Posted on 27 October 2021 by Guest Author

This is a re-post from Yale Climate Connections by Lexi Smith

ABiden administration shift from cost-benefit analysis to cost-effectiveness analysis could allow President Biden to pursue more aggressive climate action. But any such shift also would face some administrative and legal challenges. While President Biden could act unilaterally to change cost-benefit analysis practices, political resistance given a closely divided House and Senate could still be an obstacle, particularly during the upcoming mid-term election campaign season.

This companion piece to Part 1, which focused on economic issues, explores legal and administrative barriers to such a shift.

Does cost-effectiveness analysis stand a chance?

Assume for purposes of discussion that the Biden administration were to decide to reform current cost benefit analysis (CBA) practices to enable more ambitious climate policy. What then?

The answers depend in large part on the administration’s willingness – or lack thereof – to go to battle both publicly, against staunch opponents in the courts, and privately, against the inertia of the administrative state.

Likely legal challenges…

Many conservatives already oppose the existing social cost of carbon framework, as evidenced by a recent lawsuit brought by 13 Republican state attorneys general challenging the Biden administration’s interim reinstatement of the Obama-era social cost of carbon.

That suit, led by Missouri Attorney General and U.S. Senate candidate Eric Schmitt, argued that the  Biden administration was exercising a “quintessentially legislative power” in setting the social cost of greenhouse gases. The complaint also alleged that the social cost of carbon calculation was “arbitrary and capricious,” that is, inadequately supported by reasoned justifications.

The suit was dismissed by U.S. District Judge Audrey Flessig in the Eastern District of Missouri on procedural grounds rather than on the merits of the state AGs’ claims. The administration’s adoption of a cost-effectiveness approach would likely face similar challenges, so it is worth evaluating how the AGs’ claims might apply to judicial review of such a switch.

The first claim, that President Biden is exercising “quintessentially legislative power,” seems very unlikely to succeed. The executive branch has an extensive and largely bipartisan history of running cost-benefit analysis across all major federal proposed rulemakings through the Office of Management and Budget’s Office of Information and Regulatory Affairs (OIRA). OIRA was established by a series of executive orders beginning with President Reagan and continuing still. Its practices have been honed by Democratic and Republican administrations alike. If it were beyond presidential authority to conduct cost-benefit analysis of federal rulemakings, the courts likely would have already done so, but in any event would have to strike down a wide range of long-standing executive actions.

The second claim – that federal agencies’ use of cost-benefit or cost-effectiveness analysis in evaluating the climate impacts of policy decisions, is “arbitrary and capricious” – may pose a more serious obstacle. Under the Administrative Procedure Act, many actions by federal agencies must be supported by adequate reasoning, and courts often review agency actions to determine whether they meet the arbitrary and capricious standard. (Courts, however, have generally tended to afford agencies’ policy decisions a good deal of deference.)

The transition to cost-effectiveness analysis would likely be subjected to legal challenge. In some instances, courts have held that environmental statutes require cost-benefit analysis, but those cases involved agency actions under specific congressional statutes rather than taken through unilateral executive authority. At the same time, courts are generally hesitant to find agencies’ policy decision-making processes arbitrary and capricious unless there is no rational connection between the facts examined and the conclusions drawn. But even so, there is a small chance that a court could find a shift from cost-benefit to cost-effectiveness analysis to be inadequately well-reasoned and therefore arbitrary, or oppose it on the grounds that it conflicts with statutory demands for cost-benefit analysis. 

… and executive branch agency push-back

As mentioned above, OIRA was established by executive order to oversee cost-benefit analysis for major rulemakings under the executive branch. This origin means that the president has power to change the agency’s mandate, meaning President Biden can mandate that OIRA implement cost-effectiveness analysis in the climate context.

However, it is worth noting that attempts to reform OIRA by both Presidents Clinton and Obama largely failed. Both Democratic presidents had tried to curtail the agency’s authority over executive agencies like EPA: They did so by placing time limits on its policy reviews, requiring more transparency, and placing more emphasis on values that are often difficult to quantify, such as distributive equity, discrimination, and health, safety, and environmental concerns. 

In practice, OIRA staff often circumvented these requirements. As some experts put it, OIRA has “doggedly clung to its cost-reduction mission, justifying its function as a check on the federal bureaucracy with reference to the pervasive belief that agencies will systematically overregulate.”

These sorts of ingrained staff attitudes can be difficult to change, so President Biden’s attempts to reform the agency’s cost-benefit analysis approach could face an uphill battle even from within. Moving toward cost-effectiveness analysis in the climate context would mean revising or abandoning decades of guidance, expertise, and established agency practice, and implementing a new policy review paradigm more or less from scratch. That would be an imposing hill to climb for any administration, especially during a tight upcoming mid-term election year.

Making the switch from cost-benefit analysis to cost-effective analysis would not be easy – nor would it happen overnight. OIRA and other centers of cost-benefit decisionmaking in the administrative state are firmly entrenched in their practices, going back to the early “Quality of Life” review controversies during the Reagan administration. But if the Biden administration is serious about addressing the limitations of traditional climate economics and implementing a framework that supports more ambitious climate action, it may have to think seriously about trying, forgive the cliché here, to teach those old dogs some new tricks.

Lexi Smith is a third-year student at Yale Law School. She studied environmental science and public policy as an undergraduate at Harvard, and she worked as an advisor to the Mayor of Boston on climate policy before enrolling in law school.