Risk Policy Report, January 13, 2009

OBAMA REGULATORY REVIEW NOMINEE DRAWS 'GROAN' FROM ACTIVISTS

[Rachel's introduction: President-elect Obama has nominated an anti- precaution activist to the all-important White House Office of Information and Regulatory Affairs (OIRA). Harvard professor Cass Sunstein actively opposes the precautionary principle and favors, instead, the old-style cost-benefit analysis that has been used so successfully by polluters to justify chemical contamination of the entire planet.]

By Aaron Lovell

The Obama Administration's expected nomination of Harvard law professor Cass Sunstein -- a supporter of cost-benefit analysis and a cautious approach to regulations -- to head the White House regulatory review office is drawing a "collective groan" from environmentalists, who fear his strong support for cost-benefit analysis and opposition to strict regulation could limit EPA's ability to address climate change and other environmental risks.

Activists are also concerned the high-profile nominee is further indication of a centralization of power in the next White House, which may further stymie EPA.

Due to Sunstein's position on controversial regulatory issues, his nomination is "not a win for progressives by any stretch," according to a legal source who follows regulatory issues. For example, Sunstein opposes the "precautionary principle" which suggests that regulators pursue preventative regulations to address potential environmental, human health, and other risks despite gaps in knowledge.

Obama is preparing to nominate Sunstein to head up the White House Office of Information & Regulatory Affairs (OIRA), according to press reports. The office coordinates reviews of regulatory policy among the different federal agencies and has statutory authority to implement the Paperwork Reduction Act.

Sunstein is a former colleague of Obama's at the University of Chicago Law School and advised Obama's campaign. Since 2008, he has served at Harvard Law School as director of a new "Program on Risk Regulation."

One law professor says that Sunstein is "at the same end of the political spectrum" as former Bush regulatory review chief John Graham who strongly favored the use of cost-benefit assessments as a tool to downplay the need for stringent environmental and public health controls. In the Bush administration under Graham and now Susan Dudley, OIRA became a source of friction with agencies such as EPA and has been seen by many at the agency and public health advocates as a bottleneck for aggressive environmental health policy.

Sunstein has been a proponent of the use of cost-benefit analysis in regulatory decisions, a position opposed by environmental groups. "He's talked about fixing it, improving it... [but] I don't think you're going to get an OIRA that abandons cost-benefit analysis," says a second legal source.

Numerous environmental sources are raising concerns over Sunstein's record on environmental issues, including his support for the Bush administration on the controversial issue of limits on arsenic in drinking water.

In a 2001 paper about the regulation of arsenic in drinking water, Sunstein argued that there is significant uncertainty about the benefits that result from stricter standards. He said available science can only produce "benefit ranges" that vary widely. For example, monetized benefits of stricter standards can range between zero and $560 million, while prevented deaths range between 0 and 112. "In these circumstances, there is no obviously right decision for government agencies to make," Sunstein wrote.

"Agencies should be given the authority to issue more targeted, cost- effective regulations," Sunstein wrote. "They should also be required to accompany the cost-benefit analysis with an effort to identify the winners and losers, so as to see if poor people are mostly hurt or mostly helped."

The first legal source adds that Sunstein might also be "skeptical" of technology-forcing environmental statutes, which require companies to employ the best available technology rather than meeting a specific environmental standard, and statutes with a high degree of health and safety provisions.

Along these lines, Sunstein has signaled his support for measures that encourage changes in consumer and industry behavior without imposing significant costs, an approach he spelled out in a book called Nudge: Improving Decisions About Health, Wealth and Happiness. For example, he strongly favors environmental and greenhouse gas (GHG) disclosure requirements as a way to encourage industry to limit its releases. In an article in the Chicago Tribune last year, he argued, together with the book's co-author Richard Thaler, that requiring industry to disclose GHG releases is a good first step in changing behavior before policymakers can impose a price on carbon.

"Big polluters should be required to disclose their activities. Disclosure requirements improve the operation of markets and government alike. Information can be a surprisingly strong motivator," they wrote.

Sunstein has also been critical of the precautionary principle, an idea championed by activists and environmentalists. "Instead of adopting the precautionary principle, regulators should take three steps," Sunstein wrote in an introduction to a 2005 paper called Laws of Fear: Beyond the Precautionary Principle. "They should adopt a narrow anti-catastrophe principle, designed for the most serious risks; pay close attention to costs and benefits; and accept an approach called 'libertarian paternalism,' designed to respect freedom of choice while also moving people in directions that will make their lives go better."

Activists also point to a paper issued last December in which Sunstein argued that policymakers and others often overreact to "fearsome risks" that result in high consequence results even though they have a low probability of occurring. As a result, they "often exaggerate the benefits of preventive, risk-reducing, or ameliorative measures."

And on climate change, Sunstein argued that policymakers should adopt a high discount rate to calculate the future benefits of current regulatory actions, an approach that is already controversial with environmentalists and other proponents of strong climate change measures. In a paper issued last August together with David Weisbach of the University of Chicago Law School, Sunstein argued for using a high discount rate to calculate the future benefits of climate regulations, even though it would result in relatively modest and slow reductions.

He acknowledged that the "market" approach that he favors is at odds with "ethicists," who believe a high discount rate "violates the duty of the present to the future." But he argued that the high discount rate is necessary to consider the "opportunity costs" of regulatory action and a "refusal to discount may well hurt, rather than help, future generations." Despite arguing for a high discount rate, the paper acknowledges that cost-benefit analysis with discounting may impose excessive harms on future generations. "If so, the proper response is to make investments that will help those generations, not to refuse to discount," the paper says.

Still, the likely nomination is winning support from conservatives, with George Mason University law professor Todd Zywicki writing on his blog that "it will be interesting to see how [Sunstein] translates his ideas into practice," including cost-benefit analysis and the idea of discounting.

"Given Sunstein's apparently close connections to Obama this also suggests that President Obama anticipates a muscular role for OIRA in his administration," Zywicki wrote. "And the appointment of Sunstein presumably also reflects commitment to cost-benefit analysis in regulation, which is exceedingly good news and may provide a brake on some more extravagant regulatory initiatives."

And one regulatory expert who supports cost-benefit analysis says that while Sunstein is a "prolific writer," he "is not going to be dogmatic" when it comes to arguing the finer points of his positions and the source does not believe Sunstein's numerous white papers will dictate how the Obama administration approaches rules.

Several sources agree that the likely Sunstein nomination also hints at a growing centralization of power in the Obama White Housewhere policymaking is more likely to be driven by four or five key "czars" and other figures at the expense of an equitable split of power among the various executive agencies.

With the Sunstein nomination and the appointment of numerous "czars" -- including former Clinton EPA Administrator Carol Browner overseeing energy and environmental policy in the next White House -- the source says there is an increased centralization of power in the executive, which could affect the work of agencies like EPA. It could be a "repeat of the Bush scenario where they move the action to the White House and have the battle of the 5-star egos instead of building up the agencies," the source says.

The regulatory expert says that Sunstein's expected nomination illustrates that regulatory review and a strong central review office in the White House will be important components of the incoming Obama administration's approach to policymaking.

But the source also says that in the current financial situation, "the role [of OIRA] is not going to be to delay rules," a tactic that is often used as a political measure. The source said OIRA could help move new regulations through faster by coordinating across federal agencies.

The second legal source says a looming question for the incoming OIRA head will be how to accommodate the Obama administration's intent to act quickly on high-profile issues like climate and banking rules. "The regulatory process is going to have to move faster," the source says, because "regulations of that complexity could take years" to develop. "If [OIRA] is insisting on cost-benefit analysis on every point, how is that going to work?"

Still, the regulatory source says, "When you have the political motivation to move fast, I don't see OIRA getting in the way... OIRA could facilitate [the regulations'] adoption, rather than bog it down."