Introduction

The thesis of our symposium contribution, which builds on our prior scholarship critiquing the methodologies used in centralized regulatory review, is that agency reliance on fully quantitative cost-benefit analysis (CBA) to set regulatory limits on risk tends to generate racially biased outcomes in many areas of risk regulation. This worrisome pattern is present in—but by no means is limited to—those areas conventionally understood to be covered by the concept of environmental racism, such as the regulation of pollution. By increasingly relying on formal CBA as a decision-making criterion in health, safety, and environmental risk regulation, agencies exacerbate racial bias in a socio-economic landscape already afflicted with systemic racism.

         That people of color bear a disproportionate share of the health risks imposed by pollution (and do not share commensurately in societal benefits of polluting industry) is, by now, fairly well known. However, inequitable distribution of risk is not confined to the environmental arena. Other risks are also borne inequitably. Disparities in access to high-quality health care^[1] and housing^[2] and in the distribution of workplace health and safety risks^[3] also help form the structural bedrock of systemic racism that broadly affects morbidity and mortality risk distribution.^[4]  Unfortunately, reliance on CBA to establish regulatory risk thresholds maintains and worsens these racially inequitable disparities. CBA does this: 1) directly, by ignoring—or dramatically undervaluing—equity concerns, even when the statute at issue is meant to reduce disparities; and 2) indirectly, by promoting weak health, safety, and environmental standards, a bias that—in the context of risk regulation—helps to prop up a status quo where racial disparities abound.

1. CBA Is a Deeply Flawed Regulatory Decision Criterion Because It Gives No Weight to Fairness and Equity, Even When CBA is Used to Evaluate Regulations Meant to Promote Those Principles

Reliance by policymakers on formal, strictly quantitative CBA—the sort of CBA that executive agencies must prepare for OMB-overseen regulatory review pursuant to Executive Order 12,866—causes a ruthlessly utilitarian pursuit of “Kaldor-Hicks efficiency,” a theory of efficiency that incorporates controversial moral and ethical judgements, judgements that generally run counter to the intent of most of the relevant environmental, safety and public health statutes.^[5] [As described in high-theory welfare economics texts, CBAs are meant to estimate net changes in consumer and producer surplus; however, real-world CBAs clumsily use roughly estimated, monetized social benefits and compliance costs as proxies for consumer and producer surplus.^[6]] A regulatory decision, including a deregulatory decision, is deemed Kaldor-Hicks efficient (or “CBA efficient”) only if its quantified, monetized and discounted benefits exceed its estimated social costs.^[7] CBA advocates often equate Kaldor-Hicks efficiency with administrative rationality under environmental, safety and public health statutes. But a deeper dive into CBA as actually practiced unveils a major problem: its tendency (as a tool that advances a utilitarian moral and ethical philosophy only, and does so poorly) to promote inequitable regulatory outcomes.^[8]

Even assuming arguendo that agency decision makers ought to set regulatory policy based on a strict adherence to utilitarian moral and ethical principles—an assumption at odds with the principles animating many of the relevant statutes—a CBA decision criterion is still fatally flawed. For example, if a policy change will make one set of people better off and another set worse off, then making that change is more “CBA efficient” so long as the winners could theoretically compensate the losers—regardless of who wins and who loses, and even though the losers will not actually be compensated.^[9] That is, if the sum of all the individual utilities before the change is less than the sum of individual utilities after the change, the change will be said to have had a net benefit.^[10] Everyone’s utilities are given equal weight. Although commenters—including one of this paper’s authors, beginning 20 years ago^[11]—have repeatedly requested the inclusion of distributional weights in the CBA calculus used in regulatory review, the methodological guidelines agencies follow do not even allow for the use of such weights.^[12]

The exclusion of distributional weights is crucial because the utility of a reduction in risk (or the utility of “regulatory relief”) depends greatly on the initial position of the individuals experiencing the benefits and losses. In other words, a hundred dollars in “regulatory relief” that accrues to, say, Mark Zuckerberg does not offer the same utility as a hundred dollars to a family facing food insecurity. Consequently, in CBA, even when dollars are compared to dollars, agencies aren’t necessarily making an “apples to apples” comparison because the methodology fails to accurately capture the utility of both winners and losers and, therefore, one still cannot tell whether total utility has been increased even after those gains and losses have been monetized.^[13]

The actual utility of a reduction in risk (or the utility of some quantum of “regulatory relief”) depends greatly on the initial position of the individuals experiencing the benefits and losses. When regulatory winners and losers are starting from different positions, a welfare analysis that fails to take this into account is necessarily flawed.

         Consider, for example, the Occupational Safety and Health Act, which “provides OSHA with two broad means of enforcement: the promulgation of safety and health standards and…the general duty clause,”^[14] which seeks “to assure so far as possible every working man and woman in the Nation safe and healthful working conditions[.]”^[15]

Occupational injuries and disease are disproportionately borne by people of color.^[16] Higher rates disability and lack of access to health care worsen these disparities.^[17]  For example, meatpacking—an industry with high rates of occupational injury and disability—disproportionately employs people of color, particularly Latinx workers. By August 2020, 33,000 cases of coronavirus had reportedly been tied to meatpacking plants, and “at least 132 meatpacking workers have died,” yet OSHA had “not yet issued any citations to meat or poultry processing facilities.”^[18] This is fully consistent with the documented high risk experienced for decades by workers in meat and poultry processing, workers who are disproportionately people of color.

         To treat $100 of corporate “regulatory relief” as equal to $100 worth of monetized health and safety improvements to workers in under-regulated industries like meat packing and processing both dramatically underestimates the utility of advancing equity and protecting workers and advances a moral and ethical philosophy—strict utilitarianism—that is squarely at odds with Congress’ enacted determination that workers have a right to safe workplaces. 

• By Promoting the Status Quo, CBA Methodologies Promote Disparate Treatment, As Is Illustrated by Application of CBA to the Clean Air Act

The Environmental Protection Agency (EPA) is currently undertaking a rulemaking to standardize CBA methodologies used in Clean Air Act regulations.^[19] The agency claims this is needed to “enhance the effectiveness of environmental policy decisions by providing policy makers and the public with information needed to systematically assess the likely consequences of various actions or options.”^[20] In this rulemaking, the EPA seeks (for the most part)^[21] to adopt the methodological guidelines of OMB Circular A-4, which does not permit for consideration of racial environmental inequities in the CBA calculus, and which systematically discourages protective risk regulation.^[22]

Circular A-4’s bias against protective regulations will have a disparate impact on people of color, who are exposed to greater amounts of pollution.^[23] People of color have an estimated 28-percent higher background health burden—and Black Americans have a 54-percent higher burden—than the overall population,^[24] and “people of color are more likely than white people to live alongside power plants, oil refineries and landfills.”^[25] Black Americans specifically have higher mortality risks from inhalation of small particulate matter, which is a significant cause of premature death in the United States.^[26]

CBA helps prop up these systemic socio-economic inequities. Again, CBA methodologies do not take into an account background or cumulative exposures disproportionately affecting communities of color. Instead, CBA arbitrarily “ignores … distributional equities–the question of who benefits from a decision to regulate (or not), and who is burdened.”^[27] And the risk assessments that undergird CBA estimates “often are not representative of the risks borne by all segments of the population,” and “the aspects of risk that risk assessment seeks to measure do not capture the concern of all members of the public.”^[28]   

Moreover, to quantify the value of human lives economists extrapolate from the value people place on an increased mortality risk by looking at how workers with risky jobs exchange health risks for compensation. This framework arbitrarily assumes a completely voluntary exchange between health risks and wages.  As Professor Lisa Heinzerling puts it, “[t]he calculus … makes a rather heroic assumption that workers in risky jobs … voluntarily accept those risks in return for money–and not because their employment choices are limited by economic circumstances, geographic constraints, [and] [systemic] discrimination on the basis of race, ethnicity, or gender.”^[29] Common sense—and empirical data^[30]—militate against reliance on these wage studies when workers are likely to face employment discrimination and/or limited job prospects, yet these wage studies are integral to the benefits estimates used by regulators in actual CBAs.

Moreover, in the type of CBA that the Trump administration has endorsed as a decision criterion—the methodological guidelines for which are set out in OMB Circular A-4—there is simply no room for considerations of rights or duties. Although protecting rights or promoting equity are often reasons for regulation, A-4’s methodology completely excludes these benefits from consideration.^[31]

Melissa J. Luttrell is an Assistant Professor of Law at the University of Tulsa College of Law. She thanks James Goodwin for his excellent comments on a draft of this paper. Follow her on Twitter here.

Jorge Roman-Romero, J.D. and LL.M. in Energy and Natural Resources Law from The University of Tulsa College of Law expected, May 2021.

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^[1] See U.S. Dep’t of Health & Human Servs, HHS Action Plan to Reduce Racial and Ethnic Health Disparities: A Nation Free of Disparities in Health and Health Care (2015) (recognizing that “persistent and well-documented health disparities exist between different racial and ethnic populations and [that] health equity remains elusive”). 

^[2] See Jenny Schuetz, Metro areas are still racially segregated, The Brooking Institution (Dec. 8, 2017), https://www.brookings.edu/blog/the-avenue/2017/12/08/metro-areas-are-still-racially-segregated/; See also Michela Zonta, Racial Disparities in Home Appreciation: Implications of the Racially Segmented Housing Market for African American’s Equity Building and the Enforcement of Fair Housing Policies, Center for American Progress (July 15, 2019), https://www.americanprogress.org/issues/economy/reports/2019/07/15/469838/racial-disparities-home-appreciation/.

^[3]See, e.g., Andrea L. Steege et al., Examining Occupational Health and Safety Disparities Using National Data: A Cause for Continuing Concern, 57 Am. J Ind. Med. 527 (2014). 

^[4] See Robert Alfred Hahn and Steven Eberhardt, Life Expectancy in Four U.S. Racial/Ethnic Populations: 1990, 6 Epidemiology350 (1995); See also Timothy J. Cunningham et al., Vital Signs: Racial Disparities in Age-Specific Mortality Among Blacks or African Americans – United States, 1999-2015, U.S. Center for Disease Control (May 5, 2017), https://www.cdc.gov/mmwr/volumes/66/wr/mm6617e1.htm (noting that “[a]lthough the overall life expectancy at birth has increased for both blacks and whites and the gap between these populations has narrowed, disparities in life expectancy and the leading causes of death for blacks compared with whites in the United States remain substantial”). 

^[5] Frank Clemente and Melissa Luttrell, Comments on the 2001 Draft Report to Congress on the Costs and Benefits of Federal Regulations (August 15, 2001), https://ssrn.com/abstract=3710626; See also Melissa Luttrell, Comments on Docket No. EPA-HQ-OAR-2020-00044, Increasing Consistency and Transparency in Considering Benefits and Costs in the Clean Air Act Rulemaking Process, 85 Fed. Reg. 35612 (proposed June 11, 2020) (to be codified at 40 C.F.R pt. 83), https://www.regulations.gov/document?D=EPA-HQ-OAR-2020-0044-0166 (noting that the Trump administration endorsement of OMB Circular A-4 CBA methodology ignores equitable considerations even though promoting equity is often a major statutory reason for risk regulation).

^[6] Clemente and Luttrell, supra note 7.

^[7] For an extensive discussion of this topic, see Clemente and Luttrell, supra note 7. 

^[8] Jules L. Coleman, Efficiency, Utility, and Wealth Maximization, 8 Hofstra L. Rev. 509 (1979).

^[9] A more extensive discussion of this topic can be found at Clemente and Luttrell, Comments on the 2001 Draft Report to Congress on the Costs and Benefits of Federal Regulations, supra note 7.

^[10] Id.

^[11] See Office of Mgmt. & Budget, Report to Congress On the Costs and Benefits of Federal Regulations at 56 (2000), https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/assets/OMB/inforeg/2000fedreg-report.pdf

(citing Joan Claybrook and Melissa Luttrell, Comments on the 2000 Draft Report to Congress on the Costs and Benefits of Federal Regulations); Luttrell and Clemente, supra note 7, at 11-14.

^[12] Office of Mgmt. & Budget, Exec. Office of the President, Circular A-4, Regulatory Analysis, (Sept. 17, 2003) [hereinafter OMB Circular A-4].

^[13] Coleman, supra note 9, at 519-20. The other rationales for the use of a CBA decision criterion that have been proffered by its supporters—such as the argument that policy makers should strive to maximize wealth, or the argument that policymakers should strive to maximize happiness—are similarly utilitarian at core. 

^[14] David J. Kolesar, Cumulative Trauma Disorders: Osha’s General Duty Clause and the Need for A Ergonomics Standard, 90 Mich. L. Rev. 2079, 2085 (1992).

^[15] 29 U.S.C. § 651(b).

^[16] See, e.g., Steege et al., supra note 5.

^[17] Ruqaiijah Yearby and Seema Mohapatra, Law, Structural Racism, and the COVID-19 Pandemic, J. of Law and the Biosciences (Forthcoming 2020).

^[18] Rafael Bernal, Hispanic Caucus asks for Department of Labor meeting on COVID in meatpacking plants, The Hill (Aug. 6, 2020), https://thehill.com/homenews/house/510937-hispanic-caucus-asks-for-dept-of-labor-meeting-on-covid-in-meatpacking-plants.

^[19]  85 Fed. Reg. at 35617; See also Melissa Luttrell, Comments on Docket No. EPA-HQ-OAR-2020-00044, Increasing Consistency and Transparency in Considering Benefits and Costs in the Clean Air Act Rulemaking Process, 85 Fed. Reg. 35612 (proposed June 11, 2020) (to be codified at 40 C.F.R pt. 83), https://www.regulations.gov/document?D=EPA-HQ-OAR-2020-0044-0166  

^[20] Id. at 35613. 

^[21] But not always; as James Goodwin pointed out in his excellent notes on this piece, in some ways the EPA proposal differs from the mandates of A-4, such as by not always placing the so-called co-benefits of CAA regulations on equal footing with other regulatory costs and benefits. 

^[22] Melissa J. Luttrell, The Social Cost of Inertia: How Cost-Benefit Incoherence Threatens to Derail US. Climate Policy, 25 Duke Envtl, Law and Pol’y F. 131, 153-80 (2014).

^[23]  See Kioumourtzoglou MA et. al., PM2.5 and Mortality in 207 US Cities: Modification by Temperature and City Characteristics, 27 Epidemiology 221-27 (2016).

^[24]  Earthjustice et. al., Comments to the EPA on the June 11, 2020 Proposed Rule: Increasing Consistency and Transparency in Considering Benefits and Costs in the Clean Air Act Rulemaking Process at 29 (Aug. 3, 2020) (citing Ihab Mikati, et al., Disparities in Distribution of Particulate Matter Emission Sources by Race and Poverty Status, Am. J. Pub. Health 108(4): 480-485 (2018)).

^[25] Sammy Roth, Why communities fighting for fair policing also demand environmental justice, Los Angeles Times­ (June 4, 2020), https://www.latimes.com/environment/newsletter/2020-06-04/why-communities-fighting-for-fair-policing-also-demand-environmental-justice-boiling-point

^[26] Joe Goffman & Laura Bloomer, EPA’s Benefit-Cost Proposal in the Context of PM Pollution Regulation, Harvard Environmental & Energy Law Program (July 14, 2020) (citing Qian Di et al., Air Pollution and Mortality in the Medicare Population, N. Engl. J. Med. (June 29, 2017)).

^[27] Earthjustice et al., Comments to the EPA on the June 11, 2020 Proposed Rule: Increasing Consistency and Transparency in Considering Benefits and Costs in the Clean Air Act Rulemaking Process at 29 (Aug. 3, 2020).

^[28] Robert R. Kuehn, The Environmental Justice Implications of Quantitative Risk Assessment, 1996 U. Ill. L. Rev. 103, 116 (1996).

^[29]  Lisa Heinzerling, Cost-Nothing Analysis: Environmental Economics in the Age of Trump, 30 Colo. Nat. Resources, Energy & Envtl. L. Rev. 288, 295 (2019).

^[30] E.g., Joni Hersch & W. Kip Viscusi, Immigrant Status and the Value of Statistical Life, 45 J. Hum. Resources 749, 770 (2010).

^[31] Please see James Goodwin’s recent—and excellent—web article,  Cost-Benefit Analysis Is Racist, CPRBlog (October 15, 2020), https://progressivereform.org/our-work/regulatory-policy/cost-benefit-analysis-racist/ , for a related perspective on how CBA injects racism into the regulatory system: “The practical result of cost-benefit analysis’s false objectivity is that nearly every step of its methodological process affords an opportunity for smuggling racism into the regulatory system, much as the facile rhetoric of ‘colorblindness’ – whether the product of good faith naiveté or more sinister ulterior motives – has enabled racism to flourish in our country and weave its way into the fabric of many of our institutions.” Id.