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Risk Analysis: Background on Environmental Protection Agency Mandates II 98-619 ENR CONTENTS FOR THIS SECTION
General Mandates for Analysis of Regulations Section 307 of the Clean Water Act (33 U.S.C. 1251 et seq.) requires EPA to set effluent limitations for discharges of toxic pollutants to surface waters achievable by applying the best available technology that is economically achievable and "will result in reasonable further progress toward the national goal of eliminating the discharge of all pollutants" [Section 301(b)(2)(A).] In addition, the Act requires effluent standards to provide an ample margin of safety, taking into account 'the toxicity of the pollutant, its persistence, degradability, the usual or potential presence of the affected organisms in any waters, the importance of the affected organisms and the nature and extent of the effect of the toxic pollutant on such organisms, and the extent to which effective control is being or may be achieved under other regulatory authority." The Act does not tell the Agency how to balance these considerations relative to one another. The Safe Drinking Water Act (42 U.S.C. 300f300j-26) mandates the establishment of national primary drinking water regulations for contaminants that EPA determines merit regulation. In establishing standards, first EPA must set a nonenforceable maximum contaminant level goal at a level at which no known or anticipated adverse health effects occur and which allows an adequate margin of safety. Then, EPA must set an enforceable standard, a maximum contaminant level, as close to the goal as is "feasible." The Act defines "feasible" as use of the best technology, treatment techniques, or other means available, taking costs into consideration. Thus, the Act allows EPA to consider risks, costs, and technologies in setting primary drinking water standards. Recent amendments to the Act (P.L. 104-182) added a requirement for analysis of health risk reduction benefits to the general population and sensitive subgroups, costs, and any increased risks that may occur because of compliance with each alternative standard being considered. The Act also now requires an explicit determination that:
If EPA finds that a "feasible" drinking water regulation for a contaminant would result in an increase in the health risk from drinking water, due for example, to interaction with another contaminant or interference with a treatment technology, the Act permits regulating to minimize the overall risk of adverse health effects. Similarly, if EPA finds that the "feasible" drinking water regulation would not produce benefits that justified the costs of complying with the level, the Act allows setting a level to maximize health risk reduction benefits at a cost that is justified by the benefits. Resource Conservation and Recovery Act The Resource Conservation and Recovery Act (42 U.S.C. 6901-6991i) aims to assure that hazardous waste management practices "are conducted in a manner which protects human health and the environment" (Section 6902.) It further states that it is the national policy of the United States "that, wherever feasible, the generation of hazardous waste is to be reduced or eliminated as expeditiously as possible. Waste that is nevertheless generated should be treated, stored, or disposed of so as to minimize the present and future threat to human health and the environment" (Section 6902.) The Act requires EPA to establish standards "as may be necessary to protect human health and the environment" (Section 6922 - 6924.) The Act does not specify' that consideration of costs is permitted, required, or prohibited. Federal Food, Drug, and Cosmetic Act The Federal Food, Drug, and Cosmetic Act (21 U.S.C. 301-394) requires EPA to set maximum residue limits ("tolerances") for pesticides on food. As amended in 1996 (P.L. 104-170), the Act directs EPA to set tolerances at levels that are "safe." No quantitative standard of safety was established by the new law, but it directs EPA to set standards to ensure "there is a reasonable certainty that no harm will result from aggregate exposure to the pesticide chemical residue, including all anticipated dietary exposures and all other exposures for which there is reliable information." The Act distinguishes between pesticides with potential health effects for which there is no known level of exposure that is harmless, the so-called "nonthreshold effect" pesticides, and pesticides with only potential health effects for which there are known harmless levels of exposure. The House Committee on Commerce provided guidance for determining "safe" levels for each pesticide type. For threshold effect pesticides:
The amended law strictly limits the nature and influence of costs considered in tolerance setting.7 It allows EPA to maintain or modify existing tolerances (but not to establish new tolerances) at higher than "safe" residue levels only if the pesticide use avoids other greater risks to consumers or is necessary to avoid significant disruption in domestic production of an adequate, wholesome, and economical food supply. Such higher tolerance levels may be set only for nonthreshold effect pesticides (usually potential carcinogens). The higher tolerance level allowed for such pesticide residues still must be "safe" for infants and children, as well as "safe" with respect to health effects for which there is a known threshold (that is, a level below which exposure is known to be harmless). The higher risk posed by the tolerance may not be more than 10 times the risk as a "safe" level of exposure on an annual basis and not more than twice the risk of a "safe" level over a lifetime. Federal Insecticide, Fungicide, and Rodenticide Act The Federal Insecticide, Fungicide, and Rodenticide Act (FWRA; 7 U.S.C. 136 -1 36y) directs EPA to limit the sale or use of pesticides "to the extent necessary to prevent unreasonable adverse effects on the environment." The statute defines this to mean "any unreasonable risk to man or the environment, taking into account the economic, social, and environmental costs and benefits of the use of any pesticide." Food-use pesticides, however, also are regulated by the Federal Food, Drug, and Cosmetic Act (FFDCA). The Food Quality Protection Act (P.L. 104-170) which amended the FFDCA, also amended FIFRA, tying the requirements of the two statutes to one another. The amendments ensured that no pesticide would be registered for use on food under FWRA unless any remaining pesticide residues on the food would be "safe" under the FFDCA. The Toxic Substances Control Act (15 U.S.C. 2601-2671) mandates the screening of new and existing chemicals in commerce to determine whether their production, distribution, use, or disposal might pose an unreasonable risk of injury to health or the environment. To that end, EPA is authorized to require companies manufacturing such chemicals to provide data on the chemical's characteristics and use. If the Administrator determines that a chemical poses a ''significant risk of serious or widespread harm to human beings from cancer, gene mutations, or birth defects," the Act requires EPA to promulgate regulations to prevent or reduce "to a sufficient extent such risks or publish in the Federal Register a finding that such risk is not unreasonable." The Act requires EPA in promulgating a regulation to consider and publish a statement concerning the potential health and environmental effects of the chemical, the magnitude of exposure to the chemical, the benefits of the chemical for various uses and the availability of substitutes, and "the reasonably ascertainable economic consequences of the regulation, after consideration of the effect on the national economy, small business, technological innovation, the environment, and public health." The Act directs the Administrator to regulate "to protect adequately against such risk using the least burdensome requirement," but to regulate only if it is in the public interest. In determining whether regulation is in the public interest, EPA is directed to consider all relevant aspects of the risk, a comparison of the estimated costs of compliance, and the relative efficiency in protecting against risk. Comprehensive Emergency Response, Compensation, and Liability Act The Comprehensive Emergency Response, Compensation, and Liability Act (CERCLA, 42 U.S.C. 9601-9675 and 26 U.S.C. 4611, 4612, 4661, 4662, 4681, and 4682; also known as "Superfund") requires choice of cost-effective remedial actions for contaminated sites, but also requires that the degree of cleanup "at a minimum assures protection of human health and the environment." In effect, CERCLA's standard of risk protection varies from site to site, because for cleanup purposes, the numerical standards, criteria, and goals of all other applicable federal and state environmental statutes are applied to the conditions at the site. The statute specifically states that where remedial action is taken to protect groundwater, it must at least attain the water quality goals established under the Safe Drinking Water Act, a level of protection greater than is provided by the national primary drinking water standards. CERCLA also specifically requires attainment of the water quality criteria developed by EPA for surface water under the authority of the Clean Water Act; water quality criteria are set at a level that is expected to protect human health and aquatic plant and animal species. Environmental Statutes Generally In summary, each environmental statute approaches the problem of controlling risk from a different vantage point and authorizes consideration of different factors by EPA. Some statutes authorize several different approaches for controlling different kinds of risk. One statute, CERCLA, incorporates all of the other statutory approaches to risk, at least in effect. Generally, long-standing statutory mandates to protect public health "with an adequate margin of safety" or to prevent "unreasonable" adverse environmental effects seem to require, or at least to encourage, risk analysis to make regulatory determinations. Other environmental provisions limit the utility of any risk analysis, as, for example, in the setting of national ambient air quality standards, a process for which costs cannot be considered. In contrast, the latest amendments to the drinking water and pesticide laws explicitly require EPA to balance risks of different kinds in selecting among regulatory options. The Commission on Risk Assessment and Risk Management concluded in its recent report to Congress that the patchwork of statutes enacted over the last 25 years to address individual risks has led to a "cumbersome, fragmented risk management approach.8 With respect to quantifying and then comparing risks with costs, these diverse environmental statutes seem to conform to a few general rules. They:
Impact of Environmental Statutes on EPA's Use of Risk Analysis The Agency was a leader in developing and applying the methods of risk analysis to problems in environmental protection. By the mid 1970s, EPA was conducting risk analyses to support some of its regulatory decisions. EPA's first quantitative risk assessment for a chemical (vinyl chloride) was conducted in 1975. Generally, EPA's early quantitative risk analyses assessed carcinogenicity and were conducted by EPA's Carcinogen Assessment Group (CAG) at the request of the EPA program offices. From 1976 through 1982, CAG completed risk assessments for approximately 150 chemicals, 41 of which were requested by the Office of Air Quality Planning and Standards.9 The Office of Water also requested assessments to support its 65 water quality criteria documents and drinking water standards. Less comprehensive risk assessments were conducted to support listing of substances as hazardous wastes under RCRA or to develop reportable quantity levels under CERCLA. A few analyses were conducted for pesticides, but usually, during the 1970s and early 1980s the Office of Pesticides and Toxic Substances conducted internal risk assessments of chemicals. After February 1981, EPA's use of risk assessment in rulemaking is more clearly documented, but the influence of statutes is more difficult to assess. President Reagan issued Executive Order 12291 on February 19, 1981 requiring agencies to perform Regulatory impact Analysis (RIA).10 Because the executive order required agencies to conduct cost-benefit analysis to the extent permitted by law for all proposed and final "major" rules (46 Federal Register 13193, Feb.19, 1981), it required EPA to conduct risk analysis to evaluate the benefits of major environmental rules. The executive order defined "major rules" to mean any regulation likely to have an effect on the national economy of $100 million or more. Rules with a smaller economic impact were also "major" if they were likely to result in: a major increase in costs or prices for consumers, individual industries, federal, state, or local government, or geographic regions; or a significant adverse effect on competition, employment, investment, productivity, innovation, or the ability of U. S.-based enterprises to compete with foreign-based enterprises in domestic or export markets. Between 1981 and 1992, EPA issued 1,594 proposed rules and 1,686 final rules, including 92 major proposed rules (5.9 %) and 60 major final rules (3.6 %).11 Formal cost-benefit analyses were prepared for approximately 80 percent of the major final rules. Information on the number of cost-benefit analyses prepared for final non-major and all proposed rules is unavailable. 12 Several final major rules without comprehensive cost-benefit analyses had court-imposed deadlines for publication (which may have allowed too little time for a comprehensive analysis), and some other rules without analyses were withdrawn or returned to EPA by OMB for further analysis.13 According to EPA, incomplete analyses in most cases were due to the inadequacy or unavailability of the necessary scientific and/or economic data. In other cases, reviewers have hypothesized that analysis may have suffered due to time constraints imposed by statutory and judicial deadlines, lack of resources to hire additional analysts, and the difficulty of quantifying such benefits as safe drinking water or clean air and of determining their worth in monetary terms. 14 In February 1994 testimony before the Sub committee on Environment, Energy, and Natural Resources of the House Committee on Government Operations, EPA's Assistant Administrator for Prevention, Pesticides and Toxic Substances testified that EPA has routinely adjusted the amount of analysis to the relative importance of the potential impact of a rule.15 Despite the uneven quality of EPA's cost-benefit analyses, an Agency study concluded that "EPA's benefit-cost analyses have resulted in several cases of increased net benefits to society from environmental regulations" and "analyses yielded a return on investment of 1,000 to 1."16 Between February 1981 and February 1986, EPA's investment (estimated cost of preparing a formal analysis) for a major rule ranged from $210,000 to $2,380,000 and averaged $675,000.17 There are no figures available for more recent years or for the preparation of less comprehensive analyses for rules that were not "major" rules. In many cases, although EPA performed cost-benefit analyses, statutory provisions limited their use. According to EPA, it "was able to consider the full implications of its benefit-cost analyses when setting only 6 of the 15 regulations studied" between 1981 and 1986.18 However, EPA says the results of cost and benefit analyses were used to improve decisions in most cases. Three of the four rules for which costs could not be considered were issued under the Clean Air Act Section 112 prior to its amendment in 1990 when Congress changed the basis for standards for emissions of hazardous air pollutants. Prior to 1990, standards were based on health risks alone. Current standards are based on "available" technology. The remaining regulation implemented a clear statutory directive to prohibit land disposal of certain hazardous wastes under RCRA. General Mandates for Analysis of Regulations Both the legislative and executive branches of the federal government have tried to encourage agencies to issue environmental and health and safety regulations after careful consideration of the risks addressed and their relationships to compliance costs. President Reagan issued the first explicit mandate for regulatory risk analysis in January 1985. Executive Order 12498 on the Regulatory Planning Process (50 Federal Register 1036) required agencies to adopt principles contained in an August 11, 1983 report by the President's Task Force for Regulatory Relief. It required agencies to base regulations seeking to reduce health or safety risks on scientific risk assessment procedures. Although President Clinton revoked the Reagan order when he issued his own directive, he retained and elaborated the requirement for risk analysis. On September 30, 1993, President Clinton signed Executive Order 12866 on Regulatory Planning and Review (58 Federal Register 51735, Oct. 4, 1993) which revoked and replaced two Reagan Administration executive orders, Executive Order 12291 requiring Regulatory Impact Assessments (RIAs) and Executive Order 12498 establishing the regulatory planning process. On October 26, 1993, President Clinton issued Executive Order 12875, Enhancing the Intergovernmental Partnership, which supplements but does not supersede the requirements contained in Executive Order 12866. The Reagan and Clinton orders are similar in many ways, but several differences exist that are likely to affect regulatory decisions where the agencies have discretionary authority to consider cost-benefit and risk analyses. Key features of the Clinton and Reagan executive orders are compared in Table 2 in the Appendix to this report. The Clinton order directs federal agencies to promulgate regulations only when necessary due to "compelling public need" and after a reasoned determination that the benefits justify costs, or when required by law. This mandate appears to be less compelling with respect to quantifying benefits (and therefore, risks) than the Reagan order which permitted regulation only when benefits exceeded costs, unless this approach was prevented by law. However, President Clinton's executive orders directs agencies to conduct cost-benefit analysis for all "significant regulatory actions," and the definition of "significant regulatory action" appears to be more inclusive than the "major rule" definition of President Reagan. The Clinton executive order also defines advanced notices of proposed rulemaking as regulatory actions; such notices were not defined as rules under the Reagan Administration. On the other hand, OMB generally does not review rules that are not found to be significant and may not require benefits to be compared to costs for such rules. President Clinton requires each agency to "consider the degree and nature of the risks posed by various substances or activities within its jurisdiction" in setting priorities. In contrast, President Reagan required agencies to maximize net economic benefits in setting priorities. Similarly, the executive orders of Presidents Reagan and Clinton direct agencies to use different criteria in choosing regulatory objectives. Under the Clinton order, agencies will select regulatory objectives that address significant problems or compelling public need. Economic impacts are not considered in the choice of objectives (although prior to promulgating a regulation, agencies must determine that benefits justify costs, unless the regulation is required by law). Under the Reagan orders, agencies were required to pursue regulatory objectives that would "maximize net benefits", that is, to achieve the greatest possible economic gain for society, to the extent permitted by law. Having determined the targets of regulations, the Reagan Administration directed agencies to choose the regulatory alternative with the "least net cost". The Clinton Administration established three criteria for choosing a regulatory approach: maximize net benefits, minimize the overall regulatory burden for various segments of society, and design the most cost-effective regulation or alternative to achieve the objective. The philosophy of the Clinton order emphasizes the importance of net benefits. It states:
Both the Clinton order and Guidelines for the Reagan orders require consideration of alternatives to federal regulation such as those that rely on negotiation or economic incentives. The Reagan orders required analysis of potential benefits, costs, and net benefits of the proposed regulation and alternatives that cost less. Costs, benefits, and net benefits for each alternative were compared to those for the alternative of "no regulation". The Clinton order similarly requires analysis of all costs and benefits of the proposed regulation and alternatives, including the alternative of no regulation. It also requires analysis of net benefits (in order to choose an approach that maximizes net benefits) and cost-effectiveness of regulatory alternatives. Thus, the Clinton order appears to have a more comprehensive set of analytic requirements. More specifically, the Reagan orders required analysts to focus on economic, adverse impacts of regulations (that is, costs) for consumers, individual industries, federal, state, and local governments, and geographic regions. The Clinton order also requires analysis of the costs, impacts on innovation, and consideration of who pays and who gains. In addition, the Clinton Administration specifically requires analysis of benefits to the environment and public health and safety. The consistency, predictability, and flexibility of regulations must also be considered. Finally, the Clinton order explicitly requires consideration of whether the impacts are fair. The Clinton order directs agencies to prepare and submit to OMB an annual Regulatory Plan, in which they identify their planned significant regulatory activities, including a description of how each action will reduce risks. Agencies must compare the magnitude of the risk addressed by each activity to the magnitudes of other risks within the jurisdiction of the agency. The Reagan Administration also required agencies to submit information about regulatory actions underway or planned, but no requirement existed to compare risks addressed by regulations. Instead, the Reagan order focused agency attention on regulatory action to revise or rescind existing rules. President Clinton's Executive Order 12866 established a Regulatory Working Group to serve as a forum for interagency discussions. Topics to be addressed include comparative risk assessment, innovative regulatory techniques, and streamlined approaches for small businesses and other entities to facilitate their compliance with regulations. Interagency groups also were established under previous Administrations, often to promote coordination of regulatory activity and harmonization of risk assessment practices. The executive orders of Presidents Reagan and Clinton require analysis to be based on scientific information. In addition, the Clinton Administration requires agencies to use the "best reasonably obtainable scientific information." President Reagan required analysis "based on adequate information" and risk assessment. ENDNOTES 6 U.S. House. Committee on Commerce. Food Quality Protection Act of 1996, H. Rept.104-669, Part 2, 104th Congress, 2nd Sess. 1996. p.6. 7 In pesticide law, the common meanings of the terms "cost" and 'benefit" are reversed. The most salient "benefit" of agricultural pesticide use is an abundant, wholesome, and economical food supply, while the "cost" is the risk to human health and the environment. 8 Presidential/Congressional Commission on Risk Assessment and Risk Management. Risk Assessment and Risk Management in Regulatory Decision-Making. Final Report, Vol.2.1997. p. ii. 9 National Research Council. Risk Assessment in the Federal Government: Managing the Process. Washington, DC: National Academy Press. 1983. p.107. 10 Revoked in 1993 when superceded by President Clinton's Executive Order 12866 on Regulatory Planning and Review. 11
Luken, Ralph A., and Arthur G. Fraas. The U.S. Regulatory
Analysis Framework: A Review. Oxford Review of Economic Policy
v.9, n. 4, 1993. p.100. 12 However, EPA reported that it issued 18 and prepared RIAs for 15 major proposed and/or final rules between February 1981 and February 1986. The EPA report states that OMB exempted the other three major rules from the RIA requirements. (U.S. EPA, Economic Studies Branch, Office of Policy Analysis. EPA's Use of Benefit and Cost Analysis 1981-1986. (August 1987) p.4-i. 13 Fraas, Arthur. The Role of Economic Analysis in Shaping Environmental Policy. Law and Contemporary Problems, Assessing the Environmental Protection Agency After Twenty Years: Laws Politics, and Economics. Durham, N.C., duke University Press, 1991, p.118. 14 lbid.
p.120. 15 Goldman, Lynn. Statement before the Subcommittee on Environment, Energy and Natural Resources and the Subcommittee on Legislation and National Securit" Committee on Government Operations, House of Representatives. February 1, 1994. 16 U.S. EPA, Economic Studies Branch, Office of Policy Analysis. EPA's Use of Benefit-Cost Analysis 1981-1986. Washington, U.S. EPA, August 1987. p.1 and 2. 17 Ibid. p. 6-5 18 Ibid. p.2
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