[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
EPA RULEMAKING: DO BAD ANALYSES LEAD TO IRRATIONAL RULES?
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HEARING
before the
SUBCOMMITTEE ON REGULATORY REFORM
AND OVERSIGHT
of the
COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
WASHINGTON, DC, NOVEMBER 8, 2001
__________
Serial No. 107-35
__________
Printed for the use of the Committee on Small Business
_______
U.S. GOVERNMENT PRINTING OFFICE
76-760 WASHINGTON : 2001
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpr.gov Phone: toll free (866) 512-1800; (202) 512�091800
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COMMITTEE ON SMALL BUSINESS
DONALD MANZULLO, Illinois, Chairman
LARRY COMBEST, Texas NYDIA M. VELAZQUEZ, New York
JOEL HEFLEY, Colorado JUANITA MILLENDER-McDONALD,
ROSCOE G. BARTLETT, Maryland California
FRANK A. LoBIONDO, New Jersey DANNY K. DAVIS, Illinois
SUE W. KELLY, New York BILL PASCRELL, Jr., New Jersey
STEVE CHABOT, Ohio DONNA M. CHRISTENSEN, Virgin
PATRICK J. TOOMEY, Pennsylvania Islands
JIM DeMINT, South Carolina ROBERT A. BRADY, Pennsylvania
JOHN R. THUNE, South Dakota TOM UDALL, New Mexico
MICHAEL PENCE, Indiana STEPHANIE TUBBS JONES, Ohio
MIKE FERGUSON, New Jersey CHARLES A. GONZALEZ, Texas
DARRELL E. ISSA, California DAVID D. PHELPS, Illinois
SAM GRAVES, Missouri GRACE F. NAPOLITANO, California
EDWARD L. SCHROCK, Virginia BRIAN BAIRD, Washington
FELIX J. GRUCCI, Jr., New York MARK UDALL, Colorado
TODD W. AKIN, Missouri JAMES R. LANGEVIN, Rhode Island
SHELLEY MOORE CAPITO, West Virginia MIKE ROSS, Arkansas
BILL SHUSTER, Pennsylvania BRAD CARSON, Oklahoma
ANIBAL ACEVEDO-VILA, Puerto Rico
Doug Thomas, Staff Director
Phil Eskeland, Deputy Staff Director
Michael Day, Minority Staff Director
------
Subcommittee on Regulatory Reform and Oversight
MIKE PENCE, Indiana, Chairman
LARRY COMBEST, Texas ROBERT BRADY, Pennsylvania
SUE KELLY, New York BILL PASCRELL, Jr., New Jersey
SAM GRAVES, Missouri CHARLES GONZALEZ, Texas
ROSCOE BARTLETT, Maryland DAVID D. PHELPS, Illinois
TODD AKIN, Missouri JAMES R. LANGEVIN, Rhode Island
PAT TOOMEY, Pennsylvania ANIBAL ACEVEDO-VILA, Puerto Rico
Barry Pineles, Professional Staff Member
C O N T E N T S
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Page
Hearing held on November 8, 2001................................. 1
Witnesses
Lutter, Randall, Resident Scholar, AEI-Brookings Joint Center for
Regulatory Studies............................................. 3
Abrams, Fern, Director of Environmental Policy, IPC--Association
Connecting Electronics Industries.............................. 5
Bopp, Andrew, Executive Director, Society of Glass & Ceramic
Decorators..................................................... 7
Conrad, James, Counsel, American Chemistry Council............... 10
Giesecke, Anne, Director, Environmental Activities, American
Bakers Association............................................. 12
Appendix
Opening statement: Pence, Hon. Mike.............................. 20
Prepared statements:
Lutter, Randall.............................................. 23
Abrams, Fern................................................. 30
Bopp, Andrew................................................. 34
Conrad, James................................................ 39
Giesecke, Anne............................................... 49
Additional material:
Submission of Harold Koenig, The Annapolis Center for
Science-Based Public Policy................................ 55
Letter to Chairman Pence from American Farm Bureau Federation 87
EPA RULEMAKING: DO BAD ANALYSES LEAD TO IRRATIONAL RULES?
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THURSDAY, NOVEMBER 8, 2001
House of Representatives,
Subcommittee on Regulatory Reform
and Oversight,
Committee on Small Business,
Washington, DC.
The subcommittee met, pursuant to call, at 10:25 a.m. in
room 2361, Rayburn House Office Building, Hon. Mike Pence
(chairman of the subcommittee) presiding.
Chairman Pence. The Subcommittee on Regulatory Reform and
Oversight will come to order on the topic of EPA Rulemaking: Do
Bad Analyses Lead to Irrational Rules?
I would like to apologize to the gentleman from Illinois
and also to the distinguished panel of witnesses that we have
for my tardiness. Ironically, I was attending a briefing with
EPA officials regarding the cleanup of my congressional office
from an anthrax contamination, which suffice it to say that
there are good things the EPA does. Today we may hear a
different perspective from some of our witnesses, but I am
grateful for my colleague's patience and for the patience of
all of those attending.
On June 21, I convened a roundtable on regulation to hear
more than 30 small business trade associations describe for
this Chair the struggles that they and their membership face
from the regulatory state. Despite the diversity of concerns
raised at the roundtable, one constant theme was evident; the
inadequacy of the regulatory analyses that agencies use to
support rulemakings. One agency in particular that was singled
out for its poor regulatory analyses was the Environmental
Protection Agency. Today's hearing will attempt to address
those flaws.
Small business owners are very familiar with burdens that
federal regulations place on them. Many studies, including
those sponsored by the Office of Advocacy of the United States
Small Business Administration, have shown that small businesses
face disproportionately higher costs to comply with federal
regulations, including those issued by the EPA, than their
larger business counterparts.
Thus, accurate estimates of cost, if derived from the
experiences of large businesses, may paint a false picture of
the economic impact of an EPA regulation on small businesses.
If the EPA misjudges the economic impact, will it produce a
rational rule if the vast majority of businesses in America
cannot comply?
The polestar of the rulemaking process is that the
regulations must be rational. When Congress passed the
Administrative Procedure Act in 1946, it believed that the
process of notice, comment and agency response to the public
comment would be sufficient conditions to insure a rational
outcome.
After the regulatory onslaught of the 1970s, which saw the
creation of the EPA and the enactment of many statutes that EPA
implements by rulemaking, Congress and the executive branch
determined that further refinements were necessary. Congress
imposed new analytical requirements to assess the impacts on
small businesses and other small entities. Presidents Reagan,
Bush and Clinton produced Executive Orders mandating analysis
of costs and benefits beyond those required by the
Administrative Procedure Act or specific statutes such as the
Clean Water Act.
In 1980, Congress enacted the Regulatory Flexibility Act.
The Act represents another tool in the decisional calculus
designed to develop rational rules. The RFA requires federal
agencies to consider whether their proposed or final
regulations will have a significant economic impact on a
substantial number of small businesses. If the regulations do
have a sufficient impact, the agencies are required to consider
whether less burdensome alternatives exist that achieve the
same objective.
The authors of the RFA expected that if an agency had two
equally effective alternatives to achieve its regulatory
objective it would logically select the one that is less
burdensome on small businesses. Of course, a critical element
of this analytical filter is the agency's proper assessment of
the impact of the regulation on small businesses.
If the agency's cost estimate is incorrect, then its
assessment of the burdens on small business will not be
accurate, and the agency will not seek more effective cost
alternatives. Therefore, the analytical requirements of the
Administrative Procedure Act and the Regulatory Flexibility Act
are crucial. They have been supplemented by regulatory review
mandates by each President since 1980.
While the details are somewhat different, each Executive
Order requires federal agencies like the EPA to conduct cost-
benefit analysis for significant regulations, usually those
with more than $100 million impact on the economy. If the costs
of the proposed or the final rule outweighs the benefits, then
the regulatory action would be detrimental to the overall
welfare of society, and the rational policy maker, barring
statutory imperative to the contrary, would not seek to
implement that particular regulation.
More importantly, regulatory analysis which demonstrates
that the cost of a particular regulation outweigh the benefits
should give policy makers greater pause. That should be a
signal for them to seek other alternatives to meet their
statutory objectives, but that do not impose unnecessary costs
on society or commerce. Thus, inadequate and incorrect
regulatory analyses, including the scientific underpinnings of
the estimates of costs and benefits, are detrimental to
rational rulemaking and that mandated by the Administrative
Procedure Act.
Today's hearing focuses on a cross section of regulations
from the EPA that highlight the problems that can arise from
incorrectly constructed regulatory analyses. They often lead
into a realm of irrational rulemaking such as the proposed
cross media electronic reporting and record keeping rule, which
would in essence require replacement of a substantial amount of
existing information systems that currently keep track of more
than 216 pages worth of EPA mandated record keeping. Proper
application of the tools available to the EPA should eliminate
such results.
I look forward to the recommendation of all of our
witnesses today on the corrective actions that the EPA can take
to avoid poor analyses and would now turn to the Ranking
Minority Member who joins us today, the gentleman from
Illinois, for any opening comments that he might have for this
panel or on this topic.
Mr. Phelps. I do not have any. I am just anxious before the
vote to hear from this panel. Thank you.
Chairman Pence.. Thank you very much.
With that, I will introduce Randall Lutter or Lutter?
Mr. Lutter. Lutter.
Chairman Pence. Lutter, thank you, is a resident scholar at
the American Enterprise Institute and a fellow at the AEI-
Brookings Joint Center for Regulatory Studies. He previously
served as senior economist for the environment and regulation
on the President's Council of Economic Advisors and as staff
economist for regulatory affairs at the OMB.
Mr. Lutter is recognized for five minutes. We thank you for
being with us today.
STATEMENT OF RANDALL LUTTER, RESIDENT SCHOLAR, AMERICAN
ENTERPRISE INSTITUTE, AND FELLOW, AEI-BROOKINGS JOINT CENTER
FOR REGULATORY STUDIES
Mr. Lutter. Thank you, Mr. Chairman. Thank you, Members of
the Committee. I am pleased to appear before you to provide my
views on how to improve regulatory analysis at the
Environmental Protection Agency.
For more than ten years I have worked inside and outside
government on regulations to reduce risks. I am now with the
AEI-Brookings Joint Center for Regulatory Studies. A primary
objective of the Center is to hold lawmakers and regulators
accountable by providing thoughtful, objective analyses of
existing regulatory programs and new regulatory proposals.
You have asked me for my views on whether EPA's benefit-
cost analyses are adequate to support sound rulemaking. I would
like to start by making a distinction between two separate
purposes of these analyses. One is to inform decision makers at
EPA and elsewhere in the Administration about the economic
effects of regulation.
From the perspective of the decision makers who already
control the resources and have the authority to get the quality
of analyses that they want, these analyses may well be
adequate. They have control of the resources, and they can get
the answers to the questions that they are interested in
learning the answers to.
A second purpose of EPA's regulatory analyses is to inform
Congress and the public about the economic effects of its
regulatory decisions. A significant number of EPA's analyses
are inadequate for this purpose, primarily because the
incentives for EPA to prepare high quality analyses are poor.
As an institution, EPA faces incentives to overstate the net
benefits of its rules, particularly those rules that have very
small or negative net benefits.
The biggest cause of poor economic analysis at EPA is the
lack of incentives for more forthright research. The absence of
independent review of EPA's benefit-cost analysis illustrates
the lack of incentives. Courts rarely review EPA's benefit-cost
studies because environmental laws generally authorize EPA to
regulate without full consideration of the benefits and the
costs.
No government body outside the executive branch assesses
analytic quality. There are private sector critiques of EPA
analyses, but these are often ineffective because they also
comment on the regulations themselves. Independent observers
tend to think that such comments on the regulations motivate
the critiques of the analyses rather than the other way around.
I would like to make four specific recommendations on how
EPA's regulatory analyses could be improved. First, Congress
should create a separate Office of Policy Analysis within EPA
and charge that office with doing all risk assessments and all
benefit-cost analyses of significant regulations.
Currently, EPA program offices charged with administering
particular programs oversee most of the economic analysis
supporting these new regulations, but these offices suffer from
a conflict of interest; tunnel vision, if you will. The air
office naturally supports air regulations. This conflict of
interest could be substantially mitigated if there were a
separate office in charge of regulatory analyses within EPA.
Second, Congress should require that EPA's benefit-cost
analyses adhere to established principles for high quality.
The Office of Management and Budget, where I used to work,
has developed guidelines for doing sound regulatory analyses,
yet it is clear from a careful review of EPA's economic
analyses that the agency has not taken these guidelines
seriously. To add political weight to the guidelines, Congress
should adopt the kinds of principles contained in them and
require that an agency such as OMB certify that EPA adheres to
such principles.
Third, Congress should ask an agency other than EPA to
conduct peer review of the economic analyses and of the risk
assessments supporting EPA's significant rules.
Most of the economic analyses in the risk assessments
supporting EPA's decisions do not go through any sort of
outside peer review. Peer review may be no guarantee of
absolute quality, but mandatory peer review of EPA's analyses
of economically significant rules could provide an important
new incentive for EPA to improve the quality of its analysis.
Fourth, Congress should fund regulatory analysis at the
General Accounting Office in accordance with the Truth In
Regulating Act of 2000.
It is important that there be a federal office outside the
executive branch that is capable of assessing the analyses
supporting federal regulations and the regulations themselves.
The reason that the Truth In Regulation Act project is
appropriate in discussing the improvement of regulatory
analysis at EPA is that EPA is responsible for a very large
share of all costs associated with new federal regulations.
Congress could use the information generated by the General
Accounting Office to improve regulation and the regulatory
process.
In conclusion, a significant number of EPA's benefit-cost
analyses, while technically very sophisticated, fail to comply
with established principles for sound analysis. Improving the
quality of the analysis requires establishing incentives for
the agency to do high quality work.
There are four steps likely to be effective. Congress could
create a separate policy office to conduct the analysis, it
could mandate adherence to sound analytic principles in each of
the benefit-cost analyses and risk assessments prepared by EPA,
it could ask an agency other than EPA to conduct peer review of
EPA's economic studies and the associated risk assessments, and
it should fund the Truth In Regulating Act research at the
General Accounting Office.
Thank you very much. I would be happy to take any
questions.
[Mr. Lutter's statement may be found in the appendix.]
Chairman Pence. Thank you, Mr. Lutter.
Now Fern Abrams, who is the director of environmental
policy for IPC, which is the Association Connecting Electronics
Industries, responsible for advocating a number of positions in
the areas of environment, health and safety. Prior to joining
IPC, she served as manager of environmental affairs at the
American Trucking Association, where she focused in particular
on Clean Air Act and hazardous water issues.
We thank you for being with us today. You are recognized
for five minutes.
STATEMENT OF FERN ABRAMS, DIRECTOR OF ENVIRONMENTAL POLICY,
IPC--THE ASSOCIATION CONNECTING ELECTRONICS INDUSTRIES
Ms. Abrams. Good morning, Chairman Pence and Members of the
Committee. My name is Fern Abrams. I represent IPC, the trade
association for the electronic interconnection industry.
Our 2,800 members manufacture and assemble printed circuit
boards, which are the backbone of the nation's high tech
industries, including consumer, industrial and defense
electronics. On behalf of our members, I would like to thank
you and your staff for organizing this important hearing.
Ninety percent of IPC members that manufacture printed
circuit boards are small businesses. As you know and stated in
your opening, the cost of regulatory compliance often has a
disproportionate impact on small businesses. Environmental
regulations must be based on sound scientific and regulatory
analysis so that they do not create unnecessary burdens while
failing to achieve their goal of environmental protection.
IPC members, along with many other industries affected by
the EPA's proposed effluent limit guidelines for industries
that manufacture and maintain metal products, or more commonly
known as MP&M, are deeply concerned that the agency has
overestimated the benefits of the proposed regulation while
significantly underestimating the economic impact.
The Clean Water Act requires that effluent limits be based
on best available technology that is economically achievable,
yet the agency has proposed limits that are neither affordable
nor achievable. A review of discharge monitoring data indicates
that none of the facilities on which the proposed limits are
based could meet the limits consistently. In fact, some of the
proposed limits are so low that incoming drinking water would
not meet them. These are not achievable limits.
The proposed limits also fail to credibly meet the
requirement that they be economically achievable. The agency
has significantly underestimated the cost of compliance. Their
errors include faulty assumptions concerning technology
capabilities, monitoring costs and facility space constraints,
just to name a few out of dozens. For example, the agency has
incorrectly assumed there will be no increase in monitoring
costs when IPC member expected increases range from $1,000 to
$350,000 per facility.
The agency's economic analysis also fails to meet common
sense inspection by projecting that many firms will remain
profitable despite facing compliance costs that are several
times greater than their profit margins. This unreasonable
analysis is made possible only because the agency's economic
analysis assumes that compliance costs will be passed on to
customers through a 90 percent increase in prices.
This assumption was apparently based on analysis of other
unrelated industries conducted over five years ago in a vastly
different economic climate. In reality, over 72 percent of our
members have stated that they would not be able to raise their
prices at all.
In addition, the rule's economic analysis assumes that 50
percent of printed circuit board facilities will be able to
remain in business without being able to replace worn out
equipment or modernize for 15 years. That is an astounding
assumption, given that printed circuit board manufacturers must
constantly invest in new equipment to meet customer demands for
increasingly smaller electronics.
In addition to underestimating the cost of the proposed
regulations, the agency has significantly overestimated its
environmental benefits. Unlike previously effluent limitations
rulemakings which use actual facility wastewater data to
estimate the benefits of the proposed rule, the agency relied
upon models to simplify the task of estimating costs and
pollution benefits of this complex regulation covering 18
different industrial sectors under 200 SIC codes.
By using inadequately detailed models populated with data
borrowed from unrelated industries, the agency has fabricated
an environmental benefit that does not exist. Pollution
removals calculated from actual facility data are 98 percent
lower than those predicted by the agency's flawed models.
In conclusion, we believe that the agency has not
demonstrated that the rule is cost effective. The agency has
estimated the social costs of the proposed rule are $2.1
billion annually, while the total benefits that can be valued
in dollar terms in categories traditionally analyzed for
effluent guidelines are only in the range of $400 million to
$1.1 billion annually.
The agency should not promulgate a rule with costs that
exceed its benefits. The agency should follow the
recommendations of the Small Business Regulatory Enforcement
Fairness Act panel and remove from this rulemaking industries
for which regulation is not cost effective.
Fortunately, the MP&M effluent limits have not yet been
finalized. In fact, the agency has been working constructively
with affected industries, including printed circuit boards, to
try to improve the quality of its regulatory analysis prior to
issuance of a final rule.
Going forward, the agency must make a better effort to get
regulatory analysis right the first time around. It should not
be standard practice to propose a rule based almost entirely on
faulty analysis and poor assumptions and then depend on
industry to try to uncover mistakes in the very short time for
public comment. A more open regulatory process with regular
data exchange between the agency and affected industries,
combined with the early use of reality checks, would make both
proposed and final rules more accurate and effective.
Thank you again for giving IPC the opportunity to express
our concerns, and we welcome any questions.
[Ms. Abrams' statement may be found in the appendix.]
Chairman Pence. Thank you very much, Ms. Abrams.
We have a journal vote on the Floor. What we will do is
recess very briefly and do so now. That will permit me and the
gentleman from Illinois to go and record our vote. The Chair
will return. I know Mr. Phelps will return if his schedule
permits, and we will continue with the testimony.
I thank you for your forbearance, and we will return
quickly.
[Recess.]
Chairman Pence. We will return to our testimony in this
hearing of the Subcommittee on Regulatory Reform and Oversight.
Andrew Bopp has been the executive director of the Society
of Glass & Ceramic Decorators since 2000. He previously served
as SGCD's director of communications from 1995 forward. Mr.
Bopp was also communications director for the Association of
Incentive Marketing in Union, New Jersey, and is gratefully
recognized for five minutes. Thank you for your patience.
STATEMENT OF ANDREW BOPP, EXECUTIVE DIRECTOR, SOCIETY OF GLASS
& CERAMIC DECORATORS
Mr. Bopp. Thank you. Thank you for the opportunity to
testify on the TRI lead rule today. As you said, my name is
Andrew Bopp. I am the executive director of the Society of
Glass & Ceramic Decorators. We are the trade association of
companies that decorate glass and ceramic tableware, souvenir
mugs and other items. This is a sample of what our members
produce, this type of thing.
S.G.C.D. represents 650 companies and a manufacturing
segment that is facing increasingly fierce competition from
overseas production facilities, especially in China. Most SGCD
members are small, often family owned companies that have more
in common with the average local print shop than with a large
industrial facility. Many of these companies are into their
third generation of family ownership. SGCD has members in 37
states, including Indiana, Pennsylvania and Illinois.
The colors used by glass and ceramic printers contain
various metal bearing borosilicates. Some colors cannot be
produced without lead. When fired, they become chemically part
of the glass or ceramic ware. Almost all of these lead bearing
colors are used to produce the product. Very little ends up as
waste. SGCD and member companies work closely with FDA and
other federal and state agencies to guarantee the safety of all
wares.
I am testifying today to point out major flaws in EPA's
economic analysis of changes to its toxic release inventory
reporting threshold for lead and lead compounds. It is
important to note that SGCD has made every attempt to work with
EPA as it developed the rule. This included testimony at the
agency's December 1999, hearing after the original TRI rule was
issued. It is obvious, however, that the economic analysis was
developed without any consideration of the rule's impact on
glass and ceramic decorators.
I can understand why EPA would balk at evaluating every
industry that might possibly be required to complete TRI
reports under the new standard. However, EPA listed stone,
clay, glass and concrete products, SIC 32, as being among the
five largest lead reporting groups in the 1998 TRI reporting
year at the 10,000 pound threshold.
Even after recognizing the significance of this industry
group, Mr. Chairman, EPA chose to examine glass and ceramic
decorators as part of a wide range of unrelated industries.
This was done even though the other four top 1998 filers were
evaluated separately. In so doing, EPA failed to consider the
situation in the glass and ceramic industry where TRI reporting
burdens and costs are dramatically greater for small companies
than large companies.
It is possible that in some industries the differences in
tracking lead usage may not be great between companies of
varying sizes. However, the use of lead bearing colors in the
glass and ceramic decorating industry is fairly unique. It is
important to first note that every lead bearing color may
contain a different quantity of lead. Every decorator must
trace every lead bearing color used and make different
calculations for that color.
You must also consider that large glass and tableware
plants produce and decorate millions of matching plates, bowls,
glasses and related items using a limited number of colors.
These colors are likely to be used in large quantity, though.
Some of these colors do contain lead, and the steps required to
trace the lead used are confined to the numbers of colors used.
Such tracking and reporting can be handled efficiently by a
large decorator that employs an environmental compliance
department.
On the other hand, the small contract glass and ceramic
decorator fills orders that typically number in the dozens or
hundreds of pieces. These small plants may use a greater
variety of colors in a day than a large decorating facility
will use in a month.
It is important also to note that none of these small
businesses employ environmental compliance staff to handle such
complicated burdens. There is no indication that EPA even
considered the possibility of such a situation for small glass
and ceramic decorators. As a result, EPA's estimate of the time
necessary to compile and complete the TRI forms of 111 hours
per year does not remotely correspond with reality for small
glass and ceramic decorators. Remember, this is a rule that is
supported by more than 500 pages of instructions and guidance.
As a further result, EPA's compliance cost estimates are
correspondingly low. This directly affects the number of
companies that the agency believes will feel an impact beyond
the one percent and three percent annual revenue thresholds
that are used to determine the rule's small business impact.
To add insult to injury, EPA's economic analysis also
includes the ridiculous assertion that there will be no first
time filers in SIC 32 based on their research efforts such as
they are. In reality, there are hundreds of small decorators
that have never completed a TRI form for lead or any other TRI
substance who must now comply.
Problems started when EPA failed to conduct small business
outreach before first issuing the TRI proposal. From the
appearance of the agency's economic analysis, it is obvious
that SGCD's efforts to work with the agency after that point
were ignored.
I also want to point out that the drastic reduction in the
lead TRI threshold from 10,000 pounds to 100 pounds is based on
a scientific premise that EPA has still not sent for
independent peer review as it had promised. Given the massive
effort and costs required to comply with the new TRI rule, one
must ask what purpose do reports of this low threshold serve.
There is no evidence whatsoever that glass and ceramic
decorators present an environmental problem in their
operations.
In conclusion, I urge the Committee to require federal
agencies to meet with and learn from small businesses before
regulatory proposals are issued. Early outreach will insure
that federal agencies properly assess small business impacts
and develop proposals that are tailored to meet agency
objectives with the smallest business impact.
In terms of the TRI proposal, EPA's failure to conduct
early small business outreach and the resulting inadequacy of
its economic analysis deprived small businesses of the
opportunity to have their unique situations considered. Due to
these omissions and the large number of scientific
uncertainties, I urge you to request the agency to reconsider
the lead TRI rule to comply with the letter, as well as the
spirit, of SBREFA while also conducting a prompt and thorough
review of the scientific premise upon which the rule is based.
Thank you for the opportunity to testify before you today,
and please ask if you have any questions.
[Mr. Bopp's statement may be found in the appendix.]
Chairman Pence. Nicely done, Mr. Bopp. Thank you. We will
have questions, I and my colleague, for each of you at the
conclusion of the testimony.
James Conrad, Jr., is counsel with the American Chemistry
Council, where he provides legal and policy advice to the
regulatory and legal innovation team. Jamie leads the council's
advocacy regarding environmental innovation, legislation
programs, compliance and enforcement issues, governmental
management of environmental information and the use of
information as a regulatory or policy tool. He spent eight
years in private practice with the Washington, D.C., office of
Davis, Graham, Stubbs & Cleary where his practice encompassed
regulatory advocacy counsel and litigation. He also developed
and edits the Environmental Science Desk Book, which is
published by West Group.
With gratitude, he is recognized for five minutes.
STATEMENT OF JAMES CONRAD, JR., COUNSEL, AMERICAN CHEMISTRY
COUNCIL
Mr. Conrad. Thank you, Mr. Chairman and Mr. Phelps. I am
pleased to testify before you today regarding EPA's recently
proposed Cross Media Electronic Reporting and Record keeping
Rule or ``CROMERRR''.
While many American Chemistry Council members are Fortune
500 companies, we estimate that between a third and a half of
our members--or between 60 and 90 percent--meet the SBA
standards for a small business. Many of these members have only
a single manufacturing plant. These smaller companies stand to
benefit the most from the efficiencies made possible by
information technologies. Most of these companies already keep
records electronically.
Unfortunately, CROMERRR would do nothing to help that
process. In fact, it would have the opposite effect, driving
businesses back to using paper records. It would also cost $48
billion in initial costs--and that is based on EPA's own
numbers.
What exactly is CROMERRR, and why is it so expensive? In a
nutshell, the proposal imposes elaborate technical requirements
on electronic information systems to guard against the remote
prospect that data might be tampered with. For example, records
must have secure, computer generated, time stamped audit trails
that identify anyone who ever created or modified the record,
when they did it and what changes they made. No off-the-shelf
software does this now.
Mr. Chairman, the Food and Drug Administration imposed
essentially the same regulation on drug companies in 1997. Most
of them are still struggling, four years later, to comply with
it. The average cost of compliance with this rule for drug
companies is over $100 million apiece.
E.P.A. and authorized states regulate a lot more entities
than the FDA does. In fact, EPA's own cost-benefit analysis
estimates that about 1.2 million facilities file reports under
EPA administered laws. These facilities keep a lot of records
for EPA as well. What will it cost for these 1.2 million
facilities, most of them small businesses, to comply with
CROMERRR?
E.P.A.'s own analysis estimated that the up-front costs, on
average, would be about $40,000, with annual costs thereafter
of $17,000. $40,000 times 1.2 million facilities is $48 billion
up front. That is almost seven times EPA's annual budget.
$17,000 times 1.2 million is $20 billion in annual costs. That
is over four times what the OSHA ergonomics rule would have
cost annually.
Now, EPA's cost-benefit analysis does not contain these $48
billion or $20 billion figures because EPA contends that
CROMERRR is entirely voluntary. In fact, their cost-benefit
analysis assumes that very few companies would even adopt these
requirements because of the great cost. The problem, though, is
that most people would have no choice but to comply.
We are not accusing EPA of dishonesty. They just did not
analyze their own regulation well enough to understand how it
would work. Here is how it would work. Under CROMERRR, as long
as a piece of information has ever passed through a computer,
at any time in its life, it is an electronic record.
Next, the proposal says that any electronic record has to
meet all the technical requirements of CROMERRR or else that
record no longer satisfies the obligation to keep records. You
are basically in violation of your record keeping obligation.
You either comply with CROMERRR, or you switch to paper. What
an ironic result: an EPA rule designed to implement the
Government Paperwork Elimination Act driving people to using
paper record keeping.
What is worse, if a regulation is generated by a computer
in the first instance, then it is an electronic record from the
get go, and printing it out on a piece of paper does no good.
For example, one of our smallest members has only 100
employees in two plants. In one of those plants they monitor
the pressure on a pump in their air pollution control
equipment. That data is generated by an electronic sensor, and
it goes directly into the company's distributed process control
system. Under CROMERRR, that data is an electronic record from
the moment it is created, and paper is not an option to comply.
That company would potentially have to redo its entire
electronic control system.
Mr. Chairman, we agree that EPA has some legitimate
concerns about protecting the integrity of data, but insuring
integrity has an impact, and how much impact depends upon how
secure the system needs to be. That is why OMB's guidance for
implementing the Government Paperwork Elimination Act calls for
agencies to do a risk analysis to decide how much security is
appropriate. That guidance specifically says not to adopt a
one-size-fits-all approach. EPA never completed that analysis,
and they ended up instead adopting a single, high-security
approach.
It may be too late for the drug companies that are spending
hundreds of millions of dollars to comply with another rule
that was also supposed to be voluntary. Let's not make the same
mistake twice. We encourage EPA to withdraw CROMERRR
immediately so that they can sit down with regulated entities
large and small and learn about how these entities keep records
and what sort of a problem there is, if one at all, in this
case. The American Chemistry Council is ready and willing to
engage in that discussion.
Thanks very much. I would be happy to answer any questions.
[Mr. Conrad's statement may be found in the appendix.]
Chairman Pence. Thank you, Mr. Conrad.
Our final witness is the vice-president of environmental
activities at the American Bakers Association, Dr. Anne----
Ms. Giesecke. Giesecke.
Chairman Pence [continuing]. Giesecke. Thank you for your
assistance.
As vice-president of environmental activities with the
American Bakers Association, Dr. Giesecke has been in charge of
identifying and managing environmental issues and projects
related to the baking industry. Dr. Giesecke is on the
governing boards of the American Society of Baking and Baking
Industry Sanitation Standards Committee. Her career focus on
environmental issues began in 1980 with the Department of the
Interior and continued with the U.S. Environmental Protection
Agency as an environmental specialist from 1986 to 1991. She is
the author of more than 60 articles related to resource
management published in a variety of law reviews and
environmental journals and is gratefully recognized for five
minutes.
STATEMENT OF ANNE G. GIESECKE, VICE-PRESIDENT, ENVIRONMENTAL
ACTIVITIES, AMERICAN BAKERS ASSOCIATION, AND CO-CHAIR, CLEAN
WATER INDUSTRY COALITION
Ms. Giesecke. Thank you, Mr. Chairman and Mr. Phelps. On
behalf of the Clean Water Industry Coalition chaired by myself
and Meg Hunt of Edison Electric--we call it CWIC--we would like
to thank you for this opportunity.
CWIC is made up of more than 250 companies and associations
representing the nation's major manufacturing and service
industries. CWIC is pleased that this Subcommittee is exploring
the quality of EPA regulatory analyses and whether those
analyses are adequate to support rational rulemaking.
At the onset, it is important to remind everyone that
millions of people working to make our economy function share
basic American environmental, health and safety values and want
them applied to their workplaces, their homes and their
communities. We certainly support strong environmental and
health rules that are founded on sound science and developed in
a deliberative and public process that includes working with
the states and the regulated community so that the requirements
achieve the rules' goals and are both effective and cost
conscious.
The members of CWIC, and I would like to acknowledge the
National Association of Manufacturers for their help with this
testimony, believe that last year's rulemaking pursuant to the
Clean Water Act to revise the total maximum daily load, TMDL,
regulations was hastily issued and seriously underestimated the
available science and the economic impacts on state and local
governments and the regulated community.
Among the rule's many problems, it did little to address
serious concerns with current 303(d) lists of impaired waters
arising out of poor or nonexistent available water quality
data, thereby establishing a potential for a gross
misallocation of scarce resources. The Clean Water Act requires
each state to identify waters that are not meeting water
quality standards after the application of technology controls
on point source dischargers. The resulting list is often
referred to as the state's 303(d) list, and states are required
to establish total maximum daily loads, TMDLs, for all waters
on this list.
Establishing a TMDL requires a state to determine how much
reduction each point and non-point source of pollution on the
water body must make for water quality standards to be met. It
is a complex, difficult and expensive calculation that needs
science based monitoring data to be effective and presents a
resource management issue for the federal government, the
states and the regulated community.
We believe, therefore, that the process should be targeted
toward those waters clearly established as impaired based on
good data and upon sound scientific analysis. Manufacturers,
particularly those of us in the food sector, need a clean,
abundant and affordable water supply.
CWIC has supported many state and local concerns expressed
during this rule writing process. For example, the Association
of State and Interstate Water Pollution Control Administrators,
ASIWPCA, the national professional organization of state and
interstate water quality program officials, stated in their
June 20, 2000, comments to EPA that, ``State TMDL development
and implementation to date clearly demonstrates that the cost
estimates developed by EPA are inadequate, incomplete and
misleading. Far more will be required to develop a TMDL than
the $25,000 the EPA envisions.''
ASIWPCA members testifying before Congress have estimated
the costs to states of preparing nearly 40,000 TMDLs over 15
years, as presently required, to be between $1 billion and $2
billion annually. Moreover, in a recent draft cost report
mandated by Congress, the National Cost of the TMDL Program,
the EPA estimates that the average annual cost for developing
TMDLs will be $63 million to $69 million.
In a recent General Accounting Office study, only six
states responded that they have a majority of the data needed
to fully assess all their waters. Forty-five states reported a
lack of resources, and several states pointed out that they are
operating under state imposed staffing restrictions. Others
said that they are limited in how many samples they can analyze
because of the shortage of laboratory funding. EPA staff
admitted that fewer resources are being devoted to monitoring
and assessment at the state level than ever before.
In addition to these program costs are the costs that will
be incurred by the regulated community to participate in TMDL
development and even more significant costs of compliance. The
capital and annual operating and maintenance cost for companies
is staggering. The Advent Group, a wastewater consulting
company, estimates the cost of the TMDL regulations on the
regulated community to be between $20 billion and $80 billion
over a ten year period.
Was the TMDL rule the result of bad analysis? In a recent
National Academy of Sciences National Resource Council study,
the NRC listed numerous errors, the lack of sufficient data and
unscientific rationale for proposing the rule. These issues
must be addressed in any revision of the TMDL promulgated in
July, 2000.
We are hopeful that during the next 18 months steps can be
taken to revise the rule and to establish a framework that is
technically, scientifically and programmatically sound.
We applaud you for holding this hearing, and I would be
glad to answer any questions. Thank you.
[Ms. Giesecke's statement may be found in the appendix.]
Chairman Pence. I am going to break protocol and recognize
the patient gentleman from Illinois who awaited the Chair for
the initial round of questions. The Chair will reserve the
opportunity to question the panel after Mr. Phelps is done.
Mr. Phelps. Thank you, Mr. Chairman. No apologies
necessary. It is a tough schedule sometimes, so we appreciate
your indulgence.
Mr. Conrad, first, industry groups have a paramount job of
record keeping standards, strict standards that should be met.
Why should EPA not have specific requirements for measuring or
making sure that your records are legally kept and legally I
guess would be tested in some way, but an alternative?
Mr. Conrad. You are absolutely right. Our members have
legal obligations to retain records and to preserve them and
not change them, and they do that. They are at the risk of
criminal prosecution, certainly, if they monkey with them
intentionally.
It is also appropriate, I think, in the area of electronic
records to have some degree of security so that the records are
not immediately accessible by anybody, but in fact our members
have some sorts of security procedures in place now. The
computers where these data are kept are not accessible to just
about anybody. They have PIN numbers and other kinds of access
restrictions.
They have been doing all this for years, and there is, to
our knowledge, no evidence that any of this is insufficient. We
are not aware of any cases where electronic data have been
manipulated or, perhaps more to the point, where the government
has had any difficulty in prosecuting any of these kinds of
cases, so I guess our plea is that we sit down with EPA--and
apparently the Justice Department as well--and sort of talk
through how we keep these records and what the concerns are,
what would be a cost effective approach to guaranteeing their
security.
Mr. Phelps. Are you satisfied with the opportunities that
groups were given to participate in public comment meetings,
written comments, on the regulations about electronic record
keeping? If so, what concerns were raised by your group at any
of the meetings?
Mr. Conrad. Well, the ironic thing is that this rule
actually was developed in a fairly open fashion, and the EPA
did have a couple of public meetings in the summer of 2000 to
lay out what was going on. Folks actually spoke up.
I happen to have a reliable paper copy of the handout of
that meeting and my notes from it, and I wrote up at the top 16
months ago with a star next to it, ``People are freaked about
not being able to print out computer documents and sign them.
Few people have or can afford all the electronic audit trail
stuff to ensure no changes.''
People were raising these concerns at the meeting. I mean,
I knew nothing about this issue until I went to this meeting. I
gathered from what I heard over the course of that day that
people had tremendous heartburn about what this could mean from
the record keeping.
We assumed that, having heard that, the agency would take
those concerns into account, and yet the proposal is
essentially exactly the same as they talked about back then.
Mr. Phelps. So what was the agency's response when these
concerns were raised at the meeting?
Mr. Conrad. They sort of just took notes. I mean, it was
sort of a one-way thing. People explained how they felt, and
they wrote them down, but there was never really a give and
take.
Mr. Phelps. Kind of one of those things the doctor puts
down when you are getting diagnosed. Hmmm. Kind of like that?
Mr. Conrad. Maybe they couldn't read their own handwriting.
Mr. Phelps. Dr. Lutter, you have been an outspoken critic
of the cost-benefit analysis obviously. Would you think it
would be most efficient in some cases for an agency to do an
economic analysis even knowing that data gaps exist and make
corrections based upon public comment?
Mr. Lutter. I am not sure I understand your question.
Currently the agencies prepare economic analyses of
regulations, publish them at the proposal stage and solicit
comments on that analysis along with comments on the rule at
the proposal stage. I think that is an appropriate procedure.
Mr. Phelps. Well, what I am getting at is when a rule is
trying to be substantiated, the expenditures can be compared
with the final projected benefits. The question is would it be
just as cost effective to proceed with publishing the rule and
allowing the industry to fill in the gaps?
Mr. Lutter. Sir, to fill in the gaps in the analysis? No. I
think that is a role for the government to undertake, provided
that there is adequate opportunity for the public and the
affected industries to comment on the appropriateness of the
analytic procedure the agency is following.
Mr. Phelps. So adequate reliability you think could be
achieved. I think it has been noted that you have established
that it cannot be achieved by peer review, adequate
reliability, to replicate agency analysis, but by systematic,
independent efforts to replicate agency analyses.
Do you believe that the taxpayer is best served using
replicating agency analyses, or is this a theory based on
resources and time?
Mr. Lutter. I would like to focus attention on the key and
often neglected purpose of the economic analysis, which is to
inform Members of Congress and the public about the merit of
the regulatory decisions. I think that the existing
institutional incentives that the agency faces do not really
promote forthright and neutral analysis from the agency.
The question is how does one improve those incentives?
There are several procedures. One would be peer review. Surely
that is worth doing. Currently there is no adequate independent
peer review of EPA's regulatory analysis. A separate one in
addition to that--these are complementary approaches--would be
for Congress to fund the Truth In Regulating Act project at the
General Accounting Office. I think that that office could, as
part of its work, seek to verify whether or not agency
estimates are replicable.
My inspiration for that comment is largely based on
longstanding work in the community of academic economics. Even
peer reviewed articles are not always replicable in the sense
that other researchers trying to ask whether identical methods
applied to identical data lead to identical answers discover
that they do not.
It is for that purpose that I think it would be very useful
to have a TIRA project at GAO seek to ascertain the
replicability of analyses by regulatory agencies.
Mr. Phelps. Thank you.
Ms. Abrams, representing a large rural district--I have the
largest geographic district east of the Mississippi, a lot of
small counties with 4,000 or 5,000 in the whole county--one of
the greatest challenges I have had as a state legislator, as
well as a congressman now, is to try to work with those people,
you know, at whatever degree or level of wastewater treatment
plants they have.
It is a Catch-22 in trying to attract industry to small
areas that need jobs that do not have the tax base for other
mandates and obligates for the people to get industry to come
in. One of the first things they are looking at is what kind
of, of course, infrastructure totally, but water and sewer and
waste treatment plants.
In Illinois, most of the small communities, to be able to
access government grants it is based on a matching system like
an 80/20 for local, for state, federal flow through money to
the economic commerce agencies, or sometimes 70/30, 90/10.
These small communities, you know, by the mere nature of
the cost of wastewater treatment and those infrastructure needs
cannot attract or do not do a very good job--I should not say
cannot--by their own limitations industry, and yet where
industry does exist the question is when we get into your
industry, the metal products and machinery, do you think your
industry avoids passing along the cost to the townspeople of
treating the waste?
Ms. Abrams. The industry is already 100 percent regulated
by pre-treatment standards under the existing 413 metal
finishing and 433 standards, so I think to the extent that the
EPA has seen fit, the industry is already pre-treating and
covering the large cost of treatment pursuant and resultant
from their processes.
I think it is important to note in the case of this
proposed rule that it is a re-regulation of industries already
fully regulated and that it is opposed by the trade
associations representing the publicly owned treatment works
because they feel that it imposes a large cost completely
underestimated by EPA on the POTWs to implement a federal
effluent limit guideline. They feel that existing effluent
limit guidelines fully protect them and allow them to do the
job that they need to protect the community's water sources.
They also already have fully delegated authority to impose
local limits that are higher when they see fit to protect
either environmental quality or their own economic viability,
so they feel that these standards are wholly unneeded and in
fact present a burden, not a benefit for them and for the
communities that you are speaking of.
Mr. Phelps. Is that a major concern, though, for your
industry, the wastewater treatment cost, or is it just pretty
much accepted?
Ms. Abrams. Right now it is the cost of doing business.
Those regulations have been around for over a decade. I am not
sure there is a company out there that could tell me off the
top of their head what percentage of their environmental
compliance costs it represents. It is a significant cost, but
it is part of being a corporate citizen in America that you
need to treat your wastewater.
The issue at hand is that the proposed regulation has no
environmental benefit and would increase costs to the extent
that we fully believe over 50 percent of the domestic printed
circuit board industry would be unable to compete globally and
that there would never be a new circuit board plant constructed
in this country.
Mr. Phelps. Thank you very much. I may have questions
later.
Chairman Pence. The Chair would also like to thank the
panel for some very provocative and thoughtful presentations.
A few questions starting with Dr. Lutter; not to put you on
the spot after that good exchange. What agency do you think
should be charged with selecting peer reviewers for EPA's
regulatory analyses?
Mr. Lutter. The simple answer is not EPA.
Chairman Pence. Okay.
Mr. Lutter. The more complete and truthful answer and much
more informative answer is much harder. In discussions with
other people, NAS or NRC has come to mind, but it is not clear
what would be the perfect answer to that question.
I think what one can say is that it should not be EPA
because the process of picking peer reviewers, and the process
of managing the questions given to the peer reviewers is one
that can be controlled in such a way as to make analysis look
like it is blessed when in fact people continue to have serious
reservations about its credibility. This suggests that some
non-EPA agency would be more apt to do that job well.
Chairman Pence. Ms. Abrams, I have the impression that you
believe the EPA did not perform an effective outreach in
developing and seeking comments on the proposed MP&M rule. What
should EPA have done to improve the outreach in specific
recommendations?
Ms. Abrams. I think that the EPA made a good effort to
outreach. They convened a SBREFA panel, which they do not do
for every proposed rule. They also held public hearings.
I think with respect to the SBREFA panel that there was
just not enough data presented to the SBREFA panel for them to
make adequate review and assessment, and even after the rule
had been published in the Federal Register a good bit of the
background data and analysis was not available in the public
record for several months after that, resulting in an extension
of the rulemaking period.
Chairman Pence. Mr. Bopp, I found some of your testimony
really breathtaking.
Mr. Bopp. So do our members.
Chairman Pence. The estimate of 111 hours per year to make
their way through 500 pages of instruction.
I guess my question is you essentially are saying the EPA
failed to assess the impact specifically on ceramic and glass
decorators, not understanding the nature of the industry
essentially as a subset of the regulated class.
Do you have any recommendations about if the EPA did
identify your industry in particular how we would insure that
they would develop regulatory analyses based on the correct
data and a correct understanding?
Mr. Bopp. That is a good question because the correct data
was there. I mean, the rule was first announced and then pulled
back, and then several of our members, small members, testified
before a panel, so it was not a question of them being unaware
of us. One way or the other, it just was not considered, or if
it was considered it did not come out in the research at all.
I guess it would get down to better peer review of the
research. Again, I mean, to come out with something like this,
as flawed as it is. And in the end it was a very, very rushed
rule. It was pushed through officially finally January 17 of
this year. There were a lot of rules that went through that
way, and I think not enough care was given at that point for
whatever reasons.
It was not a question of them not getting the information
from us. It was a question of for one reason or another it did
not enter into their economic reports. Therefore, it did not
enter into consideration. I guess better peer review, like some
others have mentioned, would really help that and, again,
someone other than EPA reviewing their research.
Chairman Pence. Thank you.
Dr. Giesecke, the EPA originally estimated that the total
incremental cost of TMDL was going to be about $220 million,
and then one year later in a draft economic report the cost
estimate was raised to a minimum of $10 billion over ten years.
With your background in this area, how do you account for
that kind of almost logarithmic difference in estimates?
Ms. Giesecke. They had taken advantage of a regulatory
interpretation and determined that they did not have to fully
account for expenses that might be incurred by the states
because this was a delegated authority in most cases, so they
simply used a number limited to what EPA headquarters and
regional offices might be expected to incur and not consider
what the delegated states and certainly not even in the next
estimate what the regulated community would be subject to in
terms of costs.
Chairman Pence. Thank you.
Mr. Conrad, did the EPA recognize in the CROMERRR
circumstances any substantial differences between the chemical
industry and the pharmaceutical industry? In your testimony you
indicated that 60 to 90 percent of the businesses in your
association are small businesses.
I do not have testimony or information about the nature of
the pharmaceutical industry, but it seems to me there are very
few companies that can survive in that industry that would
qualify for any of this Committee's jurisdiction.
Mr. Conrad. Right. Of course, CROMERRR does not just affect
us. I mean, essentially it affects anybody who is required to
keep records under any EPA requirement under any statute, so
Clean Air, Clean Water, RCRA.
I mean, you have all kinds of regulated entities down to
the size of gas stations, as well as all of the consultants and
analytical labs and so on who work for them whose computers
have to mesh with them and who are all affected, so it is a
much wider range of facilities.
I am not really familiar with the size distribution of
businesses in the drug industry, but certainly my experience
kind of off the cuff is that drug companies tend to be pretty
big, and that they are gobbling each other up and have a lot
more capacity to absorb a regulation like that.
Frankly, the things they are regulating, I mean, these are
things people eat, as opposed to materials which certainly
people have the potential to be exposed to, but it is a much
more attenuated chain from a regulated facility under EPA to a
person than in the case of drugs.
Chairman Pence. Thank you.
Having conferred with the gentleman from Illinois, my
colleague, that he does not have any additional questions, we
will move to adjourning this hearing with a word of gratitude
to each one of you for greatly illuminating our understanding
of the challenges in the area of the analyses the EPA uses.
I particularly appreciate Dr. Lutter's comment with regard
to using established principles for sound analysis, which will
be very much of a lodestar.
Mr. Phelps. I would also like to thank the panelists for
their very well designed testimony. Thank you.
Chairman Pence. With that, again my gratitude for your
patience with my schedule today. Enjoy your lunch.
[Whereupon, at 11:45 a.m. the subcommittee was adjourned.]
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