Obama and Ozone

According to reports in the New York Times (here) and other sources, President Obama is forcing EPA to back down from proposed regulations that would tighten up national air quality standards for ground-level ozone, which is a precursor to smog, much to the consternation of environmentalists. The EPA already had tightened up the ozone standard in March 2008, during the waning days of the Bush Administration, from 0.084 parts per million (ppm) to 0.075 ppm. Shortly after taking office, the Obama Administration announced a reconsideration of the ozone standard based on its belief that the science supported an even more stringent standard than the one the Bush Administration adopted.

The legal basis for the Obama Administration's reconsideration of the Bush Administration's standard is clear. The Clean Air Act requires EPA to set national ambient air quality standards (NAAQSs) to protect the health of the most vulnerable sub-populations in the US, based solely on scientific evidence (Clean Air Act, sec. 109, 42 USC sec. 7409). It cannot consider cost. This understanding of the Clean Air Act's plain language has been consistent since 1970. The US Supreme Court reconfirmed it in Whitman v. American Trucking Assc., 541 US 457 (2001), despite an amicus brief filed by several prominent economists arguing that the agency should not be prohibited from considering costs in deciding whether to adopt or amend NAAQSs.

As a result of its reconsideration of the Bush Administration standard, the Obama EPA proposed (here) reducing the primary NAAQS from 0.075 ppm to somewhere between 0.060 ppm and 0.070 ppm (along with a separate secondary NAAQS based on seasonal fluctuations in emissions). One unusual feature of this proposed rule was its failure to specify a precise numeric target for the ozone NAAQS, which left substantial uncertainty about where on the range between 0.060 and 0.070 it would finally come down. Even if we take it as given that the science supports a reduction in ambient concentration levels, it is difficult to understand why the EPA could not settle on a single number in its proposed regulation.

As noted earlier, EPA is legally barred from considering costs in setting NAAQSs. Nevertheless, it is required both by statute (the 1995 Unfunded Mandates Reform Act) and several Executive Orders to undertake regulatory impact analyses (RIAs) of all major proposed regulations. Thus, the EPA has to prepare cost-benefit analyses for new and revised NAAQSs, even though it is supposed to ignore them when actually setting the standards.

As I argue in a working paper, which I am currently in the process of revising (an older version can be viewed here), it is ludicrous to suppose that EPA does not consider the cost calculations it is legally required to undertake in setting or revising NAAQSs. The Clean Air Act requires EPA to considering revising NAAQSs for all regulated ("criteria") pollutants, including Ozone, every 5 years. If EPA only relied on the best science, it would almost certainly increase the stringency of its regulations every five years. The fact that NAAQS revisions are the exception rather than the rule since 1970, indicates that cost does play a role, if only informally, in EPA's decision-making. (I take this to be a good thing, though many of my fellow environmental law professors would no doubt disagree. It would be even better, in my estimation, if Congress allowed EPA to consider costs formally.)

In the case of the reconsidered Bush Administration revisions to the NAAQSs for ozone, the Obama EPA's supplemental RIA estimates that the Bush Administration's rule, revising the ozone standard to 0.075 ppm, would yield median net social benefits of $3.1 billion, as compared with $1.4 billion for a standard of 0.070 ppm, $0.7 billion for 0.065 ppm, and -4.8 billion for 0.060 ppm (all discounted at a constant rate of 7%). The figure below (from page S1-8 of the RIA) shows the range of costs and benefits under alternative standards. The bottom line is that the Bush Administration's selection of a 0.075 ppm yields higher net social benefits than any of the alternative standards the Obama Administration was considering.

The question that naturally arises, of course, is whether President Obama's decision to retreat from reconsideration of the Bush Administration's ozone standard is related at all (and, if so, to what extent) to the regulatory impact analysis. It would be naive to suppose that the decision had nothing to do with the cost-benefit analysis, especially given the political stakes. As the country approaches a presidential election year with a very shaky (to say the least) economy and high employment, President Obama would find it difficult and highly inconvenient to defend regulatory choices that are not significantly and obviously social-welfare maximizing. The EPA's RIA indicates that a shift from the Bush Administration's 0.075 ppm standard for ozone to a standard somewhere between 0.060 and 0.070 ppm would not significantly nor obviously enhance social welfare.

Of course, the Obama Administration cannot explicitly defend its decision to abandon its proposed tightening of the ozone NAAQs without violating the clear terms of the Clean Air Act (although Dan Farber, at Legal Planet, argues plausibly that the timing of the Obama proposal, prior to the next mandatory 5-year review in 2013, might exempt it from the Clean Air Act's prohibition on consideration of costs). However, if I am right that cost considerations, as well as practical politics, always play a role regardless of the letter of the law, then it seems much more likely than not that Obama's decision was substantially determined by EPA's RIA. Just as a positive cost-benefit analysis can insulate the EPA from negative political fall-out from new or revised regulations, so a negative cost-benefit analysis can create a political obstruction to regulation, even when costs are not supposed to count.

Between now and November 2012, we should not expect to see any new regulations emerging from the Obama Administration, including the EPA, that do not clearly and overwhelmingly pass a cost-benefit test, regardless of any legal constraints on the consideration of costs.

A FURTHER THOUGHT: The Obama Administration's withdrawal of the ozone NAAQSs from reconsideration opens the door for possible litigation, in which environmental plaintiffs would challenge the Bush Administration's decision to reset the primary NAAQS at 0.075 instead of some lower level. The scientific basis for that lawsuit would be the same as the scientific basis for the Obama Administration's reconsideration of the rule. If they prevail, the court would likely order the Obama Administration to re-open its reconsideration of the rule, which it could then do without having to take as much (if any) political heat for the results.

Indeed, this debacle over the ozone standards is yet another example of political ineptness by the Obama Administration. Lawsuits against the Bush standards already were filed when the Obama Administration took office. Instead of preempting those lawsuits by announcing that it would voluntarily reconsider the standards, the Administration probably should have let the lawsuits proceed before acting.