# Response to Comments by Super Law Group, LLC

“Re: Proposed ICR for Stated Preference Survey for Section 316(b) Rulemaking” (Federal Register Vol. 75, No. 139: 42438-42440; July 21, 2010) and EPA Supporting Documents

DOCKET ID No, EPA-HQ-OW-2010-0595

Responses to the Super Law Group, LLC Comment

Introduction

In the introduction, the commenter summarizes the main issues discussed in the comment:

 Comment 1: “EPA need not and should not base its rulemaking decision on cost-benefit considerations because, unlike Executive Order 12866, Section 316(b) does not require EPA to evaluate benefits in relation to costs and cost-benefit analysis is a poor basis on which to base environmental decisionmaking”

 Comment 2: “EPA should not allow the rulemaking to get swallowed up by a formal monetized cost-benefit analysis because Congress restricted EPA’s reliance on cost-benefit analysis in determining the best technology available and did not intend for EPA to monetize benefits because Congress knew that it would frustrate implementation of the CWA’s statutory objectives. ”

 Comment 3: “In conducting a stated preference survey, EPA should use the Willingness-toAccept (WTA) metric, which would properly reflect the fact that industrial facilities do not own, and have no right to kill, the aquatic biota that their cooling water intake structures impinge and entrain, and would thus yield more accurate results not limited by survey respondents’ incomes

.

 Comment 4 : “All evidence indicates that the value to society of the aquatic resources that are virtually impossible to monetize (whether through stated preference methods or otherwise) is quite substantial.”

EPA’s responses to these comments are provided below.

Section 1: EPA Need Not and Should Not Base the Rulemaking on Cost-Benefit Analysis
Because Cost-Benefit Considerations Provide a Poor Basis for Environmental Decisionmaking; EPA Should Instead Base BTA Requirements on the Most Effective Technology Whose Costs Can Be Reasonably Borne.

The Super Law Comment begins with the following statement: “the Supreme Court held that Clean Water Act Section 316(b) does not prohibit the consideration of costs in relation to benefits. But the Court did not find that cost-benefit analysis is required, and thus EPA also has the authority to decide not toengage in such analysis. ” The commenter then argues that due to challenges inherent in performing and

interpreting cost-benefit analysis related to protection of ecosystems EPA should not rely on cost-benefit analysis in determining the best technology available (BTA) for cooling water intake structures. The commenter then argues that because §316(b) sets technology-forcing standards EPA must select the technology that “achieves the greatest reduction in adverse environmental impact (measured by entrainment and impingement) at a cost that can be reasonably born by the industry.”

Next, the commenter notes that Executive Order 12866 requires EPA to estimate the potential benefits and costs to society of proposed rule options. Thus, use of the stated preference study should be limited to EPA’s responsibilities under the executive order and should drive the BTA determination. EPA points out the agency is proposing to conduct a stated preference survey in order to satisfy the requirements of Executive Order 12866, “Regulatory Planning and Review,” which requires all Federal Agencies to economic impact and cost-benefit analysis for all major rules. Cost-benefit analysis requires a comprehensive, estimate of total social benefits, including both use and non-use values. The current information collection would provide valuable information about the total benefits (including use plus non-use) of the 316(b) regulation, thus enabling the Agency to perform cost-benefit analysis for the regulation and to satisfy the requirements of Executive Order 12866.

Section 2: EPA Should Not Get Bogged Down In a Formal, Monetized Cost-Benefit Analysis Because Monetization Is Neither Necessary Nor Desirable for Section 316(b) Rulemaking and It Can Frustrate Implementation of the Statutory Objectives.

This section of the Super Law, LLC Comment begins with a statement that “if EPA does consider costs in relation to benefits in choosing a regulatory option and establishing nationwide performance standards for the Section 316(b) existing facilities rule, the agency should follow the prescription set forth by Justice Breyer in his concurring and dissenting opinion in Entergy Corp. v. Riverkeeper, Inc.” The commenter then quotes Justice Breyer’s opinion to argue that Congress’s intent under Section 316(b) was that EPA should “describe environmental benefits in non-monetized terms,” “avoid lengthy cost-benefit proceedings and futile attempts at comprehensive monetization,” and “take account of Congress’ technology-forcing objectives,” while still “prevent[ing] results that are absurd or unreasonable in light of extreme disparities between costs and benefits.”

This section of the Super Law, LLC comment concludes by urging EPA not to rely upon cost-benefit analysis in determining BTA. If benefit cost-benefit analysis is performed in conjunction with the rulemaking it must be limited to eliminating “truly absurd rulemaking options and should consider benefits as expressed in their natural units, i.e., in terms of qualitative ecological function, not dollars.”

In response to the commenter’s arguments regarding the utility of cost-benefit analysis in an environmental context, EPA notes that cost-benefit analysis is only one tool that can be used to inform policy decisions. EPA’s regulatory decisions are often based on factors such as statutory requirements, environmental effects, economic effects, small business impacts, cost-benefit analysis, cost-effectiveness analysis, qualitative consideration of environmental benefits, distributional considerations, and other factors. Furthermore, the present survey is being conducted by EPA to satisfy the requirements of Executive Order 12866, “Regulatory Planning and Review,” which requires all Federal Agencies to perform economic impact and cost-benefit analysis for all major rules. As discussed in the Agency’s previous responses, EPA believes that cost-benefit analysis is a valuable tool that can be used to informenvironmental decision-making. However, the Agency believes that other considerations should also be

taken into account when deciding policy.

Section 3. In Conducting a Stated Preference Survey, EPA Should Use the WillingnessTo-Accept (WTA) Metric In Place of or in Addition to the Willingness-To-Pay (WTP) Metric

While appreciating the Commenter’s perspectives regarding the underlying property rights, the Agency notes that good practice guidelines for stated preference surveys almost universally indicate the use of WTP elicitation mechanisms over WTA elicitation mechanisms, regardless of the presumed structure of property rights. This is due to the potential for biases in WTA stated preference surveys that can be ameliorated by the use of the WTP format. As clearly stated by the NOAA Blue Ribbon Panel (Arrow et al. 1993, p. 4603): “The willingness to pay format should be used instead of compensation required [WTA] because the former is the conservative choice.” Moreover, “in most of the cases in which [stated preference] techniques are used, the divergence between WTA and WTP, as predicted by theory, should be very small” (Arrow et al. 2002). The policy context involving reductions of entrainment and impingement losses of fish and shellfish in CWIS fits the typical profile of a situation in which WTA and WTP should be very similar (e.g., welfare effects are likely small relative to total income; a non-unique commodity). Similar to the guidance of the NOAA Blue Ribbon Panel, Bateman et al. (2002, p. 28) conclude that “benefits...should be measured by WTP.” Empirical assessments have shown, moreover, that WTA elicitation mechanisms are associated with a range of potential negative consequences for survey responses, including respondent confusion, rejection of the valuation scenario, protest bids, and other behaviors which bias welfare measures (e.g., Bateman et al. 2002, p. 131; Mitchell and Carson 1989, p. 30-38). To avoid these biases, comply with guidance and practice in the stated preference literature, and ensure a conservative benefit estimate, the Agency follows standard approaches in the valuation literature in proposing a WTP format for stated preference elicitation.

Section 4. All Evidence Indicates that the Benefits of Stringent Cooling Water Intake Structure Regulations Are Substantial.

The Agency agrees with this general comment, and notes that estimation of these benefits in a comprehensive manner is among the primary purposes of the proposed stated preference study. The Agency agrees with Professor Johnston’s comments that total use and nonuse non-market benefits may exceed benefits that are measurable in market, and that evidence from the economics literature suggests that nonuse benefits can be very substantial in the aggregate. Having read Professor Johnston’s comments in detail, however, the Agency would like to emphasize that nowhere does he caution “against using a cost-benefit analysis” in general. As noted explicitly in the referenced Comments on Draft New Jersey Discharge Elimination System Permit No. NJ0005550 – Oyster Creek Nuclear Generating Station, Lacey Township, Ocean County (American Littoral Society, et al., 2010): “Johnston concludes that any statements regarding the specific size of benefits from I&E reductions at the Oyster Creek Generating Station—and particularly that these benefits might be smaller than costs—can only be considered premature and speculative without a comprehensive estimate of national use and nonuse benefits that would result.” That is, Professor Johnston is cautioning against the use of cost-benefit analysis that does not include comprehensive and valid estimates of total economic benefits, including nonuse benefits. The purpose of the stated preference survey in question is to contribute towards a “comprehensive estimate of national use and nonuse benefits,” of exactly the type supported in Dr. Johnston’s prior memo.Aside from these minor issues, the Agency agrees with the general theme of this comment, as reflected in

the final paragraph: “We recognize that this stated preference study is an attempt to value and monetize those benefits which were assessed only qualitatively in the prior Phase II (and Phase III) rulemaking. [...] Accordingly, if a stated preference study is conducted, and conducted properly, it will confirm the substantial value to society of aquatic resources that is already known to exist.” The Agency notes that this is among the primary purposes of the proposed stated preference study, and that the empirical results may confirm substantial values to society associated with reductions in entrainment and impingement losses in CWIS. The size of these benefits is an empirical question that can only be answered through an appropriate use of economic valuation methods.

References

American Littoral Society, Beyond Nuclear, Clean Ocean Action, Environment New Jersey, Grammes, New Jersey Environmental Federation, Pinelands Preservation Alliance, Save Barnegat Bay, and Sierra Club-New Jersey. 2010. Comments on Draft New Jersey Discharge Elimination System Permit No. NJ0005550 – Oyster Creek Nuclear Generating Station, Lacey Township, Ocean County. Submitted to the Bureau of Point Source Permitting, Division of Water Quality, New Jersey Department of Environmental Protection, Trenton, NJ.

Arrow, K. , R. Solow, E. Leamer, P. Portney, R. Rander, and H. Schuman. 1993. “Report of the NOAA Panel on Contingent Valuation.” Federal Register 58(10): 4602-4614.

Bateman, I.J., R.T. Carson, B. Day, M. Hanemann, N. Hanley, T. Hett, M. Jones-Lee, G. Loomes, S. Mourato, E. Ozdemiroglu, D.W. Pearce, R. Sugden, and J. Swanson. 2002. Economic Valuation with Stated Preference Surveys: A Manual. Northampton, MA: Edward Elgar.

Johnston, R.J. 2010. Economic Benefits Associated with Reductions of Entrainment and Impingement Losses in Cooling Water Intake Structures and Implications for Oyster Creek Generating Station. Prepared for

Mitchell, R.C. and R.T. Carson. 1989. Using Surveys to Value Public Goods: The Contingent Valuation Method. Resources for the Future, Washington, D.C.