The Treatment of Uncertainty in EPA’s Analysis of Air Pollution Rules: A Status Report

Abstract

An understanding of the uncertainty in benefit and cost estimates is a critical part of a benefit-cost analysis. Without a quantitative treatment of uncertainty, it is difficult to know how much confidence to place in these estimates. In 2002, an NRC report recommended that EPA move toward conducting probabilistic, multiple-source uncertainty analyses in its RIAs with the specification of probability distributions for major sources of uncertainty in the benefit estimates. In 2006, reports by GAO and RFF found that EPA had begun to address the NRC recommendations, but that much remained to be done to meet the NRC concerns. This paper provides a further review of EPA’s progress in developing a quantitative assessment of the uncertainties in its health benefits analysis for the RIAs for four recent NAAQS rule-makings. In conclusion, EPA’s recent RIAs present the results of its uncertainty analysis in piecemeal fashion rather than providing an overall, comprehensive statement of the uncertainty in its estimates. In addition, its recent RIAs continue to focus on the concentration-response relationship and largely fail to address the uncertainty associated with the other key elements of the benefits analysis.

Keywords: benefit-cost analysis, uncertainty analysis

JEL Classification: B41, D61, D80, I18, Q50