How Government Decides: Understanding Regulatory Impact Analysis and Cost-Benefit Analysis

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When the U.S. government considers new rules—whether about clean air, food safety, or workplace conditions—it doesn’t make decisions in a vacuum. Two critical analytical tools, Regulatory Impact Analysis (RIA) and Cost-Benefit Analysis (CBA), play significant roles in shaping these decisions.

Understanding these processes is key for citizens who want to see how their government weighs potential effects of new policies. These analyses aim to make government actions more transparent, effective, and accountable by systematically examining the potential consequences of proposed regulations.

What Is Regulatory Impact Analysis?

Regulatory Impact Analysis, or RIA, is a systematic process government agencies use to assess the likely effects of a proposed new regulation. It’s a way of looking before leaping, aiming to ensure regulations are well-designed, achieve their intended goals, and do so efficiently.

Purpose and Goals

At its core, an RIA is a “detailed and systematic appraisal of the potential impacts of a new regulation in order to assess whether the regulation is likely to achieve the desired objectives.” In the U.S. federal government, agencies like the Environmental Protection Agency and Food and Drug Administration are often required to develop RIAs, particularly for significant regulatory actions.

This requirement stems from Executive Orders, such as E.O. 12866 (“Regulatory Planning and Review”) and E.O. 13563 (“Improving Regulation and Regulatory Review”), which guide how agencies develop and review regulations.

An RIA strives to be an objective and unbiased assessment. It examines both positive and negative impacts of policy options, considering effects that can be measured in dollar terms (quantifiable) as well as those that cannot (unquantifiable), to promote evidence-based decision-making.

Importantly, the RIA describes the effects of a regulation; it doesn’t necessarily advocate for one specific approach over others.

Key Goals of RIA

The goals of an RIA are multifaceted:

Establishing Necessity: It seeks to establish whether federal regulation is genuinely necessary and justified to achieve a particular societal goal.

Promoting Efficiency: It aims to clarify how regulations can be designed to be as efficient, least burdensome, and cost-effective as possible.

Informing Decisions: The purpose is to inform agency decisions and ensure choices are made only after thorough consideration of their likely consequences.

This structured, upfront examination of potential impacts positions RIA as a proactive tool in governance. Rather than simply being a document to justify a decision already made, the process of conducting an RIA is intended to shape the regulation itself by forcing methodical consideration of consequences and alternatives from early stages of policy development.

RIA is not uniquely American. It has become a fundamental component of modern public management globally, similar in importance to national budgeting processes. Most RIAs are conducted ex ante, meaning the analysis is performed before a final policy decision is made, allowing it to influence the choice of regulatory and non-regulatory options.

Key Components of an RIA

According to U.S. federal guidance, a comprehensive RIA typically includes several core elements:

Statement of Need for the Regulation: An RIA must begin with a clear and reasonably detailed description of the problem the regulation intends to solve. This goes beyond simply citing the law that authorizes the regulation. It requires substantive explanation of the “market failure”—such as externalities (costs imposed on third parties, like pollution), market power (dominance by a few firms), or inadequate or asymmetric information—or another “compelling public need” that justifies government intervention.

Such needs might include improving government operations, protecting privacy, or upholding human dignity. The analysis should provide evidence that a significant, systemic problem exists that is unlikely to be resolved without government action.

Examination of Alternative Regulatory Approaches: Agencies are required to consider a broad range of options for addressing the identified problem. This must include the alternative of not regulating at all. Guidance from the Office of Management and Budget (OMB), particularly in Circular A-4, suggests analyzing at least three options: the agency’s preferred option, a more stringent option, and a less stringent option.

The RIA must then explain why the chosen regulatory action is preferable to these alternatives.

Assessment of Benefits and Costs: This is a cornerstone of the RIA. The analysis must describe the potential social benefits and social costs of the proposed regulation and its alternatives. This includes impacts that can be assigned monetary value and those that cannot.

The RIA should also determine potential net benefits (total benefits minus total costs), taking into account effects that haven’t been monetized. The FDA, for instance, views the core of an RIA as an assessment of benefits and costs of various regulatory options compared to a “without regulation” baseline.

Anticipated benefits can cover a wide range, such as promoting efficient market functioning, enhancing health and safety, protecting the natural environment, or reducing discrimination.

Defining the Baseline: The RIA must establish a clear “baseline.” This describes what the world would likely look like if the government takes no new action. It’s an estimate of what affected parties (businesses, consumers, etc.) are currently doing and what they are likely to do in the immediate future without the proposed regulation.

If a regulation largely restates existing statutory requirements that would be self-implementing, the analysis should use a “pre-statute” baseline.

Transparency and Data Quality: The analysis must be grounded in the best reasonably obtainable scientific, technical, and economic information available. Agencies are expected to comply with Information Quality Guidelines established for federal agencies.

All assumptions, methods, and data underlying the analysis must be clearly presented, and any uncertainties associated with the estimates should be discussed. To enhance public understanding, a prominent executive summary written in plain language is often recommended.

General Methodology

The general methodology of an RIA is systematic. It begins with defining the problem that necessitates regulatory action and identifying the objectives the regulation aims to achieve. Analysts then generate various policy options, which can include both regulatory and non-regulatory approaches.

A crucial step is the assessment of impacts for each option. This involves evaluating the benefits, costs, and other potential effects (e.g., distributional impacts on different groups, environmental consequences). This comparison is typically made against the “baseline” scenario—the world as it would be without the proposed regulation.

Methodologies can range from quantitative modeling, such as detailed benefit-cost calculations, to qualitative assessments, which are particularly important for impacts that are difficult or impossible to express in monetary terms. The results of this comprehensive analysis are then presented to policymakers to inform their decisions.

What Is Cost-Benefit Analysis?

Cost-Benefit Analysis (CBA) is a specific analytical technique widely used within the U.S. federal government to evaluate the economic merits of proposed regulations, projects, and policies. It provides a structured way to weigh the pros and cons of a decision in monetary terms.

Purpose and Goals

At its heart, CBA is a “systematic process for identifying, quantifying, and comparing expected benefits and costs of an investment, action, or policy.” It involves analyzing and evaluating potential solutions from both cost and benefit perspectives.

The use of CBA in federal regulation dates back to the 1970s, with agencies being required to consider costs and benefits of regulations anticipated to have significant economic effects. Today, Executive Order 12866, issued in 1993, serves as the primary mandate for conducting CBAs for significant regulations.

The overarching objective of CBA is to help policymakers identify the option likely to yield the “largest net benefits to society.” It aims to promote clear understanding of potential consequences of different choices, assist in predicting outcomes that might otherwise be unexpected, and facilitate effective communication of reasoning behind policy decisions.

A fundamental principle is that the benefits of a regulation should justify its costs.

CBA is grounded in principles of welfare economics. It focuses on estimating “opportunity costs” associated with different policy choices—recognizing that using resources (like labor or raw materials) for one purpose means they are not available for other productive uses. The goal is to achieve the most economically efficient allocation of these scarce resources.

Within the federal government, CBA is a versatile tool, applied not only in regulatory impact analysis but also in policy analysis and evaluation of infrastructure projects, such as those undertaken by the Department of Transportation. It is considered the main economic assessment tool for evaluating federal programs.

Key Components of a CBA

A thorough CBA typically involves several key steps and components:

Establishing a Framework: The analysis begins by clearly defining the problem the proposed policy or project aims to address, along with specific goals and objectives. It’s also important to identify a reasonable number of alternative policy options for comparison, ideally three or more.

Identifying Costs and Benefits: Analysts compile two comprehensive lists: one detailing all projected costs and the other outlining all expected benefits of the proposed action.

Costs can be categorized as:

• Direct Costs: Expenses directly tied to implementation or production, such as labor, materials, manufacturing costs, and project execution expenses. For Department of Transportation projects, this includes capital costs like land acquisition, design, environmental reviews, and construction, as well as ongoing operating and maintenance costs.
• Indirect Costs: Typically fixed expenses contributing to overhead, like utilities and rent.
• Intangible Costs: Costs difficult to measure or quantify in monetary terms, such as temporary decrease in productivity while a new process is implemented, or decline in customer satisfaction.
• Opportunity Costs: The value of the best alternative that is foregone when a particular choice is made.

Benefits can include:

• Direct Benefits: For businesses, this might be increased revenue or sales from a new product. For public projects, like those analyzed by DOT, direct benefits include improved safety, savings in travel time, reduced vehicle operating costs, lower emissions, and positive health impacts.
• Indirect Benefits: An example could be increased public interest in a business or brand as a result of a project.
• Intangible Benefits: Non-monetary positive outcomes, such as improved employee morale, enhanced quality of life, or preservation of environmental resources.
• Competitive Benefits: This could involve advantages gained by being first to implement a new strategy or technology.

Monetizing Costs and Benefits: A critical step in CBA is assigning monetary value, typically in dollars, to each identified cost and benefit. This allows for direct comparison. While direct costs and benefits are often easier to monetize, assigning dollar values to indirect and intangible impacts (like the value of a statistical life, or benefits of a cleaner environment) can be challenging and sometimes controversial.

Various techniques are employed for this, including assessing individuals’ “willingness to pay” (WTP) for a benefit or their “willingness to accept” (WTA) compensation for a cost, using the “value of a statistical life” (VSL) for mortality risk reduction, and employing contingent valuation methods (which involve surveys to elicit values).

Discounting Future Values: Because benefits and costs often occur over many years, CBA must account for the “time value of money.” Future values are “discounted” to their present-day equivalents. This means a dollar received in the future is considered less valuable than a dollar received today, reflecting both opportunity cost of capital (money could be invested elsewhere) and people’s general preference for present over future consumption.

The choice of discount rate can significantly influence CBA outcome, especially for projects with long-term impacts. OMB Circular A-4 provides specific guidance on appropriate discount rates for federal regulatory analysis.

Calculating Net Present Value and Benefit-Cost Ratio:

• Net Present Value (NPV): This is calculated by subtracting total discounted costs from total discounted benefits. A positive NPV generally indicates that the project or policy is economically worthwhile.
• Benefit-Cost Ratio (BCR): This is the ratio of total discounted benefits to total discounted costs. It’s often used to rank different projects when resources are limited, with higher BCRs generally being preferred.

Sensitivity Analysis and Uncertainty: CBAs inherently involve making assumptions about future events and values. Sensitivity analysis is performed to test how results (like NPV or BCR) change when key assumptions (such as discount rate, or magnitude of certain costs or benefits) are varied. This helps understand the robustness of conclusions and potential impact of uncertainty.

Distributional Effects and Equity: While traditional CBA has focused on aggregate net benefits to society (economic efficiency), there’s growing emphasis on analyzing how costs and benefits of a policy are distributed across different segments of the population (e.g., by income level, geographic region, demographic group).

The 2023 update to OMB Circular A-4, for example, provided more detailed guidance on how agencies should analyze these distributional effects and consider equity. This reflects evolution in CBA to incorporate broader understanding of societal well-being that includes fairness alongside efficiency.

General Methodology

The typical CBA process is structured and iterative. It generally follows these steps:

1. Define the scope: Clearly articulate the project, policy, or regulation being analyzed and the problem it addresses.
2. Identify alternatives: Specify different options to be compared, including a “no action” or baseline scenario.
3. Identify stakeholders: Determine who will be affected by the proposal, both positively and negatively.
4. Catalog impacts: List all potential costs and benefits for each alternative.
5. Predict impacts quantitatively: Estimate the magnitude of these costs and benefits over the relevant time horizon.
6. Monetize impacts: Assign monetary values to quantified impacts, using appropriate valuation techniques like WTP/WTA or market prices where available.
7. Discount future impacts: Convert all future costs and benefits to their present values using an appropriate discount rate.
8. Calculate NPV and/or BCR: Sum discounted benefits and costs to determine net present value for each alternative, and calculate benefit-cost ratio if needed for ranking.
9. Perform sensitivity analysis: Test the robustness of results by varying key assumptions.
10. Consider non-monetized and distributional impacts: Qualitatively discuss important impacts that could not be monetized and analyze how effects are distributed across different groups.
11. Make a recommendation: Based on the analysis, provide information to help policymakers choose the option that best achieves objectives, often the one with highest positive net benefits, while considering all facets of the analysis.

The Millennium Challenge Corporation, for example, employs CBA to model the economic rationale of its proposed development projects. This involves estimating economic benefits directly attributable to a project and comparing them to the project’s costs over a defined period, often using metrics like economic rate of return (ERR) and NPV to assess investment viability.

RIA vs. CBA: Understanding the Connection

While Regulatory Impact Analysis (RIA) and Cost-Benefit Analysis (CBA) are related and often discussed together, they are not identical. Understanding their distinct roles and how they connect is crucial for grasping the full picture of regulatory assessment.

Comparing Goals and Scope

The primary goal of Cost-Benefit Analysis is to determine if expected benefits of a proposed action justify its costs, with strong emphasis on quantifying and monetizing these impacts in dollar terms whenever feasible. CBA aims to identify the option that maximizes net benefits to society, providing clear economic rationale for decision-making.

A Regulatory Impact Analysis, on the other hand, has broader scope. It is a “detailed and systematic appraisal of the potential impacts of a new regulation” designed to assess whether the regulation will achieve its desired objectives and to identify any potential unintended consequences.

An RIA typically encompasses a statement of need for the regulation, examination of various alternative approaches (including non-regulatory ones), and assessment of a wide range of benefits and costs. While the terms are sometimes used interchangeably in general discussions, RIA is technically the more encompassing framework.

Is CBA Part of RIA?

Yes, Cost-Benefit Analysis is generally considered a core and integral component of Regulatory Impact Analysis. The broader RIA framework often uses CBA as its central tool for evaluating economic efficiency and justification of a proposed regulation.

Several sources confirm this relationship:

• The Congressional Research Service notes that “regulatory impact analysis is a broader term that includes cost-benefit analysis.”
• The Mercatus Center states that RIAs typically contain four primary elements, one of which is explicitly a “benefit-cost analysis.”
• The Environmental Protection Agency explains that its RIAs include “a benefits analysis of the rule… along with an estimation of the net benefits”—this description effectively outlines the inclusion of a CBA.
• The Food and Drug Administration defines the core of an RIA as “an assessment of the benefits and costs of regulatory and other policy options.”
• The Nuclear Regulatory Commission indicates that its regulatory analyses contain estimates of benefits and costs to determine if an action is cost-justified, aligning with CBA principles found in E.O. 12866.
• OMB Circular A-4, which provides detailed guidance on conducting “regulatory analysis,” heavily emphasizes principles and methodologies of BCA as the primary analytical approach.

Therefore, while CBA provides rigorous economic assessment of whether benefits outweigh costs, the RIA serves as the broader “container” or organizing framework. This framework allows for more holistic view by ensuring that the CBA’s economic efficiency assessment is integrated with other vital considerations.

These can include qualitative impacts that are difficult to monetize, distributional effects on different segments of society, and evaluation of how well different alternatives achieve the regulation’s overarching objectives.

Beyond CBA, an RIA may also incorporate other types of quantitative and qualitative analyses, such as cost-effectiveness analysis (which compares costs of different ways to achieve a specific, non-monetized outcome) and detailed distributional analysis (which examines who bears costs and who receives benefits).

This multi-faceted approach signifies that “good regulation” within the U.S. system is evaluated on more than just whether monetized benefits exceed monetized costs. It also involves achieving stated objectives effectively, considering fairness, and understanding broader societal impacts.

Quick Comparison

The Legal Framework: Laws and Guidance

The processes of Regulatory Impact Analysis and Cost-Benefit Analysis in the U.S. federal government are governed by a framework of executive orders, OMB guidance, and specific statutes that dictate when and how these analyses must be performed. This framework creates a layered system designed to ensure regulations are reviewed from multiple perspectives before they are finalized.

Executive Order 12866: The Foundation

Issued by President Clinton in 1993, Executive Order 12866, “Regulatory Planning and Review,” remains the foundational directive for how federal agencies plan and review regulations. Its central aim is to make the regulatory process more rational, efficient, and accountable by ensuring decisions are based on reasoned determination that benefits of a regulation justify its costs.

A key feature of E.O. 12866 is its definition of a “significant regulatory action.” Such actions trigger formal review by the Office of Information and Regulatory Affairs (OIRA), part of the Office of Management and Budget (OMB). An action is deemed “significant” if it is likely to:

• Have an annual effect on the economy of $200 million or more (updated from $100 million by Executive Order 14094 in 2023)
• Adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or state, local, or tribal governments or communities
• Create serious inconsistency with an action taken or planned by another agency
• Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs
• Raise novel legal or policy issues

For these significant regulatory actions, particularly those deemed “economically significant,” E.O. 12866 requires agencies to:

• Identify the problem the regulation is intended to address, including, where applicable, failures of private markets or public institutions
• Assess costs and benefits of available regulatory alternatives, including the alternative of not regulating
• Base decisions on the best reasonably obtainable scientific, technical, economic, and other information
• Select regulatory approaches that maximize net benefits (total benefits minus total costs), unless a statute requires a different approach

E.O. 12866 also mandates transparency, requiring agencies to make public their assessments of costs and benefits, as well as documents exchanged with OIRA during the review process.

Executive Order 13563: Improving Regulation

Issued by President Obama in 2011, Executive Order 13563, “Improving Regulation and Regulatory Review,” was designed to affirm and supplement E.O. 12866. It seeks to foster a regulatory system that not only protects public health, welfare, safety, and the environment but also promotes economic growth, innovation, and job creation.

Key principles and requirements of E.O. 13563 include:

Science-Based Regulation: Regulations should be based on the best available science.

Public Participation: It strongly emphasizes the importance of public participation and open exchange of ideas. Agencies are directed to provide online access to rulemaking dockets (e.g., via www.regulations.gov) and generally allow at least 60 days for public comment on proposed regulations through the internet.

Integration and Innovation: The order calls for greater coordination among agencies to simplify rules and reduce redundancy.

Flexible Approaches: Agencies are encouraged to consider regulatory approaches that reduce burdens and maintain flexibility for the public, such as providing warnings, setting appropriate default rules, or using disclosure requirements.

Retrospective Analysis: A significant feature of E.O. 13563 is its requirement for agencies to periodically review their existing significant regulations. The goal is to determine if these rules have become outmoded, ineffective, or excessively burdensome, and to modify, streamline, or repeal them accordingly.

Reinforcement of CBA: E.O. 13563 reiterates the need for agencies to quantify anticipated benefits and costs as accurately as possible using the best available techniques and to ensure that scientific information supporting regulatory actions is objective. It also explicitly allows for consideration of values that are difficult or impossible to quantify, such as equity, human dignity, and fairness, in regulatory analyses.

OMB Circular A-4: The Technical Guide

While Executive Orders set broad policy, OMB Circular A-4, “Regulatory Analysis,” provides the detailed “how-to” manual for federal agency analysts tasked with preparing RIAs and CBAs. Its purpose is to assist analysts in conducting high-quality, evidence-based regulatory analysis and to standardize the way benefits and costs of federal regulatory actions are measured and reported.

Circular A-4 was significantly updated in November 2023, its first major revision since 2003. This update aimed to incorporate new developments in economic theory, scientific understanding, and analytical techniques. The dynamic nature of this guidance is evident; for instance, the 2023 update modernized discount rates and provided more detailed instructions on analyzing distributional effects, reflecting evolving economic thought and policy priorities.

Key principles and requirements outlined in OMB Circular A-4 (2023) include:

Statement of Need: Agencies must clearly describe the need for regulatory action, supported by evidence, detailing any market failures (e.g., externalities, asymmetric information) or other compelling public needs (e.g., improving government operations, promoting equity).

Examination of Alternatives: A range of reasonable regulatory alternatives must be analyzed, including a “no action” baseline and options that are both more and less stringent than the proposed action.

Benefit-Cost Assessment: BCA is designated as the primary analytical tool. The analysis must assess both quantifiable (monetized where feasible) and qualitative benefits and costs.

Non-Monetized Effects: Important effects that cannot be quantified or monetized (e.g., impacts on human dignity, civil rights, equity, or certain environmental outcomes) must be carefully identified, discussed qualitatively, and summarized.

Distributional Effects and Equity: The 2023 Circular provides expanded guidance on analyzing how benefits and costs are distributed across different population groups (defined by income, race/ethnicity, gender, etc.). Agencies may even apply analytical weights to benefits and costs accruing to different income groups to account for the diminishing marginal utility of income.

Uncertainty: Agencies must characterize the uncertainty inherent in their estimates of benefits and costs and, where possible, quantify this uncertainty (e.g., through sensitivity analysis or by providing confidence intervals).

Discount Rates: Specific guidance is provided for selecting discount rates to convert future benefits and costs to their present values. The 2023 revision recommends a default real discount rate of 2.0% for the Social Rate of Time Preference (SRTP) for most analyses and discusses the use of a declining discount rate schedule for very long-term impacts.

Transparency: The Circular emphasizes the importance of making regulatory analyses transparent and accessible, often through a clear executive summary.

Other Key Statutes

Beyond Executive Orders and OMB guidance, several statutes also impose analytical requirements on agencies during the rulemaking process:

Administrative Procedure Act (APA) of 1946: The APA establishes the fundamental framework for federal rulemaking. While it doesn’t explicitly mandate CBA, it requires agencies to provide public notice of proposed rules, give interested persons opportunity to comment, and publish a concise general statement of the basis and purpose of final rules. E.O. 12866 and other analytical requirements build upon the APA’s procedural foundation.

Regulatory Flexibility Act (RFA): The RFA requires federal agencies to consider the economic effects of their regulations on “small entities”—small businesses, small governmental jurisdictions, and small not-for-profit organizations. If a proposed rule is expected to have a “significant economic impact on a substantial number of small entities,” the agency must prepare an Initial Regulatory Flexibility Analysis (IRFA) alongside the proposed rule, and a Final Regulatory Flexibility Analysis (FRFA) with the final rule.

Paperwork Reduction Act (PRA): The PRA aims to minimize the paperwork burden imposed by the federal government on individuals, businesses, and other entities, and to maximize the practical utility of information collected by the government. Before an agency can collect information from 10 or more members of the public, it must justify the collection and seek public input on the proposed collection.

Unfunded Mandates Reform Act (UMRA): UMRA was enacted to limit the imposition of unfunded federal mandates on state, local, and tribal governments, as well as on the private sector. If a proposed rule includes a federal mandate that may result in expenditures of $100 million or more in any one year (adjusted annually for inflation), the agency must prepare a written statement before promulgating a general notice of proposed rulemaking.

Key Governing Frameworks Summary

Who Conducts These Analyses?

The responsibility for preparing and reviewing Regulatory Impact Analyses and Cost-Benefit Analyses is shared primarily between individual federal agencies proposing regulations and the Office of Information and Regulatory Affairs (OIRA), which provides centralized oversight.

Role of Federal Agencies

The primary responsibility for conducting RIAs and CBAs for specific regulations lies with the federal agencies proposing those regulations. For example:

The Environmental Protection Agency develops RIAs to support its national air pollution regulations, detailing potential social benefits and costs to determine the net benefits of a rule.

The Food and Drug Administration conducts objective economic analyses, including RIAs, for all important proposed and final regulations. The core of these RIAs is an assessment of benefits and costs of regulatory options compared to a “no action” baseline.

The Department of Transportation uses Benefit-Cost Analysis for regulatory impact analysis, policy analysis, and evaluation of infrastructure projects.

These analyses are not standalone exercises but are integral to the entire rulemaking process, from initial proposal of a rule through to its finalization. Agencies are expected to adhere to requirements laid out in Executive Orders 12866 and 13563, and the detailed methodological guidance provided in OMB Circular A-4 when preparing their RIAs and CBAs.

The Office of Information and Regulatory Affairs

The Office of Information and Regulatory Affairs (OIRA), located within the Office of Management and Budget (OMB) in the Executive Office of the President, serves as the U.S. Government’s central authority for review of Executive Branch regulations.

Under Executive Order 12866, OIRA is tasked with reviewing all “significant regulatory actions” proposed by federal agencies. This review includes close examination of RIAs and CBAs prepared for economically significant rules. OIRA’s role is multifaceted:

Ensuring Analytical Quality: OIRA works to ensure that agency regulations rely on the best available science and economics, and that the analyses supporting them are robust and adhere to established guidance like Circular A-4.

Promoting Policy Coherence: OIRA helps ensure that agency regulations do not conflict with one another and are responsive to broader priorities of the President.

Improving Regulations: Through its review, OIRA may suggest changes to draft rules, aiming to improve their effectiveness or reduce unnecessary burdens. Agencies are required to identify substantive changes made at OIRA’s suggestion when rules are published.

Overseeing Other Requirements: Beyond E.O. 12866 review, OIRA also approves government information collections under the Paperwork Reduction Act, establishes government statistical practices, coordinates federal privacy policy, and oversees retrospective review of existing regulations.

Information about OIRA’s review of regulations, including lists of rules under review and details of public meetings OIRA conducts, is made available to the public on www.reginfo.gov.

This division of labor—agencies preparing analyses and OIRA providing centralized review—functions as a quality control and policy coherence mechanism. OIRA’s government-wide perspective helps standardize analytical quality and ensures that individual agency actions align with broader executive branch objectives.

However, OIRA operates at the intersection of technical analysis and political governance. While it aims to enhance analytical underpinnings of regulations, its position within the Executive Office of the President and its mandate to ensure responsiveness to “presidential priorities” mean that its review process can also be a channel for political considerations to influence regulatory outcomes.

Real-World Examples

To make the concepts of RIA and CBA more concrete, it’s helpful to look at how they are applied by U.S. government agencies in developing significant regulations. These examples illustrate the types of impacts considered and how such analyses can inform final policy decisions.

EPA’s Clean Power Plan RIA

One prominent example is the Regulatory Impact Analysis for the Clean Power Plan Final Rule, issued in August 2015.

Purpose of the Rule: The Clean Power Plan aimed to reduce carbon dioxide (CO2) emissions from existing fossil fuel-fired power plants by establishing CO2 emission performance rates and state-specific CO2 goals, with guidelines for states to develop implementation plans.

Key Findings of the RIA:

Monetized Benefits: The RIA quantified significant climate benefits from CO2 reductions, using a range of Social Cost of Carbon (SC-CO2) estimates. For the rate-based illustrative plan in 2030, these climate benefits were estimated to be between $6.4 billion (using a 5% discount rate) and $61 billion (using the 95th percentile SC-CO2 at a 3% discount rate).

Additionally, substantial health co-benefits were monetized from reductions in other pollutants like fine particulate matter (PM2.5) and ozone, which would lead to fewer premature deaths, hospital admissions, and other illnesses. These health co-benefits for the rate-based approach in 2030 were estimated to be between $13 billion and $34 billion (depending on the discount rate used).

Monetized Costs: The primary costs identified were annual incremental compliance costs for the electric power sector, including investments in cleaner generation technologies and demand-side energy efficiency programs. For the rate-based approach, these costs were estimated at $8.4 billion in 2030.

Non-Monetized Impacts: The RIA acknowledged that not all benefits could be monetized. Unquantified climate benefits included impacts like reduced ocean acidification and avoiding potential ecological tipping points. Unquantified health and environmental co-benefits included reduced direct exposure to hazardous air pollutants (like mercury) and improvements in ecosystem health and visibility.

Net Benefit Estimates: The RIA concluded that monetized benefits substantially outweighed monetized costs. For the rate-based illustrative plan in 2030, quantified net benefits were estimated to range from $26 billion to $45 billion (using a 3% discount rate and the model average SC-CO2).

Distributional Effects/Equity: The RIA discussed environmental justice considerations, noting that climate change and air pollution can disproportionately affect minority, low-income, and other vulnerable populations like children and the elderly.

FDA’s Food Traceability Rule RIA

The FDA promulgated this final rule in November 2022, with a compliance date of January 20, 2026. The Government Accountability Office reviewed aspects of this rule and its RIA in a report dated January 2024.

Purpose of the Rule: To help rapidly identify the source of foodborne illness outbreaks by requiring enhanced recordkeeping for certain foods on a “Food Traceability List.” Entities handling these foods must maintain specific records (Key Data Elements) at Critical Tracking Events in the supply chain and provide this information to the FDA quickly during an investigation.

Key Findings of the FDA’s RIA (estimates annualized over 20 years at a 7% discount rate):

Monetized Benefits:

• Health Benefits: Primary estimate of $780 million annually (range: $59 million – $2.2 billion). These benefits stem from reducing foodborne illnesses, hospitalizations, and deaths by shortening the time contaminated products are in the supply chain. The FDA estimated the rule would reduce traceback time by about 80%.
• Non-Health Benefits: Primary estimate of $575 million annually (range: $233 million – $1.8 billion). These include avoiding costs from overly broad recalls, improving supply chain and inventory management, and enabling more timely recall initiation and completion.

Monetized Costs:

• Domestic Compliance Costs: Primary estimate of $570 million annually (range: $63 million – $2.3 billion).
• Foreign Compliance Costs: Primary estimate of $51 million annually (range: $4 million – $286 million), some of which could be passed to domestic consumers.

Net Benefit Estimates: The primary estimates suggest that total annualized benefits (approximately $1.355 billion) would exceed total annualized compliance costs (approximately $621 million), resulting in significant net benefits.

DOT’s Benefit-Cost Analysis for Infrastructure

The Department of Transportation uses Benefit-Cost Analysis systematically to evaluate transportation investments, policies, and regulatory actions.

Purpose of BCAs in Transportation: To provide a benchmark for evaluating and comparing potential transportation investments, ensuring that public funds are directed towards projects with the highest societal returns.

Key Components Considered in DOT BCAs:

Benefits: Typically include safety improvements (reduced accidents), travel time savings, vehicle operating cost savings, emission reductions, improved comfort, health benefits from reduced pollution or increased active transport, and reductions in operations and maintenance costs for newer infrastructure.

Costs: Include capital costs (land, labor, materials, design, environmental review) and lifecycle operating and maintenance costs. All costs are considered, regardless of who bears them (federal, state, local, private).

Application: Many DOT competitive grant programs require a BCA for projects seeking federal funding, particularly for construction projects. State DOTs also use BCA, though practices vary; safety projects and large/significant projects are most likely to undergo BCA.

Challenges: DOT BCAs, especially at the state level, can face challenges such as improper baselines, speculative benefits, and lack of transparency. Quantifying complex impacts like emissions or equity effects can also be difficult.

These examples demonstrate that RIAs and CBAs are not mere academic exercises. They involve detailed estimation of a wide array of impacts, from direct compliance expenditures to broad societal benefits like improved health and environmental quality. The process of conducting these analyses forces agencies to systematically consider consequences of their actions, evaluate alternatives, and provide public justification for their regulatory choices.

Why This Matters to You

RIA and CBA might seem like technical, behind-the-scenes government processes, but they have real-world implications for everyone. Understanding these tools empowers citizens to engage more effectively with their government and hold it accountable.

Impact on Everyday Life

The regulations shaped by RIAs and CBAs touch nearly every aspect of daily life:

Health and Safety: Rules concerning food safety (e.g., FDA’s Food Traceability Rule), clean air and water (e.g., EPA’s Clean Power Plan), workplace safety (OSHA regulations), and safety of consumer products are often informed by these analyses. The benefits sections of these analyses frequently quantify avoided illnesses, injuries, and premature deaths.

The Environment: Regulations aimed at protecting the environment, such as those limiting pollution or preserving natural resources, undergo RIAs that attempt to value environmental benefits against the costs of protection.

The Economy: Regulations can affect prices of goods and services, employment levels in certain industries, and the overall pace of economic growth. RIAs and CBAs attempt to estimate these economic impacts.

Innovation and Technology: Well-designed regulations, informed by careful analysis, can foster innovation, while poorly designed ones can stifle it. RIAs are intended to help tailor policies to avoid unnecessary burdens that could hinder technological advancement.

By systematically evaluating potential outcomes, RIAs and CBAs help policymakers design regulations that aim to maximize positive impacts and minimize negative ones, directly affecting quality of life, safety, and economic well-being of citizens.

Transparency and Accountability

One of the most important functions of RIA and CBA from a citizen’s perspective is their role in promoting transparency and accountability in government.

Making Decisions Understandable: These analyses, when made public, provide documented rationale for regulatory choices. They explain the problem being addressed, alternatives considered, and expected benefits and costs. This allows the public to understand the government’s reasoning.

Holding Agencies Accountable: With documented analyses, government agencies can be better held accountable for their decisions and their outcomes. Citizens and public interest groups can scrutinize these documents to ensure the analysis is sound and that the agency has adequately considered all relevant impacts.

Evidence-Based Policymaking: The use of RIA and CBA encourages decisions based on evidence rather than solely on political expediency or anecdotal information. This can lead to more effective and efficient regulations.

The public availability of RIAs, often through websites like www.regulations.gov, means that when these analyses suggest a policy may not be providing expected results, or that its costs are disproportionate to its benefits, it can create pressure for policy changes.

How You Can Engage

The federal rulemaking process, including development of RIAs and CBAs, is designed to include public participation. This is a cornerstone of democratic governance and ensures that diverse perspectives are considered.

Notice and Comment: The Administrative Procedure Act generally requires agencies to publish a notice of proposed rulemaking in the Federal Register and provide opportunity for public comment. Proposed rules and their supporting analyses (including RIAs) are typically available on www.regulations.gov.

Providing Useful Comments: Effective public comments are those that are specific, provide evidence, and address the agency’s analysis. Citizens can:

• Point out specific concerns with the proposed rule or its RIA/CBA
• Highlight benefits or costs the agency may have overlooked or undervalued
• Provide data or real-world experiences relevant to the rule’s impact
• Suggest alternative approaches or modifications to the proposed rule
• Comment on the agency’s assumptions, such as those related to distributional impacts or costs/benefits that are hard to monetize

Early Engagement: The public can also engage early in the process. The Unified Agenda of Federal Regulations (published twice a year and available on www.reginfo.gov) forecasts planned regulatory activities, giving the public a heads-up. Meeting with agency officials before a rule is formally proposed can also be a way to share information and perspectives.

Retrospective Review: Executive Order 13563 encourages public suggestions about existing regulations that may need review or modification.

Federal agencies are not all-knowing; they benefit significantly from scientific, technical, business, and personal experiences shared by the public. While the public comment process is not a vote, agencies are required by the APA to consider all “relevant matter presented” and respond to significant comments in the final rule.

This dialogue between the government and its citizens is essential for developing regulations that are effective, efficient, and fair. Understanding the role and content of RIAs and CBAs equips individuals and groups to participate more meaningfully in this critical aspect of democratic governance.

The regulatory process affects all of us, from the air we breathe to the food we eat to the prices we pay. By understanding how government analyzes these decisions through RIA and CBA, citizens can better engage with their government and help ensure that regulations serve the public interest effectively and efficiently.

Our articles make government information more accessible. Please consult a qualified professional for financial, legal, or health advice specific to your circumstances.