3.3 Specific ISEG Tasks in the Regulatory Development Process

   3.3.1    Initial Screening

The purpose of the initial screening stage is to assess the likely magnitude of impacts of the proposed regulatory actions. This stage allows ISEG to prioritize its activities and thereby use its analytical resources more efficiently. At this point, ISEG must determine which of the analysis categories the proposed regulatory action falls into:

• minimal
• active (EIA)
• major (EA)

   3.3.2    Scoping Assessment and SBREFA Determination

In this stage, active and major projects are further scrutinized to determine the scope of analyses that need to be performed and the corresponding level of effort. This may involve reviewing information on the regulated industry or activity; the type of pollution control alternatives being considered; the expected effect on environmental quality; and the availability of data and models to estimate costs, benefits, and distributional effects. Often this information is generated by other groups within OAQPS as part of the Office’s activity prior to economic analysis. This information may need to be supplemented with additional secondary data.

This is also the point in the process where the Agency must determine whether the proposed rule is likely to have a significant impact on a substantial number of small entities, a threshold criterion established by SBREFA. Upon completion of the SBREFA screening analysis, the Agency must either certify that there will not be a significant impact on a substantial number of small entities or convene a SBREFA review panel to participate in the rulemaking process. See Sections 2 and 6 for more information on the regulatory background of SBREFA and the analytical methods for addressing SBREFA impacts.

   3.3.3    Industry Profile

The industry profile stage is often the first intensive activity in the economic analysis process. The purpose of the industry profile is threefold:

• characterize the economic characteristics of the regulated industry that are important for understanding the potential benefits and costs of the proposed regulatory action,
• set the analytical context for the EIA/EA, and
• collect data for subsequent analysis.

The profile should provide detail on the relevant economic characteristics of the regulated industry in question and should compile the data necessary to define a baseline for the analysis and to estimate model parameters. The profile may draw from information provided earlier in the regulatory process within OAQPS. The purpose, structure, and data requirements of industry profiles are discussed in more detail in Section 4 of this document.

   3.3.4    Analysis Plan

The preliminary scoping assessment described above should paint a broad picture of issues to be addressed in the economic analysis. Since this preliminary assessment, time has passed and allows for engineering information on the compliance costs and regulatory alternatives to influence the scope and scale of the economic analysis. Supplemented with the data and other economic information gathered in the industry profile, the next task is to prepare a detailed methodology for performing the analysis. This is part of the analytical blueprint stage referenced above.

The methodology for performing an EIA should specify how costs and economic impacts will be estimated and reported. Section 5 of this document presents an analytical framework for modeling costs and economic impacts, taking into consideration the economic responses of producers and consumers in the affected markets. The methods outlined in that section work toward providing estimates of costs and distributional impacts that are both consistent with economic theory and address the analytical requirements posed by the various statutory and administrative requirements presented in Section 2.

The analysis plan for performing a full EA for significant regulatory actions ("major" rules) should supplement the EIA methodology with a methodology for estimating the benefits of the regulatory action. An analytical framework for benefits estimation methods is presented in Section 7 of this document.

   3.3.5    Analysis

In this stage, the methodology and data are combined to perform the analysis. Analysis tasks include

• model development,
• testing,
• preliminary analysis of regulatory alternatives,
• evaluation and external review, and
• final analysis of regulatory alternatives.

The analytical models will depend on the scope of the analysis to be performed. Potential model types include compliance cost estimation models, partial or general equilibrium models of the regulated markets, financial impact models, and benefits estimation models (e.g., health effects models, cost-of-illness models, valuation models, and benefits transfer).

Model testing is an essential component of quality assurance/quality control (QA/QC) procedures. Testing is absolutely necessary to ensure confidence in the model results on the part of the analyst, workgroup members, Agency management, stakeholders, and the general public. Testing and QA/QC, along with the peer-review process are integral parts of the Agency’s policy for using sound science to support regulatory decisions.

As indicated in Section 3.1, analysis is usually an iterative process within the Agency's regulatory development process. Preliminary analysis results can be used by the workgroup to define and select regulatory alternatives. Or regulatory alternatives may change for reasons unrelated to the preliminary analyses, such as statutory factors, stakeholder input, or changes in data or analytical inputs. Ultimately, though, a final analysis will be performed on the selected regulatory option, and the analysis results will be used to support the regulatory decision in the OMB review and public comment periods.

   3.3.6    Technical Support Documents

The CAA and EO 12866 both require that all analysis results relevant to the regulatory decision be documented in writing. Of primary importance to ISEG are the following written documents:

• the EIA (EA) report
• preamble to the FR notice
• public docket

The EIA (EA) report summarizes the data, methods, assumptions, and results used to analyze the regulatory actions under consideration. The report should be substantive, in the sense that the reader should have all of the information necessary to understand how the results were derived and what they imply. However, the report should avoid needless detail that will hamper its readability. The preamble states the need for regulatory action and summarizes the analytical results that support the proposed action. The docket includes all materials referenced in the analysis. Its function is to allow any interested parties access to all information used to support the regulatory decision.