Document ID: EPA-HQ-OA-2018-0107-0001
Agency: epa
Document Type: Proposed Rule
Title: Increasing Consistency and Transparency in Considering Costs and Benefits in Rulemaking Process
Posted Date: 2018-06-13T04:00Z

[Federal Register Volume 83, Number 114 (Wednesday, June 13, 2018)]
[Proposed Rules]
[Pages 27524-27528]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-12707]

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Ch. I

[EPA-HQ-OA-2018-0107; FRL-9979-41-OP]
RIN 2010-AA12

Increasing Consistency and Transparency in Considering Costs and 
Benefits in the Rulemaking Process

AGENCY: Environmental Protection Agency (EPA).

ACTION: Advance notice of proposed rulemaking.

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SUMMARY: EPA promulgates regulations under authority provided in the 
federal environmental statutes such as the Clean Air Act (CAA), Clean 
Water Act (CWA), Safe Drinking Water Act (SDWA), and many others. Most 
statutory provisions require or allow some consideration of cost and 
benefits when setting pollution standards, but there is variation in 
terminology and specificity provided in each law regarding the nature 
and scope of the cost and benefit considerations. In this advance 
notice of proposed rulemaking (ANPRM), EPA is soliciting comment on 
whether and how EPA should promulgate regulations that provide a 
consistent and transparent interpretation relating to the consideration 
of weighing costs and benefits in making regulatory decisions in a 
manner consistent with applicable authorizing statutes. EPA is also 
soliciting comment on whether and how these regulations, if 
promulgated, could also prescribe specific analytic approaches to 
quantifying the costs and benefits of EPA regulations. This ANPRM does 
not propose any regulatory requirements.

DATES: Comments must be received on or before July 13, 2018.

ADDRESSES: Submit your comments, identified by Docket ID No. EPA-HQ-OA-
2018-0107 at http://www.regulations.gov. Follow the online instructions 
for submitting comments. Once submitted, comments cannot be edited or 
removed from Regulations.gov. EPA may publish any comment received to 
its public docket. Do not submit electronically any information you 
consider to be Confidential Business Information (CBI) or other 
information whose disclosure is restricted by statute. Multimedia 
submissions (audio, video, etc.) must be accompanied by a written 
comment. The written comment is considered the official comment and 
should include discussion of all points you wish to make. EPA will 
generally not consider comments or comment contents located outside of 
the primary submission (i.e., on the web, cloud, or other file sharing 
system). For additional submission methods, the full EPA public comment 
policy, information about CBI or multimedia submissions, and general 
guidance on making effective comments, please visit https://www.epa.gov/dockets/commenting-epa-dockets.

FOR FURTHER INFORMATION CONTACT: For further information on this 
document, please contact Elizabeth Kopits,

[[Page 27525]]

National Center for Environmental Economics, Office of Policy, 1200 
Pennsylvania Avenue NW, Mail Code 1809T, Washington, DC 20460, Phone: 
(202) 566-2299; [email protected].

SUPPLEMENTARY INFORMATION: This notice is organized as follows:

I. Background
II. Topics for Which EPA Is Seeking Input
    A. The Nature of Potential Problems of Inconsistency and Lack of 
Transparency
    B. Possible Approaches for Increasing Consistency and 
Transparency in Considering Costs and Benefits in the Rulemaking 
Process
    C. Potential for Issuing Regulations To Govern EPA's Approach in 
Future Rulemakings
III. Statutory and Executive Order Review

I. Background

    EPA promulgates regulations to protect public health and the 
environment under authority provided in the federal environmental 
statutes that it implements, such as the CAA, CWA, SDWA, and many 
others. The specific authorities given to the Administrator are 
established in various sections and subsections of each statute, which 
range from broad authority (e.g., to protect public health with an 
adequate margin of safety) to detailed requirements that specify 
standards or require that standards be at least as stringent as the 
best controlled similar source. In addition to legislative direction, 
regulatory agencies also take direction from the President and the 
Office of Management and Budget within the Executive Office of the 
President regarding what type of formal regulatory evaluation should be 
performed during rulemaking. For decades, Presidents have issued orders 
providing instruction to agencies concerning the consideration of 
benefits and costs in regulatory analysis.\1\ Executive Order 12866, 
Regulatory Planning and Review, requires an assessment of benefits and 
costs for all significant regulatory actions--with benefits and costs 
expressed in quantitative terms to the extent feasible--and instructs 
agencies that, to the extent permitted by law, regulatory actions 
should have benefits that justify their costs (58 FR 51735, October 4, 
1993).\2\
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    \1\ This became more formalized in 1981 with Executive Order 
12291 which required executive agencies to perform a cost-benefit 
analysis for all major rules and centralized the regulatory review 
process by directing the Office of Management and Budget (OMB) to 
serve as a central clearinghouse for the review of agency 
regulations.
    \2\ Over the past decade, the estimated costs and benefits 
resulting from EPA regulations have been the highest within the 
federal government. See Table 1-1 of the Office of Information and 
Regulatory Affairs' (OIRA) 2017 Draft Report to Congress on the 
Benefits and Costs of Federal Regulations and Agency Compliance with 
Unfunded Mandates Reform Act.
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    OMB's Circular A-4 \3\ and EPA's Guidelines for Preparing Economic 
Analyses \4\ provides the Agency with peer-reviewed guidance on how to 
conduct the analysis of regulatory actions to comply with E.O. 12866 
and other executive orders and statutory requirements (e.g., Small 
Business Regulatory Enforcement Fairness Act of 1996 considerations). 
EPA's Guidelines establish a scientific framework for analyzing the 
benefits, costs, and economic impacts of regulations and policies, 
including assessing the distribution of costs and benefits among 
various segments of the population. They incorporate recent advances in 
theoretical and applied work in the field of environmental 
economics.\5\ In this ANPRM, EPA is taking comment on the role that 
regulatory analysis or aspects of that analysis play in decision making 
consistent with statutory direction, not what these existing guidance 
documents recommend about how best to conduct the underlying analysis 
of regulatory actions.
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    \3\ https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/circulars/A4/a-4.pdf.
    \4\ https://www.epa.gov/environmental-economics/guidelines-preparing-economic-analyses.
    \5\ All chapters undergo an external peer review prior to 
finalization, either through the EPA's Science Advisory Board 
Environmental Economics Advisory Committee or through independent 
reviews by external experts. OMB's Circular A4 also underwent 
extensive review before being finalized. Circular A-4 was subject to 
public comment, interagency review and external expert peer review.
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    Most statutory provisions require or allow some consideration of 
cost and benefits when setting regulatory standards to achieve public 
health and environmental benefits, but there can be a significant 
variation in terminology and specificity provided in each law regarding 
the nature and scope of cost and benefit considerations. For example, 
Section 301 of the CWA instructs the Administrator to select the ``best 
available technology economically achievable'' (33 U.S.C. 
1311(b)(2)(A)), and then requires EPA to take into account the cost of 
achieving effluent reductions when assessing best available technology 
(33 U.S.C. 1314(b)(2)(B)). Section 111 of the CAA, however, requires 
the Administrator to set ``standards of performance'' for reducing air 
pollution (42 U.S.C. 7411), defined as ``the best system of emission 
reduction which (taking into account the cost of achieving such 
reduction and any non-air quality health and environmental impact and 
energy requirements) the Administrator determines has been adequately 
demonstrated'' (42 U.S.C. 111(a)(1)). Other provisions may only 
implicitly direct EPA to consider costs, alone or in conjunction with 
benefits and other factors, or be silent on whether costs should or may 
be considered.
    Virtually all environmental statutes leave the specifics on how 
costs and benefits are to be considered to EPA. The Agency interprets 
the terms used in the relevant statute and decides how best to weigh 
costs against benefits and other factors in making regulatory 
decisions. A few statutory provisions require that specific metrics 
(e.g., particular price changes) be included among the ``costs'' to be 
considered (see e.g., Federal Insecticide, Fungicide, and Rodenticide 
Act (FIFRA), 7 U.S.C. 6(b)),\6\ but in most provisions ``costs'', 
``economic factors'', and similar terms remain undefined and are 
included as one item of unspecified weight among a list of multiple 
factors that EPA is required to consider (e.g., CWA, 33 U.S.C. 
304(b)(2)(B); CWA, 33 U.S.C. 1314(b)(2)(B); CAA, 42 U.S.C. 111(b)(1)(B) 
and 42 U.S.C. 111(a)(1) \7\). Even when Congress does include statutory 
language to indicate how EPA should weigh cost considerations against 
benefits and other relevant factors, there is considerable variation in 
the language used and the statutory instruction provides little, if 
any, direction on what constitutes ``appropriate consideration'', 
``reasonableness'', ``practicable'',

[[Page 27526]]

``achievable'', a ``feasible'' threshold, and related terms.
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    \6\ FIFRA section 6(b) elaborates on the costs to be taken into 
account in cancellation of agricultural pesticide registrations by 
making clear that ``the Administrator shall include among those 
factors to be taken into account the impact of the action proposed 
in such notice on production and prices of agricultural commodities, 
retail food prices, and otherwise on the agricultural economy.'' 
(Emphasis added.)
    \7\ CWA Section 304(b)(2)(B), 33 U.S.C. 1314(b)(2)(B), states 
that ``Factors relating to the assessment of best available 
technology shall take into account the age of equipment and 
facilities involved, the process employed, the engineering aspects 
of the application of various types of control techniques, process 
changes, the cost of achieving such effluent reduction, non-water 
quality environmental impact (including energy requirements), and 
such other factors as the Administrator deems appropriate.'' 
(Emphasis added.) CAA Section 111(b)(1)(B), 42 U.S.C. 7411(b)(1)B), 
requires EPA to set standards of performance for certain categories 
of new stationary sources, where Section 111(a)(1), id. Sec.  
7411(a)(1), defines ``standard of performance'' as ``a standard for 
emissions of air pollutants which reflects the degree of emission 
limitation achievable through the application of the best system of 
emission reduction which (taking into account the cost of achieving 
such reduction and any nonair quality health and environmental 
impact and energy requirements) the Administrator determines has 
been adequately demonstrated.'' (Emphasis added.)
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    This has resulted in a variety of concepts of `costs' that may be 
considered across statutes and even under the same statute. These 
concepts include many different metrics that estimate financial impacts 
to the regulated entity, e.g., direct costs for compliance activities 
incurred by a regulated entity, compliance cost per ton of pollutant 
reduced, the number of regulated facilities that may go out of business 
as a result of the proposed regulation, or compliance cost as a percent 
of firm revenues. EPA's Regulatory Impact Analyses (RIAs), as guided by 
its Economic Guidelines, typically also quantify the standard economic 
measure of cost used in benefit-cost analysis -i.e., the broader 
concept of the ``social cost'' of the regulation (the sum of all 
opportunity costs incurred as a result of a regulation)--and ultimately 
reach an estimate of ``net benefits'' (social benefits minus social 
costs).
    For many of EPA's regulatory programs, the courts have weighed in 
on the scope of costs to be considered during the development of a 
regulation. For example, in Michigan v. EPA, 135 S. Ct. 2699, 192 
L.Ed.2d 674 (2015), the Supreme Court held that EPA is required to 
consider costs when determining whether it is ``appropriate and 
necessary'' to regulate power plants under CAA section 112 (42 U.S.C. 
7412(n)(1)(A)), and indicated that ``cost'' can extend well beyond 
financial outlays by regulated entities to include all of the negative 
repercussions of this action, whether economic or otherwise (135 S. Ct. 
at 2707). Many court rulings acknowledge the discretion provided to the 
agency in how relevant factors are measured and weighed. For example, 
in 2009, the US Supreme Court ruled in Entergy Corporation et al. v. 
Riverkeeper, Inc. that EPA may use cost-benefit analysis in setting 
standards and issuing permits under Section 316(b) of the CWA.
    Many technical and practical factors play a role in how EPA 
implements statutory instruction related to cost considerations in 
regulatory decisions. Any assessment of costs (and benefits) is limited 
by the state of scientific and economic modeling, quantification 
methods, and available data--all of which change over time and across 
industries and sectors of the economy. Similarly, statutory authority 
to collect information from regulated industries varies, and in some 
cases EPA may choose not to exercise that authority in order to reduce 
the costs of data collection to the regulated entity (relying instead 
on voluntary provision of information or publicly-available data, or 
simply doing without data where the burden appears to outweigh the 
data's anticipated utility). In these instances, EPA may be limited in 
what cost metrics can be used for a specific regulatory decision and 
may not be able to use identical cost considerations across rules. A 
lack of data and a lack of a regular process for ongoing or 
retrospective review after rules have been implemented \8\ also 
inhibits EPA's ability to gain insights about the realized costs and 
benefits of actions that may help inform how it considers costs and 
other factors in future rulemakings. Finally, industry or sector 
specific factors may play a role, as some metrics may be more or less 
relevant to the affected industries, sectors, or question at hand. For 
example, potential plant closures is a metric sometimes used to measure 
a potential impact and inform stakeholders about regulatory actions on 
some industries (e.g., manufacturing industries dominated by privately-
owned businesses), but this may not be an appropriate or viable measure 
of a potential financial impact for other types of regulated entities 
(e.g., some wastewater treatment plants, or electric power plants that 
are not otherwise economical must still operate to ensure adequate 
reliability of the system).
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    \8\ Many previous administrations have periodically undertaken 
programs of retrospective review or issued executive orders urging 
agencies to reassess existing regulations and eliminate, modify, or 
strengthen those regulations that have become outmoded in light of 
changed circumstances. Agencies are also subject to some limited 
regulatory lookback requirements mandated by statute, but for the 
most part retrospective review has not become institutionalized 
practice within EPA nor other regulatory agencies as has prospective 
review (such as ex ante benefit-cost analysis conducted under 
Executive Order 12866).
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    EPA regularly receives much public comment related to how costs and 
benefits are considered in decision making. On April 13, 2017, in 
accordance with Executive Order 13777, ``Enforcing the Regulatory 
Reform Agenda,'' EPA issued a request for comment on regulations that 
may be appropriate for repeal, replacement, or modification.\9\ While 
that solicitation was broad in scope and generated comments on a myriad 
of regulatory reform issues, one common theme in many industry comments 
related to how the Agency considers cost in developing its regulations. 
For example, some commenters argued that the approach of considering 
compliance cost divided by the total emission reductions (i.e., summing 
across pollutants) resulted in controls that appear cost-effective that 
may not have been deemed cost-effective if each pollutant was 
considered separately. Such a situation arose in in consideration of 
the best system of emissions reductions (BSER) for the Oil and Natural 
Gas NSPS (81 FR 35823, June 3, 2016). Other commenters argued in past 
rulemakings the Agency has justified the stringency of a standard based 
on the estimated benefits from reductions in pollutants not directly 
regulated by the action (i.e., ``ancillary benefits'' or ``co-
benefits'').\10\ For example, in the Mercury and Air Toxics Standards 
(MATS) rule (77 FR 9304, February 16, 2012), the monetized benefits 
from one of the pollutants being directly regulated (i.e., mercury) 
were significantly lower than the estimated costs of the rule, and the 
quantified benefits in the regulatory impact analysis outweighed the 
costs because of the benefits from reductions in ambient fine 
particulate matter (82 FR 16736, April 6, 2017). Similar criticisms 
have been made regarding the extent to which EPA has considered key 
uncertainties, baseline assumptions, and other analytical factors in 
quantifying both benefits and costs relevant to decision making.
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    \9\ See Federal Register notice: Evaluation of Existing 
Regulations (82 FR 17793). The comment period closed on May 15, 2017 
and EPA received over 460,000 comments. All public comments are 
accessible online in our docket on the Regulations.gov website 
identified by Docket ID No. EPA-HQ-OA-2017-0190.
    \10\ OMB Circular A-4 defines ancillary benefit as ``a favorable 
impact of the rule that is typically unrelated or secondary to the 
statutory purpose of the rulemaking (e.g., reduced refinery 
emissions due to more stringent fuel economy standards for light 
trucks) while a countervailing risk is an adverse economic, health, 
safety, or environmental consequence that occurs due to a rule and 
is not already accounted for in the direct cost of the rule (e.g., 
adverse safety impacts from more stringent fuel-economy standards 
for light trucks). You should begin by considering and perhaps 
listing the possible ancillary benefits and countervailing risks . . 
. . Analytic priority should be given to those ancillary benefits 
and countervailing risks that are important enough to potentially 
change the rank ordering of the main alternatives in the analysis. 
In some cases the mere consideration of these secondary effects may 
help in the generation of a superior regulatory alternative with 
strong ancillary benefits and fewer countervailing risks . . . . 
Like other benefits and costs, an effort should be made to quantify 
and monetize ancillary benefits and countervailing risks.'' (OMB 
2003).
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    The purpose of this ANPRM is to request more information about the 
nature and extent of issues raised by stakeholders regarding EPA 
practices in considering costs and benefits in the rulemaking process, 
and to solicit comment on potential approaches that would provide 
improved consistency and transparency. EPA specifically seeks comment 
on whether, and if so, how EPA should promulgate regulations

[[Page 27527]]

that specify how the Agency will approach its consideration of costs 
and benefits in setting pollution standards, consistent with statutory 
direction.

II. Topics for Which EPA Is Seeking Input

    EPA is requesting comments regarding perceived inconsistency and 
lack of transparency in how the Agency considers costs and benefits in 
rulemaking, potential approaches for addressing these concerns, and the 
scope for issuing regulations to govern EPA's approach in future 
rulemakings. Questions pertaining to each of these topics are provided 
below. EPA invites comments on all aspects of this ANPRM. Comments 
should provide enough detail and contain sufficient supporting 
information (e.g., citations to published studies and or data related 
to your comments) in order for the Agency to understand the issues 
raised and give them the fullest consideration.

A. The Nature of Potential Concerns Regarding Perceived Inconsistency 
and Lack of Transparency

    EPA requests more information about the nature and extent of the 
concerns relating to possible inconsistency and lack of transparency in 
considering costs and benefits in the rulemaking process. The most 
helpful comments would provide specific examples with context and 
specify relevant statutory provisions. What impact could greater 
consistency or transparency have on regulated entities, states, tribes, 
and localities, and the public?

B. Potential Approaches for Increasing Consistency and Transparency in 
Considering Costs and Benefits in the Rulemaking Process

    EPA requests comment on approaches for increasing consistency and 
transparency when and how EPA considers cost and benefits in setting 
pollution standards, consistent with statutory direction.

    1. What would increased consistency look like?
    a. Given statutory constraints, how could EPA more consistently 
adhere to existing guidance on benefit-cost analysis principles, 
definitions and analytical techniques whether across the entire 
agency or specific programs? For example, to what extent, if any, 
should EPA develop a regulatory action that commits the Agency to 
following its existing peer-reviewed guidance documents on risk 
assessment \11\ and Guidelines for Preparing Economic Analysis \12\ 
when developing future rulemakings?
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    \11\ https://www.epa.gov/risk/risk-assessment-guidelines.
    \12\ https://www.epa.gov/environmental-economics/guidelines-preparing-economic-analyses.
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    b. Should EPA consider adopting uniform definitions of specific 
terms used in statutes--e.g., ``cost,'' ``benefit,'' ``economic 
factors,'' ``reasonable,'' ``appropriate,'' and ``weight of 
scientific evidence''--and specifying ex ante how they will be 
factored into subsequent regulatory decisions?'' How should EPA 
approach the scope of the uniformity of these definitions (e.g., 
within a particular regulatory program; within statute; across 
statutes)?
    c. To what extent should standard benefit-cost analysis 
principles (e.g., setting a standard to maximize net benefits) guide 
the selection of specific statutorily required metrics and 
thresholds (e.g., ``reasonableness'') against which to measure the 
effects of a proposed regulation?
    d. What improvements would result from a general rule that 
specifies how the Agency will factor the outcomes or key elements of 
the benefit-cost analysis into future decision making? For example, 
to what extent should EPA develop a general rule on how the Agency 
will weigh the benefits from reductions in pollutants that were not 
directly regulated (often called ``co-benefits'' or ``ancillary 
benefits'') or how it will weigh key analytical issues (e.g., 
uncertainty, baseline assumptions, limited environmental modeling, 
treatment of regulating multiple pollutants within one regulatory 
action) when deciding the stringency of future regulations? In 
addition, frequently scientific understanding is not adequate either 
to quantify or to monetize the effects of some pollutants or other 
impacts. How should these potentially important but non-quantified 
and/or non-monetized effects be included in decision making?
    e. To what extent would it be helpful for EPA to require 
consideration of cumulative regulatory costs and benefits of 
multiple regulations during the rulemaking process, including how 
such consideration may affect the design or implementation of a 
regulation (i.e., longer or different compliance timeframes)?
    2. What would improved transparency look like?
    a. How might the documentation of how EPA considered costs and 
benefits in a regulatory decision be improved from current 
practices?
    b. In what ways can EPA increase transparency about the 
decision-making process in cases where the decision was based on 
information that is barred from release by law?
    3. To what extent would requiring a systematic retrospective 
review element in new regulations help to provide ongoing 
consistency and transparency in how regulatory decision making will 
adapt over time to new information? Such a requirement might provide 
a more regular and systematic approach to ex-post (i.e. after 
regulations have been promulgated and become effective) evaluation 
of the costs and benefits of EPA regulations, as compared with the 
periodic regulatory reviews the EPA has historically conducted.\13\ 
This might help identify needed revisions, inform future regulatory 
approaches, and improve methods of ex ante analysis.
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    \13\ It would also supplement existing statutory requirements 
for periodic review of the adequacy of standards or guidelines 
(e.g., CAA 42 U.S.C. Sec.  109(d)(1); CWA 33 U.S.C. Sec.  304(b)).
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    a. What are the opportunities and challenges associated with 
issuing regulations to require retrospective analysis and the 
concomitant need to collect data in order to conduct a meaningful 
retrospective analysis? Would it be more challenging under some 
provisions of key environmental statutes? If so, which ones?
    b. What criteria should EPA use to determine when retrospective 
review is needed? For example, should selection criteria be tied to 
the estimated impacts of the regulation, the degree of uncertainty 
at the time of ex ante analysis, the extent to which retrospective 
analysis will be feasible/successful?
    c. How specific should prospective plans for such a review be? 
For example, should plans specify the methodology that will be used, 
the coverage or scope of the analysis, the data that will be used 
and data collection plans?

C. Potential for Issuing Regulations To Govern EPA's Approach in Future 
Rulemakings

    EPA requests comment on opportunities and challenges associated 
with promulgating regulations to govern EPA's approach to cost and 
benefit considerations in future rulemakings. EPA is soliciting comment 
on whether and how best to develop such regulations.

    1. What are the most pressing economic or legal considerations 
that should be taken into account when deciding the appropriate 
level of specificity (all activities, by statute, by specific 
statutory provision) at which to formulate regulations?
    2. What are the opportunities and challenges with issuing 
regulations to govern EPA's practice when statutory provisions do 
not mention costs or imply these are factors to be considered 
alongside benefits and other factors when setting pollution 
standards?
    3. How can EPA best promote more consistency and predictability 
while still leaving room for consideration of regulatory context and 
for flexibility to adapt to new information and methodological 
advances?
    4. In cases where current EPA practice reflects prior judicial 
decisions, a change in course may come with significant burden to 
the Agency. Is there a way to address this concern in regulations 
governing the consideration of costs and benefits?
    5. Are there ways to improve consistency and transparency using 
methods other than a regulatory approach (e.g., additional 
guidance)? What are the opportunities and challenges associated with 
these approaches?
    6. Are any of the opportunities and challenges identified above 
specific to a

[[Page 27528]]

particular statute or statutes? If so, please provide examples.

III. Statutory and Executive Order Reviews

    Under Executive Order 12866, entitled Regulatory Planning and 
Review (58 FR 51735, October 4, 1993), this is a ``significant 
regulatory action'' because the action raises novel legal or policy 
issues. Accordingly, EPA has submitted this action to the Office of 
Management and Budget (OMB) for review under Executive Order 12866 and 
any changes made in response to OMB recommendations have been 
documented in the docket for this action. Because this action does not 
propose or impose any requirements, and instead seeks comments and 
suggestions for the agency to consider in possibly developing a 
subsequent proposed rule, the various statutes and Executive Orders 
that normally apply to rulemaking do not apply in this case. Should EPA 
subsequently determine to pursue a rulemaking, EPA will address the 
statues and Executive Orders as applicable to that rulemaking.

    Dated: June 7, 2018.
E. Scott Pruitt,
Administrator.
[FR Doc. 2018-12707 Filed 6-12-18; 8:45 am]
 BILLING CODE 6560-50-P