THE VINE MARCH 24, 2010
Earlier this week, several environmental groups fired off a letter to the Obama administration condemning the Office of Management and Budget (OMB). Their complaint? The green groups believed that OMB was incorrectly devaluing the cost savings that would come from a new EPA rule on vehicle fuel efficiency. Many greens were outraged. And if OMB was doing what it was accused of doing, it would be a real outrage.
Except that, as it turns out, OMB was doing no such thing.
Here's the backstory: One of the comments to the fuel-efficiency rules proposed a high "discount rate" for the consumer fuel savings that would accompany the new regulations. This would mean that the money Americans saved in the future from not needing to buy as much gas would be considered at only a fraction of its value. If a high discount rate was adopted as White House policy, that would make the benefits of other proposed efficiency measures seem smaller than they actually are, and harder to justify using cost-benefit analysis.
But the offending language never came from the OMB—nor was it as significant as it seems. The passage appeared in a summary of comments that were made during an interagency review of the rules, which means they could have come from any agency in the federal government. Indeed, officials at the EPA and Department of Transportation saw the comments in question before proposing the fuel-efficiency rule and chose to ignore them. (See the original docket submission.) And here is an e-mail exchange in which regulatory czar Cass Sunstein was discussing fuel savings the day after the comments were sent to EPA—there's no word of super-high discount rates. Basically, this is a non-issue, and accusations that OMB is "the viper in the bosom of the Obama administration" are misguided in this case.
This sort of memo mix-up has happened before. Back when EPA's endangerment findings on greenhouse gases were being debated, a memo surfaced in which OMB supposedly expressed economic misgivings about the finding. But it turned out that OMB hadn't written the memo at all—some random staffer in the Small Business Administration had made the comment, and OMB had simply added it to the docket of comments about the finding. Since these sorts of confusions seem to come up often, OMB should consider labeling its dockets better.
Meanwhile, it's true that for thirty years cost-benefit analysis has often been misused to block or weaken environmental regulations and support deregulation. So it's understandable that green groups don't trust OMB. But Sunstein, has expressed interest in a "humanized" approach to analyzing regulations and improving the use of cost-benefit analysis so that it can support sensible regulations. For now, he still appears to be sticking with that approach.
Michael A. Livermore is the executive director of the Institute for Policy Integrity at New York University School of Law. He is the author, along with Richard L. Revesz, of Retaking Rationality: How Cost-Benefit Analysis Can Better Protect the Environment and Our Health.