EPA's use of cost-benefit analysis in developing proposed mercury control regulations was deeply flawed, according to a GAO report released yesterday. The report examined how EPA used different variables when comparing different proposals so that the cost-benefit analysis was weighted towards the industry-preferred cap-and-trade method. GAO identified "four major shortcomings in the economic analysis underlying EPA's proposed mercury control 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 . . . . 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."

Read the full report or the highlights.