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Environment and the economy
Q: How did you handle the economic realities of the recession, with people in industry and other public arenas saying that environmental regulation was strangling the economy?
MR. COSTLE: Much of that was overstated on their part. My approach was to assemble the best economic staff I could and take industry critics head-on. I asked Bill Drayton to do a study of the five most expensive rules that EPA had ever adopted. I wanted a comparison of agency forecasts of the likely expense of compliance with industry's forecasts and with the actual costs. The results were very interesting. In four of the five cases, both the government and industry had significantly overestimated the actual costs. In one case, both industry and government underestimated the costs by a magnitude. In the four cases where we overestimated, our costs were closer to reality than industry's. And where we both underestimated, again our figures were closer to actual costs.
But when you are prospectively estimating the impact of a proposed rule, you are dealing with models and assumptions. Reasonable people can disagree; people with an interest may deliberately disagree. Also, it is easier to estimate costs than benefits. Industry uses very conservative cost models that tend to produce larger numbers.
In estimating, if actual costs are less, you benefit. But the fact that you have used the conservative models gives credibility if the costs turn out to be lower. In some instances where there was going to be controversy over major rules, we had OMB and the White House convene the agencies involved to agree on models in advance, so there would be no subsequent argument about assumptions.
I believed that the most important thing was to get facts on the table. My motto is, "Facts are friendly." People with different political philosophies can come to the same problem and reach similar conclusions, unless they are ideologues.
The White House is never going to be able to do its own analytical homework. It would have to re-create the government to do so. On one of our biggest rulemakings, we went to the White House staff and decided on the models ahead of time. We got the other agencies -- DOE (Department of Energy), DOT (Department of Transportation), OMB, the Council of Economic Advisors and the Council on Wage and Price Stability -- to agree. As a result of this process, we were never vulnerable to lawsuits alleging that we had been told what decision to make.
One example of this came with the auto industry. Toward the end of the administration, foreign automakers were having Detroit for lunch. The five top company CEOs met with the President; I was the only regulator there. The automakers were seeking five specific forms of relief, including regulatory relief. One CEO said, "Mr. President, do you realize that twenty percent of the cost of every new car is the cost of meeting federal regulations?"
President Carter asked, "Is that so, Doug?"
I said, "It is, Mr. President, but you have to look at that number carefully. Eighty to eighty-five percent of it is the cost of meeting Congressionally-mandated fuel economy standards. If you were to add up all the health, safety and environmental requirements, it's about three percent of the cost. Some argue that figure is much too high; others that it's too low."
At that point, Lee Iacocca said, "Mr. President, the fact is, we blew it. The industry is making the wrong kind of cars. We let the imports steal our lunch. We need to retool, and we need to buy time to do so. We need relief, but I put regulatory relief fifth on a list of five." They moved on to discuss import quotas and other items. And that was that, but I knew when I said what I did that OMB wasn't going to contradict it, nor was the Council of Economic Advisors. Maintaining this level of credibility meant you had to be really conscientious about making sure your facts could stand up.
Q: How often did you find yourself standing up before the President, OMB or others, and saying, "But I can't do that, because Congress has mandated that I do something else?"
MR. COSTLE: By the time issues got to that level, we had worked very closely with the White House staff and others. You don't rub their faces in it. That's counterproductive. So the situation never came up in the way this question is framed. But personal relationships also make a huge difference. Over time, you build up trust, which becomes very important. I think it has made a difference to EPA throughout its history, with people like Ruckelshaus and Train, Bill Reilly and Lee Thomas and Carol Browner. You cannot ever afford to undercut somebody. It is one thing to win or lose on the merits. It is another to use shady methods or not do your homework. Once you lose your credibility, you're dead, absolutely dead.