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Rewiring Regulatory Review


K. Sabeel Rahman (@ksabeelrahman) is Associate Professor of Law at Brooklyn Law School. 

Last month, the Biden Administration released a long-awaited overhaul of the regulatory process. Regulatory review is a highly technical and behind-the-scenes process, but its import for public policy and democracy writ large is vast. As the legislative branch has become increasingly sclerotic, and the judiciary attempts to turn the country’s clock back to the 19th century, more and more policy demands fall on the Executive branch—think climate policy, student debt, new initiatives on market concentration and corporate power, worker rights, equity, immigration, and so much more. Given the policymaking responsibilities of the Executive, the internal structure of the regulatory process within the Executive branch, located centrally in the Office of Regulatory Affairs (OIRA), plays an outsized role in what kinds of policies are developed, how quickly, and how effectively they can be executed.

Unsurprisingly, OIRA has also been frequently in the crosshairs of regulatory politics. From the Right, OIRA has been targeted for being insufficiently critical of federal regulatory overreach. From progressives, OIRA has often been viewed with skepticism, particularly for how its practices of cost-benefit analysis and time-intensive review might undermine, slow down, or even block far-reaching regulatory initiatives. Scholars, including in the LPE ecosystem, have for years offered a wide range of critiques of and alternatives to conventional cost-benefit analysis, noting the ways in which seemingly neutral analytic assumptions impose significant conceptual and practical limits on what kinds of policies are possible or favored.

Redesigning the regulatory review process is thus an important front-line in the broader effort to create an inclusive political economy. President Biden’s Day One call for modernizing the regulatory review process did not take on the push for abandoning regulatory review or cost-benefit analysis, reaffirming the basic structure and content of OIRA review as established in President Clinton’s Executive Order 12866. But Biden’s charge represented a call for a very significant rethink of regulatory review and analysis, specifically tasking OIRA with developing reforms that would take better account of critical values like distribution, equity, human dignity, and the environment, and that would facilitate regulations capable of responding to the scale of the challenges the country faces.

During the first two years of the Biden Administration, I helped lead this effort in OIRA, first as Senior Counselor, and then as the Associate Administrator, delegated the duties of the Administrator. As the lead official in OIRA, I was responsible for the office’s essential regulatory review functions and launched the effort to revise OIRA’s approach to review and analysis – the first rethink in over 20 years, since the early GW Bush era. Now under the leadership of Senate-confirmed Administrator Ricky Revesz and the current OIRA team, the Administration has finally released its new approach to regulatory review. The policies just announced represent a very significant—and I hope, salutary—modernization of the process.

Modernized Regulatory Review – Some Highlights

Critics of conventional approaches to cost-benefit analysis have highlighted a number of important conceptual limitations. First, traditional efficiency analysis is severely limited, particularly when impacts are poorly quantified and monetized—either because of data limitations or because the very goods and values themselves cannot be captured in monetary terms. Second, when too narrowly scoped, efficiency analysis can often be hobbled by tunnel vision, focused on only some of the marginal impacts (particularly economic costs) of regulatory interventions, without adequate attention to the larger macro context of, for example, the costs of inaction, or the cumulative and systemic social and economic dynamics that might both demand regulatory intervention and condition the ways in which impacts materialize. Third, a net benefits calculation may not adequately tend to very real disparities across groups and constituencies, without a more concerted attention to distributional and equity analysis.

The Administration’s proposed rewrite to OMB Circular A-4, the foundational guidelines for regulatory impact analysis, take on each of these challenges in different ways.

First, and perhaps most importantly for the climate policy agenda, the revisions update the “discount rate”, a critical parameter that agencies use to estimate the long-term costs and benefits of their regulations. Under the old A4, agencies were tasked with using a 3% and 7% discount rate to evaluate these long-term impacts. But using such high discount rates necessarily means undercounting the long-term costs and benefits. This is particularly problematic for policies that may have high sunk costs up front, but long tails of benefits in the future, including efforts to mitigate climate change and decarbonize the economy. For example, as Lisa Heinzerling has pointed out in these pages, by raising the discount rate from 3% to 7%, the Trump administration managed to shrink the social cost of carbon tenfold, from $50 to $5 per ton in the year 2050.

The new A4 uses updated data and evidence to compute a new discount rate of 1.7%, while also seeking peer review comments on whether a further update to the underlying formula and model might also be warranted. It is notable that the discussion of discount rates now frames these calculations in context of the need to adequately assess policies in light of the risk of catastrophic future impacts, like in the climate crisis context.

Second, there are a host of revisions that bring A4 more up to date with advances in economic and policy analysis. The discussions of willingness-to-pay, willingness-to-accept, uncertainty analysis, and risk aversion, while technical, are all important improvements that press impact models to take a more nuanced approach. The updated discussion of “baselines”—the backdrop no-action state of the world against which new proposals are to be compared—similarly calls more explicitly for agencies to take into account the cumulative harms and impacts and trends that may exist already in the world.

Third, the new A4 includes a more sophisticated discussion of macoeconomic and structural factors that may shape the terrain for regulatory policy. There is, for example, a discussion of business cycles, and how some policies may be better designed to help mitigate economic downturns, and how analysis should take into account variations in business cycle conditions. Similarly, there is an expanded discussion of market power and concentration effects, in keeping with the Administration’s broader focus on competition policy, prompting agencies to take into better account the ways in which rules might either exacerbate or help mitigate against problematic forms of market power and the economic and social harms that may result.

Fourth, the new A4 includes a new and exciting section on distributional analysis, specifically charging agencies with taking a more thoughtful approach to the distributional and equity impacts of their proposals. Where agencies have a choice among regulatory alternatives, the new A4 prompts them to consider whether some approaches to the same policy goal might have better distributional implications. The guidance also provides a detailed account of how agencies should go about developing distributional analysis, calling for agencies to design their analysis to look at the most salient categories of impacted communities—whether on basis of income, race, gender, geography, sexual orientation, or other factors—to assess whether costs or benefits are being disproportionately concentrated on a particular group. Further, the new A4 also provides a method for agencies to employ income weighting where appropriate. The basic intuition is that $100 of benefits for billionaires is less valuable than that same $100 of benefits going to working class communities; impact analysis could take that difference into account through a formal weighting procedure.

Fifth, the new A4 provides a lot more tools for agencies to incorporate qualitative and hard-to-quantify impacts into their decision-making, rather than sweeping them aside or having to shoehorn them into an inadequate conventional cost-benefit analysis framework. This more nuanced approach is manifested in several different parts of the document. Early on, for example, the guidance says outright that many of the most important impacts are not monetizable or quantifiable. The guidance also makes explicit that regulations are justified not only to address market failures, but also to promote distributional fairness, improved service delivery, equity, civil rights, and democratic values. There is a specific section on how agencies should outline qualitative impacts, which highlights the evidence and import of these impacts while acknowledging that they may not be quantifiable. Other approaches—cost effectiveness analysis, breakeven analysis, among them—are also provided as alternatives. The bottom line of all of this language is to create a framework that is more fully cognizant of the very important qualitative impacts and values—human dignity, value of ecosystems, and more—that ought to feature centrally in regulatory analysis, even where they cannot be quantified effectively.

Bootstrapping Post-Neoliberal Statecraft

Taken together, the various revisions to regulatory analysis represent a more holistic, nuanced, and flexible approach to policymaking, but one that remains rigorous, evidence-based, and rooted in best practices in the field. There are of course broader and more transformative approaches to policy analysis that should continue to be developed and pioneered, particularly to engage more deeply on questions of equity, qualitative impacts, and to help better inform policymaking around highly-uncertain and potentially catastrophic risks from climate, technological change, future economic crises, and more.

At the same time, regulatory analysis on its own can’t bear the weight of enabling a more inclusive political economic approach to public policy. In some ways, what is most interesting about the new regulatory review proposals is that they appear as but one piece of a much wider set of governance reform efforts that the Biden Administration has set in motion. Elsewhere, the administration has developed procedures for fast-tracking regulations (like in the implementation of the American Rescue Plan COVID relief efforts in the Spring of 2021), while creating new bodies to coordinate its foray into macro-scale industrial policy. Through a revision of its vision for Open Government, the Administration has emphasized the importance of greater inclusion and participation particularly by impacted communities on the ground in shaping public policy. The “whole of government” strategy for advancing equity similarly has led to a rethink not only of approaches to delivering critical government services simply, with less administrative burden, and with a greater focus on uptake; it has also led to a rethink of how agencies develop their own strategies and action plans

This perhaps is the biggest implication of the reforms to the OIRA process. A post-neoliberal, inclusive political economy requires a transformation not just in the substance of public policy, but also in its process, in the machinery of how policy is designed, analyzed, coordinated, and ultimately made impactful. A key task for LPE and LPE-adjacent thinkers and practitioners will be further developing this intersection between specific areas of law and policy, and the public institutions needed to effectuate and institutionalize those new ideas.

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For a response to this post, see Luke Herrine’s Some Short Circuits in the Rewiring of Regulatory Review.”