After issuing a memorandum on “Modernizing Regulatory Review” on his first day in office in 2021, President Biden issued an executive order (EO) on April 6, 2023, calling for further steps by federal regulatory agencies and the Office of Information and Regulatory Affairs (OIRA) within the Office of Management and Budget (OMB). See Exec. Order 14,094, 88 Fed. Reg. 21,879 (Apr. 11, 2023). On the same day, OIRA released for public comment a proposed revision, and a preamble, to OMB Circular A-4, specifying analytic methods for agencies’ benefit-cost analyses (BCA), including policy alternatives, discount rates, distributional equity, and related topics.
The most important and salutary feature of EO 14,094 is its commitment to the continuity of reasonable regulatory oversight. The Biden Administration is reaffirming and advancing the balanced overall approach to regulation by past U.S. administrations of both parties since the 1970s. By expressly reaffirming the EOs issued by Presidents Obama (EO 13,563) and Clinton (EO 12,866) which built on the earlier EOs issued by Presidents Reagan (EO 12,291) and Carter (EO 12,044), President Biden’s EO 14,094 bolsters the bipartisan consensus in favor of both centralized presidential review of regulation (via OIRA) and the use of BCA to compare policy options. Important steps over time include the creation of OIRA during the Carter Administration in 1980; the Reagan order giving OIRA its oversight authority; the Clinton order maintaining the approach while moving BCA from “outweigh” to “justify,” and highlighting distributional impacts and transparency; the George W. Bush Administration issuing prompt letters and Circular A-4; and the Obama Administration emphasizing dignity and retrospective review. (The Trump Administration sought a form of cost-cost regulatory budget analysis in EO 13,771, which President Biden rescinded on his first day.) Biden has now moved to reinvigorate and “modernize” presidential regulatory review via OIRA, using improved BCA.
The proposed revised Circular A-4 addresses several elements of analytic methodology. Much of the debate will focus on these methods for BCA, including quantified and qualitative impacts, monetized valuation (metrics such as value per statistical life (VSL) and the social cost of carbon (SCC)), discount rates for future impacts, and distributional equity across subgroups.
The essential predicate to these elements is assessing all important impacts. BCA methods, such as quantification, monetization, discounting, and distributional analysis, all depend on first identifying and assessing the full set of important impacts that may flow from a policy option. The best methods of discounting or distributional analysis will not help if applied to the wrong impacts. Regulatory analyses that omit important impacts may yield suboptimal policies that disserve social well-being, distributional equity, and democratic transparency—in short, they will be inefficient, unfair, arbitrary, and opaque. Omitting an important impact can sometimes be a larger error than using an outdated valuation metric or discount rate. Added effort by agencies and OIRA to assess all important impacts may be more valuable than further methodological precision. Better to be comprehensive than narrowly precise.
Indeed, EO 12,866 (which is still in force today, and is incorporated into Section 3 of the new EO 14,094), provides in Section 1(a):
[A]gencies should assess all costs and benefits of available regulatory alternatives … . Costs and benefits shall be understood to include both quantifiable measures (to the fullest extent that these can be usefully estimated) and qualitative measures of costs and benefits that are difficult to quantify, but nevertheless essential to consider.
Exec. Order No. 12,866, 58 Fed. Reg. 51,735 (Oct. 4, 1993) (emphasis added).
This is the basic aim of BCA. A leading textbook teaches that BCA should “consider all of the costs and benefits to society as a whole … all consequences of a policy to all members of society.” Former Clinton Administration OIRA head Sally Katzen states that "[t]he virtues of analysis—as robust as needed, commensurate with the significance of the decision being made—are, to me, self-evident: the regulator must think through, with all available data and in a systematic and disciplined way, all the intended and unintended consequences of a proposed rule.” Likewise, former George W. Bush Administration OIRA head Susan Dudley and former EPA policy official Brian Mannix write that, "[i]n principle, a benefit-cost analysis should be ‘complete.’ It should include all of the significant consequences of a policy decision: direct and indirect, intended and unintended, beneficial and harmful.”
Despite the importance of assessing all important impacts, decisionmakers often focus on one impact or target or “silo,” and neglect the broader array. Assessing all important impacts is a crucial and classic calling, but a cognitive challenge. Benjamin Franklin advised in 1772 that decisions “are difficult, chiefly because while we have them under Consideration, all the Reasons pro and con are not present to the Mind at the same time,” and though “the Weight of Reasons cannot be taken with the Precision of Algebraic Quantities, yet, when … the whole lies before me, I think I can judge better, and am less liable to make a rash Step.” In Federalist 71, Alexander Hamilton argued that a key role of the Executive Branch is to make decisions carefully under pressure: to undertake “cool and sedate reflection. Instances might be cited, in which a conduct of this kind has saved the people from very fatal consequences of their own mistakes ….” Today, a core principle of modern administrative law is that “an agency rule would be arbitrary and capricious if the agency has … entirely failed to consider an important aspect of the problem ….”
Good BCA strives for a structured approach to assess all important impacts in order to overcome our ordinary inattention to the full consequences of decisions. Methods of policy analysis have improved significantly over time, enabling more comprehensive evaluation with more fulsome valuations of VSL, SCC, ecosystems, and other improvements. Well done, BCA can favor major regulations, such as phasing out CFCs, reducing particulate matter air pollution, and sound climate policy.
The challenge is to get beyond “tunnel vision,” and to counteract “disregard” of impacts and affected subgroups. Assessing all important impacts helps overcome these cognitive limitations, and the “omitted voice” of underrepresented subgroups, by pressing policy makers to think more holistically and systemically. Such analysis needs to include both intended impacts and unintended impacts—both positive and negative. Policy analysis needs to go beyond one risk at a time and address the multi-risk complexity of the real world, including simultaneous exposure to multiple stressors and multiple impacts of policy options.
The new proposed revisions to Circular A-4 generally maintain broad attention to assessing all benefits and costs. But where the 2003 version of Circular A-4 had a lengthy section addressing “Ancillary Impacts” (co-benefits and countervailing risks), the proposed 2023 version has a shorter Section 7(g) addressing “Additional Impacts.” OMB, Proposed Circular A-4, supra note 1, at 39-40. Section 7(g) tells agencies to “look beyond the obvious benefits and costs … and consider any important additional benefits, costs, or transfers, when feasible.” It says that agencies should “begin by listing the possible additional” impacts and give “analytic priority” to those that “are important enough to potentially change the rank ordering of the main alternatives.”
This framing should help agencies attend evenhandedly to “additional impacts.” But it may not adequately prod agencies to envision and assess the unintended consequences of their policy options. Overcoming the silos, tunnel vision, disregard, and other obstacles to assessing all important impacts often requires more effort. OMB/OIRA should consider adding to Section 7(g) a structured process—a checklist, and a template table—for agencies to enumerate potential additional impacts, both positive and negative. Additional impacts may include producer complements and substitutes, consumer demand shifts, spillovers to other jurisdictions (such as “leakage” of risks, and diffusion of innovations), behavioral responses, low-probability catastrophic scenarios, and other avenues. The theoretical and empirical literature on side effects, co-benefits, countervailing risks, and unintended consequences can help regulators “look beyond the obvious” by developing methods for improved foresight of unexpected outcomes, such as modeling, expert elicitation, pilot testing, focus groups, strategic game experiments, monitoring, and empirical and comparative analysis of past and related policies.
At the same time, assessing a broader array of impacts is not costless. (The cognitive silos, tunnels and disregard may partly reflect decision costs.) Added analysis may be costly in staff, resources, and delay. Thus, the optimal degree of analysis is not maximal. Sound BCA should assess all important impacts holistically, subject to the opportunity cost of added analysis, in a value of information/cost of information (VOI/COI) approach. This entails devoting greater analysis to the impacts that could affect the choice among policy alternatives, both in aggregate and distributionally. Section 7(g) addresses this by noting that “additional effects that are important enough to potentially change the rank ordering of the main alternatives in the analysis should be given analytic priority.” And Section 7(a) states:
Minor additional benefits, costs, or transfers (or ones that evidence indicates are highly speculative) may not be worth further formal analysis. At the same time, the fact that benefits, costs, and transfers often are uncertain, or difficult to monetize or quantify, does not necessarily make them either highly speculative or minor. Analytic priority should be given to those additional benefits, costs, and transfers that are important enough to potentially change the rank ordering of the main alternatives in the analysis.
OMB/OIRA should consider the concept of “proportionate analysis” to capture this approach. And it should link the analysis of “additional impacts” to both the aggregate and distributional assessments, which both depend on assessing all key impacts.
A concern is that Section 7(g) classifies ancillary harms/countervailing risks under “additional costs.” That is analytically plausible, and not inconsistent with EO 12,866. But as a legal matter, it could mean that agencies or courts will treat analysis of countervailing risks as disallowed under statutes that courts view as precluding consideration of “cost.” A better approach in Circular A-4 would be to classify additional or ancillary harms/countervailing risks as dis-benefits on the benefits side of the ledger, where they could legally be assessed, and moreover where the physical metrics (e.g., human health and mortality) would often be more commensurable with the target benefits. Analytically, whether such impacts are on the benefit or cost side will not change the rank ordering of alternatives by their net benefits, but in cases where an agency is legally precluded from considering cost, classifying additional impacts under costs may misidentify the alternative that maximizes public benefit. If the additional impact is treated as a dis-benefit classified on the benefits side, the agency will identify the alternative that maximizes benefits—which is also more consistent with the benefit-promoting function of the statute.
Assessing all important impacts should not only be prospective; it should also be retrospectively applied to assess actual outcomes. Retrospective review can improve specific rules by reducing costs or increasing benefits. More broadly, retrospective review can promote “regulatory learning” across multiple rules, by comparing which policy designs work best, and which prospective methods are most accurate. The proposed revisions to Circular A-4 suggest “developing one or more pilot projects to test the measures under consideration” and “plans for data collection … that include retrospective review.” OMB, Proposed Circular A-4, supra note 1,
at 22-23. OMB/OIRA should say more here, or promulgate further guidance, to encourage retrospective review by agencies and/or by a multi-agency institution to compare across rules. Agencies could plan retrospective regulatory analysis through their evidence-based “learning agendas.” Retrospective review can also build toward regular periodic reviews and planned adaptive regulation.
The Biden Administration’s promulgation of EO 14,094 and proposal to revise Circular A-4 are salutary developments. The most important feature is the reaffirmation of balanced regulatory oversight. The next essential feature of a revised Circular A-4—a predicate for other methodological advances—is to ensure assessing all important impacts.
