January 11, 2012

Disposal of Coal Combustion Residues from Electric Utilities

Proposed Rule
Summary

Score: 34 / 60

Additional details
Agency
Environmental Protection Agency
Regulatory Identification Number
2050-AE81
Agency Name
Environmental Protection Agency
Rule Publication Date
06/21/2010
Dollar Year
Millions of 2009$
Time Horizon (Years)
50 years (2012-2061)

RULE SUMMARY

This rule sets new standards for the disposal of residue created from burning coal.

MONETIZED COSTS & BENEFITS (AS REPORTED BY AGENCY)

Dollar Year
Millions of 2009$
 
Time Horizon (Years)
50 years (2012-2061)
 
Discount Rates
7%
 
Expected Costs (Annualized)
2,061
 
Expected Benefits (Annualized)
8,853 - 10,431
 
Expected Costs (Total)
28,444
 
Expected Benefits (Total)
122,185 - 143,952
 
Net Benefits (Annualized)
6,792 - 8,369
 
Net Benefits (Total)
93,741 - 115,508
 

METHODOLOGY

There are twelve criteria within our evaluation within three broad categories: Openness, Analysis and Use. For each criterion, the evaluators assign a score ranging from 0 (no useful content) to 5 (comprehensive analysis with potential best practices). Thus, each analysis has the opportunity to earn between 0 and 60 points.

Criterion Score

Openness

1. How easily were the RIA , the proposed rule, and any supplementary materials found online?
The Federal Register notice is available at regulations.gov with a RIN or keyword search. The RIA can be found in the docket by searching for the notice and then opening the docket folder. A keyword search turns up both the proposed rule on the EPA's web page. The EPA website redirects readers to the RIA at regulations.gov.
5/5
2. How verifiable are the data used in the analysis?
EPA collects data from a variety of sources, and identifies where the data provide contradictory results. The agency also provides links to most data. In some circumstances, the agency uses data from secondary sources, making verification difficult.
4/5
3. How verifiable are the models and assumptions used in the analysis?
EPA uses a substantial portion of peer-reviewed literature but also relies heavily on research from previous regulations or EPA technical documents. These are usually linked. Some key assumptions clearly lack a factual basis. For example, the analysis relies on statistical inference without theoretical backing to model changes in the amount of pollutant to be disposed of.
3/5
4. Was the analysis comprehensible to an informed layperson?
The analysis was difficult to read - even for an economist - without some prior knowledge of EPA regulation or the regulated industry. While an economist can follow the economic calculations used to derive the costs and benefits, a layman would have had difficulty understanding the analysis.
3/5

Analysis

5. How well does the analysis identify the desired outcomes and demonstrate that the regulation will achieve them?
4/5
Does the analysis clearly identify ultimate outcomes that affect citizens’ quality of life?
Burning coal generates residues which must be captured and disposed of in special facilities. Citizens are affected when the stored residues are released into the water supply either rapidly through the sudden catastrophic failure of an impoundment or gradual release by leaching into the water supply. The analysis identifies ultimate harms to human health resulting from these pollutants reaching the water supply. The analysis also identifies reduced expenditures from groundwater remediation and reduced clean-up costs resulting from major spills.
5/5
Does the analysis identify how these outcomes are to be measured?
The analysis clearly identifies benefits such as avoided cancer cases, and community and ecological benefits. Many, but not all, of these benefits are quantified. Those quantified benefits are monetized.
5/5
Does the analysis provide a coherent and testable theory showing how the regulation will produce the desired outcomes?
The analysis established a causal relationship between the emitted pollutants and increased risk of developing cancer. The analysis further asserts that increased regulation on combustion residue containment will be beneficial for communities and the environment. The analysis would have benefited from greater clarity to establish clearly that the regulation will reduce pollution as EPA indicates.
4/5
Does the analysis present credible empirical support for the theory?
The analysis provides empirical support for the link between reduced pollution and health effects but does not provide support for the claim that the proposed mandate would solve this problem. The agency could have improved the analysis by measuring the effectiveness of such regulations where those are already in effect at the state level.
3/5
Does the analysis adequately assess uncertainty about the outcomes?
The analysis identifies some uncertainty, but for most cases it only reports point estimates. The agency does calculate multiple scenarios for one source of uncertainty: the impact regulation will have on alternative beneficial uses for coal residue (e.g., as a low cost constituent for dry wall) to address industry concerns about stigmatizing usage. However, the analysis contains no data to indicate the scope of uncertainty in this area and relies instead on hypothetical numbers. Ultimately, the analysis reports three sets of point estimates for different assumptions about beneficial usage and then argues that one of these assumptions (increased beneficial use) is more likely than the others. The agency could have better accounted for uncertainty by i) using Monte Carlo analysis to identify the interaction between independent uncertainties and the effect this will have on ultimate outcomes, and ii) identifying where uncertainties are interrelated and modeling these interactions appropriately.
3/5
6. How well does the analysis identify and demonstrate the existence of a market failure or other systemic problem the regulation is supposed to solve?
2/5
Does the analysis identify a market failure or other systemic problem?
The analysis provides more than a perfunctory statement but is insufficient to justify the claims made. The agency relies heavily on one example - a spill at a federally owned facility - and although the analysis does list other examples these also are anecdotal and fail to demonstrate that there is a systemic problem. The analysis does not offer evidence to support a claim that this is a federal problem but does include substantial evidence that many states have taken unilateral action.
2/5
Does the analysis outline a coherent and testable theory that explains why the problem (associated with the outcome above) is systemic rather than anecdotal?
The analysis argues pollution from coal combustion constitutes an externality where storage facilities do not bear the full cost of any pollution. In other areas, the analysis makes clear that firms hold legal responsibility for any costs associated with either clean up for a major spill, or harm to human health from contaminants leaching into the soil, indicating that firms should internalize any cost to human health. The analysis briefly argues this should not be the case because i) collective action problems may prevent people from effectively organizing law suits against site owners with greater financial resources and ii) because citizens may fail to observe the risk from leaching until after a harm has occurred that current law cannot provide preventative relief. However, the analysis does not cite any support for this theory in the economic literature.
1/5
Does the analysis present credible empirical support for the theory?
EPA presents evidence that not all sites have adopted control technologies and provides a list of failures at facilities without control technologies. However, the analysis also demonstrates that nearly all new sites have adopted control technologies either by choice or in response to state laws. The analysis also shows that the amount of coal residue needing disposal is declining to zero as residue is increasingly used as a beneficial by-product, and that in Europe nearly all coal residue is used in this way. The empirical evidence does not therefore support the theory of a systemic problem.
1/5
Does the analysis adequately assess uncertainty about the existence or size of the problem?
The analysis documents uncertainty over the number of existing sites as well as the amount of waste, which may require disposal in the future but does not reflect this uncertainty in the final calculations.
3/5
7. How well does the analysis assess the effectiveness of alternative approaches?
4/5
Does the analysis enumerate other alternatives to address the problem?
Agency presents three options.
5/5
Is the range of alternatives considered narrow (e.g., some exemptions to a regulation) or broad (e.g., performance-based regulation vs. command and control, market mechanisms, nonbinding guidance, information disclosure, addressing any government failures that caused the original problem)?
Options are very similar, differing largely on the extent to which they grandfather existing sources.
2/5
Does the analysis evaluate how alternative approaches would affect the amount of the outcome achieved?
The analysis calculated total effectiveness for each option relative to the baseline, quantifying expected health benefits and monetizing those benefit.
5/5
Does the analysis adequately address the baseline? That is, what the state of the world is likely to be in the absence of federal intervention not just now but in the future?
The agency makes a significant effort to characterize the baseline. The analysis also adjusts for voluntary adoption of controls in the costs section but does not mention having made this adjustment in calculating benefits. The analysis also calculates the effect of expected increases in beneficial uses for coal residue (e.g. as a constituent in drywall or cement) that reduce the amount of coal residue that must be disposed of, but the assumptions rely on statistical inference without theoretical grounding. These limitations make it hard to extrapolate as far into the future as the analysis attempts. The analysis could also have been improved by mapping the trend toward increased state regulation.
3/5
8. How well does the analysis assess costs and benefits?
3/5
Does the analysis identify and quantify incremental costs of all alternatives considered?
Agency calculated incremental costs for each regulatory option. This included the potential stigma effect that classifying coal residue as hazardous material may have on beneficial uses (such as using coal ash in cement), which generate usage benefits and reduce the quantity of coal residue requiring safe disposal.
5/5
Does the analysis identify all expenditures likely to arise as a result of the regulation?
The analysis appears to identify most expenditures. Although each proposed option does not affect beneficial uses for coal residue which have private benefits and environmental benefits (e.g., in cement) the agency may ban uses which carry private benefits but not environmental benefits (e.g., as cheap fill in landscaping). The analysis could have been improved by including the cost of replacing coal residue for the latter set of uses.
4/5
Does the analysis identify how the regulation would likely affect the prices of goods and services?
Extensive analysis of the impact on the price of electricity (which is required) but the analysis concludes the effect is irrelevant because demand is inelastic and will therefore not affect electricity consumption. The analysis also considers the effect on price of fly ash for environmentally beneficial uses.
4/5
Does the analysis examine costs that stem from changes in human behavior as consumers and producers respond to the regulation?
The quantity of residue produced is largely driven by the use of coal and by the adoption of environmental controls for air pollution. EPA does not consider how increasing the cost of disposal will affect adoption of these pollution control technologies. While the agency calculates elasticity of demand for electricity, the agency does not consider does not consider i) that long-term elasticity may be greater than short-term elasticity or, ii) if this regulation will induce a switch away from coal power.
2/5
If costs are uncertain, does the analysis present a range of estimates and/or perform a sensitivity analysis?
The agency presents a range of costs for individual cost factors but fails to combine these to produce an overall range of estimates. Ultimately, the EPA produces a single point estimate rather than range.
3/5
Does the analysis identify the alternative that maximizes net benefits?
The agency calculates costs and benefits for a number of options and presents these in a reasonably clear fashion. The agency reports several results with different assumptions for how the regulation will affect beneficial uses (either unchanged, reduced because of the stigma of branding coal residue a hazard, or increased because of higher costs of disposal). Which option maximizes benefits varies depending on this assumption. The analysis argues, based on sound economic reasoning, that these scenarios are not equally likely but that an increase in beneficial use is most likely. However, the analysis does not clearly show that any given option will maximize, but it could argue based on the analysis that any option it chooses maximizes benefits.
4/5
Does the analysis identify the cost-effectiveness of each alternative considered?
The agency clearly shows a calculation of outcomes and costs under 3 sets of assumptions for beneficial use. The analysis could have been improved by explicitly dividing costs by outcomes.
4/5
Does the analysis identify all parties who would bear costs and assess the incidence of costs?
The analysis is fairly minimal here. EPA predicts that electric consumers will bear the whole cost.
2/5
Does the analysis identify all parties who would receive benefits and assess the incidence of benefits?
Not possible to identify here specific individuals who will benefit from the rule. The agency predicts benefits will accrue to people living near coal sites, but discussion is minimal.
3/5

Use

9. Does the proposed rule or the RIA present evidence that the agency used the analysis?
The proposed rule identifies several options, stating that one of these options will be chosen, but does not ultimately reach a decision. The NPRM identifies key principles the agency will use to reach a decision, and although the proposed rule references the RIA, it excludes economic analysis from those key principles.
2/5
10. Did the agency maximize net benefits or explain why it chose another alternative?
Agency did not pick an option and did not explain why it did not do so. The NPRM is explicit that maximizing net benefits is not among the criteria for choosing an option.
2/5
11. Does the proposed rule establish measures and goals that can be used to track the regulation's results in the future?
Agency could measure reduced leaching and reduced catastrophic events but does not indicate any intention to do so.
1/5
12. Did the agency indicate what data it will use to assess the regulation's performance in the future and establish provisions for doing so?
EPA could use data from cancer incidences and other environmental benefits but, there is no indication the agency plans to track the success or otherwise of the regulation.
1/5
 
Total 34 / 60