April 12, 2012

Revising Underground Storage Tank Regulations--Revisions to Existing Requirements and New Requirements for Secondary Containment and Operator Training

Enviromental Protection Agency
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Additional details
Agency
Environmental Protection Agency
Regulatory Identification Number
2050-AG46
Rule Publication Date
11/18/2011
Comment Closing Date
02/16/2012
Dollar Year
2008
Time Horizon (Years)
per year

RULE SUMMARY

EPA is proposing to make certain revisions to the 1988 underground storage tank (UST) technical, financial responsibility, and state program approval regulations. These changes establish federal requirements that are similar to key portions of the Energy Policy Act of 2005; they also update certain 1988 UST regulations. Proposed changes include: Adding secondary containment requirements for new and replaced tanks and piping; adding operator training requirements; adding periodic operation and maintenance requirements for UST systems; removing certain deferrals; adding new release prevention and detection technologies; updating codes of practice; making editorial and technical corrections; and updating state program approval requirements to incorporate these new changes. These changes will likely protect human health and the environment by increasing the number of prevented UST releases and quickly detecting them, if they occur.

COMMENTARY

EPA is proposing to revise past regulation of underground storage tanks (USTs) without much evidence on the degree to which they pose problems or are connected to inadequacies in current regulation. There is no discussion of why private and public owners of USTs are not concerned about leakages thus biasing the focus of the RIA in the direction of tighter regulation. Alternatives are barely explored, and there is an underlying assumption that regulation is necessary: That is to say, there is no real exploration of the optimality of ex-ante intervention compared with relying on ex-post penalties in the tort system.

MONETIZED COSTS & BENEFITS (AS REPORTED BY AGENCY)

Dollar Year
2008
 
Time Horizon (Years)
per year
 
Discount Rates
3%
7%
Expected Costs (Annualized)
210 million
210 million
Expected Benefits (Annualized)
330-770 million
300-740 million
Expected Costs (Total)
Not Reported by Agency
Not Reported by Agency
Expected Benefits (Total)
Not Reported by Agency
Not Reported by Agency
Net Benefits (Annualized)
120-560 million
90-530 million
Net Benefits (Total)
Not Reported by Agency
Not Reported by Agency

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?
Notice of proposed rulemaking (NPRM) immediately found on regulations.gov. along with all docket material. RIA not directly found on regulations.gov but found on EPA website but only under search for "Assessment of the Potential Costs, Benefits, and Other Impacts of the Proposed Revisions to EPA's Underground Storage Tank Regulations."
3/5
2. How verifiable are the data used in the analysis?
Data laid out fairly clearly, with numerous summary tables presented throughout analysis. However, data often based on numerous assumptions and predictions of four experts, since there was little to no data available with which to directly measure many of the variables the analysis required.
3/5
3. How verifiable are the models and assumptions used in the analysis?
EPA employs a number of assumptions, and they are clearly laid out along with the methods used to estimate costs and benefits. Not all aspects backed by citations in the literature.
3/5
4. Was the analysis comprehensible to an informed layperson?
Analysis fairly clear. Table of abbreviations near the start of the RIA was helpful, and the numerous tables throughout document were clearly presented. Organization was logical, but volume of material was somewhat of a burden to the informed layperson.
4/5

Analysis

5. How well does the analysis identify the desired outcomes and demonstrate that the regulation will achieve them?
3/5
Does the analysis clearly identify ultimate outcomes that affect citizens’ quality of life?
Citizens benefit from reduced environmental damage, reduced human health risk, and improvements in value of environmental amenities. Benefits also include avoided costs associated with reduced need for cleanup and avoided costs of “averting behavior” such as obtaining replacement water supplies.
4/5
Does the analysis identify how these outcomes are to be measured?
Analysis monetizes a number of impacts of the proposed rule, including: avoided costs generated by avoided releases; reduction in severity of releases; avoided product loss; avoided vapor intrusion damages; and a subset of human health benefits. Various qualitative benefits are identified but not measured.
4/5
Does the analysis provide a coherent and testable theory showing how the regulation will produce the desired outcomes?
Theory is simply that regulations will improve safety of underground storage tanks (USTs) and provide more rapid detection of leaks, thereby decreasing leakage over time. This is achieved through adding secondary containment requirements for new and replaced tanks and piping; adding operator training requirements; adding periodic operation and maintenance requirements for UST systems; updating codes of practice. Not really a theory—although, loosely interpreted, states that command and control will save costs and give benefits: theory strictly requires an account of why command and control is optimal, rather than, say, relying on ex post penalties.
3/5
Does the analysis present credible empirical support for the theory?
Little credible support. RIA states the literature does not address UST inspection programs directly and thus cannot provide quantitative results to estimate impacts of the proposed rule. RIA argues the literature does provide data that generally indicates that self-implementing inspection programs (with external validation) do improve equipment maintenance in other cases and generally lower environmental problems. However, RIA’s own examination of state data on UST releases failed to reveal a consistent measure of potential impact of release prevention regulations. Absence of useful data leads EPA to argue that the best evidence of benefits were derived from input from four experts in the area.
2/5
Does the analysis adequately assess uncertainty about the outcomes?
Comparisons are made using different discount rates and sensitivity analysis is carried out, e.g., for equipment failure. Experts were asked about uncertainty surrounding changes in number and characteristics of annual confirmed releases associated with changes in frequency of regulatory requirements. While this might be the best available evidence, it is unlikely to adequately assess outcome uncertainty.
2/5
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?
1/5
Does the analysis identify a market failure or other systemic problem?
No discussion of market failure or why the regulation remedies some systemic problem stemming from owners of USTs. Indirectly, the analysis suggests that if benefits outweigh costs of the proposed regulation, then there exists a systemic problem. So, market failure is implicitly assumed, but no case is made for preemptive regulation (compared with relying on nuisance law).
0/5
Does the analysis outline a coherent and testable theory that explains why the problem (associated with the outcome above) is systemic rather than anecdotal?
No discussion of why this problem is systemic other than there are UST leakage problems. The implicit assumption is that previous regulation needs to be strengthened (perhaps previous discussion connected to the original regulation outlined such a theory). Discussion does not entertain the possibility that UST owners might be concerned over the value of their property and thus are interested in controlling leakages. No thorough analysis of why tank owners are currently not cleaning up, and no discussion of why there might be weak enforcement of nuisance law.
1/5
Does the analysis present credible empirical support for the theory?
No empirical support is presented for the theory that the UST leakage problem emanates from private or government ownership. No studies reported in RIA claiming that jurisdictions with stricter regulations are associated with fewer UST incidents. No discussion of these issues within RIA. Some empirical support for scale of damages problem.
1/5
Does the analysis adequately assess uncertainty about the existence or size of the problem?
No discussion of the extent to which there is uncertainty over the extent of UST problems stemming from private/public ownership or from lack of adequate regulation.
0/5
7. How well does the analysis assess the effectiveness of alternative approaches?
3/5
Does the analysis enumerate other alternatives to address the problem?
Three options considered: preferred, alternative 1, and alternative 2. Under each of these alternatives, EPA evaluated variations of a subset of the proposed changes, while some of the proposed regulatory requirements remained in effect across all options.
3/5
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)?
Narrowly confined to variants of command and control regulation. Some exemptions and variations of the preferred regulation given. However, no discussion of solving problems by altering penalties imposed on UST owners or fostering damages through the legal system. Discussion does not entertain the possibility that UST owners might be concerned over the value of their property and thus are interested in controlling leakages. Strictly, the case for ex-ante regulation requires a demonstration that such action is cost effective compared with alternatives such as relying on ex-post penalties to deter the pollution.
3/5
Does the analysis evaluate how alternative approaches would affect the amount of the outcome achieved?
Yes, outcomes assessed under the three fairly narrow options.
4/5
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?
EPA’s primary analysis assumes that the universe of UST systems stays constant over time. That is, the analysis assumes that when an UST system enters the universe, another exits, and vice versa. However, RIA discusses that data show that the universe of UST systems has been declining (at a slowing rate) over the past two decades. EPA does assesses compliance costs associated with the proposed rule based on an alternative baseline that projects a declining universe. However, no discussion is made that UST owners would alter their behavior if they feared lawsuits over UST leakages, bad publicity over leakages, and/or simply because they believe they should be more environmentally conscious.
3/5
8. How well does the analysis assess costs and benefits?
4/5
Does the analysis identify and quantify incremental costs of all alternatives considered?
Incremental costs under three options are identified with many assumptions.
5/5
Does the analysis identify all expenditures likely to arise as a result of the regulation?
Does identify a considerable number of such expenditures. Analysis assessed compliance costs imposed upon UST units and relevant state governments. Average economic impacts—motor fuel retailers, which account for roughly 80 percent of UST systems, are expected to bear 70 percent of total costs under the Preferred Option.
4/5
Does the analysis identify how the regulation would likely affect the prices of goods and services?
No estimates of price increases or elasticity issues are provided, but there is mention that fewer businesses would exit if they could somehow pass costs along to customers.
2/5
Does the analysis examine costs that stem from changes in human behavior as consumers and producers respond to the regulation?
EPA argues that the most likely response by many affected firms will be to adapt by increasing prices on higher margin products and services. Costs, however, are not clearly examined.
3/5
If costs are uncertain, does the analysis present a range of estimates and/or perform a sensitivity analysis?
Various discount rates are considered. EPA also assessed the sensitivity of compliance costs outcomes to key assumptions.
4/5
Does the analysis identify the alternative that maximizes net benefits?
Yes, but across narrow alternatives and on some loose data. EPA estimates that the Preferred Option could generate $90 million to $530 million per year in net benefits. Alternative 1 could have a net benefit of $250 million to a net cost of $210 million, while Alternative 2 could generate net benefits of $460 million to net costs of $20 million.
4/5
Does the analysis identify the cost-effectiveness of each alternative considered?
EPA measured cost-effectiveness by considering the expected cost per release avoided of the preferred option and alternatives 1 and 2. This cost-effectiveness measure compares the resources required to eliminate a single release under each alternative. EPA also considers avoided releases to be both releases altogether avoided and groundwater incidents averted due to proposed rule.
5/5
Does the analysis identify all parties who would bear costs and assess the incidence of costs?
Pretty fair attempt at this. The proposed rule is not expected to have significant small government impacts. EPA’s assessment of costs to state and local governments indicated no government-owned UST facilities will experience costs that exceed one percent of revenues. Also, proposed rule is not expected to have any disproportionately high and adverse human health or environmental effects on minority or low-income populations or on any community.
4/5
Does the analysis identify all parties who would receive benefits and assess the incidence of benefits?
Yes, there is an analysis of transfers and impacts in the RIA. Avoided remediation costs form the majority of benefits and are estimated to avoid total costs of $300 million per year to $740 million per year under the Preferred Option. EPA only quantified human health benefits from avoided benzene-related cancer and was unable to quantify or monetize many of the proposed rule’s benefits. Benefits from avoided benzene-related cancer total less than $5,000 per year. EPA estimated the proposed rule could potentially protect 110 billion to 350 billion gallons of groundwater each year. Incidence is not considered an important issue to explore.
4/5

Use

9. Does the proposed rule or the RIA present evidence that the agency used the analysis?
Proposal appears dictated by legislative background rather than data. RIA appears to justify revision of a past regulation because analysis does not set up a more formal model that may suggest a major refocus in regulation is justified.
1/5
10. Did the agency maximize net benefits or explain why it chose another alternative?
The preferred option is the one with the "best" net benefit range.
5/5
11. Does the proposed rule establish measures and goals that can be used to track the regulation's results in the future?
No direct mention, but it should be easy to track the number of UST leakages over time to assess future results. Effects on health, however, are not considered major benefits, and, even if they were, it would be difficult to track improved health as a direct result of the regulation, since there are so many other factors that ultimately influence public health.
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?
No mention data-gathering program appears to be in place, which is unfortunate given EPA’s own acknowledgement of lack of evidence on the UST problem itself. But, there still remains the problem that enhanced technology is likely to continue on its own, and it is unclear how much any future reductions in UST-related problems are directly linked to the revised regulation.
1/5
 
Total 32 / 60