Clean Air Act: Observations on EPA's Cost-Benefit Analysis of Its Mercury Control Options
Published: 2005-02-28T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Mercury is a toxic element that can cause neurological disorders in children. In January 2004, the Environmental Protection Agency (EPA) proposed two options for limiting mercury from power plants, and plans to finalize a rule in March 2005. The first would require each plant to meet emissions standards reflecting the application of control technology (the technology-based option), while the second would enable plants to either reduce emissions or buy excess credits from other plants (the cap-and-trade option). EPA received over 680,000 written comments on the proposal. EPA is directed by statute and executive order to analyze the costs and benefits of proposed rules, and the agency summarized its analysis underlying the two options in the proposal. In this context, GAO was asked to assess the usefulness of EPA's economic analysis for decision making. In doing so, GAO neither independently estimated the options' costs and benefits nor evaluated the process for developing the options or their consistency with the Clean Air Act, as amended.
section_title: What GAO Found
paragraphs: GAO identified four major shortcomings in the economic analysis underlying EPA's proposed mercury control options that limit its usefulness for informing decision makers about the economic trade-offs of the different policy options. First, while Office of Management and Budget (OMB) guidance directs agencies to identify a policy that produces the greatest net benefits, EPA's analysis is of limited use in doing so because the agency did not consistently analyze the options or provide an estimate of the total costs and benefits of each option. For example, EPA analyzed the effects of the technology-based option by itself, but analyzed the effects of the cap-and-trade option alongside those of another proposed rule affecting power plants, the Clean Air Interstate Rule (the interstate rule), without separately identifying the effects of the cap-and-trade option. As a result, EPA's estimates are not comparable and are of limited use for assessing economic trade-offs. EPA officials said they analyzed the cap-and-trade option alongside the interstate rule because the agency views the two proposed rules as complementary. Nonetheless, to provide comparable estimates, EPA would have to analyze each option alone and in combination with the interstate rule. Second, EPA did not document some of its analysis or provide information on how changes in the proposed level of mercury control would affect the cost-and-benefit estimates for the technology-based option, as it did for the cap-and-trade option. Third, EPA did not estimate the value of the health benefits directly related to decreased mercury emissions and instead estimated only some secondary benefits, such as decreased exposure to harmful fine particles. However, EPA has asked for comments on a methodology to estimate the benefits directly related to mercury. Fourth, EPA did not analyze some of the key uncertainties underlying its cost-and-benefit estimates.

section_title: Letter
paragraphs: Mercury is a toxic element that poses human health threats, especially to  fetuses and children. For example, children of women exposed to mercury  during pregnancy—typically from contaminated fish—may face increased  risk of neurological disorders, including delays in learning ability.  According to the Centers for Disease Control, 6 percent of women of  childbearing age have mercury blood levels that exceed safe levels.  Mercury enters the environment through natural and human activities,  such as volcanic eruptions and fuel combustion. In January 2004, the  Environmental Protection Agency (EPA) issued a proposed rule under the  Clean Air Act to regulate mercury emissions from the nation’s largest  unregulated industrial source: coal-fired power plants. The proposed rule  laid out two policy options, one of which EPA plans to choose and finalize  in a March 2005 rule. The first, the “technology-based” option, would  require coal-fired power plants to meet specific mercury emissions  standards reflecting the application of control technology. The second  option would set a national cap on mercury emissions and allow power  plants flexibility either to achieve reductions or to purchase credits from  plants that achieved excess reductions (the “cap-and-trade” option). The  proposed rule has become a contentious environmental policy issue, with  EPA receiving over 680,000 written public comments on the proposal.
Much of the debate over the proposed rule centers on the relative merits of  the two policy options, such as the potential costs to industry and the  expected human health benefits. Federal agencies are required by statute  and executive order to analyze the impacts of economically significant  rules—those that would affect the economy by $100 million or more each year—unless otherwise prohibited by law. Further, the Office of  Management and Budget (OMB) has developed guidance and best practices  under Executive Order 12866 that, among other things, direct agencies to  explore alternative regulatory approaches, taking into consideration  different levels of stringency, and identify the policy that would maximize  net benefits (total benefits minus total costs), unless another approach is  required by statute. OMB guidance states that identifying the policy option  with the greatest net benefits is useful information for decision makers and  the public, even when maximizing net benefits is not the only or overriding  policy objective. In addition, OMB guidance directs agencies to conduct  their economic analyses in accordance with the principles of full disclosure  and transparency. Furthermore, in cases such as the final mercury rule,  where expected economic impacts would exceed $1 billion annually, OMB  guidance directs agencies to identify and quantitatively analyze key  uncertainties in their economic analysis. EPA analyzed the economic  effects of its proposed mercury rule and found that a rule based on either  option would impose billions of dollars in emissions control costs but  would also generate human health benefits of even greater value. EPA  summarized the results of its economic analysis in the January 2004  proposed rule and plans to conduct additional analysis to support a final  rule.
EPA’s economic analysis of its mercury control options is complicated by  another proposed rule, the Clean Air Interstate Rule (the interstate rule),  which would reduce emissions of sulfur dioxide and nitrogen oxides. This  rule would share some of the costs and benefits of regulating mercury  because the technologies that power plants would likely install to comply  with the rule could also reduce mercury emissions. EPA had planned to  finalize the interstate rule by the end of 2004, but announced in December  2004 that it would delay a final decision on the rule until March 2005. Also  in December 2004, EPA issued a public notice providing new data and  information relevant to EPA’s economic analysis of the proposed mercury  rule and solicited additional public comment on this information for  consideration by the agency prior to finalizing the rule.
In this context, you asked us to assess the usefulness of the economic  analysis underlying EPA’s proposed mercury rule for decision making. To  respond to this objective, we, among other things, reviewed EPA’s analysis  of the proposed rule’s economic effects using OMB guidance and standard  economic principles, and discussed the analysis with senior officials within  EPA’s Office of Air and Radiation, which is responsible for developing the  proposed rule and analyzing its economic effects. In doing this work, we  did not independently estimate the costs or benefits of either control  option, evaluate the process for developing either option, or assess the  options’ consistency with the Clean Air Act, as amended. (See app. I for a  more detailed description of the scope and methodology of our review.)   You also asked us to provide information on the availability and cost of  mercury control technologies, and we surveyed mercury technology  vendors, power companies, and federal and other researchers on these  issues. Subsequent to this report, which we plan to issue before the agency  promulgates a final rule, we will provide information on mercury control  technologies in a separate product. We performed our work between May  2004 and February 2005 in accordance with generally accepted government  auditing standards.
subsections: section_title: Background
paragraphs: Mercury enters the environment through natural and man-made sources,  including volcanoes, chemical manufacturing, and coal combustion, and  poses ecological threats when it enters water bodies, where small aquatic  organisms convert it into its highly toxic form—methylmercury. This form  of mercury may then migrate up the food chain as predator species  consume the smaller organisms. Through a process known as  bio-accumulation, predator species may develop high mercury  concentrations in their tissue as they take in more mercury than they can  metabolize or excrete.
Fish contaminated with methylmercury may pose health threats to those  that rely on fish as part of their diet. According to EPA, mercury harms  fetuses and can cause neurological disorders in children, including poor  performance on behavioral tests, such as those measuring attention, motor  and language skills, and visual-spatial abilities (such as drawing). In  addition, populations that consume larger amounts of fish than the general  population—including subsistence fishers, as well as certain Native  Americans and Southeast Asian Americans—may face higher risk of  exposure to contaminated fish, according to EPA. The Food and Drug  Administration (FDA) and EPA recommend that expectant mothers, young  children, and those nursing children avoid eating swordfish, king mackerel,  shark, and tilefish and limit consumption of other potentially contaminated  fish, such as tuna. These agencies also recommend checking local  advisories for recreationally caught freshwater and saltwater fish.  According to EPA, 45 states issued mercury advisories in 2003 (the most  recent data available).
Because mercury released to the atmosphere can circulate for long periods  of time and be transported thousands of miles before it gets deposited, it is  difficult to link mercury accumulation in the food chain with sources of  mercury emissions. EPA estimates that about half of the mercury deposited  in the United States is emitted by sources within this country. In 1999, the  most recent year for which data were available, EPA estimated that  man-made sources within the United States emitted about 115 tons of  mercury. Of these emissions, the agency estimates that about 48 tons, 42  percent of the total, came from coal-fired power plants. While power plants  are not required to limit their mercury emissions, EPA estimates that the  plants currently capture about 27 tons of mercury each year, primarily  through the use of controls for other pollutants, such as those used to  control nitrogen oxides, particles, and sulfur dioxide. EPA estimates that  power plants would otherwise emit about 75 tons of mercury per year.
The Clean Air Act (CAA) Amendments of 1990 required EPA to study the  environmental and health effects of hazardous air pollutants from  coal-fired power plants and determine whether it was “appropriate and  necessary” to regulate these pollutants. In 2000, EPA determined that  mercury was a hazardous air pollutant and that it was appropriate and  necessary to regulate mercury using the technology-based option. Under  this section of the act, the emissions limit had to be at least as strict as the  average emissions of the facilities with the best-controlled emissions.   Because power plants did not already use controls specifically intended to  control mercury, EPA analyzed the effectiveness of controls for other  pollutants that capture mercury as a side benefit.
This effort culminated in EPA’s January 2004 proposal for a  technology-based option that would reduce mercury emissions from a  current level of 48 tons per year to a projected 34 tons per year (a 29  percent reduction) by 2008. At the same time, however, EPA proposed an  alternate policy option that would limit mercury emissions in two phases:  to 15 tons in 2018 (a 69 percent reduction from current levels), preceded by  an as-yet-unspecified interim cap starting in 2010. The alternate policy  option, which would rely on a cap-and-trade system similar to that  currently used to control emissions that cause acid rain, differs from the  technology-based option in that it would not require each facility to meet  emission standards based on control technology. Instead, EPA would set a  nationwide “cap” for mercury emissions from coal-fired power plants and  then distribute tradable emissions allowances that represent a certain  amount of the total cap. At the end of each year, each power plant would  have to hold sufficient allowances for the mercury it emitted that year.  Plants that reduced their emissions below the levels represented by their  allowances could sell their extra allowances to other plants.
In addition to its proposed mercury rule, EPA has proposed another rule  for power plants, the Clean Air Interstate Rule, which is intended to reduce  emissions of nitrogen oxides and sulfur dioxide beginning in 2010. EPA  expects that this proposed rule would result in the installation of pollution  controls that capture mercury as a side benefit, and thereby decrease  mercury emissions to 34 tons per year by 2010, the same level of reduction  as the technology-based option. Under the cap-and-trade option, EPA has  indicated that it may establish a mercury cap for 2010 equal to the control  level expected through the interstate rule. EPA postponed its decision on  finalizing the interstate rule until March 2005 while the agency awaits  congressional action on pending legislation, known as the Clear Skies Act,  that would establish emissions caps and an allowance system similar to  those in the interstate rule and the cap-and-trade mercury control option.   EPA has stated a preference for achieving reductions of mercury, nitrogen  oxides, and sulfur dioxide simultaneously through legislation rather than  regulations.
Responsibility for analyzing the economic impacts—including costs to  industry and expected public health effects—of air pollution control  policies rests with EPA’s Office of Air and Radiation. EPA provided  documentation of its economic analysis for the proposed mercury rule in  three primary documents, some of which refer readers to additional  documentation on the agency’s Web site or in the public rule-making  docket. According to EPA, the agency did not have time to assemble its  economic assessment of the proposed rule in a single document prior to  issuing the proposed rule. To assist in estimating costs that air quality  regulations will impose on the power industry, EPA uses the Integrated  Planning Model (IPM), which estimates how power plants would respond  to various environmental policies. The assumptions underlying this model,  such as those regarding fuel costs, the costs of pollution controls, and  future electricity demand, can affect the modeling results, according to  EPA officials responsible for the modeling.
section_title: EPA’s Economic Analysis Is of Limited Use for Informing Decision Makers about the Economic Trade-offs of Different Policy Options
paragraphs: We identified four major shortcomings in the economic analysis underlying  EPA’s proposed mercury rule that limit its usefulness for informing decision  makers and the public about the economic trade-offs of the two options.  First, EPA did not consistently analyze each of its two mercury policy  options or provide estimates of the total costs and benefits of the two  options, making it difficult to ascertain which policy option would provide  the greatest net benefits. Second, EPA did not document some of its  analysis or provide consistent information on the anticipated economic  effects of different mercury control levels under the two options. Third, the  agency did not estimate the economic benefits directly related to decreased  mercury emissions. Finally, the agency did not analyze some of the key  uncertainties underlying its cost-and-benefit estimates.
subsections: section_title: EPA Did Not Consistently Analyze Each Policy Option or Provide a Complete Accounting of Costs and Benefits
paragraphs: EPA’s estimates of the costs and benefits of its two proposed policy options  are not comparable because the agency used inconsistent approaches in  analyzing the two options. As shown in table 1, EPA analyzed the  technology-based option alone, while it analyzed the cap-and-trade option  in combination with the interstate rule. In analyzing the technology-based  option by itself, EPA estimated the rule would cost about $2 billion  annually, and achieve benefits of $15 billion or more annually, yielding net  benefits (benefits minus costs) of $13 billion or more annually. In contrast,  EPA analyzed the effects of the cap-and-trade option in combination with  the proposed interstate rule by combining the costs and benefits of the two  proposed rules without separately identifying and documenting those  associated with the cap-and-trade option alone. This analysis found that the  two proposed rules together would impose costs of $3 billion to $5 billion  or more annually, while generating annual benefits of $58 billion to $73  billion or more and annual net benefits of $55 billion to $68 billion or more.
Because the estimates for the two options are not comparable, however, it  is not clear which option would provide the greatest net benefits. This is  particularly important in light of EPA’s decision to delay finalization of the  interstate rule. EPA officials responsible for the rule acknowledged the  lack of comparability with its analysis of the two proposed options. These  officials said the agency analyzed the cap-and-trade option alongside the  interstate rule because it viewed these two proposed policies as  complementary. They also said it would have been useful to analyze the  technology-based option alongside the interstate rule, but the agency did  not do so because of time constraints. Nonetheless, it is important for EPA  to consistently analyze each policy option and provide decision makers  with comparable estimates of net economic benefits.
The comparability of EPA’s analysis is further limited because the agency  did not provide consistent information on the total costs and benefits of the  two options over their entire implementation periods. Specifically, EPA  provided cost-and-benefit estimates for 2010, rather than estimates of the  total costs and benefits over the entire implementation period. This is  important because the economic impact of the policy options could vary  from year to year and because the two options have different  implementation timelines. For example, under the proposed cap-and-trade  option, a second level of mercury reductions would take effect in 2018,  which would likely generate additional costs and benefits at that time.  Thus, the estimates EPA provided for 2010 did not fully account for the  expected costs and benefits over the implementation period for this option.  In contrast, EPA officials said that its estimate of the technology-based  option in 2010 reflects the full implementation cost because its analysis  assumes that power plants would achieve compliance with the  technology-based option by that date. However, without estimates of the  total value of benefits and costs of each option over the entire  implementation period, it is difficult to ascertain which option would  generate the greatest net benefits.
section_title: EPA Did Not Document Some of Its Analysis Supporting the Policy Options or Provide Consistent Information on the Economic Impacts of Different Control Levels
paragraphs: The economic analysis underlying the proposed mercury rule does not  consistently reflect OMB’s guidance to agencies in terms of adhering to the  principles of full disclosure and transparency when analyzing the economic  effects of regulations. Specifically, we identified two primary cases where  EPA’s analysis does not adhere to these principles, further limiting the  usefulness of the agency’s analysis in decision making and diminishing the  transparency of the analysis to the public.
First, while EPA provides substantial information on its analysis of the  technology-based option in the documents supporting its economic  analysis of the proposed rule, the agency does not do so for the  cap-and-trade option. For the technology-based option, EPA provides  documents that describe its findings. In contrast, the agency provides only  a summary of its findings for the cap-and-trade option in the rule’s  preamble and refers to its findings as “rough estimates” that are based on  consideration of available analysis of the interstate rule, the  technology-based option, and the proposed Clear Skies legislation. EPA  does not describe specifically how the agency used this analysis of other  proposed rules and legislation to estimate the costs and benefits of the  cap-and-trade option, and it does not identify the key analytical  assumptions underlying its cost-and-benefit estimates. This lack of  documentation and transparency leaves decision makers and the public  with limited information on EPA’s analysis of the cap-and-trade option.
Second, EPA officials responsible for the economic analysis told us that  they analyzed two variations of the proposed technology-based option with  more stringent mercury limits than the option included in the proposal, but  the agency did not include this analysis in the documents supporting its  economic analysis or in the public rule-making docket. This is inconsistent  with EPA’s analysis of the cap-and-trade option, in which it provided a  range of costs and benefits associated with different levels of stringency.  This omission is also at odds with OMB guidance directing agencies to  conduct their economic analysis in accordance with the principles of full  disclosure and transparency.
With respect to the analysis of the technology-based scenarios that the  agency did not make publicly available, EPA officials said the additional  modeling showed that the more stringent scenarios were not as  cost-effective as the proposed technology-based option. However, EPA did  not estimate the benefits of these two scenarios, thereby precluding a  comparison of the net economic benefits under the proposed mercury  policy options. As a result, it is unclear whether the reduction levels and  implementation timelines under either proposed option represent the  regulatory scenario that would provide the greatest net benefits.
In January 2005, EPA officials responsible for the mercury rule said the  agency does not have an obligation to analyze and document every control  scenario. We recognize that OMB guidance gives agencies latitude in  determining the number of regulatory alternatives to consider and that  agencies must balance the thoroughness of their analysis with the practical  limits of their ability to carry out analysis. Nonetheless, providing  information on the costs and benefits of even a limited range of control  scenarios under both proposed options would help decision makers and  the public in assessing how different levels of stringency would affect  overall estimates of costs and benefits. In December 2004, EPA solicited  public comment on additional economic analyses the agency received from  commenters on the January 2004 proposed rule, including some that relied  on models, assumptions, and levels of stringency that were different from  the scenarios EPA analyzed.
section_title: EPA Did Not Estimate the Human Health Benefits of Mercury Reductions
paragraphs: Although EPA’s analysis states that a mercury regulation would generate a  variety of benefits, the agency did not estimate in monetary terms all of the  benefits expected from reducing mercury emissions. Most notably, EPA did  not quantify the human health benefits of decreased exposure to mercury,  such as reduced incidence of developmental delays, learning disabilities,  and neurological disorders. Instead, EPA estimated only some of the health  benefits it anticipates would occur from decreased exposure to fine  particles and discussed other impacts qualitatively. Because the two  options in the proposed rule differed significantly in both the amount of  mercury emission reductions and the time frames in which these  reductions would occur, the lack of estimates of the mercury-specific  benefits of each policy option represents a significant limitation of EPA’s  economic analysis. That is, to the extent that each proposed option would  yield measurable mercury-specific health benefits, EPA’s analysis may  underestimate the total expected benefits of both options. Moreover,  because the options may yield different mercury-related health benefits,  the lack of estimates of these benefits makes it difficult to weigh the  relative merits of the two proposed options.
According to EPA, its analysis did not estimate key mercury-related health  benefits because of technical, time, and resource limitations. Specifically,  agency officials responsible for the analysis said the agency did not have a  method for determining the extent to which mercury reductions from  power plants would translate into decreased incidence of mercury-related  health problems. According to EPA, estimating these benefits involves a  number of complex chemical, physical, and biological processes, as well as  a wide variety of human behaviors, such as fish consumption practices.
Although EPA did not estimate the expected human health and other  benefits of decreased exposure to mercury emissions in the analysis  supporting the proposed rule, the agency did list the various human health  and other benefits it expects would stem from a mercury rule. Importantly,  in December 2004, the agency announced that it was revising its benefit  estimates and solicited public comment on a proposed method for  estimating mercury-specific benefits. According to EPA, this method would  focus on (1) quantifying projected emissions from coal-fired power plants  relative to other sources, (2) modeling the dispersion and deposition of  mercury, (3) modeling the link between changes in mercury deposition and  changes in the methylmercury concentrations in fish, (4) assessing the  methylmercury exposure from consuming fish, and (5) assessing how  reductions in methylmercury exposure affect human health. According to  EPA officials responsible for analyzing the proposed rule’s effects, the  agency will consider public comments on this approach and revise its  analysis before finalizing a rule. In January 2005, EPA officials responsible  for the analysis agreed that providing monetary estimates of  mercury-specific benefits would enhance their analysis, and said that the  agency might have sufficient information to estimate some, but not all, of  the expected human health benefits of reducing mercury emissions.
section_title: EPA Did Not Assess Key Analytical Uncertainties That Could Affect Its Cost-and-Benefit Estimates
paragraphs: OMB guidance under Executive Order 12866 stipulates that agencies  should analyze and present information on uncertainties with their  cost-and-benefit estimates. According to EPA officials responsible for the  economic analysis, the agency’s cost model is generally sensitive to  assumptions about future electricity demand and fuel prices, as well as the  availability, cost, and performance of pollution controls. Because these  assumptions involve long-term projections, they also involve a substantial  amount of uncertainty. EPA conducted a limited uncertainty analysis of  natural gas prices and electricity demand growth on the cost estimates by  examining the impact of alternative projections and concluded that its cost  estimates were not particularly sensitive to changes in these variables.  However, EPA did not assess how the distribution of estimated benefits  and costs would differ given changes in its assumptions about the  availability, cost, and performance of mercury control technologies, even  though the agency believes that these assumptions could affect its  economic modeling.
Furthermore, EPA’s December 2004 notice for additional public comment  on the mercury proposal highlighted the uncertainty surrounding the ability  of its computer model to estimate mercury control costs, primarily because  of the power industry’s limited experience with implementing mercury  controls. This notice solicited public comment on, among other things,  the assumptions in its economic modeling related to the cost, availability,  and performance of mercury control technologies. According to senior  EPA officials responsible for analyzing the mercury proposal, changes in  these assumptions could have a sizable impact on the agency’s  cost-and-benefit estimates. This acknowledgment of key uncertainties in its  economic modeling highlights the need to determine how they could affect  the overall cost-and-benefit estimates for each proposed option.
In addition, EPA did not analyze the key uncertainties surrounding its  benefit estimates. For example, EPA used economic data from its earlier  assessment of the proposed Clear Skies legislation to approximate the  impact of emissions reductions that would be expected under the mercury  rule. According to EPA, the agency used this approach—referred to as a  “benefits-transfer approach”—because time and resource constraints  prevented it from performing new research to measure the value of health  impacts under a mercury rule. OMB’s September 2003 guidance, which  applies to economically significant final rules issued after January 1, 2005,  states that although such an approach can provide a quick and low-cost  means of obtaining monetary values, the method may be characterized by  uncertainty and potential biases of unknown magnitude and should be  treated as a last-resort option. Furthermore, EPA’s economic analysis  states that the benefits analysis has many sources of uncertainty, including  those associated with emissions data, air quality modeling, and the effect of  emissions on human health. The agency did not, however, formally assess  the impact of these uncertainties.
In January 2005, EPA officials responsible for the proposed mercury rule  acknowledged this limited analysis of key uncertainties and said that the  agency plans to conduct a more formal assessment of these uncertainties  prior to issuing a final rule, as directed by OMB’s September 2003  guidance. This guidance directs agencies to assess the sources of  uncertainty in their regulatory analyses and the way in which  cost-and-benefit estimates may be affected under plausible assumptions.  Furthermore, in cases where the annual economic effects total $1 billion or  more, the guidance states that agencies should provide a formal  quantitative assessment of the key uncertainties about costs and benefits.
section_title: Conclusions
paragraphs: Because EPA estimates that regulating mercury emissions would have  significant economic impacts totaling billions of dollars per year, it is  important for the agency to have a credible basis for selecting a policy that  will maximize the return on this investment. However, EPA’s initial  economic analysis of the two policies it is considering has a number of  shortcomings. Specifically, because EPA did not analyze and document the  economic effects of each policy option by itself—as well as in combination  with the interstate rule—over their varying full implementation periods, the  results cannot be meaningfully compared. In addition, EPA did not  document the analysis supporting the cap-and-trade option or provide  consistent information on the economic impacts of different mercury  control levels for the two options, limiting the transparency and usefulness  of the analysis. Further, without monetary estimates of the human health  benefits of mercury emissions reductions—a primary purpose of a mercury  regulation—over the full implementation period of each option or, at a  minimum, a qualitative comparison of these benefits, EPA’s analysis does  not provide decision makers with a strong basis for comparing the net  benefits under each option. Finally, because EPA did not analyze some of  the key analytical uncertainties that could affect its estimates of net  benefits, the agency could enhance its economic analysis by further  evaluating these uncertainties and how they could affect its overall  findings. Unless EPA conducts and documents further economic analysis,  decision makers and the public may lack assurance that the agency has  evaluated the economic trade-offs of each option and taken the appropriate  steps to identify which mercury control option would provide the greatest  net benefits.
section_title: Recommendations for Executive Action
paragraphs: To improve the usefulness of the agency’s economic analysis for informing  decision makers and the public, and to help ensure consistency with OMB  guidance for economic analysis, we recommend that, as the agency revises  its economic analysis prior to selecting a mercury control option, the EPA  Administrator take the following four actions:  Analyze and fully document the economic effects of each policy option  by itself, as well as in combination with the interstate rule, over their full  implementation periods.
Ensure that the agency documents its analysis supporting the final rule  and consistently analyzes the effect that different levels of mercury  control would have on cost-and-benefit estimates under each policy  option.
Include monetary estimates, where possible, of the human health  benefits of reductions in mercury emissions from power plants or, at a  minimum, provide qualitative information on how these benefits are  likely to compare under the two options over a consistent time frame,  reflecting full implementation of both options.
Further analyze uncertainties surrounding estimates of costs and  benefits, as directed by OMB guidance, and evaluate how these  uncertainties could affect overall estimates of the rule’s impacts.
section_title: Agency Comments
paragraphs: We provided EPA with a draft of this report for review and comment. In  commenting on the draft report, the Assistant Administrator for Air and  Radiation said that, prior to issuing a final mercury regulation by March 15,  2005, EPA will conduct additional analysis that will largely address the  findings and recommendations identified in our report. EPA’s letter is  included as appendix II.
As agreed with your offices, unless you publicly announce the contents of  this letter earlier, we plan no further distribution until 7 days from the  report date. At that time, we will send copies of the report to the EPA  Administrator and other interested parties. We will also make copies  available to others upon request. In addition, the report will be available at  no charge on the GAO Web site at http://www.gao.gov.
If you have any questions about this report, please contact me at (202)  512-3841 or stephensonj@gao.gov. Key contributors to this report are listed  in appendix III.
section_title: Objectives, Scope, and Methodology
paragraphs: Congressional requesters asked us to assess the usefulness of the  economic analysis underlying EPA’s proposed mercury rule for decision  making. To respond to this objective, we, among other things, reviewed  EPA’s analysis of the proposed rule’s economic effects using standard  economic principles, OMB guidance, Executive Order 12866, and the  Unfunded Mandates Reform Act of 1995. We also discussed the analysis  with senior officials within EPA’s Office of Air and Radiation responsible  for developing the proposed rule and analyzing its economic effects. In  doing this work, we did not independently estimate the costs or benefits of  the mercury control options, evaluate EPA’s process for developing the  options, or assess legal issues surrounding the extent to which the options  comply with the provisions of the Clean Air Act or its amendments.
We took several steps to assess the validity and reliability of computer data  underlying EPA’s estimates of economic impacts discussed in our findings,  including reviewing the documentation and assumptions underlying EPA’s  economic model and assessing the agency’s process for ensuring that the  model data are sufficient, competent, and relevant. We also discussed these  assumptions and procedures with agency officials responsible for the  modeling data. (For the background section of this report, we obtained  data on mercury emissions. Because they are used for background  purposes only, we did not assess their reliability.) We assessed compliance  with internal controls related to the availability of timely, relevant, and  reliable information. Our concerns about EPA data and analysis are  discussed in the body of this report.
We performed our work between May 2004 and February 2005 in  accordance with generally accepted government auditing standards.
section_title: Comments from the Environmental Protection Agency
section_title: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to the individuals named above, Tim Guinane and Michael Hix  made key contributions to this report.  Kate Cardamone, Jessica Fast,  Cynthia Norris, Judy Pagano, Janice Poling, and Amy Webbink also made  important contributions.