September 5, 2013

Draft Technical Guidance for Assessing Environmental Justice in Regulatory Analysis

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Introduction

The Regulatory Studies Program (RSP) of the Mercatus Center at George Mason University is dedicated to advancing knowledge about the effects of regulation on society. As part of its mission, RSP conducts careful and independent analyses that employ contemporary economic scholarship to assess rulemaking proposals and their effects on the economic opportunities available to and social well-being of all members of American society.

Summary 

The United States Environmental Protection Agency (EPA) is seeking feedback on new technical guidance for assessing environmental justice (EJ) in its rulemaking processes. In the agency’s draft report, the EPA focuses almost exclusively on the benefits that its rules are expected to generate for low-income and minority populations. The agency does so by explaining in detail how analysts should incorporate EJ practices into risk-assessment procedures and benefits estimates in agency regulatory impact analyses (RIAs). However, the EPA devotes only two pages in the 81-page document to evaluating the costs its rules will impose on vulnerable populations. Costs affect the welfare of poor and minority populations as much as environmental pollution does. Costs also affect general quality of life and have important adverse effects on health and safety. 

The EPA should expand its guidance to take into account the full impact of its policies on vulnerable populations. This includes a broader analysis of how regulatory costs impact vulnerable populations, as well as examining ways in which standard benefit-cost techniques, such as valuing a statistical life, may not fully illustrate how vulnerable groups are benefiting from regulations. To achieve this, analysts should consider employment impacts on the poor, impacts on health as a result of lower income due to the costs imposed by regulations, and how risk mitigation strategies can be altered for vulnerable groups as a result of regulations. These important factors have to be included if the EPA is to pursue environmental justice in a manner consistent with presidential executive orders and the agency’s own stated intentions.

This comment can be broken down into the following sections. The first section contains a description of environmental justice as it has been defined under presidential executive orders and previous EPA guidelines. The second section examines why costs imposed by regulations are also important to EJ and why it is problematic that costs have been mostly overlooked in the new EPA guidance. The third section discusses how income is tied to environmental justice. The next two sections discuss ways in which current risk-assessment practices and benefit-cost analysis techniques can be improved upon to better gauge distributional impacts of regulations. This comment concludes with a call for the new EPA guidance to consider meaningful feedback and human dignity and provides a series of recommendations for improving the final draft of the EPA’s report.

Defining Environmental Justice

In 1994, President Clinton issued Executive Order (EO) 12898 related to environmental justice, which ordered each agency to consider “disproportionately high and adverse human health or environmental effects of its programs, policies, and activities on minority populations and low-income populations in the United States…”1 This executive order remains in effect today. 

The EPA uses a more specific definition of environmental justice than the one the EO outlines. The EPA defines EJ as “the fair treatment and meaningful involvement of all people regardless of race, color, national origin, or income with respect to the development, implementation, and enforcement of environmental laws, regulations, and policies.” 2 Fair treatment is defined as requiring that “no group of people should bear a disproportionate burden of environmental harms and risks, including those resulting from the negative environmental consequences of industrial, governmental, and commercial operations or programs and policies.” 3 In its new guidance, “the Agency has expanded the concept of fair treatment to consider not only the distribution of burdens across all populations, but also the distribution of reductions in risk from EPA actions.”4

There are several important elements to these definitions: 

First, the 1994 executive order specifically directs agencies to look at how their programs and policies affect the health and environment of low-income and minority populations. To the extent costs imposed by regulations have a significant impact on health and environmental concerns, they should be included in EJ considerations. 

Second, the EPA’s own definition of EJ emphasizes the need to consider the effect of its policies on low-income and minority populations, further reinforcing the need to include costs in any analysis of regulations.

Lastly, since the EPA is expanding its definition of fair treatment to include “the distribution of reductions in risk from EPA actions,” the agency should consider how its actions alter the risk-mitigation strategies of vulnerable groups. For example, if the EPA focuses its attention on reducing very low-probability risks (say, lifetime risks that affect one in a million people in the population) and the costs of these risk-reduction measures are spread evenly across everyone in society, then the poor may be disproportionately harmed by the policy.5 This happens if people that are less well-off face higher risks in their private lives than those addressed by the EPA. These higher-probability risks must be mitigated by people with their own resources. In these cases, having to pay for EPA regulations can crowd out personal expenditures, raising overall risk exposure if the cost per unit of risk reduction is lower for personal reductions in risk than for public (i.e., governmental) reductions in risk. As it becomes more expensive to regulate vanishingly small risks due to diminishing marginal returns to risk mitigation, the likelihood that income may be spent more effectively on mitigating private risks grows. These types of regressive effects of risk-reduction policies are highly relevant to the EPA’s concerns for fair treatment of all groups.

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