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The Role of Economics At DEP

[Update #2 – 4/16/10 – strong Asbury Park Press editorial: “Aiding economy not DEP’s job

Update #1 below]

Todd Bates of the Asbury Park Press has written an important story about the role of economics at the NJ Department of Environmental Protection (DEP): “Push for DEP to weigh economic impacts creates a stir”.

For now, I want to emphasize two key issues brought out in quotes in Todd’s story, both of which I have written about in depth previously (e.g. see this and this):

1. The DEP was NOT created and authorized by the Legislature to promote economic development. Commissioner Martin’s push to have DEP “play a major role in economic development” is not only a radical departure from practices for over 40 years at DEP, but it is not legally authorized and actually conflicts with many environmental laws.

Martin’s most recent plan to create an Assistant Commissioner for Economic Development and Governor Christie’s Executive Order #2 mandate that DEP consider cost-benefit analysis in regulations should be blocked by the Legislature:

Should New Jersey’s environmental agency play a key role in economic development?

New Jersey Environmental Commissioner Bob Martin thinks so, and soon he will appoint an assistant commissioner for economic development – believed to be a first in the agency’s nearly 40-year history. But the Department of Environmental Protection’s job is to protect the environment and public health, not the economy, some environmental law experts and activists said.

“I don’t see anything in (the state law detailing the DEP’s powers) that has to do with promoting the economy,” said Jeff Climpson, environment section chief in the state Office of Legislative Services, which drafts state legislation.

2. The role of economics in setting environmental and public health standards is strictly limited under most federal and virtually all NJ environmental laws.

The economic impacts of regulations must be analyzed and described, and may be considered in how some standards are implemented.

But economic impacts may not be considered as factors that form the basis of decisions on regulatory standards, e.g. the level at which, or how strictly health and environmental standards are set (see below example of factors that may be considered in setting NJ drinking water standards).

Commissioner Martin completely fails to even recognize these very basic legal and policy distinctions:

Martin also recently delayed adopting a proposed limit on perchlorate –  a rocket fuel ingredient linked to thyroid problems – in drinking water, partly because of the potential economic impact. The proposed limit had been in the works for years.

Under state law, the DEP commissioner is charged with adopting drinking water standards “within the limits of medical, scientific and technological feasibility.”

Bill Wolfe, a former DEP analyst who directs the nonprofit New Jersey Public Employees for Environmental Responsibility, said considering the economic costs of drinking water limits is “blatantly illegal” and his group is considering a lawsuit on the issue.

DEP’s budget is up before the Assembly Budget Committee tomorrow at 2 pm – Let’s hope Commissioner Martin faces some oversight on these two key issues.

PS – Here is the legal basis for NJ drinking water standards – they do not include cost factors – as I wrote on March 12:

The [Drinking Water Quality] Institute considers three factors when recommending MCLs: health effects, technological ability to measure the contaminant level, and ability of existing treatment technologies to meet the MCL. For chemicals causing effects other than cancer (noncarcinogens), the goal is the elimination of all adverse health effects resulting from ingestion, within the limits of practicability and feasibility. The Federal standard-setting process considers these factors and an additional economic factor. (perchlorate proposal at page 19-20)

We will be writing much more on this topic – for the policy wonks out there interested in in depth analysis and critique of cost benefit analysis, check out this paper, from the Harvard Environmental Law Journal – “Beyond Cost-Benefit Analysis: A Pragmatic Reorientation” – it provides an outstanding analysis and includes very relevant case studies of mercury (clean air) and arsenic (drinking water) standards: (key excerpts)

3. Regulatory Relief

While economic theory provided the rationale for using CBA to assess proposed regulation, there was also a political motivation in the adoption of regulatory analysis. In the 1980s, the business community seized on the economic and think-tank literature to lobby for regulatory reform.94 The objective, however, was “regulatory relief” the reduction of regulatory costs no matter how this might affect the public interest.95 The Reagan Administration had a foot in both the regulatory reform and relief camps. It established a “Task Force on Regulatory Relief” chaired by Vice President George H.W. Bush, and made it responsible for supervising OIRA’s review of regulations.96 This double agenda opened the door for a politicization of the regulatory review process. As discussed in the next Part, the door is still open.

1. Politicization

The record of the White House’s administration of regulatory analysis in several administrations indicates that CBA has not significantly mitigated the politicization of policy-making. Anecdotal and empirical evidence indicates that White House review tilts in the direction of reducing the stringency of proposed regulations. Scholars have identified dozens of instances in which the Office of Management and Budget (OMB) slowed strong regulatory initiatives and/or sought to reduce their stringency.97

2. Accuracy

The inability of CBA to measure regulatory costs and benefits accurately in many situations is well known. This obviously limits the usefulness of CBA in determining the economic efficiency of proposed regulations.111 CBA as practiced by regulatory agencies and OIRA is imprecise for a number of methodological reasons. On the cost side, as just discussed, agencies are dependent on regulated entities for estimates and this information is unreliable. 112 There are a number of significant difficulties on the benefit side, but four problems stand out.

3. Bias

The results of CBA are not only inaccurate, they are often biased by the analyst’s policy preferences or the value judgments that are implicit in rational choice methodologies. It is therefore no accident that regulatory opponents often come up with benefit estimates that are far lower than the agency’s estimates or those of pro-regulatory sources.142 CBA is open to such manipulation because it attempts to resolve “trans-scientific” issues. Trans-scientific issues are questions that can be stated in the language of science, but are not answerable in purely scientific terms.143

[…]

(values and ethics)

CBA’s critics have made two arguments that reflect this post-empiricist perspective. They object that CBA only addresses the value of economic efficiency even though other values like altruism, dignity, equity, fairness (in both procedural and substantive senses), decency, mutuality, tolerance, and empathy . . . are highly valued in a civilized society.158 They also object to analyzing regulatory options on the basis of economic efficiency at all. This objection is to CBA’s utilitarian basis. Under CBA, the protection of individuals is treated as a “good”, like any other commodity, that can be bought and sold. As a result, people have no claim to protection from harm if their lives do not have sufficient economic value.159 A significant purpose of post-empiricism is to understand and explain the assumptions that underlie social theories and the linkage between these assumptions and empirical outcomes.

Update #1 – in advance of Martin’s confirmation hearing, on Feb. 27, I wrote:

5. Martin wants DEP “to play a key role in the economic growth of the state”. For now, I would just like to remind Martin and Senate Judiciary Committee members that promoting economic growth is NOT the statutory mission of DEP. Because so few seem to know what the DEP is supposed to do, here is DEP’s mission and powers, as established in DEP’s enabling legislation (note especially the lack of economic development powers):

These issues were not even discussed during confirmation. Today is DEP’s budget hearing in Assembly Cmte – will they be ignored again?

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