Policy Integrity's Livermore discusses impact of cost-benefit analysis on environmental policy

What are the global trends for cost-benefit analysis, and how is this policy tool affecting environmental regulations? During today's OnPoint, Michael Livermore, executive director of the Institute for Policy Integrity and co-editor of the new book "The Globalization of Cost-Benefit Analysis in Environmental Policy," discusses the growing global use of cost-benefit analysis and its impact on environmental policy. He explains why he believes cost-benefit analysis is effective and highlights a recent case, relating to EPA's mercury rule, where cost-benefit analysis was called into question.


Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Michael Livermore, executive director of the Institute for Policy Integrity, and an adjunct professor at NYU School of Law. Michael, great to have you back on the show.

Michael Livermore: My pleasure. Thanks for having me.

Monica Trauzzi: Michael, you've just co-authored a new book entitled "The Globalization of Cost-Benefit Analysis and Environmental Policy." Cost-benefit analysis is broadly adopted here in the U.S. We see it used very often, particularly on environmental policy. So why the need for this book? What are the trends that we're seeing globally on cost-benefit analysis?

Michael Livermore: Yeah. So there's really been a spread from the U.S. around the world of this technique of cost-benefit analysis. It is much less widespread elsewhere. There is, you have cost-benefit analysis in Europe. That has really taken on a life of its own. Certainly after like the nineties, the European Union has really adopted the practice. But in places like Africa, throughout Latin America and Asia, you're really seeing a spread of cost-benefit analysis in environmental policy, and I think that's also mirrored just a general global trend of looking to these countries for leadership on environmental issues, especially as, you know, things like the International Climate Negotiations have broken down, and so this is becoming a more prominent tool just at a time when these countries are taking a major role on environmental policy making.

Monica Trauzzi: Are we seeing areas where it's perhaps not being used, and how could those areas benefit from it?

Michael Livermore: Right. So probably the biggest area where it's used is in air quality regulation. That's, in air quality policy generally, and that's actually true in the U.S. as well. Those are easy benefits to measure. They're often easier costs to measure. It's not perfect, but it's easier. Natural resources is a much more difficult area, like valuing clean water, valuing forests, biodiversity, and a lot of these are actually areas where developing countries, it's almost more important, or it's a more central part of their environmental policy, think, take a country like Brazil, where the rain forest is just a huge part of the country, and so their environmental policy is focused on the Amazon in a way that in the U.S., it's more about public health regulation. We have conservation policy, but it's less central to our, you know, to the agency decisionmaking.

Monica Trauzzi: So why does this strengthen our policy-making abilities?

Michael Livermore: Right. So what, I mean, especially in developing countries, the bottom line really matters, right? There's just not a lot of extra money to throw around. There's a lot of pressing issues, poverty and education and, you know, really basic infrastructure. And so countries want to know that these are wise investments, that if they're going to do conservation, if they're going to do air quality improvement, that that's going to pay off, and that's where cost-benefit analysis can come in and say, look, when you tally up the dollars and cents, it doesn't make sense to clear cut this forest. It actually makes sense to conserve it. You're going to improve your water quality. It's going to reduce disease. And that is a way to really convince policy makers that these are important steps to take.

Monica Trauzzi: But are there instances here in the U.S. where it's maybe had some questionable influence?

Michael Livermore: Yeah. Well, I think that the U.S. has a very specific history with cost-benefit analysis. Where it got brought in during the Reagan administration as part of a broad effort to kind of scale back environmental policy, and that's a very specific political history, and that's really framed a lot of the debate around cost-benefit in the U.S. One of the things that was interesting as we were researching this book, which we really brought in, we edited and we brought in authors from around the world, folks who've been working on this in developing countries for, you know, many years, is they didn't have the specific kind of political baggage that we've had in the U.S., and so they had a very different view about what the potential for cost-benefit analysis could be, to improve environmental policy.

Monica Trauzzi: And we're sort of seeing the themes of this book play out right now. Your organization recently filed a brief to refute claims that EPA's cost-benefit analysis of the mercury rule was flawed. So what's happening in that case, and why do you think the cost-benefit analysis here worked?

Michael Livermore: Right. So this is a perfect example. It's a rule that's going to really improve the air quality, and when you look at the, you know, the dollars and cents, the costs are so small compared to the benefits. The benefits just dwarf the costs. Now the Chamber of Commerce disagreed. They didn't like how the benefits and costs were calculated. But really, just using standard economic techniques that are just widely accepted best practices, that's what EPA was doing. That's much closer to what EPA had, the Chamber was really asking the EPA to just disregard standard economic best practices for these types of rules, and so that was what our brief was saying, is that the agency did the right thing. These are the standard methodologies, and the court shouldn't, you know, look askew at them.

Monica Trauzzi: So let's step away from cost-benefit analysis and talk more broadly about what's happening at EPA. The Cross-State Air Pollution Rule recently faced a huge hit, a federal court denying their, EPA's request to reconsider its decision to throw out the rule. Does this go all the way to the Supreme Court, and what does this mean more broadly on the future of air pollution standards?

Michael Livermore: Yeah. So that was a very difficult decision for the agency. Obviously, the agency tried to get the whole circuit to look at it, the whole DC circuit, with an en banc review. That's not happening. It's possible the D.C. or the Supreme Court will take it. I'm skeptical that that will happen. It just doesn't seem to raise the kinds of issues that the court particularly likes to deal with. But I think it's a real hit. It's a real hit for air quality across the country. It's now the second time that a major agency initiative on the interstate air pollution has been knocked down by the D.C. Circuit, and I think it's a big problem because the court wasn't deferential enough to the agency about market mechanism. Basically, the EPA tried to be flexible, get the air quality standards and the air quality improvements in a way that was less expensive for businesses, and that, the flexibility mechanisms were what the court wasn't liking. And that I think is a real problem going forward if we want to use these flexible mechanisms.

Monica Trauzzi: EPA Administrator Jackson has announced she's leaving the agency, and she's really been seen as an aggressive force on air rules. How do you see that changing under a new administrator? And could this be a shift in tone?

Michael Livermore: Well, we'll, you know, we'll have to see. A lot's going to depend on the next administrator. It's going to be a big signal by the administration. So we'll see. I think that it could be a shift in tone. My guess, again, is that there's going to be a lot more continuity. We're not going to see someone that's going go in a radically different direction. I mean, hearing the President talk about climate change in the inauguration address, I don't think that's a signal that there's going to be a big shift in emphasis.

Monica Trauzzi: All right. We'll end it right there. Good luck with the book. Thanks for coming on the show.

Michael Livermore: Thanks a lot. Thanks for having me.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

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