This article is part of a blog series from Resources for the Future (RFF), released weekly in the lead-up to Inauguration Day. In this series, RFF scholars weigh in on key challenges facing the new administration and explore the outlook for climate policy in the coming years.
President-Elect Biden has not yet commented on the role that benefit-cost analysis of regulations will play during his presidency. This issue has been an obsession for President Trump, who signed a slew of related executive orders that focus mostly on the cost side of benefit-cost analysis, limit the consideration of ancillary benefits, replace the international social cost of carbon estimate from the Obama administration with the much lower domestic estimate, and much more. The last effort is to turn some of the attacks on elements of benefit-cost analysis into rules rather than just administrative processes or executive orders.
If past is prologue, the Biden administration will follow the Obama administration, along with the Clinton administration before that. In the best case, benefit-cost analysis will be used to help guide the design of rules and explain the economic impacts of rules through the regulatory impact analysis process. Ancillary benefits will again become as important as the benefits underlying the purpose of the rule, estimates of the social cost of carbon will again consider international consequences, and so on.
But this is not to say that all will be sweetness and light. During my time in the Clinton administration on the Council of Economic Advisors, a bit of distrust existed among certain figures in the administration over the value of benefit-cost analysis. Even though research shows that costs are as likely to be underestimated as overestimated in these analyses, some in the administration felt that benefit-cost analysis would overemphasize costs and work against regulations. On the other hand, the Clinton era also was a period when the guidance from the Office of Management and Budget on the use of regulatory impact analysis changed from proceeding only if benefits exceed the costs to proceeding simply if benefits justify the costs. Indeed, such a distinction was critical for a stormwater management rule with benefits lower than costs, but which the administration nonetheless thought was essential to pursue for other reasons. Even as an economist trained to put special emphasis on taking actions that are efficient, I felt that using “justify” was more appropriate than “exceed.”
A host of issues about the conduct of benefit-cost analysis will be useful to address in a new administration that’s more committed than the outgoing administration to the science that underlies benefit-cost analysis. For one, the Biden administration should routinely conduct retrospective analyses of the impact of rules, which at one point was on the Trump administration’s agenda and has been discussed for years as a productive strategy to learn from mistakes and even correct them. Another area for improvement will be addressing the uncertainties associated with estimating benefits and costs. Scores of reviews and expert panels have urged federal agencies to do a better job of estimating and describing uncertainties. But such efforts often have been thwarted by a lack of data, a fear of court challenges, or some decisionmakers’ desire for uncomplicated estimates of costs and benefits. A third area for possible improvement is the much touted—and, in some quarters, much reviled—value of a statistical life. This key number, involved in assessing the benefits of air quality regulations among many others, has not been thoroughly revisited for decades and needs a comprehensive look.
Ultimately, I am hopeful a Biden administration can be trusted to make non-ideological decisions and take a science-based approach to the benefit-cost analysis process. Still, tradeoffs will be apparent when, inevitably, a proposed rule significantly reduces emissions but is not maximally efficient. In those cases, I hope the Biden administration uses benefit-cost analysis to help design a more efficient rule and is transparent in recognizing the inefficiencies while also communicating the political, legal, or distributional justifications for moving ahead with the rule, anyway.