Cost-Benefit Analysis

Federal water projects were evaluated by comparing costs and benefits as early as the Flood Control Act of 1936, but the practice became central to regulation under President Ronald Reagan. Executive Order 12291, issued February 17, 1981, required agencies to prepare regulatory impact analyses for major rules and to issue them only if benefits outweigh costs, and gave the Office of Information and Regulatory Affairs power to review them. President Bill Clinton replaced it with Executive Order 12866 on September 30, 1993, which kept the analysis requirement while allowing agencies to weigh benefits that are hard to quantify, such as fairness and equity.

Agencies follow guidance in OMB Circular A-4, issued in 2003, on how to estimate costs and benefits, including how to value reduced risks of death and how to discount future effects to present value. The choices matter: a lower discount rate gives more weight to long-term benefits such as climate protection. In 2023 the Biden administration revised A-4 to lower the default discount rate, and in 2025 the Trump administration rescinded that revision and returned to the 2003 version. In Michigan v. EPA in 2015 the Supreme Court held that the EPA must consider cost when deciding whether regulating power plants is appropriate.

Supporters say cost-benefit analysis disciplines regulators, exposes rules whose burdens exceed their gains, and makes trade-offs transparent. Critics say it undervalues benefits that are hard to price, such as clean air, ecosystems, and dignity, overstates compliance costs, and can be manipulated through assumptions. Some statutes forbid considering cost for certain decisions, such as setting national air quality standards under the Clean Air Act, as the Court held in Whitman v. American Trucking Associations in 2001.