Environmental Economics: Comments on “Economic Analysis for the Proposed Definition of ‘Waters of the United States’

October 10, 2017

Comments on “Economic Analysis for the Proposed Definition of ‘Waters of the United States’—Recodification of Pre-Existing Rules”

Here are the first 622 of 5230 words:

Two years ago, the U.S. Environmental Protection Agency and U.S. Department of the Army (EPA-Army 2015) estimated that the total quantified benefits of the Clean Water Rule (CWR) range from a low of $339 million to $350 million (2014 dollars). The largest component of these benefits was due to wetland mitigation, which was estimated at $306 million (using the “original number of ORM2 other waters records” scenario). EPA-Army (2015) concluded that the benefits of the CWR exceed the costs.

The EPA and Army (2017) now state that the “largest and most uncertain estimates from the[ir] 2015 CWR … [economic analysis] are associated with the benefits of the CWA 404 program.” The agencies argue that the wetland mitigation benefits are uncertain for several reasons. In response to this uncertainty the agencies choose to dismiss the monetized benefits presented in their 2015 analysis, instead presenting them as qualitative benefits in EPA-Army (2017). They justify this decision by stating that they “believe the cumulative uncertainty in this context is too large to include quantitative estimates in the main analysis for this proposed rule” (page 9). In the low (high) end scenario (Tables 1 and 2 on page 10 in EPA-Army (2017)) the $314 million (2016 dollars) in wetland mitigation benefits from EPA-Army (2015) are replaced by “$B”.

Any conclusion that the benefits of the CWR are less than the costs is not supported by the current analysis. The EPA’s conclusion that the benefits are less than the cost is baseless.

There is no need for the agencies to resort to qualitative analysis of the wetland mitigation benefits. A review of the pre-2000 studies now dismissed by the agencies indicates that many of the concerns being raised by EPA-Army (2017) are not justified. Many of the studies used in EPA-Army (2015) conducted a scope test and other validity tests. Lessons from the temporal reliability literature suggest that environmental values produced in those types of studies are fairly stable over long periods of time. Further, meta-analyses of the broader wetland valuation literature suggest that there are systematic (i.e., explainable) differences in values over studies and over time. That is, studies conducted in the past can be adjusted to account for methodological advances using insights from meta-analyses of the valuation literature, resulting in updated valid results.

In addition, there have been more recent wetland valuation studies that have appeared in the literature. We have identified several additional valuation studies published since 2000. These studies suggest that the wetland mitigation benefits estimated by the agencies in their original economic analysis (EPA-Army 2015) were accurately measured.

Finally, the agencies have taken two contrasting positions with regard to the uncertainty of wetland mitigation benefits. In EPA-Army (2015), the agencies used only the point estimate without sensitivity analysis around this estimate, ignoring the uncertainty. In EPA-Army (2017), the agencies again choose to avoid sensitivity analysis but this time they move to an extreme and avoid quantitative measurement of the benefits. Using sensitivity analysis as an appropriate strategy for addressing uncertainty is discussed below.

Considering these issues, the agencies’ decision to consider only qualitative wetland mitigation benefits appears to be an illogical overreaction to a normal level of uncertainty in the conduct of standard benefit-cost analysis of environmental policy. Even if the agencies now feel justified in only presenting qualitative wetland mitigation benefits, there is no evidence that these benefits would be so small as to reverse the sign on the net benefits calculation (i.e., positive net cost savings on page 20 in EPA-Army (2017)). The only way to justify a negative net benefit calculation would be to conduct the appropriate sensitivity analysis, as discussed below, and show that negative net benefits are more likely than positive net benefits, which was not done.

Here is:

Some background: http://www.env-econ.net/2017/08/when-you-want-environmental-benefits-to-be-zero-.html
My full report conducted for the Southern Environmental Law Center (SELC): Download 2017-09-27 Whitehead Comments
The SELC's letter: Download 2017-09-27 SELC CWR Comments EPA-HQ-2017-203
The 2017 EPA-Army benefit-cost analysis: Download 2017 Economic Analysis Repeal Rule
The 2015 EPA-Army benefit-cost analysis: Download 2015-05-20 Economic Analysis CWR

Comments

Here are the first 622 of 5230 words:

Two years ago, the U.S. Environmental Protection Agency and U.S. Department of the Army (EPA-Army 2015) estimated that the total quantified benefits of the Clean Water Rule (CWR) range from a low of $339 million to $350 million (2014 dollars). The largest component of these benefits was due to wetland mitigation, which was estimated at $306 million (using the “original number of ORM2 other waters records” scenario). EPA-Army (2015) concluded that the benefits of the CWR exceed the costs.

The EPA and Army (2017) now state that the “largest and most uncertain estimates from the[ir] 2015 CWR … [economic analysis] are associated with the benefits of the CWA 404 program.” The agencies argue that the wetland mitigation benefits are uncertain for several reasons. In response to this uncertainty the agencies choose to dismiss the monetized benefits presented in their 2015 analysis, instead presenting them as qualitative benefits in EPA-Army (2017). They justify this decision by stating that they “believe the cumulative uncertainty in this context is too large to include quantitative estimates in the main analysis for this proposed rule” (page 9). In the low (high) end scenario (Tables 1 and 2 on page 10 in EPA-Army (2017)) the $314 million (2016 dollars) in wetland mitigation benefits from EPA-Army (2015) are replaced by “$B”.

Any conclusion that the benefits of the CWR are less than the costs is not supported by the current analysis. The EPA’s conclusion that the benefits are less than the cost is baseless.

There is no need for the agencies to resort to qualitative analysis of the wetland mitigation benefits. A review of the pre-2000 studies now dismissed by the agencies indicates that many of the concerns being raised by EPA-Army (2017) are not justified. Many of the studies used in EPA-Army (2015) conducted a scope test and other validity tests. Lessons from the temporal reliability literature suggest that environmental values produced in those types of studies are fairly stable over long periods of time. Further, meta-analyses of the broader wetland valuation literature suggest that there are systematic (i.e., explainable) differences in values over studies and over time. That is, studies conducted in the past can be adjusted to account for methodological advances using insights from meta-analyses of the valuation literature, resulting in updated valid results.

In addition, there have been more recent wetland valuation studies that have appeared in the literature. We have identified several additional valuation studies published since 2000. These studies suggest that the wetland mitigation benefits estimated by the agencies in their original economic analysis (EPA-Army 2015) were accurately measured.

Finally, the agencies have taken two contrasting positions with regard to the uncertainty of wetland mitigation benefits. In EPA-Army (2015), the agencies used only the point estimate without sensitivity analysis around this estimate, ignoring the uncertainty. In EPA-Army (2017), the agencies again choose to avoid sensitivity analysis but this time they move to an extreme and avoid quantitative measurement of the benefits. Using sensitivity analysis as an appropriate strategy for addressing uncertainty is discussed below.

Considering these issues, the agencies’ decision to consider only qualitative wetland mitigation benefits appears to be an illogical overreaction to a normal level of uncertainty in the conduct of standard benefit-cost analysis of environmental policy. Even if the agencies now feel justified in only presenting qualitative wetland mitigation benefits, there is no evidence that these benefits would be so small as to reverse the sign on the net benefits calculation (i.e., positive net cost savings on page 20 in EPA-Army (2017)). The only way to justify a negative net benefit calculation would be to conduct the appropriate sensitivity analysis, as discussed below, and show that negative net benefits are more likely than positive net benefits, which was not done.

Here is: