## SUMMARY AND CRITIQUE OF

THE BENEFITS ESTIMATES
IN THE RIA FOR THE OZONE NAAQS
RECONSIDERATION

Final Report Prepared for the American Petroleum Institute

Anne E. Smith, Ph.D.

Senior Vice President NERA Economic Consulting

1255 23 rd 

### Street NW Washington, DC 20037

July 22, 2011NERA Economic Consulting

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### Summary and Critique of the Benefits Estimates in t he RIA for

the Ozone NAAQS Reconsideration

Anne E. Smith NERA Economic Consulting
1255 23 rd Street NW Washington, DC 20037-1125 July 22, 2011

Executive Summary

EPA’s statements on health benefits from lowering t he Ozone NAAQS grossly misrepresent what EPA is actually estimating as the potential benefits of reducing public exposures to ozone. If based on ozone benefits alo ne, not one of EPA’s estimates of the benefits of reducing ozone to a tighter alternative ozone standard is as large as the costs of attaining that respective ozone standard – all c ost more than the ozone benefits they might provide.

EPA’s estimates of ozone benefits are less than the ir costs despite the fact that EPA has now escalated those benefits by always including be nefits due to ozone-related mortality. EPA’s science advisors (CASAC) found no “causal” li nk established between ozone and mortality during their deliberations, but EPA now p resumes, as part of the reconsideration, a causal link between ozone and mo rtality risk. Despite this change that is unsupported by CASAC, EPA’s net benefits estimat es for ozone standards tighter than 0.075 ppm are all still deeply negative.

The only way EPA finds benefits greater than costs for a tighter ozone standard is to add in health gains from concomitant reductions in PM 2.5 that may occur while reducing ozone precursors – “co-benefits” that have nothing to do with ozone exposures. Thus, EPA’s claim that tightening the Ozone NAAQS has gre ater benefits than costs has nothing to do with reducing risks from ozone. EPA also has inflated the magnitude of these co-benefits as part of the reconsideration th rough several specious assumption changes. The Agency’s inflated co-benefits assumpt ions during this reconsideration represent a change compared to those assumed in the original Ozone NAAQS review ending in 2008. Even with both ozone mortality ben efits and PM 2.5 mortality co-benefits, a large fraction of EPA’s net benefits estimates ar e negative.NERA Economic Consulting

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Introduction

In 2008, EPA reduced the Ozone National Ambient Air Quality Standard (NAAQS) from 0.08 ppm to 0.075 ppm. 1 At the time of the 2008 NAAQS decision, a final R egulatory Impact Analysis (RIA) was released that estimated c osts and benefits of several alternative NAAQS standards relative to the 0.084 p pm standard (USEPA, 2008,

hereafter called the “ 2008 RIA ”). The 2008 RIA analyzed alternative ozone standard levels of 0.075, 0.070, and 0.065 ppm. In 2010, EP A announced it would be reconsidering the Administrator’s decision to set t he standard at 0.075 ppm, and would consider levels in the range of 0.060 to 0.070 ppm. A “ Supplemental RIA ” was released (USEPA, 2010) that provided “updated” benefits esti mates for the three alternative standards in the original 2008 RIA , and supplemented these with benefits estimates fo r alternative Ozone NAAQS of 0.060 and 0.055 ppm.

This paper explains the changes in the two versions of the ozone RIA, and provides a summary and critique of EPA’s benefit estimates for the ozone reconsideration. This paper does not attempt to critique the RIA’s cost e stimates, recognizing that others have already done so. The primary conclusions of this p aper are that none of the alternative ozone standards, including the current one of 0.075 ppm, can be justified on the basis of net benefits ( i.e. , benefits minus costs) being positive. Using EPA’ s own estimates in its Supplemental RIA , ozone-related net benefits are negative by billions of dollars per year. The only way that EPA manages to report positive ne t benefits requires reliance on “cobenefits” from fine particulate matter (PM 2.5 ) mortality reductions combined with a causal ozone-mortality association. Even so, EPA needs to use inflated estimates of both the

PM 2.5 and ozone mortality risks to generate any of its p ositive net benefits estimates for any of the alternative Ozone NAAQS considered in th e RIA. EPA makes “updates” in its Supplemental RIA that both inflate and give greater emphasis to the mortality estimates that are essential to producing positive net benefi ts estimates. EPA describes these updates as “methodological improvements” but the ch anges that make the key differences have no basis in new or improved techniques.

Overview of Changes in the RIA since the 2008 Ozone NAAQS Decision

The ozone reconsideration is supposed to consider o nly information in the record at the time of the 2008 NAAQS decision, and hence the Supplemental RIA also should not rely on any new information. Ostensibly, the Supplemental RIA for the ozone reconsideration was prepared to provide analysis of alternative sta ndards additional to those that were analyzed in the 2008 RIA . However, EPA did also change several important a ssumptions when “updating” the RIA for the Ozone NAAQS reconsi deration. Although the Supplemental RIA has not relied on any new clinical or epidemiologi cal studies, it has

1 The earlier ozone standard was specified only to t he second decimal place, and in practice was implemented as if it had been set at 0.084 ppm. I will refer to it as 0.084 ppm hereafter. In both c ases, the precise form of the standard was that the fourt h highest maximum daily 8-hour average level of ozone was not to exceed these respective concentrat ion levels, when averaged over 3 years.NERA Economic Consulting

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changed a number of assumptions that increase the l evel of the estimated benefits for all of the alternative standards levels, including thos e that were analyzed in the 2008 RIA :

“ These changes reflect the more stringent range of o ptions being proposed by the

Administrator. It [sic] also reflects some significant methodological improvements to air pollution benefits estimation, which EPA has adopted since the ozone standard was last promulgated. ” 2

One may first wish to ask the question whether chan ges in benefits estimation methods

should be allowed in the RIA for the reconsideratio n, as these too may be deemed “new

information” relative to that available at the time of the Administrator’s original decision. Answering this legal question is outside the scope of this review. But within the scope of this review is whether these methodological changes can be characterized as “improvements,” as noted by EPA in the quote above. That they are not improvements is explained below for each of the changes individuall y.



### EPA no longer considers the possibility of no causa lity for ozone mortality.

EPA cites the recommendations of an NAS committee r eport (NRC, 2008) as its basis for now assuming that ozone mortality associations are causal, and also for no longer giving any weight to the possibility that such association s may not be. This decision supplants CASAC’s views on the matter, based on the evidence they considered during their 2008 review and which they reiterated to EPA as recently as February 2011. 3 The 2008 RIA did report ozone mortality estimates, using the two studies that provide the lower and upper bound in the range of ozone mortality estimat es in the Supplemental RIA

. However, the Supplemental RIA employs a significantly different stance in communicating about the ozone mortality portions of its benefits estimates. In the

2008 RIA , EPA acknowledged “considerable uncertainty” in th e association between ozone and mortality, lack of knowledge of any under lying mechanisms causing mortality, and the possibility that there was no causal relati onship at all in its summary of multiple

benefit scenarios. 4 In contrast, the Supplemental RIA ’s summary statements ignore even

the possibility that there is no causal ozone-mortality relationsh ip. This has the effect of greatly raising the lower bound of EPA’s benefit es timates because all of the Supplemental RIA benefit summaries treat ozone mortality as certain ly causal. The only

basis for this substantial shift is the 2008 NAS co mmittee opinion, which was not based on any studies that resolved the critical uncertain ties noted in the 2008 RIA . Also, that 2008 NAS opinion remains unsupported by EPA’s CASAC panel today: CASAC restated during its 2011 reconsideration deliberation s that the presumption of causality for ozone-related mortality was “not ready for prime ti me.”

2 Supplemental RIA , p. S1-1.

3 The NAS report was not released at the time of the 2008 NAAQS decision (and was not in the record for that decision) and thus constitutes new information , in addition to being at odds with CASAC’s past an d

current views of the evidence available at the time of the 2008 NAAQS decision.

4 2008 RIA , p. 6-1.NERA Economic Consulting

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### EPA has included two more ozone multi-city studies

. The Supplemental RIA also cites the 2008 NAS committee report to justif y now including

two additional studies in its benefit calculations for ozone mortality. One might ask why were these two studies were not considered importan t enough to incorporate them into EPA’s 2008 Risk Analysis for ozone, which received CASAC’s review. Nevertheless,

their inclusion makes little difference to the RIA results. The ozone mortality estimates of these two studies ( i.e. , Schwartz, 2005 and Huang et al ., 2005) fall between the

minimum and maximum of the four studies that were u sed in the 2008 RIA and so their inclusion causes no meaningful change in the RIA re sults summarized below.



### EPA has increased the value of a statistical life ( VSL).

In the 2008 RIA , EPA used a VSL of $7.9 million (2006$) for benefi ts in 2020 5 but uses a 2020 VSL of $8.9 million (2006$) in the Supplemental RIA

. 6 The higher VSL increases the mortality estimates for both ozone and PM 2.5 by 17% as compared to what they were

in the 2008 RIA . EPA refers the reader to Section 5.7 of the prop osed NO 2 RIA (USEPA, 2009) for its rationale for this change, 7 but the discussion in that 2009 document makes EPA’s decision seem purely arbitrary. 8 A non-arbitrary, technical rationale for a change in assumption such as this is especially needed in the present situation involving the

reconsideration of the ozone standard, given that this change crea tes inconsistency with the original RIA benefit estimates. But, even if a technical basis for now applying a different VSL could be articulated, one would still have to ask whether it is appropriate to incorporate that altered VSL into documents support ing the reconsideration if that

technical information was not available to the Admi nistrator at the time of the initial 2008 decision. A non-arbitrary, technical rationale for this VSL change is warranted as a general matter as well, given that mortality estima tes are the largest components of

EPA’s benefit estimates in this and almost all othe r of EPA’s RIAs. Given the relatively tenuous basis for any choice of VSL, it is difficul t to imagine any good reason for making this change at this time. Uncertainties in estimat ing VSL create a range of uncertainty much wider than this 17% increase – EPA acknowledge s a range of a factor of 10 in its evidence supporting a VSL assumption. 9 Uncertainty and continued debate about

5 2008 RIA , p. 6-25.

6 Supplemental RIA , p. S2-20.

7 Supplemental RIA , p. S3-2.

8 The discussion appears on pp. 5-26 to 5-27 of EPA (2009). In essence, it states that although EPA ha s used the lower VSL in all of its benefit analyses s ince 2004, EPA never changed its official guidance on the VSL that it published in 2000, which suggested use of the higher VSL. Therefore, EPA has now decided to revert to the VSL that it was using prio r to 2004 supposedly for purposes of consistency ( i.e., “Until updated guidance is available, the Agency de termined that a single, peer-reviewed estimate applied consistently best reflects the SAB-EEAC advice it has received. ” p. 5-27, emphasis added). Not only did this decision in 2009 to revert to an earl ier VSL actually create inconsistency with all of EPA’s analyses since 2004, but EPA also states that its u se of the VSL from its 2000 guidance document “does not represent final agency policy” (EPA, 2009, foot note 17, p. 5-27).

9 EPA (2009), p. 5-26.NERA Economic Consulting

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whether it is more appropriate to assign value to t he quantity of life-years lost rather than to “statistical lives” further widens that range of uncertainty, and further weakens any justification for EPA to suddenly increase the VSL it has been using since 2004. 10
Therefore, the change in the VSL assumption cannot be viewed as a necessary “improvement” to the Supplemental RIA . It merely adds confusion for readers of the two RIAs. For EPA, it provides additional inflation of the mortality benefit estimates that, as I will show below, are critical for EPA in making i ts case that a tighter Ozone NAAQS will produce positive net benefits.



### EPA has removed thresholds from the concentration-r esponse functions for PM 2.5

. One of the most significant changes in the benefit calculations since the 2008 RIA is

EPA’s decision to remove PM 2.5 thresholds from the calculation of morbidity and mortality benefits. As explained below, this singl e change nearly doubles EPA’s 2008

estimates of PM 2.5 co-benefits. EPA’s stated reason for changing thi s assumption in the Supplemental RIA is consistency with other RIAs since 2009 that also computed PM 2.5 co-benefits. 11 Review of the discussions cited by EPA as the bas is for making that methodological change during 2009 finds merely a re -hash of the pre-existing information that a no-threshold, linear model provi des the best fit to the available epidemiological data. These data, by definition , extend only as low as the lowest measured level in the epidemiological studies. EPA provides no new evidence to support its new “interpretation” that it should now count b enefits for all modeled concentrations, no matter how far they fall below the lowest measur ed level in any of the statistical analyses. 12 Like the VSL increase, this change also lacks a t echnical basis and cannot be characterized as a “methodological improvement.” B ut, even if relevant new information providing technical support for this new assumption did exist at the time EPA released

the Supplemental RIA , one might still question the appropriateness of i ncluding such new

information in the RIA for the reconsideration of t he 2008 Ozone NAAQS decision.

Several other changes from the 2008 RIA made in the Supplemental RIA are not emphasized but listed here for completeness althoug h they have little if any noticeable impact on estimates: 13

 EPA changes the estimate of PM 2.5 benefits per ton reduced based on a broader geographic area, which the RIA says produces “more reliable and generally larger

PM-related benefits estimates.” 14

10 See, for example, Sunstein (2004).

11 Supplemental RIA , p. S3-3.

12 See the American Chemistry Council (2009) for a th orough technical critique of EPA’s logic and facts in

ACC’s comments on the draft Portland Cement RIA.

13 Supplemental RIA , p. S3-2 and S3-3.

14 Supplemental RIA , p. S3-3. This change appears to have had little effect on estimates in the 2008 RIA, but a comment is warranted on problems in EPA’s “be nefits per ton” method in general, which EPA isNERA Economic Consulting

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 EPA now bases the range for PM 2.5 mortality only on papers by Pope et al . (2002)

and Laden et al . (2006) rather than including experts’ opinions fr om the Expert Elicitation as well. This narrows the range of PM 2.5 mortality co-benefits on both ends of the range with little effect on the overall importance of including PM 2.5 mortality co-benefits at all.

 EPA uses updated population projections in BenMAP. 15 The effect on estimates is not mentioned but it appears to be minimal.

 EPA uses a different function for asthma emergency room (ER) visits that increases that benefit by a small amount.

The Excessive Role of “Co-Benefits” Compared to Ozo ne-Related Benefits

In the above discussion of changes in the RIA benef it calculations, one might notice that almost all of the important changes are in the esti mate of PM 2.5 “co-benefits.” This begs the question: Why is EPA including PM 2.5 benefits in its ozone RIA? EPA has routinely

included PM 2.5 benefits estimates in its RIAs for almost all air- related regulations since 1997 even when those regulations were not directly related to reducing PM 2.5 , calling

them “co-benefits.” Once it became clear that EPA could calculate PM 2.5 mortality benefit estimates vastly larger than any non-PM ben efits that it could generate, RIAs no longer calculated benefits just from the pollutant that was the subject of a new regulation,

but also benefits from incidental additional reduct ions in PM 2.5 resulting from controls on the subject pollutant. 16 This practice has enabled EPA to claim that many new air-related regulations will have benefits greater than costs, but usually solely due to the estimates of

PM 2.5 co-benefits.

Table 1 summarizes monetized benefit estimates from the original 2008 RIA and the Supplemental RIA for several key benefit and co-benefit categories, using the 7%

discount rate. 17 Although the 2008 RIA did provide calculations of ozone mortality

now using in all of its RIAs to calculate co- benef its of PM 2.5 reductions. This method does not estimate population-based changes in exposure, and thus is inconsistent with OMB Circular A-4 which requires risk assessments to estimate how regulatio ns will change population-based exposure, and whose exposure will be reduced.

15 Supplemental RIA , p. S3-2.

16 The use of PM 2.5 co-benefits had certainly appeared by the time of the proposed Regional Haze Rule that followed closely on the heels of the first PM 2.5 NAAQS in 1997. In that Regional Haze Rule RIA, positive net benefits could be calculated only beca use of the inclusion of mortality co-benefits from

further reduction of PM 2.5 below the level of the then-new PM 2.5 NAAQS.

17 The RIA provides benefit estimates (but not cost e stimates) using a 3% discount rate as well. I pref er to use consistent discount rates for benefit-cost comp arisons, but the conclusions in these comments woul d be the same using the 3% discount rate estimates. EPA generally references benefits using a 3% rate i n its summary statements, which are about 9% higher t han those using the 7% rate. Such preferential reliance on the 3%-based benefits in summary statem ents helps inflate benefits in external

communications.NERA Economic Consulting

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benefits (which are shown in Table 1) it did not pr esent those estimates as necessarily causal. The original RIA also provided benefit tot als that excluded ozone mortality altogether due to “considerable uncertainty” about their causality. 18 Also, the “primary” estimate of ozone mortality risk in the 2008 RIA was based Bell et al . (2004), whereas

Bell et al. (2004) generates the lowest of the ozone mortality risk estimates in the Supplemental RIA , and no mention is made of it being “primary.” 19 Table 1 shows the

estimates from Bell et al. (2004) in both of the RIAs, to allow straightforwa rd comparison. However, the original 2008 RIA communicated that all the estimates of ozone mortality were highly uncertain in regards to their causality, while the Supplemental RIA implicitly treats the estimate in Table 1 as a lowe r bound.

Table 1. Summary of Benefits Estimates in the 2008 and Supplemental Ozone RIAs (2006$ millions, 7% discount rate; “-Orig” indicate s the estimates from the 2008 RIA and “-Supp” indicates the estimates from the Supplemental RIA )

O 3 morbidity O 3

mortality (Bell 2004) PM 2.5

morbidity PM 2.5

mortality (Pope) PM 2.5

mortality (Laden) Source in

RIAs 0.075-Orig 73 550 300 3006 6606 Table 6.56 0.075-Supp 71 660 426.5 5022 13022 Table S3.6

0.07 -Orig 230 1900 500 5411 12011 Table 6.56 0.07 -Supp 211 2200 772.5 9044 23044 Table S3.6

0.065-Orig 420 3500 780 8816 20016 Table 6.56 0.065-Supp 378 4000 1250 14073 37073 Table S3.6

0.06 -Supp 737.3 7900 1721.1 22100 57100 Table S2.11

0.055-Supp 1299.4 14000 2455.3 31150 81150 Table S2.13

Table 1 shows that the ozone-related morbidity bene fits (in the first column) are miniscule compared to those from the calculated PM 2.5 co-benefits and the presumed mortality attributed to ozone. This can also be vi sualized in Figure 1. 20 Figure 1 reveals that the calculated benefits from controlling ozone morbidity under tighter alternative Ozone NAAQS are so small that they are nearly invis ible on the scale of the chart. Figure 1 and Table 1 also reveal that the vast majo rity of the benefits being attributed to a

18 2008 RIA , p. 6-1.

19 Although the Supplemental RIA does not state which estimate is its “primary” est imate, it does state that EPA is “placing the greatest emphasis on” the NMMAP S study, of which Bell et al . (2004) is the most prominent in that RIA.

20 The pale blue bars in Figure 1 show the full range of PM 2.5 mortality from low (Pope-based) to high (Laden-based), with a solid line near their middles identifying where the low estimate ends. Figures

S3.5 and S3.6 of the Supplemental RIA provide similar types of bar charts, but in a fash ion that is more difficult to interpret, and without including the 0 .060 and 0.055 alternative standards.NERA Economic Consulting

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tightening of the Ozone NAAQS are not ozone-related effects at all ( i.e. , the yellow and pale blue segments of the bars are not ozone-relate d benefits).

Figure 1. Supplemental RIA ’s Estimates of Benefits Disaggregated by Type of

Benefit and Co-Benefit.

Ozone-Related Benefits Are Far Below Estimated Ozon e-Control Costs

The inflating effect of always including PM 2.5 co-benefits and ozone mortality in the

ozone benefits calculation can be observed in anoth er way. A summary figure on benefit

uncertainties in EPA’s Supplemental RIA , Figure S3.7, indicates a lower bound of benefits for the 0.065 ppm alternative standard of $11 billion, 21 but Table 1 above shows that the actual lower bound is only about $0.4 bill ion when accounting for the possibility that ozone mortality is not causal, consistent with CASAC’s stated views. 22 This $0.4 billion lower bound is what EPA reported as it s lower bound in its 2008 RIA. 23 This demonstrates that the much higher range of benefits in the Supplemental RIA is not the result of any “improvements” to EPA’s benefits calc ulation methods, but due to EPA’s new willingness to ignore the possibility that ther e is no causal relationship between ozone and mortality risk and to never summarize ben efits for ozone-related effects alone

21 This can be inferred from Figure S3.7 on Supplemental RIA p. S3-15 by taking the lowest value shown from the 0.065 ppm case using 3% discounting (i.e., $1200 million) then reducing it by 9% to convert to a 7% discount rate as described in the figure’s footnote.

22 Even if ozone mortality is treated as causal, the lower bound without accounting for PM 2.5 co-benefits would be about $4.4 billion.

23 2008 RIA , p. 6-2.NERA Economic Consulting

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( i.e. , without co-benefits also added in) as it did on p ages 6-1 and 6-2 of its 2008 RIA

. Although EPA does not state it, the Supplemental RIA’s lower bounds for ozone-relat ed benefits when treating the ozone mortality effect a s non-causal are as follows:

 0.075 ppm alternative standard: $0.07 billion

 0.070 ppm alternative standard: $0.21 billion

 0.065 ppm alternative standard: $0.38 billion

 0.060 ppm alternative standard: $0.74 billion

 0.055 ppm alternative standard: $1.30 billion.

When rounded to a tenth of a billion, these are ide ntical to the lower bounds reported for ozone-related benefits on pp. 6-1 to 6-2 of the 2008 RIA (for the three alternative standards analyzed in the 2008 RIA ). The only thing that has changed is how EPA summarizes its estimates, now omitting the true low er bound of its benefit estimates in its summary figures and tables. All of the discussion thus far been about benefit estimates, without reference to the associated costs, which ar e necessary to calculate net benefits. Using only the lower bound of EPA’s cost estimates, Table 2 below shows that the Supplemental RIA finds that the current ozone standard of 0.075 ppm would have net benefits of -$7.5 billion relative to the pre-2008 ozone standard of 0.084 ppm. The tighter 0.070 to 0.055 ppm alternative standards ne t benefits range from -$18.8 billion to -$76.7 billion (see Column c of Table 2). 24

Table 2. Net Benefit Estimates in Supplemental RIA for Ozone-Related Effects Only (2006$)

Alternative
Standard (ppm) (a) Lowest

Cost
Estimate in RIA (*) (b) OzoneRelated
Benefits
Estimate if
Ozone Mortality is
Non-Causal (**) (c ) Net

Benefits
without CoBenefits and
if Ozone Mortality is
Non-Causal
Col (b) – Col (a) (d) Highest

OzoneRelated
Benefits
Estimate (***) (e) Highest

Possible
OzoneRelated Net
Benefits
Estimate
Col (d) – Col (a)

0.075 $ 7.6 billion $0.07 billion -$7.5 billion $ 3.1 billion -$ 4.5 billion 0.070 $19.0 billion $0.21 billion -$18.8 billion $10.2 billion -$ 8.8 billion 0.065 $32.0 billion $0.38 billion -$31.6 billion $18.4 billion -$13.6 billion 0.060 $52.0 billion $0.74 billion -$51.2 billion $36.7 billion -$15.3 billion 0.055 $78.0 billion $1.30 billion -$76.7 billion $65.3 billion -$12.7 billion (*): Lower bound of cost range from Supplemental RIA Table S1.1. (**): Sum of all ozone-related morbidity from Supplemental RIA tables S3.6, S2.11, and S2.13 (***): Sum of all ozone-related morbidity plus ozon e-related mortality based on Levy et al. (2005) from Supplemental RIA tables S3.6, S2.11, and S2.13.

24 EPA is computing costs and benefits relative to th e 1997 ozone NAAQS of 0.084 ppm ( 2008 RIA

, p. 6-3), which is why even the current ozone NAAQS standard has a net cost in this RIA. EPA also

states that the PM 2.5 co-benefits are incremental to an assumption of fu ll attainment of the 2006 PM 2.5 NAAQS of 15 ug/m3 annual and 35 ug/m3 daily average ( 2008 RIA , p. 6-4).NERA Economic Consulting

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In fact, even if the very highest of the ozone mort ality estimates in the RIA ( i.e ., those based on Levy et al . (2005)) are added into the ozone-related morbidit y benefits, the total

ozone-related benefits in the Supplemental RIA remain below the lower bound of EPA’s

own cost estimates. The net benefits of the 0.075 ppm standard would be about -$4.5 billion (relative to the pre-2008 ozone stand ard of 0.084 ppm), while the yet-tighter alternative standards ( i.e ., 0.070 through 0.055 ppm) have net benefits rangi ng from -$8.8 billion to -$12.7 billion (see Column e of Ta ble 2). Use of any of EPA’s other, higher cost estimates would only make these net ben efits more negative.

Often, EPA reports a “benefit:cost ratio” rather th an the dollar value of net benefits. This is just another way of looking at the same informat ion as in Table 2. Positive net benefits require a benefit:cost ratio larger than 1 to 1, an d EPA often reports ratios more like 20 to 1. Table 3 below reports the benefit:cost ratios f or just ozone-related benefits, based on

the results in Table 2. Table 3 shows that if ozon e mortality is not causal, the benefit:cost ratio is about 0.01 to 1, meaning that benefit esti mates are about 1/100 th the level of EPA’s cost estimates. Even when including the larg est of any of EPA’s ozone mortality benefit estimates, Table 3 shows that the benefit:c ost ratio never rises as high as 1 to 1. Use of any of EPA’s other, higher cost estimates wo uld only make these benefit:cost

ratios smaller.

Table 3. Benefit:Cost Ratios in Supplemental RIA for Ozone-Related Effects Only

Benefit:Cost Ratio Alternative
Standard (ppm) If Ozone Mortality

is Non-Causal
Col (b) ÷ Col (a) from

Table 2 above Highest Possible

(Using highest ozone mortality estimate)
Col (d) ÷ Col (a)
from Table 2 above
0.075 0.01 to 1 0.41 to 1

0.070 0.01 to 1 0.54 to 1

0.065 0.01 to 1 0.58 to 1

0.060 0.01 to 1 0.71 to 1

0.055 0.02 to 1 0.84 to 1

Thus, by EPA’s own calculations in the Supplemental RIA , every one of the alternative Ozone NAAQS standards being analyzed has negative n et benefits based on all possible ozone-related effects, including an assumed causal ozone mortality relationship. EPA’s cost-benefit methodology in the Supplemental RIA cannot produce a single case in which net benefits are positive unless EPA includes PM 2.5 mortality co-benefits

. 25 Even under the best case, which would be the current standard of 0.075 ppm, the ozone-related net benefits imply a loss of more than -$4 billion.

25 Even adding all the PM 2.5 morbidity co-benefits to the highest of all the ozone-relate d benefits cannot produce a positive net benefit estimate for any of the alternative standards.NERA Economic Consulting

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In conclusion, the only way that EPA’s Supplemental RIA can find that net benefits of a tighter Ozone NAAQS might be positive is to include PM 2.5 co-benefits – and in particular the PM 2.5 mortality co-benefits. Even then, most of the net benefits estimates remain negative. This can be seen in Table S1.1 of the Supplemental RIA , in which the range of net benefits (see last column) is approxim ately centered around zero, with both negative and positive estimates in all cases, including the cases in which the highest of the ozone mortality risk estimates is employed ( i.e. , the rows labeled “Levy et al. 2005”). This tells us that EPA needs to assume not just ozo ne mortality causality, but also to

combine that with its high-end estimates of PM 2.5 mortality risk in order to generate a positive net benefit for any of the alternative Ozo ne NAAQS.

PM 2.5 Co-Benefits Are Inflated and Subject to Large Unce rtainties

The need to rely on high-end PM 2.5 mortality risk estimates evident in the Supplemental

RIA would have been even more pronounced but for two o f the changes to its benefits calculations that EPA made when it “updated” the oz one RIA: the estimation of PM 2.5 risks below the lowest measured level in the PM stu dies, and the use of a higher VSL. Figure 2 below compares the equivalent set of benef its estimates from the original 2008

RIA (labeled “-Orig” in the figure) with those from th e Supplemental RIA (labeled “-Supp” in the figure) that were first shown in Fig ure 1 above. Figure 2 shows results only for the standards 0.075, 0.070 and 0.065 ppm b ecause the original 2008 RIA did not analyze 0.060 or 0.055 ppm.

Figure 2. Comparison of Benefits Estimates in 2008 and Supplemental RIAsNERA Economic Consulting

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Figure 2 reveals that EPA’s “updated” assumptions f or the reconsideration reinforced the result that the reported benefits of the ozone stan dard are almost entirely due to nonozone related impacts. That is, the largest change in estimated benefits between the 2008

RIA and the Supplemental RIA was an increase in the PM 2.5 mortality benefit, further increasing the predominance of PM 2.5 co-benefits over ozone benefits in the analysis.

This is consistent with EPA’s statement that the re moval of the threshold in the PM 2.5 mortality benefits calculation had by far the large st impact among the changes that it made in the “update.” 26 Other changes such as the increased VSL and the u se of updated population projections in BenMAP affected the ozone mortality estimate in the same way that they affected the PM 2.5 mortality estimate, yet the ozone mortality estima tes did not increase in the same degree. That is, the heights of the maroon bars for ozone mortality in Figure 2 increase only slightly between the orig inal and supplemental estimates, whereas the heights of the pale blue PM 2.5 mortality bars double.

EPA increased the VSL in 2020 by 17% from $7.9 mill ion (2006$) in the 2008 RIA 27 to $8.9 million (2006$) in the Supplemental RIA. 28 If nothing else had changed, all the mortality benefits for both ozone and PM 2.5 should have increased by 17% in the Supplemental RIA . The ozone mortality estimates do increase by an average of 17% which suggests that the changed population estimate s and revised $/ton benefits estimation method had no significant effect on EPA’ s benefit estimates overall. In contrast, the low and high PM 2.5 mortality estimates have increased by 60% and 97%, respectively. By subtracting out the 17% increase due to VSL increase, one can infer that

EPA’s decision to now count PM 2.5 benefits down to the lowest measured level increase d its low-end (Pope) PM 2.5 mortality benefit estimates by about 40%, and its high-end (Laden) PM 2.5 mortality benefit estimates by about 65%. The com bined effect of removing the PM 2.5 threshold and increasing the VSL estimate was to n early double the high-end estimates of PM 2.5 mortality from the 2008 RIA to the current “updated” RIA. EPA takes the position that this doubling of co-ben efits is appropriate to incorporate into the RIA used for the ozone reconsideration although the reconsideration supposedly uses

information available to the Administrator at the t ime of the original 2008 decision.

Why tighten an ozone regulation if the benefits are almost entirely attributable to PM 2.5, which is itself already subject to regulation that protects the public health with an adequate margin of safety? In pondering that quest ion, one should also be informed that a string of questionable assumptions in the calcula tions of PM 2.5 co-benefits exists, including the following:

 The PM 2.5 benefit estimates are due to small changes in PM 2.5 starting at very low

initial concentrations of PM 2.5 , despite EPA’s own statement that “It is important to note that as the stringency of the standards increa ses, we believe that the uncertainty

26 Supplemental RIA , p. S3-17.

27 2008 RIA , p. 6-25.

28 Supplemental RIA , p. S2-20.NERA Economic Consulting

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in the estimates of the costs and benefits also inc reases.” 29 EPA states that the PM 2.5 co-benefits in this RIA are all incremental to exac t attainment of the 2006 PM 2.5 standards, 30 which means that 100% of the PM 2.5 co-benefits are due to PM 2.5 changes in areas where exposure levels are already in attainment with the PM 2.5 NAAQS. Thus, all of the PM 2.5 co-benefits calculated in the ozone RIA come from changes in PM 2.5 concentrations that EPA deemed to be too uncertain to consider when setting the PM 2.5 NAAQS.

 The possibility that PM 2.5 associations reflect systematic errors rather than a causal relationship (Smith, 2009).

 The assumption that nitrate – which is the only PM 2.5 constituent appreciably altered in the ozone RIA’s co-benefit calculations – is equ ally as potent as PM 2.5 constituents generally. 31 This is increasingly unlikely as epidemiological evidence mounts that the culprit surrogate variable in the P M 2.5 epidemiological literature may rather be vehicle, traffic, or noise-related.

 The failure to use epidemiological relationships fo r PM 2.5 that have been estimated with statistical controls for other co-pollutants. For example, the lower benefit bound that is based on the Pope study relies on a s ingle-pollutant model, even though previous studies on that same cohort found t hat the PM 2.5 coefficient became insignificant when estimated in a multi-pollutant m odel with SO 2 (see Krewski et al.

, 2000). The upper bound benefit is based on Laden et al. (2006), which is a singlepollutant analysis that did not even rely on actual PM 2.5 measurements.

The Ozone-Related Benefits Estimates Are Inflated a nd Not Credible

The ozone RIA’s emphasis on PM 2.5 co-benefits makes it easy to give minimal scrutiny

to the ozone benefit estimates themselves. However , the ozone mortality and morbidity estimates are also problematic.

First, the estimates of ozone-specific benefits are almost entirely based on a presumption that the few epidemiological studies of ozone morta lity risk demonstrate a causal effect of ozone. This is a leap of faith that CASAC was n ot prepared to endorse. In their teleconference call of February 18, 2011, CASAC mem bers wondered why there was so much emphasis on ozone mortality in the charge ques tions EPA had posed. One member stated that CASAC’s original recommendation to tigh ten the ozone standard had not been based on ozone mortality risks and none dissented w hen another stated that the

29 Supplemental RIA, p. S1-1.

30 2008 RIA , p. 6-4.

31 The Supplemental RIA states “PM co-benefits are derived primarily from reductions in nitrates (associated with NOx controls). As such, these est imates are strongly influenced by the assumption th at all PM components are equally toxic” (p. S1 -11).NERA Economic Consulting

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assumption of ozone mortality was “not ready for pr ime time.” Members noted that this was their view at the time that they performed thei r original review and it remains their view today of the 2008 body of evidence. The impor tance of these statements for the

RIA cannot be overstated. If PM 2.5 co-benefits and ozone mortality benefit calculations are removed, the total benefits at each standard dr op to about $0.2 billion for the 0.070 ppm alternative standard and to $0.7 billion for the 0.060 ppm alternative standard as compared to costs above $19 billion and $56 bill ion, respectively. Net benefits are solidly in the negative by billions of dollars.

One need not dismiss the causality presumption in o rder to see such large decreases in the benefits in the RIA, however. As demonstrated in c omments during the original 2008 review of the Ozone NAAQS (Smith and Gibbs, 2007), almost all of the benefits being

assessed for reductions from the current standard a re attributable to exposures on days when peak ozone is very low. This follows from the fact that almost all of the estimated

risk at attainment of the current standard comes fr om days when the 24-hour average

ozone is below 0.04 ppm, as shown in Table 4 on the next page. 32 Table 5, also on the next page, shows that the vast majority of risk est imated for an alternative Ozone NAAQS of 0.064 ppm is associated with 24-hour avera ge ozone below 0.040 ppm. Thus, almost all of the ozone mortality and morbidity ben efit calculated by EPA in its Supplemental RIA is from small changes in ozone concentrations star ting from alreadylow ozone levels. Again, as EPA itself warns on p. S1-1 of its Supplemental RIA , “It is important to note that as the stringency of the sta ndards increases, we believe that the uncertainty in the estimates of the costs and benef its also increases.”

The sensitivity shown in Tables 4 and 5 is highly i mportant for another reason as well. The 0.040 ppm cut-off on a 24-hour average basis wa s selected because it is the level of “policy relevant background” (PRB) that EPA chose t o use in its prior 1997 ozone risk analysis. In the current benefits analysis, both f or the original 2008 ozone RIA and the Supplemental RIA , EPA changed its PRB assumption to lower levels ranging from 0.014 to 0.032 ppm (varying by city and month). These va lues were derived from runs of a

model known as GEOS-CHEM. Table 4 above shows that almost all of the increase in ozone morbidity and mortality risk above the previo us review cycle is attributable to change in the PRB assumption and not to new epidemiological evidence indicating a greater degree of ozone potency than was known in 1 997. The above sensitivity analyses are based on EPA’s Risk Analysis in support of the 2008 NAAQS decision (EPA, 2007) and not the RIA, but the same computations of benef its are done in the RIA and the same general sensitivity to the PRB assumption must also exist in the RIA benefits estimates. Since the Risk Analysis focuses on cities with gene rally high ozone levels, one might

32 The analysis used to produce Tables 4 and 5 uses a 24-hour rather than an 8-hour daily maximum average. Although EPA has claimed in the past that the equivalent 8-hour max is about double the 24- hour average, detailed analysis of the data used by EPA demonstrates that this rule of thumb clearly a nd consistently overstates the 8-hour maximum for 24-h our averages above about 0.030 ppm. The 8-hour maximum associated with a 24-hour average of 0.040 ppm varies by city but is less than 0.070 ppm and frequently averages closer to 0.060 ppm (Smith, 200 8a, 2008b).NERA Economic Consulting

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expect that an even greater sensitivity than shown in Table 4 pertains to the benefits estimates in the RIA, which account for risks acros s the entire U.S. with on average lower

ozone levels.

Table 4. Sensitivity of Quantitative Risk Estimate s PRB Assumption at Exact Attainment of a 0.074 ppm NAAQS ( Average of 2002 and 2004 Air Quality Data)

Numbers of Deaths Estimated Using
GEOS-CHEM for PRB Assumptions Numbers of Deaths Estimated Using PRB = 0.040 ppm Assumption Percent Reduction in
Risk Estimate from Change in PRB Assumption

Atlanta

5.3 0.1 98%
Cleveland

31.7 2.6 92%

Detroit

30.2 0.7 98%

Houston

17.8 0.7 96% Los Angeles

28.6 0.0 100%
Sacramento

9.5 0.1 99%
St. Louis

3.4 0.2 96% Source: Smith and Gibbs (2007) Appendix C.

Table 5. Sensitivity of Quantitative Risk Estimate s PRB Assumption at Exact Attainment of a 0.064 ppm NAAQS ( Average of 2002 and 2004 Air Quality Data)

Numbers of Deaths Estimated Using
GEOS-CHEM for PRB Assumptions Numbers of Deaths Estimated Using PRB = 0.040 ppm Assumption Percent Reduction in
Risk Estimate from Change in PRB Assumption

Atlanta

4.1 0.0 99%
Cleveland

26.2 1.2 96%

Detroit

23.0 0.2 99%

Houston

12.7 0.2 98% Los Angeles

15.4 0.0 100%
Sacramento

8.1 0.1 99%
St. Louis

2.5 0.1 98% Source: Smith and Gibbs (2007) Appendix C.

This is an important issue because the question of what level of ozone is actually background remains open to continuing study and dis cussion. Monitoring data do not support the GEOS-CHEM results used in the 2008 RIA . Indeed, monitoring data suggest a trend of rising background ozone levels. Also, n ew and enhanced GEOS-CHEMNERA Economic Consulting

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modeling efforts are purported to be predicting hig her PRB levels. 33 The evidence above is that even very small increments in the assumed P RB level will greatly reduce both mortality and morbidity benefit estimates for ozone from those that have been reported in the present ozone RIA.

Conclusion

The estimates of benefits in the ozone reconsiderat ion RIA are little different from those in its predecessor, the original 2008 RIA , despite significant differences in EPA’s communication about those estimates. Although EPA represents the Supplemental RIA for the ozone reconsideration as an update that has methodological improvements since

the 2008 RIA , the changes that can be called methodological imp rovements have had no significant effect on the benefits estimates. Rath er, the key changes are EPA’s unsupported decisions (1) to eliminate all recognit ion of the uncertainty in a causal relationship between ozone and mortality, and (2) t o calculate PM 2.5 co-benefits down to the lowest predicted PM 2.5 level rather than to a lowest measured level in th e epidemiological studies that serve as the basis for EPA’s PM 2.5 concentration-response relationships. Neither of the latter two changes c an be characterized as a methodological “improvement,” and neither is based on advice from EPA’s CASAC panel overseeing the

ozone reconsideration.

Even with EPA’s changes, however, the Supplemental RIA does not provide a costbenefit basis for altering the Ozone NAAQS unless o ne includes estimates of mortality co-benefits from changes in PM 2.5 levels. That is, not one of EPA’s estimates of th e benefits of reducing ozone to a tighter alternative ozone standard is as large as the costs of attaining that respective ozone standard – all h ave negative net benefits if based on ozone benefits alone. Figure 3 on the next page il lustrates the data that were presented in

Table 2 to summarize the Supplemental RIA ’s estimates of the net benefits of each of the alternative ozone standards (relative to the standa rd of 0.084 ppm) when no PM 2.5 cobenefits are included. Even using the highest esti mate of ozone mortality benefit in the RIA combined with the lowest EPA cost estimate, the estimated net benefits of the 0.075 ppm standard are about -$4.5 billion relative to th e 0.084 ppm standard while the yettighter alternative standards ( i.e ., 0.070 through 0.055 ppm) have estimated net bene fits ranging from -$8.8 billion to -$12.7 billion. If o ne treats the ozone-mortality association as non-causal, EPA estimates that the current ozone standard of 0.075 ppm would have net benefits of -$7.5 billion and the yet-tighter a lternative standards of 0.070 through 0.055 ppm would range from -$18.8 billion to -$76.7 billion. In fact, if there is no causal relationship between ozone and mortality risk, the net benefits estimates for standards tighter than 0.075 ppm remain negative even with th e inclusion of the highest of EPA’s

PM 2.5 mortality and morbidity co-benefits and using the low end of its cost range.

33 See, for example, Oltmans et al. (2008), Wang et al. (2009) and Cooper et al. (2010).NERA Economic Consulting

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Figure 3. Summary of Net Benefits of Each Alternative Ozone Standard Relative to Standard of 0.084 ppm for Ozone-Related Benefits Only (All Are Negative).

All of the above net benefits statements are based on EPA’s own estimates in the 2010 Supplemental RIA for the ozone reconsideration, although EPA does not summarize its results in this manner. However, there are reasons to believe that the net benefits may be much more negative. Sensitivity analyses exist in the original record for the 2008 Ozone NAAQS decision that demonstrate that that almost all of the ozone benefits – both morbidity and mortality – derive from changes in ozone on days when the ozone is already below 0.04 ppm (24-hour average). EPA acknowledges that there is great uncertainty regarding the existence of any adverse effects from ozone exposures in this range. Additionally, ozone background levels may rise as high 0.04 ppm so that much of the change that EPA is assuming in those low ozone concentrations could not even occur. If those assumed changes cannot occur most of the estimated ozone exposure changes

could not occur and almost all of EPA’s ozone benefits estimates would not occur.NERA Economic Consulting

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