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OAQPS Economic Analysis Resource Document

6.4 Distributional Impacts

The benefits and costs of a rule are often distributed unevenly across different sectors of the economy or among different categories of individuals. The statutory requirements for impact analysis discussed in the preceding sections generally address the distribution of costs across sectors of the economy, including governments and the private sector. In addition, UMRA requires that analysts identify the distribution of costs across different geographic regions. The distribution of benefits and costs among different categories of individuals often evokes concerns about equity and fairness; however, because most EAs attempt to measure benefits and costs in the aggregate, the distribution of those benefits and costs can easily be overlooked. Also, EO 12866 (Regulatory Planning and Review) includes the reduction of discrimination or bias among the possible benefits of a regulation to be considered. Therefore, this section identifies the various ways in which the distributional effects can be examined to more fully inform decisionmakers of the consequences of a regulatory action.

The impacts of a regulation may be distributed unevenly across a number of personal or demographic characteristics. These characteristics include income, gender, race, and age. Also, decisionmakers may be interested in the impact of a regulation on certain sensitive subpopulations. Although the term “sensitive subpopulations” is not clearly defined, it is often used in reference to individuals whose existing health status may make them especially vulnerable to environmental hazards. While impact analyses can be conducted to determine the distribution of effects across any or all of these categories, two EOs (12898 and 13045) specifically require Federal agencies to consider the three primary characteristics (income, race, and age) when proposing or promulgating a regulation:


6 Impact Analyses

 6.0 Intro

 6.1 The Unfunded
   Mandates Reform
   Act (UMRA)

 6.2 Regulatory
   Flexibility Act
   (RFA) and Small
   Business Regul-
   atory Enforce-
   ment Fairness
   Act (SBREFA)

 6.3 The Paperwork
   Reduction Act

 6.4 Distributional

 6.5 Structural

  • EO 12898—Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Population—requires each agency to address and identify “...disproportionately high and adverse human health or environmental effects of its programs, policies, and activities on minority and low-income populations...” (Section 1.1). An analysis of the distribution of benefits and costs of a regulation across individuals of different races and levels of income serves to inform decisionmakers of the environmental justice consequences of OAQPS regulations.
  • EO 13045—Protection of Children from Environmental Health Risks and Safety Risks—requires that Federal agencies examine the impacts of each regulatory action on children for any economically significant regulation (as defined by EO 12866) that the agency has reason to believe may disproportionately affect children.  This EO implicitly requires an analysis of the distribution of impacts across age cohorts within the population for any OAQPS regulation designed to protect human health.

As mentioned above, unevenly distributed economic impacts often result in concerns about equity and fairness.  Although classical economics and benefit-cost analysis avoid the direct evaluation of fairness, an analysis of the distribution of impacts across various segments of society provides decisionmakers with a framework in which to judge the equity of a regulatory action.  In an effort to incorporate notions of equity and fairness in EPA decisionmaking, OP has drafted Evaluating the Equity of Environmental Policy Options Based on the Distribution of Economic Effects:  Preliminary Draft ( EPA, 1997g).  This document provides guidance on how to incorporate distributional impacts analysis into an EA.  In particular, the following recommendations are made:

  • Do not address very low impact regulations, options, and effects.  For regulations with small distributional impacts, the additional information provided by an impact analysis may not warrant the resources required to conduct the analysis.
  • Identify and define the personal and demographic characteristics (e.g., race, age) of concern. In this step, the analyst should list all expected distributional effects and prioritize them.
  • Determine the limits of the analysis by identifying the markets in which
    distributional effects are expected to occur.
  • Determine whether distributional impacts exist within the scope of the analysis, noting that, in some cases, distributional effects may not occur in the markets directly affected by the regulation.
  • Measure distributional impacts using a range of assumptions to characterize the possible distributions of expected impacts.
  • Examine distributional impacts over the expected course of market adjustments because some impacts may be a direct result of markets adjusting to regulatory requirements and may change over time.

7 Determining the distribution of impacts involves more than estimating impacts on identified subpopulations. In particular, ascertaining if disparate impacts exist involves determining if observed differences are statistically significant. In many cases, however, the data are insufficient to make such a determination.
8 Although the Agency has not developed guidance for specifically addressing environmental justice concerns in its rulemakings, two documents provide overviews of environmental justice and may be of interest to analysts:  Interim Final Guidance for Incorporating Environmental Justice Concerns in EPA’s NEPA Compliance Analysis ( EPA, 1997h) and Evaluating the Equity of Environmental Policy Options Based on the Distribution of Economic Effects:  Preliminary Draft ( EPA, 1997g).
9 Although the Agency has not developed guidance for addressing impacts on children, analysts are again referred to Evaluating the Equity of Environmental Policy Options Based on the Distribution of Economic Effects:  Preliminary Draft ( EPA, 1997g) for an overview of equity considerations based on age.

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