Do Regulators Overestimate the Costs of Regulation?

http://yosemite.epa.gov/ee/epa/eed.nsf/WPNumber/2011-07

Abstract: It has occasionally been asserted that regulators typically overestimate the costs of the regulations they impose. A number of arguments have been proposed for why this might be the case, with the most widely credited one being that regulators fail sufficiently to appreciate the effects of innovation in reducing regulatory compliance costs. Most existing studies have found that regulators are more likely to over- than to underestimate costs. Moreover, the ratio of ex ante estimates of compliance costs to ex post estimates of the same costs is generally greater than one. In this paper I argue that neither piece of evidence necessarily demonstrates that ex ante estimates are biased. There are several reasons to suppose that the distribution of compliance costs would be skewed, so that the median of the distribution would lie below the mean. It is not surprising, then, that most estimates would prove to be too high. Moreover, we would expect from a simple application of Jensen’s inequality that the expected ratio of ex ante to ex post compliance costs would be greater than one. In this paper I propose a regression-based test of the bias of ex ante compliance cost estimates, and cannot reject the hypothesis that estimates are unbiased. Despite the existence of a number of papers reporting ex ante and ex post compliance cost estimates, it is surprisingly difficult to get a large sample of such comparisons. My most salient finding does not concern the bias of ex ante cost estimates so much as their inaccuracy and the continuing paucity of careful studies.

...

A very thorough comparison of ex ante to ex post estimates of costs was conducted in 2000 by Winston Harrington, Richard Morgenstern, and Peter Nelson. The researchers considered 28 regulations written by EPA, OSHA, and a handful of other regional and international regulators. A number of different industries were covered. Ex ante cost estimates were considered “accurate” if they were within ± 25% of ex post values, and either too high or too low if they fell outside this range. By this standard total costs of regulation were overestimated in 15 instances, underestimated in only three, and deemed reasonably accurate in the remaining 11.

...

The next major retrospective study of the costs of regulation was completed in 2005 by the Office of Management and Budget (OMB 2005). OMB reviewed 47 regulations initiated between 1976 and 1995. EPA issued 18 of the regulations in the OMB sample, the most of any of the five federal agencies included in the study (the others were the National Occupational Safety and Health Administration (13 regulations included), the National Highway Traffic Safety Administration (8), the Department of Energy (6) and the Nuclear Regulatory Commission (2)). As is generally the case with estimates of regulatory costs, the sample was determined by the availability of data, not by any attempt to generate a random cross-section of regulatory activity. The results of the OMB study are less striking than those of some other researchers. Of 40 regulations for which comparable ex ante and ex post data are available, 16 ex ante projections overestimated cost, 12 underestimated them, and 12 were approximately accurate. The OMB study was not completely independent of earlier work, however: for instance, nine of the studies in its sample were adopted from Harrington, et al. 2000.

At least three studies have been conducted of the accuracy of ex ante cost measures in other countries (in addition, Harrington et al. 2000 includes three examples drawn from Singapore, Norway, and Canada among their 28 case studies). While such inquiries obviously consider costs generated under different legal and regulatory structures than prevail in the U. S., they may still be useful in interpreting general approaches to regulatory cost estimation. It might also be noted in passing that international standards for the analysis of regulatory impacts have become more similar over time, with the United Kingdom (MacLeod, et al., 2006) and the European Union adopting such requirements.5 A study conducted by the Stockholm Environmental Institute considered the cost estimates presented by industry in regulatory negotiations, and found them to be consistently higher than ex post realizations of actual costs (Bailey, et al., 2002).

Colony Collapse Disorder: The Market Response to Bee Disease

http://www.perc.org/files/ps50.pdf
Although the winter has barely begun and the spring thaw still feels a long way off for ... Northerners, beekeepers are busily preparing for the beginning of the pollination cycle in California and other Southern states. With more than 2.5 million hives of bees on the road each year, honey bee pollination makes our diet more nutritious and tasty. Yet, in 2007 the popular press wrote that Colony Collapse Disorder, or CCD, was a threat to the honey bee and its valuable pollination services. Headlines such as "Bee Colony Collapses Could Threaten U.S. Food Supply," (Associated Press, May 3, 2007) caught the attention of readers, but in reality, Colony Collapse Disorder has had little impact on American consumers.

... Randy Rucker and Wally Thurman [claim] in the most recent installment of the PERC Policy Series, a market response provided a solution to a real problem. Despite early predictions that CCD would cause billions of dollars of direct loss in crop production, people in the beekeeping industry reacted so swiftly that no changes were detected by the consumers. Fruit farmers and beekeepers took into account the effects they have on each other and settled the difference through pollination fees and other contract terms. While overcoming the difficulties of CCD has been no easy matter, beekeepers have proven themselves adept at navigating changing market conditions.

"The state of the honey bee population - numbers, vitality, and economic output - are the products of not just the impact of disease but also the economic decisions made by beekeepers and farmers," writes Rucker and Thurman.
...
The full report is available free of charge at http://www.perc.org/files/ps50.pdf.

In 2007, then-Secretary of Agriculture Mike Johanns warned that “if left unchecked, CCD has the potential to cause a $15 billion direct loss of crop production and $75 billion in indirect losses.”

Three methods are commonly employed by beekeepers to maintain and rebuild hive numbers. Understanding them is key to knowing how the beekeeping industry responds to disease. The first method used to replace weak hives or hives lost over the winter involves a beekeeper splitting a healthy, full-strength hive into two parts.

The second method used to build or replenish hive numbers is to buy packaged bees. There are companies that sell packaged bees for this purpose... The current average price of a three-pound package of bees, which includes roughly 12,000 worker bees and a fertilized queen, is about $55. If an empty hive is stocked with a package of bees, it might be productive immediately. Soon, however, there will be a drop-off in production due to the time lag between the placement of the package of workers in the hive and the time that a new generation of worker bees is hatched and matured to the point of leaving the hive to collect nectar, pollen, and water. Even if the new queen begins laying fertilized eggs immediately upon her placement in the empty hive, it will take 21–25 days before worker bees hatch. If a hive in Oregon or Washington is stocked with packaged bees in mid-April, it probably will not produce surplus honey until the following year.
...
The average annual rate of winter mortality over 2007–2011 was 33 percent. A reasonable assessment derived from beekeeper surveys is that since the appearance of CCD, mortality rates have at least doubled. Mortality represents an outflow from the population of bees, while the re-queening and splitting of hives and the creation of new colonies represents an inflow. The net result is the observed change in colony numbers.

Estimates of honey bee colony numbers can be obtained from annual surveys of beekeepers conducted by the USDA. Data from these surveys are generally available back to 1939. A prominent feature of the estimates of colony numbers ... is their substantial decline since the mid-20th century. Particularly notable is the gap and abrupt drop in the early- to mid-1980s.... The abrupt drop is the result of a change in 1986 in the data collection procedures used by the USDA....

... Between 2006 and 2007 ... CCD might have had its first impacts. Colony numbers reveal no notable decrease in the years since the onset of CCD. In fact, there were more colonies in 2009 than there were in 2006 (or any other year since 1999). Given that an average of one-third of the honey bee colonies in the United States have died in each of the four winters since the onset of CCD, how can this be? Perhaps it is because beekeepers have always lost hives during the winter. Sustainable and profitable commercial beekeeping requires them to replace dead and weak colonies using the methods described above.

Since the onset of CCD, beekeepers have had to replace more hives to maintain their colony numbers, and the evidence suggests they have done exactly that.
...
Beekeepers supply the services of bees for two commercial purposes: to provide pollination for farmers and to produce honey. Bee disease that increases the costs of beekeeping should increase the price of the industry’s outputs. Honey is traded internationally; and domestic honey price effects seem less likely than do price effects on pollination services. To look for evidence of increased pollination fees due to Colony Collapse Disorder, consider data from a survey [of almond and apple pollination fees] administered by Michael Burgett of Oregon State University.
...
Almond fees rose from $59 to $89 between 2004 and 2005, and increased again to nearly $140 in inflation-adjusted terms for the years 2006, 2007, 2008, and 2009. It is tempting to attribute these fees to Colony Collapse Disorder—and CCD may be partly to blame—but the timing is not right. The first reported instance of CCD was during the winter of 2006–2007, which could only have affected fees beginning in spring 2007.
...
Surveys of California beekeepers conducted by the California State Beekeepers’ Association since 1996 (see Rucker, Thurman, and Burgett 2011 for a statistical analysis of these data sources). They estimate there to be no CCD effect on non-almond pollination fees and $20 of the recent increase in almond fees.
...
Recent almond fees are near $140, so that the implied almond fee had CCD not arisen is $140 - $20 = $120. The implied percentage increase in almond fees due to CCD is then (20/120) × 100 = 16.7%. Further, with a pollination fee for almonds of $120 per colony and a stocking density of two colonies per acre, the cost per acre of pollinating almonds is 2 × $120 = $240. Suppose, as recent industry data suggest, that the yield of almonds is 2,000 pounds per acre and that the farm-gate price of almonds is $2 per pound. Then revenue per acre is 2,000 × $2 = $4,000 and the cost share of pollination in almonds is $240/$4,000 = 0.06 or 6%.

Next, suppose that Smokehouse® Almonds sell for $7 per pound at the retail level and that one pound requires 1.429 pounds of raw almonds (the rate of conversion from at-the-farm and in-the-shell almonds to retail shelled almonds). Then the cost share of farm almonds in the production of Smokehouse® Almonds is (1.429 × $2)/$7 = 0.41.22 Thus, the cost share of pollination services in retail Smokehouse® Almonds is 0.06 × 0.41 = 0.025 or 2.5 percent.

The stipulated 16.7 percent increase in almond pollination fees due to CCD therefore causes the cost of Smokehouse® Almonds to increase by a proportion of 0.167 × 0.025 = 0.004. Four-tenths of one percent of the $7/lb cost of Smokehouse® Almonds is 2.8¢, the implied increase in the shelf price of the can of almonds.... Given the relatively high cost share of pollination at the farm level, the calculation provides something of an upper bound on what one would find for other commodities and products. Against the backdrop of other sources of food price variation, it is no wonder that evidence of CCD at the grocery store has failed to materialize.
...
Concluding that CCD has had little effect on consumers does not imply that its effects are of no concern to beekeepers.... Responses to questions in the PNW survey about replacement methods indicate that beekeepers used the method of splitting hives for almost 80 percent of the colonies replaced.... Suppose a beekeeper inspects his hives and finds that 100 of them are dead. To replace them, he must purchase 100 queens to place with the new splits produced from the healthy parent colonies. Recent advertisements in the American Bee Journal suggest these will cost about $15 each. In addition, about 20 minutes of labor will be required per colony to remove the four or five frames of brood, bees, and honey stores from the parent colony to stock the nuc colony. If labor costs are assumed to be $12 per hour, the labor cost per colony is $4 and the total cost of each split is $15 + $4 = $19.23

Burgett, Rucker, and Thurman (2009) estimate that PNW winter mortality rates increased from about 14 percent prior to the appearance of CCD to roughly 30 percent over the winter of 2007–08. Thus, assuming that CCD is responsible for all of this 16 percentage point difference, about half the colony mortality in the 2007–08 winter is attributable to CCD. The beekeepers who responded to the survey owned 62,100 out of the USDA’s estimated 90,000 colonies in the PNW. Assuming that the beekeepers responding to the survey are representative of the non-responding PNW beekeepers, the demise of about 14,400 (= 90,000 x 0.16) colonies in the PNW was due to CCD. The 25 beekeepers who responded to the 2008 PNW survey owned a total of 62,100 colonies as of Oct.1, 2007, or an average of 2,484 colonies each. Assuming these beekeepers lost 16 percent of their bees to CCD on average, the estimated CCD cost per beekeeper was 0.16 × 2,484 × $19 = $7,551. Offsetting these increased costs are increased beekeeper revenues from higher almond pollination fees, and 72 percent of the colonies in the 2008 survey were rented out for almond pollination.

If, as in the previous section, we take the almond fee increase due to CCD to be $20, then the average PNW beekeeper with 2,484 colonies, who uses 72 percent of them (0.72 × 2,484 = 1,788) to pollinate almonds, gains an increase in revenue of 1,788 × $20 = $35,760. The change in net revenue is $35,760 - $7,079 = $28,681, implying that beekeepers benefit.

by Wally Thurman 1 and Randy Rucker 2
1. Professor of agricultural and resource economics at North Carolina State University and PERC senior fellow
2. Professor of agricultural and resource economics at Montana State University and PERC 2011 Lone Mountain Fellow.
PERC the Property and Environment Research Center www.PERC.org is dedicated to improving environmental quality through property rights and markets. 2048 Analysis Drive Suite A; Bozeman Montana 59718; Tel: 406.587.9591; Email: perc@perc.org
January 17, 2012

Wind energy success story at risk with 54,000 American jobs in the balance

http://www.awea.org/newsroom/pressreleases/Navigant_study.cfm

A study released December 12, 2011 finds that with stable tax policy the wind industry can create and save 54,000 American jobs in the next four years, including growing the wind manufacturing sector by one third to 46,000 American manufacturing jobs. This will keep the wind sector on track toward supporting the 500,000 jobs by 2030 projected in a report by the U.S. Department of Energy during the George W. Bush administration.

The report completed by Navigant finds that if Congress allows the Production Tax Credit (PTC) for wind to expire, jobs in the wind industry will be cut in half, meaning a loss of 37,000 American jobs and a one third cut to American wind manufacturing jobs, while private investment in the industry would drop by nearly two thirds. Meanwhile, extending the PTC will create 17,000 American jobs, Navigant finds. The report can be found here.

“American manufacturing jobs are coming back, with tens of thousands of new jobs from wind power,” said Denise Bode, CEO of the American Wind Energy Association (AWEA). “But these jobs could vanish if Congress allows the Production Tax Credit to expire, in effect enacting a targeted tax increase, and sending our jobs to foreign countries. Congress must act now to keep this American manufacturing success story going.”

With the support of a stable PTC, wind energy is powering one of America’s fastest growing manufacturing sectors. Over the last six years, U.S. domestic production of wind turbine components has grown 12-fold to more than 400 facilities in 43 states, shifting manufacturing jobs from overseas back to the U.S.

The Navigant study finds that wind energy’s geographically diverse manufacturing base would spread job gains around the country. States that would see significant job and private investment gains from a PTC extension include Colorado, Texas, Iowa, Illinois, Pennsylvania, California, Oregon, North Dakota and Ohio.

“We have made a significant investment during the last three years creating several hundred jobs for the state of Illinois to support the wind industry domestically,” said Terry R. Royer, CEO of Winergy Drive Systems Corporation. “With the uncertainty of the PTC extension, we are seeing the hesitation of our customers to make continued commitments for orders in late 2012 and 2013. An immediate extension is needed to support the investment we have made in our operations and secure the jobs that have been created.”

But, with a job-killing tax increase on the horizon and the PTC's future uncertain, businesses are hesitant to plan future US wind projects, American manufacturers have seen a drop in orders, and layoffs have already started.  For the purposes of the American wind industry manufacturing sector, which needs lead time to make its products, the PTC effectively expires at the end of this year.

Bipartisan legislation recently introduced by Representatives Dave Reichert (R, WA-08) and Earl Blumenauer (D, OR-03) seeks to grant a four-year extension to the existing Production Tax Credit (PTC) for wind energy (H.R. 3307, the “American Renewable Energy Production Tax Credit Extension Act”). This legislation has garnered the support of 36 cosponsors including 11 Republicans.

This legislation recently received the endorsement of a broad, coalition of more than 370 members, including the National Association of Manufacturers, the American Farm Bureau Federation, the Edison Electric Institute, the Western Governors’ Association, the United Steelworkers and many members of the environmental community. A four-year PTC extension also has the support of the bipartisan Governors’ Wind Energy Coalition comprised of 23 Republican and Democrat Governors from across the U.S.

About the Production Tax Credit:

The PTC is a tax incentive that helps keep electricity rates low and encourages development of proven clean energy projects. Private investment generated over the last four years of relative PTC stability averages $17 billion a year.

The wind energy PTC will expire in 2012 unless Congress takes action. Failure to extend the PTC would lead to job losses and will put the brakes on the progress America has made to include clean, affordable, homegrown energy as part of the U.S. electricity portfolio.

Facing the threat of the PTC expiring, wind project developers have become hesitant to plan future U.S. projects and American manufacturers have seen a marked decrease in orders. The wind industry is facing the recurrence of the boom-bust cycle it saw in previous years when the PTC was allowed to expire. In the years following expiration, installations dropped by between 73 and 93 percent, resulting in major job losses.

American Wind Energy Association (AWEA) www.AWEA.org

Press Release dated December 13, 2011

A Regulatory System for the Twenty-First Century Cass Sunstein, Administrator, Office of Information and Regulatory Affairs

http://www.whitehouse.gov/sites/default/files/omb/inforeg/speeches/a-regulatory-system-for-the-twenty-first_century-11-30-2011.pdf
As you may have noticed, the national debate over regulation has become unusually politicized and polarized.
In recent months, some people have stressed the crucial importance of regulatory safeguards – including rules that reduce deaths on the highways, prevent fraud and abuse, keep our air and water clean, and ensure that the food supply is safe.

Other people have objected to expensive regulations and burdensome mandates that impair growth, competitiveness, and innovation -- and that cost jobs.

In some contexts, both sides make exceedingly important points. The first sentence of the President’s January Executive Order explicitly recognizes those points, emphasizing the need to protect public health and welfare while also promoting growth and job creation.

But in some ways, the polar positions remain stuck in outmoded and decreasingly helpful debates from decades ago – from the 1970s and before.

In recent years, we have learned a lot about regulation. We know a lot more than we did during the New Deal period and the Great Society; we also know far more than we did in the 1980s and 1990s.

Here are eight of the most important things that we have learned:

• Cataloguing consequences. We have developed state-of-the-art techniques for anticipating, cataloguing, and monetizing the consequences of regulation, including both benefits and costs.
• Systemic effects. We know that risks are part of systems. We know that efforts to reduce a certain risk may increase other risks, perhaps even deadly ones, thus producing ancillary harms. At the same time, we know that efforts to reduce a certain risk may reduce other risks, perhaps even deadly ones, thus producing ancillary benefits.
• Flexibility. We know that flexible, choice-preserving approaches, respecting heterogeneity and the fact that one size may not fit all, are often desirable, both because they preserve liberty and because they cost less – sometimes a lot less.
• Small steps, large benefits. We are aware that large benefits can come from seemingly modest and small steps – including simplification of regulatory requirements, provision of information, and sensible default rules, such as automatic enrollment for retirement savings.
• Public participation. We know, more clearly than ever before, that it is important to allow public participation in the design of rules, because members of the public will have valuable and dispersed information about likely effects, existing problems, creative solutions, and possible unintended consequences.
• Disclosure. We know that if carefully designed, disclosure policies can promote informed choices and save both money and lives. Consider, for example, the recently redesigned fuel economy label, drawing attention to the concrete economic consequences of differences in miles per gallon, and the substitution of the clear Food Plate for the confusing Food Pyramid.
• Evidence, not anecdotes or intuitions. We know that intuitions and anecdotes, however compelling they may seem, and however suggestive that regulation is helpful or harmful, are both unreliable, and that advance testing of the effects of rules, as through pilot programs or randomized controlled experiments, can be highly illuminating.
• Continuing scrutiny. We know that it is important to explore the effects of regulation in the real-world, to learn whether they are having beneficial consequences or producing unintended harm. In short, we need careful assessments before rules are issued, and we need continuing scrutiny afterwards.

Of course it is true that people’s values differ, and in some cases, the relevant values will lead in a certain direction even if the evidence is clear. What I want to emphasize here is the opposite possibility, and the neglected one – that when the evidence is clear, it will often lead in a certain direction even when there are differences with respect to underlying values.

If, for example, a regulation would save a lot of lives and cost very little, people are likely to support it regardless of their party identification; and if a regulation would produce little benefit but impose big costs on real people, citizens are unlikely to favor it, regardless of whether they like elephants or donkeys. At least this is so if we engage on the facts.

To evaluate regulation, and its actual benefits and costs, we have to do that. Consider three facts:

1. In the first two years, the net benefits of rules issued in the Obama Administration have been over $35 billion – over three times the corresponding number in the first two years of the Clinton Administration, and over ten times the corresponding number in the first two years of the Bush Administration.
2. There has been no increase in rulemaking in this Administration. On the contrary, the number of significant rules reviewed by OIRA and issued in the first two years of the Obama administration is lower than the number issued in the last two years of the Bush administration – and indeed, the Obama Administration average is, through its first two years, lower than the Bush Administration average through its eight.
3. In the past decade, the costs of economically significant rules reviewed by the White House Office of Information and Regulatory Affairs (OIRA) were highest in 2007 and 2008, not 2009 and 2010. In its last two years, the administration of George W. Bush imposed far higher regulatory costs than did the Obama administration in its first two years.

On January 18th of this year, President Obama set out a fresh approach to federal regulation – an approach that reflects a lot of the new thinking about regulation. The very first paragraph of his executive order, a kind of mini-constitution for the twenty-first century regulatory state, emphasizes the importance of “economic growth, innovation, competitiveness, and job creation.” It states that our regulatory system “must promote predictability and reduce uncertainty.” It adds that our regulatory system “must measure, and seek to improve, the actual results of regulatory requirements.”

The new approach promises, at once, to maximize net benefits and to eliminate unnecessary regulatory burdens and costs on individuals, businesses both large and small, and state and local governments.

Among other things, the President called for an unprecedentedly public, and an unprecedentedly ambitious, government-wide “lookback” at federal regulation. The lookback requires all agencies to reexamine their significant rules, and to streamline, reduce, improve, or eliminate them on the basis of that examination.

Over two dozen departments and agencies have released final plans to remove what the President has called unjustified rules and “absurd and unnecessary paperwork requirements that waste time and money.” The plans span over 800 pages and offer more than 500 proposals.

In the coming years, billions of dollars in savings are anticipated from just a few initiatives from the Department of Transportation, the Department of Labor, HHS, and EPA. And all in all, the plan’s initiatives will save tens of millions of hours in annual paperwork burdens on individuals, businesses, and state and local governments.

Some of the plans list well over fifty reforms. Many of the proposals focus on small business. Indeed, a number of the initiatives are specifically designed to reduce burdens on small business and to enable them to do what they do best, which is to create jobs.

Many of the reforms will have a significant economic impact. Here are just a few examples:

• The Department of Health and Human Services recently announced proposed and final rules that are expected to eliminate over $1 billion in annual regulatory costs.
• The Occupational Safety and Health Administration has announced a final rule that will remove over 1.9 million annual hours of redundant reporting burdens on employers and save more than $40 million in annual costs.
• OSHA plans to finalize a proposed rule projected to result in an annualized $585 million in estimated savings for employers. This rule would harmonize U.S. hazard classifications and labels with those of a number of other nations by requiring the adoption of standardized terms.
• Since the 1970s, milk has been defined as an “oil” and subject to costly rules designed to prevent oil spills. In response to feedback from the agriculture community and the President’s directive, EPA recently concluded that the rules placed unjustifiable burdens on dairy farmers -- and exempted them. The exemption gives whole new meaning to the phrase “don’t cry over spilled milk.” And over the next decade, the exemption will save the milk and dairy industries, including small business in particular, as much as $1.4 billion.
• The Departments of Commerce and State are undertaking a series of steps to eliminate unnecessary barriers to exports, including duplicative and unnecessary regulatory requirements, thus reducing the cumulative burden and uncertainty faced by American companies and their trading partners. These steps will make it a lot easier for American companies to reach new markets, increasing our exports while creating jobs here at home.
• In line with proposals from the Jobs Council, the Department of State has indicated that it will revisit current visa requirements and consider how best to promote tourism, thus promoting growth and creating jobs.

Of course, we don’t only need to look back; we also need to look ahead about how we regulate in the future.
The January Executive Order provides a series of new directives to govern future rulemaking. Emphasizing the importance of predictability and certainty, those directives are consistent with, and informed by, what we have learned about regulation in recent years. And those directives have been explicitly informing our efforts since January. You may have noticed that several rules, including some in the area of labor, have been withdrawn or are being rethought with reference to the principles in the new Executive Order.

Let me emphasize five key points.

1. Public participation. The President made an unprecedented commitment to promoting public participation in the rulemaking process – with a central goal of ensuring that rules will be informed, and improved, by the dispersed knowledge of the public. Agencies are not merely required to provide the public with an opportunity to comment on their rules; they must also provide timely online access to relevant scientific and technical findings, thus allowing them to be scrutinized.
2. Advance consultation. The Order directs agencies to act, even in advance of rulemaking, to seek the views of those who are likely to be affected. This group explicitly includes “those who are likely to benefit from and those who are potentially subject to such rulemaking.” Among other things, this emphasis on early involvement is an effort to acquire relevant information and to avoid unintended harmful consequences.
3. Simplification and harmonization. The Order specifically directs agencies to take steps to harmonize, simplify, and coordinate rules. It emphasizes that some sectors and industries face redundant, inconsistent, or overlapping requirements. In order to reduce costs and to promote simplicity, it requires greater coordination. The order also explicitly connects the goal of harmonization with the interest in innovation, directing agencies to achieve regulatory goals in ways that promote that interest.
4. Quantification. The Order firmly stresses the importance of quantification. It directs agencies “to use the best available techniques to quantify anticipated present and future benefits as accurately as possible” – and to proceed only on the basis of a reasoned determination that the benefits justify the costs.
5. Flexibility. The Order directs agencies to identify and to consider flexible approaches that reduce burdens and maintain freedom of choice for the public. Such approaches may include, for example, public warnings, appropriate default rules, or provision of information “in a form that is clear and intelligible.” We know that simplification of existing requirements can often promote compliance and participation and that complexity can have serious unintended consequences. We also know that flexible performance objectives are often better than rigid design standards, because performance objectives allow the private sector to use its own creativity to identify the best means of achieving social goals. To promote flexibility, we have recently issued a call to all agencies to reduce reporting burdens on small business and to eliminate unjustified complexity. We have received dozens of important initiatives in response; they were made public in September.

...

Cass Sunstein
http://www.whitehouse.gov/sites/default/files/omb/inforeg/speeches/a-regulatory-system-for-the-twenty-first_century-11-30-2011.pdf
November 30, 2011

New York City Department of Environmental Protection (DEP) Proposes Enhanced On-Site Stormwater Controls for New Construction Projects to Improve Harbor Water Quality

http://www.nyc.gov/html/dep/html/press_releases/11-91pr.shtml
On September 29, 2011 Environmental Protection Commissioner Carter Strickland proposed a rule requiring new construction and major building alteration projects to capture more stormwater runoff, provide additional capacity in the combined sewer system and reduce street flooding. New York City, like other older urban areas, is largely serviced by a combined sewer system where stormwater and wastewater are carried through a single pipe. During heavy storms, the system can exceed its capacity and must discharge a mix of stormwater and wastewater — called a combined sewer overflow, or CSO — into New York Harbor. Enhancing an already existing requirement, the rule will employ a wide range of on-site stormwater control techniques to all new development, redevelopment and major alterations in combined sewer areas. For a typical site over 5,000 square feet, DEP estimates that the rule will limit stormwater discharge to 10% of its present permitted flow to the combined sewer system using cost-effective detention, infiltration, and conservation techniques. This rule will lead to on-site control systems that are projected to reduce combined sewer overflows by as much as 800 million gallons over the next 20 years based on historic development trends. No existing homes or developments will be impacted by the new rule. The rule delivers a key component of the NYC Green Infrastructure Plan announced by Mayor Bloomberg last September.

"Combined sewer overflows remain one of the greatest challenges to water quality in New York Harbor," said Commissioner Strickland. "Our Green Infrastructure Plan seeks to control water at the source to keep it out of our sewers while balancing compliance costs. Through several years of outreach to the real estate, development and environmental communities, we have received many comments to adopt innovative and cost-effective techniques, and the final rule allows additional opportunities to use infiltration and recycling systems to meet control requirements."

The new proposed rule will reduce the amount of stormwater runoff discharged from new development projects as part of DEP's existing permitting processes. The current rule is based on a number of different factors such as existing sewer design criteria, property type, size, and drainage area of the lot. The new rule will reduce current limits for runoff to 10% of present permitted flows through the use of innovative control systems, such as blue roofs, green roofs, or subsurface gravel beds and stormwater chambers. For example, a typical one-acre site currently allowed to release 2.5 cubic feet per second under existing standards, will now be required to detain and release runoff at 0.25 cubic feet per second through some combination of on-site stormwater control systems. The cost impact of the new standard on a project's development is estimated to be an additional 0.3% to 1.5% of total costs.

The rule was developed through several task force meetings DEP conducted with the Mayor's Office of Long-Term Planning and Sustainability and its partners across city agencies. Over the past two years, DEP has received input from building industry which includes real estate, development and professional applicants, and environmental organizations, including the Real Estate Board of New York, the Regional Planning Association, American Institute of Architects, Buildings Sustainability Board, Citizens for Affordable Housing, US Green Buildings Council and the Green Infrastructure Steering Committee. Based on extensive feedback, the rule credits infiltration into soil and recycling for on-site use, which can reduce the size of stormwater control systems.

To assist with the implementation of the new rule, DEP will release a companion document, Guidelines for the Design and Construction of Stormwater Management Systems, offering guidance to the development community and applicants with the selection, planning, design and construction of on-site stormwater detention systems. The manual was developed in consultation with the Department of Buildings, and will feature guidance on siting, design and construction considerations for various stormwater control systems, as well as operation and maintenance recommendations. The guidelines will be continually updated to reflect the latest technology and best practices.

New York City Department of Environmental Protection (DEP) www.nyc.gov/dep

September 29, 2011

EPA Issues First National Standards for Mercury Pollution from Power Plants/ ‘mercury and air toxics standards’ meet 20-year old requirement to cut smokestack emissions

http://tinyurl.com/cpo5nkr
The U.S. Environmental Protection Agency (EPA) has issued the Mercury and Air Toxics Standards, the first national standards to protect American families from power plant emissions of mercury and toxic air pollution like arsenic, acid gas, nickel, selenium, and cyanide. The standards will slash emissions of these dangerous pollutants by relying on widely available, proven pollution controls that are already in use at more than half of the nation’s coal-fired power plants.

EPA estimates that the new safeguards will prevent as many as 11,000 premature deaths and 4,700 heart attacks a year. The standards will also help America’s children grow up healthier – preventing 130,000 cases of childhood asthma symptoms and about 6,300 fewer cases of acute bronchitis among children each year. 
 
"By cutting emissions that are linked to developmental disorders and respiratory illnesses like asthma, these standards represent a major victory for clean air and public health– and especially for the health of our children. With these standards that were two decades in the making, EPA is rounding out a year of incredible progress on clean air in America with another action that will benefit the American people for years to come," said EPA Administrator Lisa P. Jackson. "The Mercury and Air Toxics Standards will protect millions of families and children from harmful and costly air pollution and provide the American people with health benefits that far outweigh the costs of compliance."

“Since toxic air pollution from power plants can make people sick and cut lives short, the new Mercury and Air Toxics Standards are a huge victory for public health,” said Albert A. Rizzo, MD, national volunteer chair of the American Lung Association, and pulmonary and critical care physician in Newark, Delaware. “The Lung Association expects all oil and coal-fired power plants to act now to protect all Americans, especially our children, from the health risks imposed by these dangerous air pollutants.”

More than 20 years ago, a bipartisan Congress passed the 1990 Clean Air Act Amendments and mandated that EPA require control of toxic air pollutants including mercury. To meet this requirement, EPA worked extensively with stakeholders, including industry, to minimize cost and maximize flexibilities in these final standards. There were more than 900,000 public comments that helped inform the final standards being announced today. Part of this feedback encouraged EPA to ensure the standards focused on readily available and widely deployed pollution control technologies, that are not only manufactured by companies in the United States, but also support short-term and long-term jobs. EPA estimates that manufacturing, engineering, installing and maintaining the pollution controls to meet these standards will provide employment for thousands, potentially including 46,000 short-term construction jobs and 8,000 long-term utility jobs.

Power plants are the largest remaining source of several toxic air pollutants, including mercury, arsenic, cyanide, and a range of other dangerous pollutants, and are responsible for half of the mercury and over 75 percent of the acid gas emissions in the United States. Today, more than half of all coal-fired power plants already deploy pollution control technologies that will help them meet these achievable standards. Once final, these standards will level the playing field by ensuring the remaining plants – about 40 percent of all coal fired power plants - take similar steps to decrease dangerous pollutants.

As part of the commitment to maximize flexibilities under the law, the standards are accompanied by a Presidential Memorandum that directs EPA to use tools provided in the Clean Air Act to implement the Mercury and Air Toxics Standards in a cost-effective manner that ensures electric reliability. For example, under these standards, EPA is not only providing the standard three years for compliance, but also encouraging permitting authorities to make a fourth year broadly available for technology installations, and if still more time is needed, providing a well-defined pathway to address any localized reliability problems should they arise.

Mercury has been shown to harm the nervous systems of children exposed in the womb, impairing thinking, learning and early development, and other pollutants that will be reduced by these standards can cause cancer, premature death, heart disease, and asthma.

The Mercury and Air Toxics Standards, which are being issued in response to a court deadline, are in keeping with President Obama’s Executive Order on regulatory reform. They are based on the latest data and provide industry significant flexibility in implementation through a phased-in approach and use of already existing technologies.

The standards also ensure that public health and economic benefits far outweigh costs of implementation. EPA estimates that for every dollar spent to reduce pollution from power plants, the American public will see up to $9 in health benefits. The total health and economic benefits of this standard are estimated to be as much as $90 billion annually. 
 
The Mercury and Air Toxics Standards and the final Cross-State Air Pollution Rule, which was issued earlier this year, are the most significant steps to clean up pollution from power plant smokestacks since the Acid Rain Program of the 1990s.

Combined, the two rules are estimated to prevent up to 46,000 premature deaths, 540,000 asthma attacks among children, 24,500 emergency room visits and hospital admissions. The two programs are an investment in public health that will provide a total of up to $380 billion in return to American families in the form of longer, healthier lives and reduced health care costs. 

More information: http://www.epa.gov/mats/

The U.S. Environmental Protection Agency (EPA) www.EPA.gov 
Press Release dated December 21, 2011

Comparing the feed-in tariff incentives for renewable electricity in Ontario and Germany

http://www.sciencedirect.com/science/article/pii/S0301421511008676
Abstract: The development of feed-in tariff (FIT) programs to support green electricity in Ontario (the Green Energy and Green Economy Act of 2009) and Germany (the Erneuerbare Energien-Gesetz of 2000) is compared. The two policies are highly comparable, offering similar rates for most renewable electricity technologies. Major differences between the policies include the level of differentiation found in the German policy, as well as the use of a price degression strategy for FIT rates in Germany compared to an escalation strategy in Ontario. The German renewable electricity portfolio is relatively balanced, compared to Ontario where wind power dominates the portfolio. At the federal level, Canada does not yet have a policy similar to the European Directive on Renewable Energy, and this lack may impact decisions taken by manufacturers of renewable technologies who consider establishing operations in the province. Ontario's Green Energy and Green Economy Act could be benefit from lessons in the German system, especially with regard to degression of feed-in tariff rates over time, which could significantly reduce payments to producers over the course of a contract, and in turn encourage greater competitiveness among renewable power providers in the future.

Highlights
► We compare two jurisdictions that utilize feed-in tariffs to support renewable electricity.
► Complementary policy such as mandated renewable energy use in conjunction with tariffs increases certainty for investors.
► Targeted incentives in the form of adders can deliver more diversity in renewable generation capacity.
► Degression of tariff rates delivers renewable generation capacity at lower cost.
...
... To explore the ramifications of escalation vs. degression, we estimated Ontario and Germany's contract prices for comparable 10 MW biomass, wind, and solar power facilities. In the case of Ontario, the assigned contract price for biomass and wind power is escalated according to an equation published by the OPA (2011d, p. 69)
...
In the Ontario case, the total contract price (TCPBD) for a 10 MW biomass-to-electricity plant would be 14.3 ¢ CDN/kWh in the base year, assuming that the project is eligible for additional funds through community or aboriginal participation. The total contract price for a 10 MW wind-to-electricity plant would be 13.5 ¢ CDN/kWh, assuming that the contract is awarded at the base rate. The total contract price for a ground-mounted 10 MW solar-to-electricity facility would be 44.3 ¢ CDN/kWh, again assuming that the contract is awarded at the base rate. We assumed an inflation rate of 1.6% based on historic changes to the Consumer Price Index (CPI) (Statistics Canada, 2011). The percentage being escalated is 20% for wind and biomass facilities.

In the case of Germany, the calculation is much simpler. We estimate that the assigned contract price in 2011 for a 10 MW biomass-to-energy plant would be 14.59 ¢ CDN/kWh, given a base rate of 7.71 € ¢/kWh and a 2.97 € ¢/kWh adder (technology bonus for combined heat and power). In Ontario and Germany, adders were selected to create hypothetical facilities that are eligible for comparable initial incentives. The assigned contract price for a 10 MW on-shore wind-to-electricity facility would be about 13.4 ¢ CDN/kWh, assuming that the project was eligible for all available adders. Again, this puts the Ontario and Germany cases at approximately the same initial rate. For both biomass and wind facilities, the initial rate is degressed at a rate of 1% per year. In Germany, the assigned contract price for a ground-mounted solar-to-electricity facility would be about 28.8 ¢ CDN/kWh, a rate that is already significantly lower than the Ontario case. This rate is degressed at an average of 9%, ranging between 6% and 13%.
...
The estimated FIT rates start at a very similar point for each project with the exception of solar. In every case the contracted rates diverge over the life of the projects. To understand the impact of this divergence, we calculated the net present value of the total contract in each case, using a discount rate of 8% and theoretical capacity factors of 60% for biomass, 30% for wind, and 20% for solar. It is clear that even with very similar starting contract rates, the Ontario system guarantees a larger payout over the lifetime of the project. In the case of biomass and wind power, the actual difference between the value of contracts depends primarily on interest rates, but the German model consistently costs about 10% less than the Ontario model. This difference would be true for a range of specific technologies, including biomass and wind as well as biogas and landfill gas, that have degression rates at about 1% per year in the German system. The difference between project costs for solar photovoltaic are much more pronounced, but harder to compare due to the already wide difference between Ontario and German FIT contract rates. Our analysis suggests that the Ontario model would pay out between 2.4 and 3.7 times more than the equivalent German contract for solar power.

In all, these findings suggests that over the entire Ontario renewable electricity program, the full price of which is not yet known but which will be in the tens of billions of dollars, the increased cost created by the indexed price model is highly significant. The authors estimate that the nearly 2000 contracts already announced and expected to operate between 2012 and 2032 have a net present value in excess of CDN$ 26 billion, depending upon the final application of rates and adders. If the escalation factor applied to wind, biomass, and hydroelectric projects were replaced with simple rate degression at 1%, and if the rates for solar power were degressed at 9%, the NPV of these contracts could be reduced by about 30% to approximately CDN$ 18 billion. Since these 2000 contracts represent only a part of the fully envisioned FIT program, the final savings could be even more significant. It has been noted by others that unless the cost of renewables, particularly solar PV, drop dramatically, the GEGEA program might not be sustainable (Yatchew and Baziliauskas, 2011). The data shown in Fig. 3 suggest that the Ontario model bears a particularly high price compared to the German model.

by Warren E. Mabee 1, Justine Mannion 2 and Tom Carpenter 3
1. School of Policy Studies/Department of Geography, Queen's University, 423 Sutherland Hall, 138 Union Street, Kingston, ON, Canada K7L 3N6
2. Faculty of Environmental Studies, York University, Canada
3. Queen's Institute for Energy and Environmental Policy, Queen's University, Canada

Energy Policy via Elsevier Science Direct www.sciencedirect.com
Volume 40; January, 2012; Pages 480-489
Special Issue: Strategic Choices for Renewable Energy Investment
Keywords: Feed-in tariffs; Renewable electricity; Price degression and escalation

To maintain renewable energy’s rapid growth, new International Energy Agency (IEA) study assesses challenges and shows how to overcome obstacles

http://www.iea.org/press/pressdetail.asp?PRESS_REL_ID=428
Renewables are now the fastest-growing sector of the energy mix and offer great potential to address issues of energy security and sustainability, but their rapid deployment is also bringing a host of challenges. A new book from the International Energy Agency released Noember 23, 2011 provides guidance for policy makers and other stakeholders to avoid past mistakes, overcome new challenges and reap the benefits of deploying renewables – today and tomorrow.

The new book, Deploying Renewables 2011: Best and Future Policy Practice, analyses the recent successes in renewable energy, which now accounts for almost a fifth of all electricity produced worldwide, and addresses how countries can best capitalise on that growth to realise a sustainable energy future.

In launching the book, IEA Executive Director Maria van der Hoeven said deployment of renewable energy must be stepped up – especially given the world’s increasing appetite for energy and the need to meet this demand more efficiently and with low-carbon energy sources.
...
New challenges have come to the fore: Growth in renewable energy (RE) has so far focused on just a few of the available technologies, and rapid deployment is confined to a relatively small number of countries. In more advanced markets, managing support costs and system integration of large shares of renewable energy in a time of economic weakness and budget austerity has sparked vigorous political debate.

The new IEA book:

• Provides a comprehensive review and analysis of renewable energy policy and market trends
• Analyses in detail the dynamics of deployment and provides best-practice policy principles for different stages of market maturity
• Assesses the impact and cost-effectiveness of support policies using new methodological tools and indicators
• Investigates the strategic reasons underpinning the pursuit of RE deployment by different countries and the prospects for globalisation of RE

More details are available in three associated IEA information papers – Renewable Energy: Markets and Prospects by Region, Renewable Energy: Markets and Prospects by Technology and Renewable Energy: Policy Considerations for Deploying Renewables – available also via the IEA website, www.iea.org.
...
The report also provides an in-depth analysis of the deployment impact and cost-effectiveness of current policies based on quantitative indicators.
...
Key findings:

• A portfolio of RE technologies is becoming cost-competitive in an increasingly broad range of circumstances, in some cases providing investment opportunities without the need for specific economic support, but economic barriers are still important in many cases. A range of significant non-economic barriers is also delaying progress.
• RE technologies may not generally be cost-competitive under current pricing mechanisms, and so may be inhibited by an economic barrier. The market expansion of RE technologies, however, has been accompanied by cost reductions in critical technologies, such as wind and solar PV, and such trends are set to continue. The portfolio of RE technologies, which includes established hydro power, geothermal and bioenergy technologies is now, therefore, cost-competitive in an increasingly broad range of circumstances. For example, wind projects have successfully competed with other generation projects (including gas) for long-term power purchase contracts in Brazil without special support measures, and solar water heating has expanded rapidly in China due to its favourable economics. Taking the portfolio as a whole, RE technologies should no longer be considered only as high–cost, immature options, but potentially as a valuable component of any secure and sustainable energy economy, providing energy at a low cost with high price stability.
• Where technologies are not yet competitive, economic support for a limited amount of time may be justified by the need to attach a price signal to the environmental and energy security benefits of RE deployment, when these are not reflected by current pricing mechanisms. Support is also justified to allow the newer RE technologies to progress down the learning curve and so provide benefits at lower cost and in larger scale in the near future.
• The RE electricity sector has grown by 17.8% over the last five years (2005-09) and currently provides 19.3% of total power generation in the world. * Hydro power is still the major source of renewable electricity (83.8% of RE generation, corresponding to about 16% of total generation in 2009), and the absolute growth in hydro generation over the last five years has been equivalent to that of all the other RE electricity technologies, mainly because of developments in China. Hydro will continue to be an important technology for years to come and must not be excluded from policy considerations.
• The other newer RE electricity technologies have also grown rapidly, by an impressive 73.6% between 2005 and 2009, a compound average growth rate (CAGR) of 14.8%. Wind has grown most rapidly in absolute terms and has overtaken bioenergy. Solar PV has grown at a growth rate of 50.2% (CAGR), and installed capacity reached about 40 GW by the end of 2010.
• Progress in RE electricity penetration was focused in the OECD and in Brazil, India and China. The OECD was the only region where the deployment of less mature technologies (such as solar PV, offshore wind) reached a significant scale, with capacities in the order of GWs.
• Renewable heat grew by 5.9% between 2005 and 2009. Although the use of biomass is still the dominant technology (and includes the use of “traditional” biomass with low efficiency for heating and cooking), growth in solar heating, and to a lesser extent geothermal heating technologies, has been strong, with an overall growth rate of nearly 12% between 2005 and 2009. Growth was particularly driven by rapid increases in solar heating in China.
• The production and use of biofuels have been growing rapidly, and in 2009 they provided 53.7 Mtoe, equivalent to some 3% of road transport fuels (or 2% of all transport fuels). The biofuels sector has been growing very rapidly (26% CAGR in 2005-09). Biofuels production and consumption are still concentrated in Brazil, the United States and in the European Union. The main centres for ethanol production and consumption are the United States and Brazil, while Europe produces and consumes mainly biodiesel. The remaining markets in other regions and the rest of the world account for only 6% of total production and for 3.3% of consumption. Trade in biofuels plays a limited, yet increasingly important role.

 Three quantitative indicators were developed and applied to the onshore wind and solar PV policies for countries in the OECD and BRICS regions, where comprehensive data are available.

• The policy impact indicator (PII) assesses a country’s success in adding generation from a RE technology using WEO 450 projections for deployment in the country in 2030 as a benchmark.
• The remuneration adequacy indicator (RAI) assesses whether the total remuneration provided to generators is adequate. Remuneration levels are compared, correcting for the country’s different resource endowments.
• The total cost indicator (TCI) benchmarks the level of premiums that have to be paid annually for the additional generation that was achieved in a given year. The total wholesale value of a country’s power generation is used as a benchmark for comparison. Note that the TCI may overestimate total policy costs, because it does not take into account the merit-order effect.

 ...
Nearly all countries with growing markets have used FITs (Feed-In Tarrifs) for Solar PVs. The impact of policies in countries actively promoting solar PV has been higher than for wind, with several countries experiencing very rapid growth, which in some cases (particularly the Czech Republic and Spain) has led to very high overall policy costs. The deployment was stimulated by the attractive and secure rates of return available to investors, with tariffs remaining high at a time when system prices were falling rapidly. PV expansion grew dramatically in 2010 in the Czech Republic, the year for which the total cost indicator was calculated, leading to a very large volume of annual premiums, corresponding to almost 18% of the total wholesale value of the entire Czech system. High total costs are also an issue in other markets, such as Spain, where a boom took place in 2008 (which is not reflected in the 2010 additional premiums). In Germany and Italy, high rates of deployment are also causing comparably high total support costs.
...
Governments not yet committed to large-scale RE deployment should:

• Re-evaluate, in light of dramatic recent cost reductions, the opportunity of RE technologies to provide affordable, safe and clean energy, particularly the potential of RE technologies to help meet rising energy demand.
• Increase the penetration of renewables by stimulating deployment as part of a strategy to develop a sustainable low-carbon energy system, taking advantage of the technology progress and policy experience now available.

International Energy Agency www.iea.org
Press release dated 23 November 2011
see also http://www.iea.org/w/bookshop/add.aspx?id=414