Any action on climate change during Obama’s second term will likely come via EPA, not Congress. Crucial new EPA rules are in the works, including regulations on carbon dioxide from new power plants and, climate hawks hope, existing power plants too.

But EPA does not have final say over the regulations it writes.

Before it issues any major rules, the agency has to get sign-off from the Office of Information and Regulatory Affairs (OIRA), which is an office inside the Office of Management and Budget (OMB), which is an office inside the Executive Office of the President of the United States (EOP).

Wait! Don’t click away yet! Behind this barrage of acronyms is a serious question about who’s really in charge when it comes to environmental rules. Will it be Gina McCarthy, Obama’s new pick to run EPA? Or will McCarthy ultimately answer to Sylvia Mathews Burwell, Obama’s pick to run OMB? Will the rules be shaped by the public-health standards that have traditionally guided EPA, or by cost-benefit analysis from OIRA?

Lisa Heinzerling.
Georgetown University
Lisa Heinzerling.

Georgetown law professor Lisa Heinzerling, who used to work for EPA advising Lisa Jackson on climate policy, recently published a rather scathing critique of OMB that questioned the Obama administration’s commitment to transparency on agency rulemaking. She writes …

… the Obama administration has continued and deepened a longstanding practice of White House control over EPA rules, with cost-benefit analysis as the guiding framework. OMB is the central player in this structure: it reviews, under a cost-benefit rubric, all agency rules that it deems “major” under executive orders mandating this review. EPA rules deemed major by OMB are not issued without OMB’s imprimatur. Thus does the OMB director become the EPA Administrator’s boss.

What’s worse, throughout Obama’s tenure rules have simply disappeared into OMB, never to see the light again, with no explanation for why, or even if, they were rejected. (Heinzerling’s article cites several.) The administration has flouted its own guidelines on transparency, which were reaffirmed by the president in an executive order, and has skirted accountability by keeping final rulemaking determinations behind a cloak of secrecy.

I called Heinzerling to get the scoop on the dysfunctional state of the regulatory apparatus.

Q. In many cases, the laws Congress has passed (e.g., the Clean Air Act) instruct EPA not to use cost-benefit analysis when developing rules, but to use public-health or technology standards instead. Yet OIRA imposes cost-benefit on those same rules. How is that not a violation of congressional intent?

A. Congress hasn’t changed those environmental statutes. And almost none of them — I can think of only one example — explicitly require cost-benefit analysis. The others sometimes even prohibit it, but mostly they call for some other kind of decision-making framework. So one tension is that Congress has set forth one decision-making framework and then OMB and the president have set forth another.

The other tension is that even though OMB recognizes that some statutes don’t even allow cost-benefit analysis, they require it anyway. The Clean Air Act air-quality standards are the preeminent example here. The Supreme Court has held that you can’t do cost-benefit when setting something like the ozone standards; OMB says you must. Then you get I think a pretty ambiguous and problematic decision from the president, from OMB, sending the ozone rules back to Lisa Jackson. [In September 2011, the White House asked/ordered then-EPA chief Jackson to delay tough new standards for ozone pollution.]

Q. When did this tacked-on cost-benefit analysis start? What’s the origin?

A. Some form of this has existed since Nixon, but it was really systematized with President Reagan. He issued an executive order requiring cost-benefit analysis and for the first time putting OIRA in charge. Then President Clinton changed the executive order, made it a little bit more friendly to the environment and health and safety rules, creating a precise process for conflicts between OMB and the agencies. And now President Obama has both reaffirmed that executive order and issued his own [PDF].

Environmental laws have always been the big target.

Q. Is there basis for legal challenges to OMB on this stuff?

A. There are a few things. One is this question: Are they violating statutory mandates, like “don’t consider cost”? The second one is: Are they violating statutory mandates that say, you, EPA administrator, are in charge of doing this, not you, OIRA administrator? And the third, related to the second, is: Can the president, through the OIRA administrator, tell an agency head who’s been given authority by statute, “We know you want to do that, but you can’t”? And that turns out to be both a statutory and a constitutionally related question: How much authority does the president have over those decisions? That is unsettled. There’s a huge amount of writing from law professors on the topic.

Q. What’s EPA supposed to do if OMB sends something back because it costs too much? They’re still not allowed to consider cost, are they?

A. OIRA would say, “No, no, there’s a definitive Supreme Court ruling saying you can’t consider cost, we won’t make you consider cost.” But then you have to ask, what was the ozone rule about? Why was that handed back?

Q. Did they ever say why?

A. President Obama, in his note to Lisa Jackson, said these are tough economic times and we need regulatory certainty. Those things sound an awful lot like gestures toward cost. Cass Sunstein [OIRA administrator from 2009-2012] sent a memo saying there are other ozone rules (true, but irrelevant) and also gesturing toward regulatory certainty. Interestingly, he has said the ozone decision was “unquestionably correct on the merits,” but he has never explained it!

Q. In my experience, it’s difficult to get people worked up about inappropriate use of cost-benefit analysis because they don’t really see any alternative to it. They think, well, what else could you do but weigh costs and benefits? What else is there?

A. Let me back up: No matter what you think about cost-benefit, you might want to know that it’s this administration’s decisionmaking device. For all those rules that are stuck at OMB, there’s no return letter, there’s no public explanation why they’re there, and they’re never coming out. Whether you like cost-benefit or not, you might want a public explanation for why OMB has rejected rules the agencies have given them. It’s just a basic question about transparency and accountability.

But as for cost-benefit analysis, there are lots of other ways you can make decisions. I think sometimes people who talk about the advantages of cost-benefit trade on a kind of commonsense understanding of what it means. It’s Ben Franklin’s “moral and prudential algebra” — you put things that are good on one side of the ledger, things that are bad on the other, and think about it. That’s not a bad way to make decisions. But there are other ways to make decisions.

There are some places where we decide, no, I’m just not going to do that; I’m going to have a principle. Air quality standards that don’t allow considerations of cost have that character — the idea that we would have air quality everywhere in the U.S. that allows people to breathe without getting sick or dying. People can say it’s dumb, or it goes too far, but it’s a way to make decisions. It’s not crazy.

Another way to make decisions is to say, we’re going to have you use the best control technology out there. We’re going to look at the top 10 percent of the relevant plants and have all plants come up to that code. Again, people can criticize it on the merits, but it’s a way to make decisions, basically the way we’ve made decisions in environmental policy.

Q. Do agency administrators chafe under this OMB review?

A. When the Obama administration came into office, Obama issued a presidential memorandum saying he was looking for recommendations about how to reform the process of regulatory review. He said OMB was supposed to look at cost-benefit, the relationship between the agencies and OIRA, all these things people had been anxious and upset about in previous years. People were so happy. The agencies sent in all these comments. Everybody was eager, because they thought there finally wasn’t going to be such a grip on their output by OIRA.

But the agency comments were never made public and the matter just sort of died. There was a lot of hope that the process would change in a way that would allow the agencies to do their work without as much intrusion from OIRA. But it came to nothing. I think there’s been an explicit privileging of cost-benefit in this administration; it was there in the Bush administration, but it is explicit now. I think OIRA’s influence has been deepened.