EPA Water Rule Repeal Based on Sloppy Cost Analysis: Economists

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By Amena H. Saiyid

The Trump administration was sloppy in how it estimated the economic impact of a proposal to repeal an Obama-era water pollution regulation, relying on data and assumptions that industry previously criticized, according to economists and regulatory analysts interviewed by Bloomberg BNA.

Chief among their complaints was that the Environmental Protection Agency and the U.S. Army Corps of Engineers used recession-era economic data and failed to account for some of the benefits of leaving the 2015 Clean Water Rule in place. Their economic analysis even drew criticism from David Sunding, a University of California-Berkeley agricultural economist who was hired by industry groups to counter the analysis the Obama administration used to back its regulation.

“I am not normally this dismissive, but this is the worst regulatory analysis I have ever seen,” Sunding told Bloomberg BNA in telephone interview.

Sunding had previously criticized the Obama-era study for using “flawed” data, which he said resulted in understated costs and overstated benefits. The Trump administration’s approach relies on much of the same data.

The economic analysis projected that repealing the 2015 regulation, commonly known as waters of the U.S., or WOTUS, would be a net gain for the economy because the costs avoided through repeal would be greater than the benefits that would not be realized. The proposed repeal by the EPA and the corps is the beginning of a planned two-step process that also will see the agencies work on a replacement (82 Fed. Reg. 34,899).

Regulatory scholars interviewed by Bloomberg BNA indicated that the EPA’s economic analysis is likely the result of the agencies’ wish to move to quickly repeal the regulation following a February executive order.

The EPA conducted the cost-benefit analysis because presidential executive orders, as well as past guidance issued by the agency and the White House, require an economic analysis for “significant regulatory actions,” the agency told Bloomberg BNA in an email. The EPA also said it would conduct a subsequent cost-benefit analysis for its replacement regulation.

“As is required for all significant regulatory actions, EPA intends to develop an economic analysis for the step 2 rulemaking,” the agency said.

Data, Methodology Criticized

The 2015 water regulation, which was stayed by a court a month after it went into effect, defined which waters and wetlands are subject to federal permitting programs, as well as state water quality standards and certifications.

President Donald Trump made repeated campaign promises to repeal WOTUS, which is opposed by a variety of industrial sectors, including agriculture, iron and steel manufacturing, home builders, and mining groups. Industry associations representing those sectors argue it would trigger requirements to obtain costly federal permits to dredge wetlands and streams that they say fall under state and local laws already.

Back in 2013, the industry-led Waters Advocacy Coalition, which includes the American Farm Bureau Federation, used Sunding’s critique to make its case that the Obama EPA overstated benefits and underestimated the costs of implementing the WOTUS regulation. Sunding said that 2013 analysis used incomplete data, flawed methodology, and outdated studies.

But Sunding said the EPA’s new analysis, which relies on much of the same data, is not any better, a view shared by several other economists and attorneys contacted by Bloomberg BNA. The Farm Bureau, which supports the repeal effort, declined to comment on the underlying economic analysis.

The Trump administration used the 2013 estimates as a starting point, assuming that the costs of that regulation would be avoided by a repeal and the benefits of the regulation would be foregone. The proposed repeal was estimated to result in $162 million to $476 million in avoided costs, while the estimated foregone benefits range from $34 million to $73 million per year.

In the 2013 analysis, the EPA estimated the annual costs of implementing the water jurisdiction rule to range from $133.7 million to $277 million, but those costs were outweighed by annual projected benefits of between $300.7 million and $397.6 million.

The EPA’s 2017 approach drew the ire of economists because no recent permitting data was used to estimate the economic impact of the proposed repeal. Instead, the analysis used data from fiscal years 2009 and 2010, a time when U.S. economic activity was at its lowest since World War II, particularly in the manufacturing, residential, and commercial development sectors.

Sunding said the EPA used “an artificially low economic baseline” in its analysis.

“I have a hard time taking their numbers seriously,” he said.

Some Regulatory Benefits Excluded

The Trump EPA’s approach also drew criticism for excluding the benefits that would be realized through the mitigation of wetland loss from dredging activities.

The EPA said in its proposal that it didn’t include the benefits of mitigating wetland losses because the 2013 analysis used outdated studies. The agency did include the estimated costs industry would have faced for mitigation measures.

Dave Owen, a University of California Hastings College of the Law professor who specializes in environmental and natural resources law, said the EPA should have instead used estimates from more recent studies.

“A cost-benefit analysis looks at what it takes to implement a program, but this analysis looks at the costs and throws its hands up in the air when it comes to benefits,” Owen said.

The decision to exclude the wetland loss benefits was described as “political” by economists and regulatory analysts from both sides of the political spectrum.

The Trump administration could have taken a more straightforward approach to the analysis by taking the earlier study and reversing it, according to James Goodwin, an economist by training and a senior policy analyst with the Center for Progressive Reform. But that approach would have projected the costs avoided by a repeal would be outweighed by the avoided benefits, which Goodwin said would have gone against the Trump administration’s view that the water jurisdiction rule was costly and burdensome.

Instead, Goodwin said the EPA “monkeyed” with the 2013 estimates to ensure that the net avoided costs came out higher than the net foregone benefits.

“I suspect they did this for politics: We did this action and it’s saving us money,” William Yeatman, a senior fellow with the Competitive Enterprise Institute, told Bloomberg BNA.

Yeatman, who has been critical of the Obama-era regulation, said this was a “missed opportunity” for the EPA to perform an in-depth analysis in light of the criticism of the earlier analysis, he said. “I understand why” the EPA chose administrative efficiency and speed to undo the 2015 rule over a more in-depth analysis, he said.

But Yeatman said “you can’t criticize a study for all these faults and use that study.”

To contact the reporter on this story: Amena H. Saiyid in Washington at asaiyid@bna.com

To contact the editor responsible for this story: Rachael Daigle at rdaigle@bna.com

For More Information

Economic analysis of EPA's proposal to repeal the 2015 Clean Water Rule is available at http://src.bna.com/q9r.

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