it
was unreasonable agency action to not adopt cheap methods of increasing
protections. In doing so, the court observed that ``[l]ikewise, EPA's
Final [RIA] of 40 CFR part 191 demonstrates that more rigorous site
selection could produce sites with such impermeable geologic media that
compliance with the individual protections for a much longer duration
would not even require the extra cost of `very good' engineered
canisters.'' Id. at 1289.

B. Summary of the Proposed Rule

    With the history discussed above in mind as a backdrop and
following E.O. 13777 noted above, the EPA opened a public docket \21\
in April 2017 to solicit feedback and identify regulations that
``impose costs that exceed benefits.'' Among the public comments
received, a large cross-section of industry stakeholders stated that
the agency either underestimated costs, overestimated benefits, or
evaluated benefits and costs inconsistently in its rulemakings. Per
E.O. 13777 and based on these public comments, the EPA decided to take
further action to evaluate opportunities for reform.
---------------------------------------------------------------------------

    \21\ See EPA, Evaluation of Existing Regulations (82 FR 17793).
All public comments are accessible online in our docket on the
Regulations.gov website identified by Docket ID No. EPA-HQ-OA-2017-
0190.
---------------------------------------------------------------------------

    In June 2018, the EPA issued an Advance Notice of Proposed
Rulemaking (ANPRM), ``Increasing Consistency and Transparency in
Considering Costs and Benefits in the Rulemaking Process'' (83 FR
27524, June 13, 2018), to solicit public input on potential approaches
for increasing consistency and transparency in how the EPA considers
benefits and costs in the rulemaking process. Informed by the public
comments received on that ANPRM, on May 13, 2019, the Administrator
issued a memorandum \22\ to EPA's Assistant Administrators announcing
the intention to propose statute-specific rules that outline how
consistency and transparency concepts will be implemented in future
rulemakings. The memorandum outlined the following principles for
developing these regulatory proposals, consistent with applicable laws
and regulations: Ensuring that the Agency balances benefits and costs
in regulatory decision-making; increasing consistency in the
interpretation of statutory terminology; providing transparency in the
weight assigned to various factors in regulatory decisions; and
promoting adherence to best practices in conducting the technical
analysis used to inform decisions.
---------------------------------------------------------------------------

    \22\ Available at: https://www.epa.gov/environmental-economics/administrator-wheeler-memorandum-increasing-consistency-and-transparency.
---------------------------------------------------------------------------

    In June 2020, the EPA issued a Notice of Proposed Rulemaking
(NPRM), ``Increasing Consistency and Transparency in Considering Costs
and Benefits in the Rulemaking Process'' (85 FR 35612, June 11, 2020).
The proposed rule was the first statute-specific rulemaking in this
effort. The EPA proposed to codify the procedural requirements
governing the development of BCA, including risk assessments used as
inputs to the BCA, for significant rulemakings conducted under the CAA,
and proposed additional procedural requirements to increase
transparency in the presentation of the benefits and costs resulting
from significant CAA regulations. Together, these requirements were
proposed to ensure a consistent approach to the EPA's BCAs under the
CAA and to provide transparency by requiring the provision of relevant
information in all significant rulemakings. In the proposed rule, the
EPA also solicited comment on how the Agency should take into
consideration the results of a BCA in future rulemakings under specific
provisions of the CAA, among other topics. Discussion of topics where
the EPA solicited comment, and comments and responses where EPA has
made modifications in the final rule, is included in Section V of this
preamble. Responses to the rest of the comments are provided in the
Response to Comments Document.

IV. Description of the Final Rule

    This final rule consists of three elements. In the first element,
it requires the EPA to prepare a BCA for all future significant
proposed and final regulations promulgated under the CAA and to
consider the BCA in the decision-making process when permitted for
consideration under the specific provision of the CAA under which the
future regulation is promulgated. The EPA believes that in keeping with
OMB's Circular A-4 and Executive Order 12866 that the requirement to
prepare a BCA would create consistency with well-understood and
established processes and determinations for what constitutes a
``significant'' rulemaking. Therefore, in this final rule, a
significant regulation will include any proposed or final regulation
that is determined to be a ``significant regulatory action'' pursuant
to Section 3(f) E.O. 12866 or is otherwise designated as significant by
the Administrator. Consideration of the results of BCA in regulatory
decision-making is also consistent with the requirements of E.O. 12866.
If the provision or provisions under which the rule is promulgated
prohibit the consideration of the BCA, the final rule requires the
Agency to identify the specific provision that bars such consideration.
    The second element of the final rule requires EPA to develop the
BCA using the best available scientific information and in accordance
with best practices from the economic, engineering, physical, and
biological sciences. The final rule codifies general best practices
consistent with the existing guidances that EPA relies upon to develop
high

quality regulations (e.g., EPA's Guidelines for Preparing Economic
Analyses (hereafter ``Guidelines'') and the Office of Management and
Budget's (OMB) Circular A-4), and also requires that risk assessments
used to support BCAs should follow best methodological practices for
risk characterization/assessment. The final rule does not replace any
detailed guidance for Agency analysis, including Executive Orders
(e.g., E.O. 12866), OMB Circulars (e.g., Circular A-4), and EPA
documents (e.g., Guidelines for Preparing Economic Analyses).
    The specific best practices that are required in this final rule
are as follows. The BCA must include a statement of need, an
examination of regulatory options which would contribute to the stated
objectives of the CAA, and to the extent feasible, an assessment of all
benefits and costs of these regulatory options relative to the baseline
scenario. The baseline used in the BCA must appropriately consider
relevant factors and rely on transparent and reasonable assumptions. In
preparing the BCA, the Agency must rely on the use of a framework for
estimating costs and benefits that is appropriate for the
characteristics of the regulation being evaluated and must provide an
explanation for the approach adopted. In estimating costs and benefits,
the Agency must consider how costs and benefits may be affected by
consumer and producer behavior both in the baseline and in the policy
scenarios. The BCA must include, to the extent supported by scientific
literature as well as practicable in a given rulemaking: A
quantification of all benefits; a monetization of benefits that follows
well-defined economic principles using well-established economic
methods, appropriate data and/or studies; and a qualitative
characterization of benefits that cannot be quantified or monetized.
    Regarding the process of selecting health benefit endpoints for
quantification, the final rule requires that this process will be based
upon scientific evidence that indicates there is a clear causal or
likely causal relationship between pollutant exposure and effect, and
that sufficient data and understanding allows the agency to reasonably
model the anticipated change in that effect in response to changes in
environmental quality or exposures expected as a result of the
regulation under analysis. The evaluation of the scientific evidence
necessary to select and quantify health benefit endpoints should follow
the systematic review process, must emphasize transparency and
replicability, and give more weight to higher quality data, models,
and/or analyses that have been peer reviewed. The models used to
quantify the concentration-response relationships should take into
account the breadth and quality of the available evidence regarding the
nature and magnitude of the risk to the populations affected by the
regulation. The presentation of results should characterize the
sensitivity of the choice of the concentration-response function on the
magnitude and the uncertainty associated with estimated benefits.
    The BCA must include an identification of uncertainties underlying
the estimation of both benefits and costs and, to the extent feasible
and appropriate, quantitatively analyze those that are most
influential; and must present benefits and cost estimates in ways that
convey their uncertainty, including acknowledging unquantified benefits
and costs, where appropriate. The BCA must include a reasoned
explanation for the scope and specific quantitative or qualitative
methods chosen to analyze uncertainties.
    The final rule also requires that the overall results of the BCA
(benefits, costs, and net benefits of each regulatory option evaluated
in the BCA) be presented and described in a manner designed to be
objective, comprehensive, reproducible to the extent reasonably
possible, and easily understood by the public. To the extent permitted
by law, the Agency must ensure that all information (including data and
models) used in the development of the BCA is publicly available. If
data and models are proprietary, the Agency must make available, to the
extent practicable, the underlying inputs and assumptions used,
equations, and methodologies used by EPA. The BCA shall provide a
reasoned explanation for any departures from best practices in the BCA,
including a discussion of the likely effect of the departures on the
results of the BCA.
    The third element of the final rule imposes additional procedural
requirements to increase transparency in the presentation and
consideration of the BCA results. Specifically, the rule requires the
preamble of significant proposed and final CAA regulations to include a
section that contains a summary presentation of the overall BCA results
for the rule, including total benefits, costs, and net benefits. Within
this summary presentation, if any benefits and costs accrue to non-U.S.
populations they must be reported separately to the extent possible.
This section of the preamble should also provide an additional
reporting of the public health and welfare benefits that pertain to the
specific objective(s) of the CAA provision(s) under which the rule is
promulgated and a transparent presentation of how specific costs
contemplated in the CAA provision(s) under which the rule is
promulgated (to the extent specified), relate to total costs, to the
extent possible. Finally, when the CAA statutory provision or
provisions under which the rule is promulgated permit consideration of
the BCA, this section of the preamble should contain a description of
how the Agency considered the BCA.
    Together, these requirements will help ensure that the EPA
implements its statutory obligations under the CAA with high quality
regulations in a way that is consistent and transparent and that these
procedures are made enforceable upon the Agency. The provisions of the
final rule codify into regulation best practices for the preparation,
development, presentation, and consideration of BCA as articulated in
the principles and requirements of Executive Order 12866.

V. Responses to Significant Comments

    The EPA had a 45-day public comment period on the proposed rule,
and also hosted a virtual public hearing on July 1, 2020, which
included 50 speakers registered to provide testimony. In total, the EPA
received 24,740 public comments, including several mass mail campaigns
and 513 unique comment letters (including transcripts from the July 1
virtual public hearing). Of these, a total of 143 letters provided
detailed, substantive comments. Commenters included environmental and
health advocacy organizations, industry trade groups, academics, and
State, Local, and Tribal governments.

A. Purpose of the Action

    Commenters supporting the EPA's proposed rulemaking argued that the
proposed requirements, if finalized, would provide more clarity and
transparency, make common sense, enhance public accountability and
understanding of the scientific inputs that drive the EPA's decisions,
improve the integrity of the rulemaking process, and lead to better
public policy. Commenters also stated that codification of best
practices for conducting and presenting BCA would standardize
procedures and would achieve consistency over time and provide for
better transparency. Some commenters further argued the rule would
deliver continued environmental improvement as well as a more

predictable and achievable set of outcomes for the regulated community.
In addition, a commenter stated that EPA's proposed rule, if finalized,
would supersede, rather than duplicate, existing non-justiciable, non-
statutory sources of guidance for Agency analysis, including EOs (e.g.,
E.O. 12866), OMB Circulars (e.g., Circular A-4), and EPA documents
(e.g., EPA's Guidelines).
    Commenters opposed to the proposed rule argued that the EPA does
not explain how any of the Agency's previous BCAs have fallen short of
any applicable legal requirements or failed to deliver on their
purported policy benefits. Commenters stated that EPA has also not
specifically detailed how the Agency's use of its own economic guidance
(e.g., EPA's Guidelines) and OMB's Circular A-4 guidance has resulted
in inadequate, inconsistent, or nontransparent practices or has
compromised the Agency's abilities and disagreed with the need for a
rulemaking. These commenters said that the EPA's proposal does not make
the case that such shortcomings are so widespread among the EPA's
existing BCA practices that the proposal was necessary. These
commenters further stated the EPA does not identify any deficiencies in
existing laws, orders, and guidelines, and, therefore, did not fully
demonstrate how the proposed changes will address the alleged problem.
Some commenters further stated that the EPA's proposed rule creates an
excessively burdensome set of procedures for completing a BCA that
would be difficult for the agency to satisfy and would be prohibitively
costly to complete. One commenter stated that increasing transparency
and consistency in the analysis upon which regulatory decisions are
based should not come at the cost of undermining the flexibility and
accuracy needed for regulatory decision-making on the wide variety of
air pollutants and sources regulated under the CAA. The commenter added
that many of the consistency and transparency goals in the proposal are
already being met through existing EPA practices, particularly
requirements in E.O. 12866, and contended that setting a prescriptive
process for conducting BCAs will lead to inflexibility that could prove
detrimental to public health and the environment. One commenter argued
that, given the clear credibility and reliability of the peer-reviewed
and longstanding methodologies for developing BCAs (as acknowledged by
the EPA itself throughout the proposal), it was arbitrary and
capricious for the EPA to constrain its methodologies. A few commenters
objected to the proposal's approach, as they believed that a regulation
establishes rigid practices that then make it difficult for the EPA to
readily adopt future improvements to best practices. On this issue, a
few commenters further suggested that because analytical requirements
evolve, the EPA should create a requirement to periodically update the
best practices through a public notice and comment rulemaking process.
    The EPA disagrees with commenters that this rule is unnecessary.
The EPA continues to believe that codifying best practices into
regulation provides additional certainty and increases the consistency
and transparency of its analysis of the benefits and costs of
significant regulations under the CAA. The requirements promulgated in
this action address the comments, by many, that the Agency has not
consistently estimated, presented, and considered benefits and costs in
line with best practices and principles set forth in longstanding
executive orders governing regulatory analysis. Some commenters
asserted that these inconsistencies were not identified by EPA and were
not so widespread among the EPA's existing BCA practices that the
proposal was necessary. However, EPA has not had procedural enforceable
regulations in place to ensure consistency in its past BCA practices.
To the extent that commenters assert that EPA's past practice has been
consistent and transparent, it is not due to an enforceable
standardized approach that would ensure such a result. Other commenters
have noted the contrary belief, that EPA's practices in regard to BCA
have indeed been inconsistent and have lacked transparency. Without
enforceable procedural regulations for BCA, future regulations may be
promulgated without consideration of, and public accountability
concerning, their costs and benefits. Thus, the EPA has determined that
the Final Rule is necessary to ensure that BCA practices are
implemented in a consistent fashion prospectively. The requirements
provide a practical framework to ensure that the BCA of significant CAA
regulations follow best practices and complement more detailed existing
guidances the EPA relies upon (e.g., OMB's Circular A-4 and EPA's
Guidelines) to develop quality regulations consistent with the CAA, and
that these procedures are made enforceable upon the Agency. The final
rule does not replace detailed guidance for Agency analysis, including
Executive Orders (e.g., E.O. 12866), OMB Circulars (e.g., Circular A-
4), and EPA documents (e.g., EPA's Guidelines).

B. Authority To Promulgate a Procedural Rule

    The EPA received comments on its legal authority to promulgate the
proposed rule. We respond to some of the major comments below and to
the rest in Chapter 4 of the Response to Comments Document. In
particular, the EPA received comments that Section 301(a)(1) of the CAA
both does and does not provide adequate authority to promulgate the
proposed rule. Commenters asserted that Section 301(a)(1) explicitly
authorizes the EPA Administrator ``to prescribe such regulations as are
necessary to carry out his functions'' under the statute, noting the
D.C. Circuit holding that Section 301(a)(1) ``is sufficiently broad to
allow the promulgation of rules that are necessary and reasonable to
effect the purposes of the Act.'' NRDC v. EPA, 22 F.3d 1125, 1148 (D.C.
Cir. 1994). Commenters further noted how consistency and transparency
advance the goals of the CAA. Other commenters argued that Section
301(a)(1) was not an adequate authority as the rule was not necessary,
noting that Section 301(a)(1) does not provide the Administrator
``carte blanche authority to promulgate any rules, on any matters
relating to the Clean Air Act, in any manner that the Administrator
wishes,''' and only permits ``the promulgation of rules that are
necessary and reasonable to effect the purposes of the Act.'' Id.
    The EPA agrees with the commenters stating that Section 301(a)(1)
of the CAA provides adequate authority for this final rulemaking. The
EPA has determined that the authority in Section 301(a)(1) extends to
internal agency procedures that increase the Agency's ability to
provide consistency and transparency to the public in regard to the
rulemaking process under the CAA. In NRDC, the court stated that
``[a]lthough section 301 does not provide the Administrator `carte
blanche authority to promulgate any rules, on any matter relating to
the Clean Air Act, in any manner that the Administrator wishes,'
Spencer County, 600 F.2d at 873, it is sufficiently broad to allow the
promulgation of rules that are necessary and reasonable to effect the
purposes of the Act.'' Id. Further finding that ``[w]here, as here,
Congress has erected no clear impediment to the issuance of binding
rules, section 301 takes the agency as far as the second step of
Chevron. Once there, the EPA provided a reasoned explanation for
resorting to rulemaking.'' Id. Likewise, the Agency is not aware of any
clear

impediment to this rulemaking and this preamble provides a reasoned
explanation of the purpose and need for this rulemaking.
    The Agency believes that the information provided as a result of
the procedural requirements of this rule will increase transparency and
consistency across CAA rulemakings; provide the public with additional
information in the CAA rulemaking process; and provide the Agency with
supplemental information for use by the Agency when it is appropriate
to be considered. These outcomes will better allow the Agency to
fulfill the purpose described in Section 101(b)(1) of the CAA ``to
protect and enhance the quality of the Nation's air resources so as to
promote the public health and welfare and the productive capacity of
its population''. Further, Section 101(c) of the CAA states that ``a
primary goal of [the Act] is to encourage or otherwise promote
reasonable Federal, State, and local governmental actions, consistent
with the provisions of [the] Act, for pollution prevention.'' As noted
above, the Supreme Court has stated that ``reasonable regulation
ordinarily requires paying attention to the advantages and the
disadvantages of agency decisions.'' Michigan v. EPA, 135 U.S. 2699,
2707 (2015). The information provided as a result of the procedural
requirements of this rule will be in addition to the information
provided by other methodologies and analyses as directed by specific
CAA statutes and regulations. Such an approach is consistent with
reasonable rulemaking standards.
    The EPA also received public comments asking for clarification as
to whether the procedures in this final rule are enforceable against
the Agency. The EPA received comments arguing that the procedures in
this final rule are enforceable against the agency and comments that
such procedures would not be and asking for clarification. The EPA
agrees with commenters asserting that the procedures in this final rule
are enforceable against the Agency. Generally, a court reviews an
agency's compliance with its regulations, even where the regulatory
requirements go beyond what is required by statute. See, e.g., Service
v. Dulles, 354 U.S. 363, 388 (1957) (``While . . . the Secretary was
not obligated to impose upon himself these more rigorous substantive
and procedural standards, neither was he prohibited from doing so, as
we have already held, and having done so he could not, so long as the
Regulations remained unchanged, proceed without regard to them.''). See
generally Wright & Miller, 32 FED. PRAC. & PROC. JUDICIAL REVIEW Sec.
8165 (1st ed. Oct. 2020 Update) (``One of the most firmly established
principles in administrative law is that an agency must obey its own
rules.''). See also, e.g., United States v. Nixon, 418 U.S. 683, 696
(1974) (``So long as this regulation remains in force the Executive
Branch is bound by it, and indeed the United States as sovereign
composed of the three branches is bound to respect and to enforce
it.''); Vitarelli v. Seaton, 359 U.S. 535, 540 (1959); United States ex
rel. Accardi v. Shaughnessy, 347 U.S. 260, 266-67 (1954). Indeed, many
courts have enforced non-legislative procedural rules against the
agency. See, e.g., Morton v. Ruiz, 415 U.S. 199, 235 (1974) (enforcing
an agency manual even though the manual was not a ``legislative rule''
but ``solely an internal-operations brochure intended to cover policies
that do not relate to the public,'' because ``[b]efore the BIA may
extinguish the entitlement of these otherwise eligible beneficiaries,
it must comply, at a minimum, with its own internal procedures.'');
NRDC v. Perry, 940 F.3d 1072, 1077 (9th Cir. 2019). Thus, the Agency
believes that this Final Rule is binding upon the Agency for
significant CAA regulations, and that EPA's compliance with these
procedural requirements is subject to judicial review in challenges to
such rulemakings.
    Finally, the EPA received comments that the proposed rule was a
procedural rule and comments, to the contrary, that the proposed rule
was non-procedural because it altered the rights and interests of
parties beyond EPA. The EPA disagrees with commenters asserting that
the proposed rule was non-procedural because it altered the rights and
interests of parties beyond EPA. The D.C. Circuit has explained that
``the critical feature of a rule that satisfies the so-called
procedural exception [to the APA's notice and comment requirements] is
that it covers agency actions that do not themselves alter the rights
or interests of parties, although it may alter the manner in which the
parties present themselves or their viewpoints to the agency.'' James
A. Hurson Assocs. v. Glickman, 229 F.3d 277, 280 (D.C. Cir. 2000);
National Mining Association v. McCarthy, 758 F.3d 243 (D.C. Cir. 2014)
(holding that EPA's interagency plan for enhanced consultation and
coordination is a procedural rule because it does not alter the rights
or interests of parties); Batterton v. Marshall, 648 F.2d 708 (D.C.
Cir. 1980) (``The critical question is whether the agency action
jeopardizes the rights and interests of parties.''). In addition, the
Supreme Court explained in Chrysler Corp. v. Brown, that rules of
internal agency management are considered procedural rules as opposed
to substantive rules under the APA. 441 U.S. 281, 301-02 (1979). As the
Supreme Court explained in Chrysler Corp., ``the central distinction
among agency regulations found in the APA is that between `substantive
rules' on the one hand and `interpretive rules, general statements of
policy, or rules of agency organization, procedure, or practice on the
other.' '' 441 U.S. at 301. The Supreme Court further clarified that
unlike procedural rules, substantive rules have legal force and effect
on individual rights and obligations, and noted that whether a rule
affects individual rights and obligations is an ``important
touchstone'' for distinguishing substantive rules from other types of
rules. Chrysler Corp., 441 U.S. 281 at 302.
    Because this rule covers requirements that apply to the agency's
rulemaking procedure and does not impose any obligations or grant any
rights to third parties, it is procedural.
    In this Final Rule, the EPA does not interpret or apply other
provisions of the CAA. Subsequent substantive CAA rulemakings applying
this rule will be subject to judicial review. By contrast, in this
action, the EPA finalizes a rule governing internal agency procedures.
This rule does not require any outside entity to take any action.
Further, this rule would not regulate the conduct or determine the
rights of any entity outside the federal government in the manner
described above. Several comments noted that the rule would potentially
create an enforcement mechanism were the Agency to fail to follow its
own internal procedures. The Agency, as discussed above, believes that
this Final Rule is binding upon the Agency for significant CAA
regulations, and EPA's compliance with these procedural requirements is
subject to judicial review in challenges to such rulemakings. However,
this does not render a rule non-procedural. As discussed above, courts
have generally enforced non-legislative procedural rules against
agencies. Commenters assert that such enforcement in turn renders the
rule non-procedural. If enforcement of a procedural rule rendered the
rule substantive, there could be no history of enforcement of
procedural rules; all such rules would simply be substantive. Clearly
this cannot be the standard. The rule itself must alter the rights and
interests of parties beyond EPA, rather than simply be binding upon the
Agency, and this final rule does not regulate any party

outside of the EPA, but, rather, exclusively governs the EPA's internal
procedure.

C. Definitions

    Several commenters and the SAB provided specific recommendations
for changes to some of the definitions in the proposed rule. Examples
of terms that commenters or the SAB provided specific definitions for
include, but are not limited to, ``Benefit-cost analysis (BCA)'',
``Opportunity cost,'' ``Social benefits,'' ``Compliance cost,''
``Regulatory Options'', and ``Significant'' regulation. These
commenters provided references for their suggested definitions, which
included guidance published by OMB, the EPA's Guidelines, and published
economic journal articles, and they recommended that the EPA finalize
the rule with these definitions. Discussed below are the definitions
that we are revising or finalizing as proposed based on the comments
received. Complete responses to other specific suggestions for
additional terms to be defined are provided in Chapter 10 of the
Response to Comments document, and in some of the remaining sections in
this preamble where relevant.
    Baseline. The EPA did not receive specific suggestions in the
public comments on the definition of baseline. However, based on
feedback from the EPA SAB on the EPA Guidelines update, the EPA has
decided to adopt a minor revision to the definition to clarify that it
provides the counterfactual situation against which a policy should be
assessed. The revision does not change the substantive meaning of the
term. In the final rule, the definition of baseline is as follows:
``Baseline means the best assessment of the way the world would evolve
absent the regulation. It is the primary point of comparison for
assessing the effects of the regulatory options under consideration.''
    Benefit-cost analysis (BCA). Some commenters recommended that EPA
provide a more detailed definition of benefit-cost analysis. For
example, one commenter claimed that as written, ``benefit-cost
analysis'' lacks clarity, because a key term ``favorable effects of a
policy action'' is undefined. The commenter further argued that
evaluation of a benefits-cost analysis is incomplete without concise,
clear directive to the EPA on what favorable effects may balance
opportunity costs.
    In their review of the proposed rule, the SAB recommended that the
definition for BCA be revised to more closely align with the definition
provided in OMB's Circular A-4. Specifically, the SAB recommended
revising the definition to clearly state that BCA provides decision
makers with a clear indication of the most efficient alternative, that
is, the alternative that generates the largest net benefits (benefits
minus costs) to society (ignoring distributional effects) (OMB, 2003).
The SAB also recommended that the definition should indicate that costs
should be opportunity costs and benefits represent the willingness-to-
pay for a policy outcome valued by United States individuals.
    The EPA agrees with the SAB and public comments that it would be
helpful to provide a more comprehensive definition of BCA, drawing
language more explicitly from OMB's Circular A-4 and avoiding undefined
phrases such as ``favorable effects''. Thus, in this final rule the
definition of BCA is revised to eliminate the phrase ``favorable
effects.'' The definition is also expanded to clarify that the social
benefits of a policy are measured by society's willingness-to-pay for
the policy outcome, and the social costs are measured by the
opportunity costs of adopting the policy. Finally, the definition
explains that where all benefits and costs can be quantified and
expressed in monetary units, BCA provides decision makers with a clear
indication of the most economically efficient alternative, that is, the
alternative that generates the largest net benefits to society
(ignoring distributional effects).
    The EPA does not agree with the SAB's recommendation to add
``valued by United States individuals'' because limiting the geographic
scope of a BCA does not belong in a general definition of BCA. OMB
Circular A-4 allows impacts accruing to non-U.S. populations to be
estimated and reported separately: ``Where you choose to evaluate a
regulation that is likely to have effects beyond the borders of the
United States, these effects should be reported separately'' (OMB
2003). The EPA is including in this final rule a presentational
requirement consistent with this guidance. See Section V.F of this
Preamble.
    Compliance cost. One commenter stated that the definition provided
in the proposed rule fails to include all necessary costs of
compliance, because costs of professional service and interrelated
effects appear to be excluded. While the EPA believes that the
definition provided in the proposed rule was broad enough to cover all
private costs associated with compliance, the final rule revises the
definition to explain that this could include, for instance, costs
incurred through planning, design, installation and operation of
pollution abatement equipment.
    Data. The EPA received limited specific suggestions in the public
comments on the definition of data. Some commenters expressed concern
that this language could be interpreted to exclude anonymized medical
data from the definition of ``data'' and therefore preclude use of
studies relying on such medical data in the EPA's BCAs. The EPA notes
that the proposed definition for ``data'' is consistent with the EPA's
``Strengthening Transparency in Pivotal Science Underlying Final
Significant Regulatory Actions and Influential Scientific Information''
rulemaking.\23\ Therefore, the EPA is finalizing this definition as
proposed to maintain consistency with related EPA actions.
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    \23\ https://www.epa.gov/osa/strengthening-transparency-regulatory-science.
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    Expected value. The EPA did not receive specific suggestions in the
public comments on the definition of expected value. However, based on
feedback from the EPA SAB on the EPA Guidelines update, the EPA has
decided to expand the definition for clarity. The revision does not
change the substantive meaning of the term. In the final rule, the
definition of expected value is as follows: ``Expected value means the
probabilistically weighted outcome that defines a statistical mean and
a measure of the central tendency of a set of data. For a variable with
a discrete number of outcomes, the expected value is calculated by
multiplying each of the possible outcomes by the likelihood that each
outcome will occur and then summing all of those values.''
    Model. The EPA did not receive specific suggestions in the public
comments on the definition of model. Therefore, the EPA is finalizing
the definition as proposed.
    Opportunity cost. One commenter recommended that the EPA expand the
definition of opportunity cost to explain how other concepts like
willingness to pay capture the notion of opportunity cost. Further
discussion of opportunity cost and how to measure it is provided in
section V.E.5 of this Preamble. The EPA disagrees that an expanded
definition of this term is needed in the regulatory text. Therefore,
the EPA is finalizing this definition as proposed.
    Publicly available. The EPA did not receive specific suggestions in
the public comments on the definition of publicly available. Therefore,
the EPA is finalizing this definition as proposed.
    Regulatory options. One commenter criticized the proposed
definition of

``regulatory options'' for bracketing the selected proposed or final
option with one more stringent alternative and one less stringent
alternative. In the commenter's view, this bracketing results in
biasing the EPA in favor of ultimately choosing central options rather
than a more environmentally protective one that is more consistent with
statutory guidance or requirements. In their review of the proposed
rule, the SAB recommended that the definitions for regulatory options
be revised to make clearer that for BCA, as opposed to cost-
effectiveness analysis, the regulatory options should only help to
solve a problem, not accomplish a goal or objective. For example, a
less stringent option might accomplish less, but at lower cost.
    The EPA disagrees with the comment that analyzing one more
stringent and one less stringent alternative than the selected option
biases the Agency's decision. The analysis of these alternative options
provides the public and decision makers information about the
consequences of options that are more or less stringent than the
selected option. The EPA agrees with the SAB's comment and is adopting
the SAB recommended revisions to the definition to improve clarity.
Specifically, the EPA is revising parts of the definition of regulatory
options to clarify that the options should only help to solve a
problem, not accomplish a goal or objective. For example, the
definition describes a more stringent option as one that ``contributes
to'' the stated objectives of the Clean Art Act and achieves additional
benefits (and presumably costs more) beyond those realized by the
proposed or finalized option.
    Sensitivity Analysis. The EPA did not receive specific suggestions
in the public comments on the definition of sensitivity analysis.
Therefore, the EPA is finalizing this definition as proposed.
    Significant regulation. Several commenters were broadly supportive
of the proposed definition of ``significant regulation''. Additionally,
several commenters supported the concept that the definition of a
``significant regulation'' should include ``those that would
disproportionately affect an industry, group or area'' or ``those that
are novel or relevant for other policy reasons,'' with one commenter
arguing that such inclusion is important to avoid adverse impacts on
small businesses. One commenter stated that the E.O. 12866 language
should be inserted into the BCA rather than referencing E.O. 12866,
because executive orders can be changed or withdrawn in the future.
    Some commenters advocated using the definition of ``significant''
from the Congressional Review Act (CRA). The commenters argued that
adopting a definition from U.S. law is preferable to one from an
executive order. Furthermore, the commenters also argued that the CRA
is not limited to a narrow economic impact analysis that ignores the
indirect impacts of a regulation on the broader economy. The commenters
further stated that the EPA's economic impact statements for any
significant proposal should be consistent with the CRA and give
approximate quantitative estimates of the potential economic impacts,
the expected timing of these impacts, and the sectors of the economy
that will experience the impact.
    Several commenters objected to giving the Administrator the
discretion to decide what constitutes a significant regulation, because
with no specific decision criteria specified in the rule, the decisions
would be arbitrary and contrary to the stated goals of the BCA rule for
consistency and transparency. And some commenters expressed opposition
to expanding rules requiring a BCA because it would deplete the EPA's
analytic, financial, and expertise resources without providing any
benefit to public health or the environment.
    As discussed in more detail below, after reviewing the comments on
applicability, in this final rule, EPA maintains the same definition of
significant regulation as in the proposal and concludes it represents
an appropriate scope for the rule. Specifically, EPA requires that all
future significant proposed and final regulations promulgated under the
CAA be accompanied by a BCA using the definition that a significant
regulation is a proposed or final regulation that is determined to be a
``significant regulatory action'' pursuant to E.O. 12866 Section 3(f)
\24\ or is otherwise designated as significant by the Administrator.
Regulations meeting either of these factors are generally those that
the EPA anticipates would have the largest annual impact on the economy
(i.e., greater than $100 million) or are important to analyze for other
policy reasons. For example, a rule projected to have less than a $100
million annual effect on the economy could disproportionately affect a
single industry, population subgroup, or geographic area. Such rules,
or ones that are notably novel or significant for other policy reasons,
will benefit from rigorous analysis to inform the public and decision
makers about the magnitude and disposition of both their benefits and
costs on affected entities.
---------------------------------------------------------------------------

    \24\ Separate from and independent of the requirements in this
rulemaking, E.O. 12866 establishes broadly applicable conditions for
regulatory analysis. More specifically, section 6 of E.O. 12866
establishes the analytic requirements for those actions OIRA
determines to be a ``significant regulatory action'' and
``significant regulatory actions within the scope of section
3(f)(1).'' Sec. 6(a)(3)(B)-(C).
---------------------------------------------------------------------------

    Social benefits, or benefits. One commenter argued that the
definition of ``social benefit or benefits'' is overly broad and vague.
Another recommended an expanded definition that included discussion of
how to measure benefits. Another said the EPA's definition is arbitrary
and capricious and potentially unlawful because the proposed definition
of ``social costs'' included the ``sum'' of all costs, but the proposed
definition of social benefits, did not. The commenter contended that
this apparent direction to include all costs but not necessarily all
benefits would be inconsistent with the general principles of BCA and
would bias any such analyses. The EPA did not intend to create a
disparity between the calculations of costs and benefits, so the Agency
is adjusting the definition of social benefits to be consistent with
the phrasing of the definition of social costs to avoid any confusion.
In this final rule, social benefits, or benefits, means ``the sum of
all positive changes in societal well-being experienced as a result of
the regulation or policy action.'' Additional discussion of how
benefits can be measured is provided in section V.E.5 of this Preamble.
    Social costs, or costs. One commenter recommended an expanded
definition of social cost to elaborate on how costs are measured. In
this final rule, the EPA is adding a second sentence to the definition
of social costs to further clarify what is included in opportunity
costs. Additional discussion of how these costs can be measured is
provided in section V.E.5 of this Preamble.

D. Preparation and Consideration of BCA in Rulemaking

    In the proposed rule, the EPA proposed to require that all future
significant proposed and final regulations promulgated under the CAA be
accompanied by a BCA. Commenters supportive of the proposal were
generally supportive of conducting BCA for all significant regulatory
actions, though some commenters argued for a less expansive approach
and others argued for broader application than the proposal. For
example, as discussed above, some commenters argued that the

EPA should use the definition of significant from the CRA. Other
commenters recommended expanding the scope, for example, to (1) apply
not only to BCA, but also to any related risk assessment to estimate
both baseline risk and the risk-reduction benefits estimated in the
BCA, and (2) clarify that its information quality standards apply to
BCA, risk assessments, and related risk analyses (e.g., IRIS
assessments). Commenters opposed to the proposal found the scope too
expansive and questioned the resource burden of the requirements.
    After considering these comments, the EPA is finalizing the
requirement that all future significant proposed and final regulations
promulgated under the CAA be accompanied by a BCA. The EPA believes
that in keeping with OMB's Circular A-4 and Executive Order 12866 that
this requirement would create consistency with well-understood and
established processes and determinations for what constitutes a
``significant'' rulemaking. Therefore, in this final rule, a
significant regulation will include any proposed or final regulation
that is determined to be a ``significant regulatory action'' pursuant
to Section 3(f) E.O. 12866 or is otherwise designated as significant by
the Administrator.
    At proposal, in addition to proposing the preparation of a BCA for
all significant regulation, the EPA also solicited comment on how or
whether the results of the BCA should inform significant CAA regulatory
decisions. The EPA requested comment on how the Agency ``could take
into consideration the results of a BCA in future rulemakings under
specific provisions of the CAA.'' 85 FR 35624. The EPA received
numerous comments including recommendations that the Agency formulate a
mandatory test that the benefits justify the costs of future
significant rulemakings subject to this final rule, recommendations
that the Agency not address how BCAs would be taken into consideration
in future rules, and recommendations that no final rule be promulgated.
Several commenters noted the importance of BCA and how it can inform
decision makers. Commenters emphasized that consideration of benefits
and costs is part of long held requirements imposed by executive order.
As one commenter summarized, ``the clear direction of every president
over the last four decades [is] that, to the extent permitted by law,
executive agencies `shall . . . propose or adopt a regulation only upon
a reasoned determination that the benefits of the intended regulation
justify its costs.' '' In addition, the proposal highlighted the
historical use of BCA by courts to inform their view of the
appropriateness of agency actions and that ``[c]onsideration of cost
reflects the understanding that reasonable regulation ordinarily
requires paying attention to the advantages and the disadvantages of
agency decisions.'' Michigan v. EPA, 135 U.S. 2699, 2707 (2015), see 85
FR 35615-617.
    Based on the comments received, executive orders, and judicial
decisions, the EPA has determined that, when permitted for
consideration under the specific provision of the CAA under which a
future regulation is promulgated, the Agency should consider in the
decision-making process the BCA developed pursuant to this Final Rule,
which would be part of the record of such a future rulemaking. See 42
U.S.C. 7607(d)(9); 5 U.S.C. 706(2); see also Motor Vehicles Mfrs. Ass'n
v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983) (``Normally,
an agency rule would be arbitrary and capricious if the agency has
relied on factors which Congress has not intended it to consider,
entirely failed to consider an important aspect of the problem, offered
an explanation for its decision that runs counter to the evidence
before the agency, or is so implausible that it could not be ascribed
to a difference in view or the product of agency expertise.''). The
benefits and costs of a potential regulation, when permitted to be
considered under the specific provision of the CAA under which a future
regulation is promulgated, are of clear importance to decision-making
and can provide justification for whether and how the Agency decides to
regulate. Consideration of the results of BCA in regulatory decision-
making is also consistent with the requirements of E.O. 12866. However,
the EPA declines to formulate a specific test or mandate of how to
consider the BCA or what weight it should be given in such a future
rulemaking. The precise details of what test would be appropriate could
differ from one CAA provision to another, and the EPA has not proposed
or requested comment on how such tests would be formulated under those
specific provisions. Some commenters also expressed concern that the
rule as proposed would limit or prohibit the Agency from considering
other metrics or analyses, either generated by the Agency or submitted
by commenters into the record of a future rulemaking proceeding. There
is nothing in this final rule that would create such an outcome, as
consideration of one metric does not bar consideration of another;
commenters will retain the ability to provide the Agency with
information, and the Agency will be required to consider such
information and respond to comment as is dictated by the process
governing the future CAA rulemaking. To provide the public with as much
information and transparency as possible, the EPA is finalizing a
requirement to identify when the CAA provision or provisions under
which the future rule is promulgated permit consideration of the BCA,
and if so, the Agency is required to provide a description in the
preamble of how the Agency considered the results of the BCA. If the
provision or provisions under which the rule is promulgated prohibit
the consideration of the BCA, the final rule requires the Agency to
identify the specific provision that bars such consideration.

E. Best Practices for the Development of BCA

    The EPA received a wide range of comments on the proposed
requirements to codify best practices for the development of the BCA
into a procedural regulation. In its review of the proposed rule, the
SAB sought to limit its review to requirements in the proposed rule
that would not be addressed by the SAB's review of the forthcoming
update to the EPA's Guidelines. Therefore, the SAB did not advise on
the details of each BCA best practice that the EPA proposed to codify.
However, the SAB did emphasize that the EPA should consider carefully
which aspects of BCA should be included in the final rule versus which
aspects should be addressed in guidance, given the case-by-case nature
of BCA. The EPA appreciates all the comments received and agrees with
the SAB that it is important to think carefully about which best
practices should be made enforceable and which best practices (or
details thereof) should be addressed in guidance. The best practices
codified in this final rule include the high-level best practices in
conducting regulatory BCA. The EPA's Guidelines will continue to
provide detailed guidance on how to implement these best practices. The
EPA does not expect the forthcoming update of the EPA's Guidelines to
include any changes to these high-level elements. We respond to some of
the major comments in the discussions in the subsections below and to
the rest in Chapter 7 of the Response to Comments Document.
    After reviewing the comments, the EPA has included in this final
rule the requirements outlined in the following subsections, which are
the high-level best practices outlined in existing peer-

reviewed OMB and EPA guidance documents developed in response to
longstanding presidential orders discussed above, OMB's Circular A-4
(2003) and its associated guidance (2010, 2011a, 2011b),\25\ EPA's
Guidelines (2010). These guidance documents are grounded in the
economics literature pertaining to the conduct of BCA. Benefit-cost
analysis as a discipline is a branch of applied microeconomic welfare
economics and is summarized in numerous textbooks such as Boardman et
al. (2018), Farrow (2018), Brent (2006), Mishan and Quah (2007), and
Hanley and Spash (1996).\26\ This discipline is applied routinely to
environmental economics issues and the theory of BCA and its
application can be found in standard environmental economic textbooks
such as Phaneuf and Requate (2016) and Perman et al. (2012).\27\
Specific lists of best practices and guidance for practitioners can
also be found in articles by Robinson and Hammit (2016), Sunstein
(2014), Farrow (2013), Farrow and Viscusi (2011), Krutilla (2005), and
notably in an article on the principles and standards by Nobel laureate
Kenneth Arrow and a number of prominent economists (Arrow et al.,
1996).\28\
---------------------------------------------------------------------------

    \25\ Office of Management and Budget, U.S., 2003. Circular
A[hyphen]4: Regulatory Analysis. Office of Management and Budget,
U.S., 2010. Agency Checklist: Regulatory Impact Analysis. Office of
Management and Budget, U.S., 2011a. Circular A-4, ``Regulatory
Analysis'' Frequently Asked Questions (FAQs). Office of Management
and Budget, U.S., 2011b. Circular A-4, ``Regulatory Impact Analysis:
A Primer''.
    \26\ Farrow, S. ed., 2018. Teaching Benefit-Cost Analysis: Tools
of the Trade. Edward Elgar Publishing. Brent, R.J. ed., 2004.
Applied Cost-Benefit Analysis. Edward Elgar Publishing. Mishan, E.J.
and Quah, E., 2007. Cost-benefit analysis. Routledge. Hanley, N. and
Spash, C., 1996. Cost benefit analysis and the environment.
    \27\ Phaneuf, D.J. and Requate, T., 2016. A course in
environmental economics: Theory, policy, and practice. Cambridge
University Press. Perman, R., Ma, Y., McGilvray, J. and Common, M.,
2003. Natural resource and environmental economics. Pearson
Education. Krutilla, K., 2005. Using the Kaldor[hyphen]Hicks tableau
format for cost[hyphen]benefit analysis and policy evaluation.
Journal of Policy Analysis and Management: The Journal of the
Association for Public Policy Analysis and Management, 24(4),
pp.864-875.
    \28\ Robinson, L.A. and Hammitt, J.K., 2013. Skills of the
trade: Valuing health risk reductions in benefit-cost analysis.
Journal of Benefit-Cost Analysis, 4(1), pp.107-130. Sunstein, C.R.,
2014. The real world of cost-benefit analysis: Thirty-six questions
(and almost as many answers). Columbia Law Review, pp.167-211.
Farrow, S., 2013. How (not) to lie with benefit-cost analysis. The
Economists' Voice, 10(1), pp.45-50. Farrow, S. and Viscusi, W.K.,
2011. Towards principles and standards for the benefit-cost analysis
of safety. Journal of Benefit-Cost Analysis, 2(3), pp.1-25.
---------------------------------------------------------------------------

    Since best practices for the conduct of BCA inherently require that
the inputs to the analysis reflect the best available information,\29\
the EPA is also finalizing the requirement that the EPA follow certain
best practices regarding the incorporation of information as an input
to BCA for significant CAA regulations. In particular, risk assessments
often provide key inputs to the development of the EPA's health benefit
estimates in a BCA, and several commenters recommended that additional
consistency and transparency be applied in the assessment of risks
leading to the estimation of benefits. Through this rulemaking, the EPA
requires a consistent and transparent use of risk assessments in BCA of
CAA regulations. These requirements include elements that are
responsive to recommendations from the National Academies of Science,
Engineering and Medicine (hereafter, ``National Academies'') and the
EPA's SAB to improve the utility of risk assessment for use in BCAs for
CAA regulations, as well as recommendations offered by the SAB in their
review of the proposed rule. As an example, the National Academies has
previously provided advice to the Agency regarding best practices for
selecting concentration-response parameters, when it is appropriate to
pool (or, combine) risk estimates and how to characterize uncertainty
in those estimates. This rule is also consistent with the 2007 OMB and
Office of Science and Technology Policy's Updated Principles for Risk
Analysis,\30\ which also builds off the National Academies and SAB
recommendations as well as the EPA's Risk Characterization
Handbook.\31\
---------------------------------------------------------------------------

    \29\ See EPA, Guidelines for Ensuring and Maximizing the
Quality, Objectivity, Utility and Integrity of Information
Disseminated by the Environmental Protection Agency (https://www.epa.gov/sites/production/files/2019-08/documents/epa-info-quality-guidelines_1.pdf).
    \30\ https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/memoranda/2007/m07-24.pdf.
    \31\ https://www.epa.gov/risk/risk-characterization-handbook
(EPA 100-B-00-002, December 2000).
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    1. Key elements of a BCA. The EPA did not receive comments on the
proposed requirement that a BCA should include three key elements. The
specific comments received on each element are provided in the
corresponding subsections below. Therefore, EPA is finalizing the key
elements of a BCA as proposed. The key elements of a rigorous
regulatory BCA include: (1) A statement of need; (2) an examination of
regulatory options; and (3) to the extent feasible, an assessment of
all benefits and costs of these regulatory options relative to the
baseline (no action) scenario.
    2. Statement of Need. Some commenters supported the EPA requiring a
statement of need in the BCA stating that the requirement is consistent
with agency guidance detailed in OMB's Circular A-4 and Executive Order
12866. These commenters argued that a concise and coherent statement of
need helps to set the foundation for developing the subsequent analysis
of benefits and costs, particularly as it relates to assessing
environmental or public health improvements targeted by the relevant
statutory provision from which the rule derives its authority.
    Some commenters opposed the EPA requiring a statement of need in
the BCA. These commenters argued a statement of need would be in
conflict with many, if not most, of the EPA's rulemaking
responsibilities under the CAA. Commenters further asserted that a
citation to the provision of the CAA that requires the rulemaking
should be sufficient for any statement of need. Furthermore, one
commenter also argued that the EPA cannot apply the ``statement of
need'' requirement to rulemakings subject to CAA section 307(d)
requirements, because CAA section 307(d)(2) already includes a
requirement that the notice of rulemaking shall be accompanied by ``a
statement of its basis and purpose.''
    None of the comments received have led the EPA to materially change
its views from the proposal regarding the requirement for a statement
of need. The EPA disagrees with the comment that a statement of need
would conflict with the EPA's rulemaking responsibilities under the
CAA. There is nothing in this final rule that would create such an
outcome, since an articulation of the statement of need does not bar
the Agency from complying with any requirements of the CAA, including
those of CAA section 307(d)(2). The EPA is codifying into regulation a
procedure that is already prescribed as a best practice in OMB's
Circular A-4 (OMB, 1993) and EPA's Guidelines (EPA, 2010), which are
the existing peer reviewed guidance documents implementing E.O. 12866.
Therefore, the EPA is finalizing the requirement that each regulatory
BCA should include a statement of need that provides (1) a clear
description of the problem being addressed, (2) the reasons for and
significance of any failure of private markets or public institutions
causing this problem, and (3) the compelling need for federal
government intervention in the market to correct the problem. This
statement sets the stage for the subsequent analysis of benefits and
costs and allows one to judge whether the problem is being adequately
addressed by the

policy. Additional discussion of the regulatory statement of need can
be found in OMB's Circular A-4 (1993, B. Introduction, The Need for
Federal Regulatory Action) and the EPA's Guidelines (2010, Chapter 3).
    3. Regulatory Options. Commenters supporting the requirement to
analyze the benefits and costs of at least three regulatory options
argued that the proposed requirement provides decision makers and the
public with important perspective on not only the various options'
relative impact on net social benefits, but also the sensitivity of
stringency options on other individual factors that comprise the
overall forecasts. One commenter further suggested that the Agency also
consider including a fourth option, the implementation of voluntary
programs if appropriate to the circumstances.
    Some commenters opposed the requirement to analyze the benefits and
costs of at least three regulatory options. These comments provided
various reasons including, but not limited to: The EPA incorrectly
assumes that a continuum of options is possible; requiring three
regulatory options may lead to patently inappropriate or otherwise
unacceptable options; requiring three regulatory options may lead the
agency to put forward intentionally poor choices; and requiring three
regulatory options may lead to unintended consequences such as leading
the agency to evaluate options that are infeasible and impractical.
    None of the comments received have led the EPA to materially change
its views from the proposal. The EPA is codifying into regulation a
procedure that is already prescribed as a best practice in OMB's
Circular A-4 (OMB, 1993) and EPA's Guidelines (EPA, 2010), which are
the existing peer reviewed guidance documents implementing E.O. 12866.
These guidance documents provide additional details for how to select
appropriate regulatory options for evaluation. OMB's Circular A-4 also
allows for the possibility of evaluating an option whose selection
would be prohibited under the specific statutory provision under which
the rule is being promulgated because the identification of these
statutory constraints and an estimate of their opportunity costs may
provide useful information to Congress under the Regulatory Right-to-
Know Act. The requirement to analyze at least three regulatory options
also provides for cases where a continuum of options is not possible,
which is further clarified below. Finally, there is nothing in this
final rule that would prevent an additional evaluation of a voluntary
program to address the problem articulated in the statement of need if
appropriate to the circumstances. Therefore, the EPA is finalizing the
requirement that the BCA analyze the benefits and costs of regulatory
options. The final rule requires the BCA to analyze at least three
options that contribute to the stated objectives of the CAA (unless the
BCA explains the rationale for analyzing fewer than three options, as
further described below) and to explain why they were selected. Where
there is a continuum of options (such as options that vary in
stringency), the three options are required to include at a minimum:
The proposed or finalized option; a more stringent option that achieves
additional benefits (and presumably costs more) beyond those realized
by the proposed or finalized option; and a less stringent option that
costs less (and presumably generates fewer benefits) than the proposed
or finalized option. When a continuum of options is not applicable, an
analysis of three regulatory options provides an opportunity to analyze
a variety of parameters including different compliance dates,
enforcement methods, standards by size or location of facilities, and
regulatory designs (e.g., performance vs. technology standards). If
fewer than three options are analyzed relative to the baseline, or if
there is a continuum of options and the options analyzed do not include
at least one more stringent (or otherwise more costly) and one less
stringent (or otherwise less costly) option than the proposed or
finalized option, then the final rule requires the BCA to explain why
it is not appropriate to consider more alternatives. For further
discussion, see OMB's Circular A-4 (specifically, see section E.
Identifying and Measuring Benefits and Costs, General Issues, 3.
Evaluation of Alternatives).
    4. Baseline. Many commenters supported the proposed requirement
regarding the development of a baseline as consistent with best
practices for BCA. Several commenters noted that defining the baseline
scenario is one of the most important elements of a regulatory impact
analysis, and multiple commenters supported the proposed requirements
to develop a baseline that appropriately considers relevant factors
based on transparent and reasonable assumptions. Additionally, some
commenters supported the explicit use of more than one baseline: ``one
baseline based solely on current standards and another based on the
agency's reasoned assumptions regarding the effect of all related
pending regulations''; and stated that this is consistent with OMB's
Circular A-4.
    Several commenters stated that the proposed requirements for
developing a baseline will prevent ``double-counting.'' The commenters
added that the issue of double counting of benefits has been a
particular concern with past EPA BCAs under the CAA. Commenters
referenced a report that found that the simultaneous advancement of
multiple CAA-related rulemakings resulted in changes between proposed
and final BCAs' baseline assumptions about implementation of other
regulations that created inconsistencies in BCA estimates between the
proposed and final stages and revealed examples of double-counting. One
commenter suggested that where ancillary benefits exist and have not
been counted before by the EPA, the EPA must determine the most cost-
effective regulatory means of achieving them. The commenter argued that
this should ensure that the EPA properly and efficiently utilizes its
regulatory authorities to achieve optimal results to enhance societal
well-being.
    Some commenters opposed the requirements for developing a baseline
in a BCA in the proposed rule as they argued OMB and EPA policies
already establish the process for establishing a baseline, for assuring
that benefits will not be double-counted, and for being transparent in
those explanations. Creating a new rule for the purpose of preventing
an oversight in a pre-existing mechanism for assessing BCA is
unnecessarily ``reinventing the wheel.'' The commenters further argued
the proposed requirements for developing a baseline bias the analyses
against regulations that otherwise meet statutory requirements and
provide important environmental benefits, in contravention of the CAA's
public-health protective mandate.
    Other commenters opposing the proposed requirements contended that
the EPA provides no specific cases to support its assertion that there
is a risk of ``double-counting.'' Some of the commenters contended that
recent research indicates some claimed mechanisms of ``double-
counting'' are either inaccurate or can be addressed by the EPA
following its own guidelines on BCA baselines assuming full compliance
with existing rules. The commenters added that the proposed rule
provides no evidence that there is a gap that needs to be filled in
this regard beyond its existing guidance, and, in fact, adds no
additional insight into these issues.
    None of the comments received have led the EPA to materially change
its

views from the proposal. The EPA is codifying into regulation a
procedure that is already prescribed as a best practice in OMB's
Circular A-4 (OMB 1993) and EPA's Guidelines (EPA 2010), which are the
existing peer reviewed guidance documents implementing E.O. 12866.
Nothing in the public comments have suggested specific additional
factors that should be codified into the final rule as factors to be
considered when developing the baseline in a BCA. Therefore, the EPA is
finalizing the requirement to develop a suitable baseline as proposed,
as described below.
    The baseline in a BCA serves as a basis of comparison with the
regulatory options considered. It is the best assessment of the way the
world would look absent the regulatory action. The choice of a baseline
requires consideration of a wide range of potential factors, including
exogenous changes in the economy that may affect relevant benefits and
costs (e.g., changes over time in demographics, economic activity,
consumer preferences, and technology); impacts of regulations that have
been promulgated by the agency or other government entities; and the
degree of compliance by regulated entities with other regulations.
Accounting for other existing regulations in the baseline is especially
important in order to avoid double counting of the incremental benefits
and costs from other existing regulatory actions affecting the same
environmental condition (e.g., ambient air quality). When the EPA
determines that it is appropriate to consider more than one baseline
(e.g., one that accounts for another EPA regulation being developed at
the same time that would affect the same environmental condition), the
final rule requires the BCA to provide a reasoned explanation for the
baselines used and to identify the key uncertainties in the
forecast(s). These requirements for developing a baseline are
consistent with best practices as outlined in OMB's Circular A-4 (1993)
and EPA's Guidelines (2010).
    5. Measuring Benefits and Costs. Some commenters contended that the
proposal identifies the willingness to pay (WTP) metric as the
``correct measure'' of changes from the baseline, but the proposal
fails to acknowledge the existence of other metrics and does not
justify their exclusion in favor of WTP. One commenter further argued
the proposal also fails to acknowledge or consider the greater
difficulty in estimating willingness-to-pay for non-market goods, such
as air quality and associated health risk. Another commenter further
added that WTP studies are helpful, but not the only source of
information for monetizing benefit and WTP studies are particularly
helpful in estimating the value of mortality risk reduction, which
typically comprise the bulk of monetized benefits in CAA rules.
    Several commenters opposed including the WTP concept in the
proposed rule. The commenters expressed concern that the proposed rule
will continue practices to propagate the understatement of CAA
benefits, to the detriment of all, but particularly to low-income and
minority communities. Several commenters stated that WTP is strongly
affected by factors such as ability to pay and by the awareness of the
respondent of the harms being inflicted or avoided. A commenter then
asserted that a WTP analysis will lead to higher measured monetary
benefits for wealthier communities than for poorer communities for the
same level of health and wellbeing benefit. At least two commenters
focused on particular methods used for estimating WTP. These commenters
advised EPA against using survey approaches to estimate WTP because
they contend that such studies often overstate WTP that does not align
with reality.
    None of the comments received have led the EPA to materially change
its views from the proposal on the appropriate measure of benefits and
costs in a BCA. The EPA is codifying into regulation a procedure that
is already prescribed as a best practice in OMB's Circular A-4 (OMB,
1993) and EPA's Guidelines (EPA, 2010), which are the existing peer
reviewed guidance documents implementing E.O. 12866. As discussed in
Section V.B of this Preamble, the EPA agrees with the SAB's
recommendation, per their review of the proposed rule, to provide more
clarity in the definition of Benefit-Cost analysis and the measurement
of benefits and costs. Therefore, in this final rule EPA has provided a
more fulsome definition of BCA to clarify that it is consistent with
OMB Circular A-4. The EPA disagrees with commenters who stated that the
proposed rule did not acknowledge the existence of metrics other than
willingness-to-pay, as discussed below. In addition, the EPA disagrees
with commenters who advised to include more discussion in the rule
about particular methods for estimating WTP. The EPA's Guidelines and
OMB's Circular A-4 include discussion of particular methods for
estimating WTP, which can generally be broadly categorized as either
revealed preference or stated preference methods. As described in these
guidance documents and standard textbooks on BCA, some methods will be
more suitable than others in a given scenario for a variety of reasons,
and some will be better able to capture certain types of benefits than
others. Since research on all of these methods is ongoing, the
limitations and qualifications of each method is best described in
guidance and the EPA has decided not to include any requirements
related to particular valuation methods in this final rule.
    A BCA evaluates the social benefits and social costs of a policy
action. The social benefits of a policy are measured by society's
willingness-to-pay for the policy outcome. The social costs are
measured by the opportunity costs of adopting the policy. Opportunity
cost is the value of the next best alternative to a particular activity
or resource.\32\ A BCA addresses the question of whether the benefits
from the policy action are sufficient for those who gain to
theoretically compensate those burdened such that everyone would be at
least as well off as before the policy. In other words, many
regulations can be thought of as a requirement to divert resources from
activities with a higher net return in private markets alone to those
with a higher net return when all impacts are counted, thus the
calculation of net benefits (benefits minus costs) helps ascertain the
economic efficiency of a regulation. Where all benefits and costs can
be quantified and expressed in monetary units, BCA provides decision
makers with a clear indication of the most economically efficient
alternative, that is, the alternative that generates the largest net
benefits to society (ignoring distributional effects).
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    \32\ Opportunity cost need not be assessed in monetary terms. It
can be assessed in terms of anything that is of value to the person
or persons doing the assessing. For example, a grove of trees used
to produce paper may have a next-best-alternative use as habitat for
spotted owls. Assessing opportunity costs is fundamental to
assessing the true cost of any course of action. In the case where
there is no explicit accounting or monetary cost (price) attached to
a course of action, ignoring opportunity costs could produce the
illusion that the action's benefits cost nothing at all. The unseen
opportunity costs then become the implicit hidden costs of that
course of action.
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    In keeping with best practices, the appropriate measures of
benefits and costs to use in a regulatory BCA are social benefits and
social costs. When assessing a regulation, the social benefits are the
society-wide positive changes in well-being, and social costs are the
society-wide opportunity costs, or reductions in well-being. WTP is the
correct measure of these changes in BCA.
    Willingness to pay means the largest amount of money that an
individual or

group would pay to receive the benefits (or avoid the damages)
resulting from a policy change, without being made worse off. The
principle of WTP captures the notion of opportunity cost by measuring
what individuals are willing to forgo to enjoy a particular benefit. In
general, economists tend to view WTP as the most appropriate measure of
opportunity cost, but an individual's ``willingness-to-accept'' (WTA)
compensation for not receiving the improvement can also provide a valid
measure of opportunity cost. WTP is generally considered to be more
readily measurable. Market prices provide rich data for estimating
benefits and costs based on WTP if the goods and services affected by
the regulation are traded in well-functioning competitive markets. See
Hanley and Spash (1993), Freeman (2003), Just et al. (2005), and
Appendix A of the EPA's Guidelines (2010).
    WTP provides a full accounting of an individual's preference for an
outcome by identifying what the individual would give up to attain that
outcome. WTP is measured in monetary terms to allow a comparison of
benefits to costs in the net benefit calculation. If the BCA departs
from these best practices (e.g., where WTP is hard to measure), this
final rule requires a robust explanation for doing so. For further
discussion, see OMB's Circular A-4 (specifically, see section E.
Identifying and Measuring Benefits and Costs, General Issues, 2.
Developing a Baseline and Guidelines (2010), Chapter 5. Baseline).
    While based on the same underlying conceptual framework, social
benefits and social costs are often evaluated separately due to
practical considerations. The social benefits of reduced pollution are
often attributable to changes in outcomes not exchanged in markets,
such as improvements in public health or ecosystems. In contrast, the
social costs generally are measured through changes in outcomes that
are exchanged in markets. As a result, different techniques are used to
estimate social benefits and social costs however, in both cases the
goal is to estimate measures of WTP to provide consistency.
    6. Methods for Estimating Benefits and Costs. The EPA received a
range of comments on the proposed requirements regarding the methods
for estimating benefits and costs. Comments were divided on the idea of
codifying best practices, with many commenters supporting codification
in a procedural regulation, but others noting possible inconsistency
when practices are updated in the future.
    Many comments pertained to whether more specific or additional best
practices should be codified as requirements in the final rule. For
example, when estimating costs, some recommended that the final rule be
expanded to include procedural requirements for determining whether an
engineering base cost estimation, partial-equilibrium model, general
equilibrium model, or a combination of these models should be used. One
commenter argued that when a regulation will affect a sector that
supplies a wide swath of the economy, then the final rule should
specify that the presumptive cost evaluation method be a general
equilibrium model, and if a general equilibrium model is not used, then
the BCA should be accompanied by a detailed explanation of why small
price effects in the affected sector's outputs would not be expected to
have economy-wide effects. Others pointed out that systems are so large
and complex that evaluative tools are not adequate for these types of
analyses to be accurate and useful for decision-making. Another of
these commenters said that although the EPA is correct to highlight the
potential value added to be gained by using general equilibrium models,
there still are a number of reasons why general equilibrium models may
not yet be ready to be used as a principal analytic framework for
undertaking cost-benefit analysis of environmental regulations. The
commenter argued that general equilibrium models provide insights
rather than answers about the economic effects of policies; for
example, general equilibrium models are calibrated using parameter
estimates to ``fit'' predetermined values providing a certain degree of
``realism'' but only up to a point.
    Finally, some commenters argued that the proposed rule provided an
unbalanced treatment of benefits and costs by setting more stringent
standards for benefit estimation than cost estimation, and therefore,
aside from being unnecessary and unjustified, they stated the proposed
requirements were also biased and arbitrary. These commenters'
recommended solution to the proposed rule's problem of treating costs
and benefits differently is simply to withdraw the proposed rule and
revert to relying on existing guidance, like OMB's Circular A-4 and the
EPA's Guidelines, which already offer a more balanced treatment to both
costs and benefits. Other commenters stated the proposed rule
arbitrarily fails to address the likelihood that compliance costs will
be overestimated and benefits will be underestimated.
    None of the public comments received have led the EPA to materially
change its views from the proposal. The EPA disagrees with the comments
that more specific procedures should be codified into regulation
pertaining to the use of particular estimation methods or models. The
EPA also disagrees with commenters stating that the rule imposes uneven
requirements. The EPA is codifying into regulation procedures that are
consistent with best practices for estimating both benefits and costs
as discussed at length in OMB's Circular A-4 (OMB 1993) and the EPA's
Guidelines (EPA 2010), which are the existing peer reviewed guidance
documents implementing E.O. 12866. In this final rule, the EPA is
codifying these best practices as proposed, as described below.
    Although the most appropriate methods for estimating social costs
and social benefits can often be regulation-specific, there are best
practices for selecting these methods. With this final rule, the EPA
requires that all BCAs will rely on such best practices and will
provide reasoned explanations for methods selected. These best
practices include the use of a framework that is appropriate for the
characteristics of the regulation being evaluated. As discussed in OMB
Circular A-4, a good regulatory analysis cannot be developed according
to a formula. Conducting high-quality analysis requires competent
professional judgment. Different regulations may call for different
emphases in the analysis, depending on the nature and complexity of the
regulatory issues and the sensitivity of the benefit and cost estimates
to the key assumptions. For example, the extent to which compliance
cost is a sufficient measure of social costs will depend on whether a
regulation is expected to result in changes in prices and quantities
within and across markets. Other considerations when selecting an
estimation method include the ability of an estimation approach to
capture certain types of costs, to adequately reflect the geographic
and sectoral detail and scope of the rule, and to reflect how costs may
change over time, among other considerations.
    During the estimation process, the final rule requires analysts to
consider how social cost and benefit endpoints may be affected by
behaviors in the baseline and potential behavioral changes from the
policy. For example, three broad frameworks for estimating social
cost--compliance cost, partial equilibrium, and general equilibrium--

offer different scopes in terms of the degree to which behavioral
response and other market imperfections are included. In general,
analysts can improve the accuracy of cost estimates by reducing known
biases due to the omission of potentially important behavioral
responses or missing opportunity costs. However, adopting more complex
approaches can reduce the precision of estimates due to data and
modeling limitations. A compliance cost approach typically identifies
the private expenditures associated with compliance in the regulated
sector(s). Compliance cost estimates typically exclude behavioral
responses outside of the choice of compliance activity and may,
therefore, not capture some opportunity costs associated with
regulations. However, with adequate data, this approach can generate
highly detailed and relatively precise information on compliance
options and costs, reflecting the heterogeneity of regulated entities.
This can provide a reasonable estimate of the social cost of a
regulation when changes in the regulated sector's outputs and input mix
are expected to be minimal and no large market effects are anticipated.
A partial equilibrium analysis captures supply and demand responses in
the regulated sector due to compliance activities and may, therefore,
provide a more complete estimate of compliance costs in addition to any
lost profits and consumer welfare due to reductions in output. In other
words, behavioral responses can have important impacts on both the size
and distribution of benefits and costs, and therefore can provide a
fuller picture of the social impact of a particular regulation. Partial
equilibrium analyses may be extended to consider a small number of
related sectors in addition to those directly regulated (e.g., upstream
markets that supply intermediate goods to the regulated sector, or
markets for substitute or complementary products). A partial
equilibrium approach is preferred for estimating social cost when the
regulation will result in appreciable behavioral change, but the
effects will be confined primarily to a single market or a small number
of markets. When broader economy-wide impacts are expected as a result