Much of the attention in President Joseph Biden’s executive actions in his first 100 days has been focused on his numerous executive orders on topics ranging from climate and COVID-19 to race and gender. Although these executive orders will immediately alter certain policies, observers have overlooked one non-executive order that may have a more consequential impact during the remainder of President Biden’s term: his January 20, 2021 memorandum titled “Modernizing Regulatory Review” (MMR).
MMR instructs the Director of the Office of Management and Budget (OMB) to consult with heads of executive departments and agencies and ultimately produce “a set of recommendations for improving and modernizing” the cost-benefit analysis that is performed by OMB’s Office of Information and Regulatory Affairs as part of its review of agency regulations. Although MMR references and purports to build on executive orders from Presidents Bill Clinton and Barack Obama concerning cost-benefit analysis, it differs from their orders in key ways that could allow the administration to justify imposition of costly new regulations, especially in the environmental field.
This LawFlash provides an overview of the history of cost-benefit analysis in the executive branch, discusses MMR and explains how it could be used to allow for the approval of certain regulations where the regulations’ significant economic cost might have previously precluded agency support, and concludes by previewing what can be expected in the near future.
Modern executive agency cost-benefit analysis is largely governed by President Clinton’s Executive Order 12866 and President Obama’s Executive Order 13563. Relevant to this LawFlash, these executive orders instruct agencies to design regulations in the most cost-effective manner and tailor them to impose the least net cost on society while maximizing net benefits.
MMR begins by referencing and reaffirming “the basic principles” of EO 12866 and EO 13563. It then pivots by acknowledging that America currently “faces serious challenges, including a massive global pandemic; a major economic downturn; systemic racial inequality; and the undeniable reality and accelerating threat of climate change.” To address these challenges, MMR instructs the director of OMB to consult with representatives of the executive departments and agencies “with the goal of producing a set of recommendations for improving and modernizing regulatory review.” It is here that MMR breaks with Presidents Clinton’s and Obama’s executive orders and adds new criteria on which agencies are to focus.
For instance, when performing a cost-benefit analysis, both President Obama’s EO 13563 and MMR allow agencies to consider equity, human dignity, and distributive impacts. MMR, however, adds racial justice, environmental stewardship, and the interests of future generations as areas that regulations are supposed to promote. Additionally, per MMR, agencies are to ensure that regulations “appropriately benefit and do not inappropriately burden disadvantaged, vulnerable, or marginalized communities.” Further, the OMB director is to recommend ways to revise OMB’s 2003 Circular A-4, Regulatory Analysis – a document that provides agencies with best practices of measuring costs and benefits – so that the new circular “fully accounts for regulatory benefits that are difficult or impossible to quantify.” Taken together, these new directives in MMR could enable agencies to justify higher costs of regulations – especially environmental regulations – when performing cost-benefit analysis.
Two examples illustrate the potential impact of MMR on the review of environmental regulations. First, one of the chief arguments against government action on climate change is that the present costs imposed by regulations do not justify future, uncertain benefits. By identifying climate change as an “undeniable reality and accelerating threat,” MMR could change the cost-benefit calculus with its direction that agencies are to promote “the interests of future generations.” As the worst impacts from climate change are expected to occur in the future and, thus, are “difficult or impossible to quantify,” MMR could give agencies an opening to justify higher present costs if they are offset by benefits to future generations.
With its focus on racial justice and environmental stewardship, and an instruction that regulations should benefit “disadvantaged, vulnerable, or marginalized communities” a second area MMR could potentially impact is “environmental justice.” EPA’s website currently defines this term as “the fair treatment and meaningful involvement of all people regardless of race, color, national origin, or income, with respect to the development, implementation, and enforcement of environmental laws, regulations, and policies.” The following example shows how MMR could impact cost-benefit analysis when it comes to environmental justice. Suppose that one pollutant is shown to disproportionally harm racial minorities. Further suppose that, prior to MMR, EPA considered, but did not implement, a regulation to impose more stringent standards on this pollutant, out of concern that the costs outweighed the benefits. Now, due to MMR, the disproportionate harm to racial minorities caused by this pollutant is precisely what agencies are supposed to focus on. MMR could, thus, allow agencies to include reduction in harm to minorities on the benefit side of the cost-benefit equation and tip the balance in favor of regulation.
In the coming months, the new OMB director will begin implementation of Modernizing Regulatory Review by consulting with representatives from executive departments and agencies. These consultations should produce a set of recommendations concerning how agencies should update their cost-benefit procedures. We will continue to monitor these developments, including any eventual recommendations the OMB director makes and how these recommendations could impact future environmental regulations.
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If you have any questions or would like more information on the issues discussed in this LawFlash, please contact the authors or any of the following Morgan Lewis lawyers:
Los Angeles
Jim J. Dragna
Rick R. Rothman
Princeton
John McGahren
Christopher J. McAuliffe
San Francisco
Ella Foley Gannon
Washington, DC
Duke K. McCall, III
Bryan M. Killian