"Economic impact analysis" is not a precise term in economics but an evolving term that describes
the various analyses performed to gauge the economic consequences of EPA regulations. Over
time, conducting EIAs has become an integral part of ISEG's role in EPA's regulatory development
process. Based on legislative and administrative directives, the EIA's purpose for ISEG is primarily
to describe and quantify the reallocation of society's resources in response to a proposed regulatory
action. Under some circumstances, the EIA also provides the social cost estimate to be compared
with social benefits in the benefit-cost analysis required in a full EA, as described in Section 2.
Generally, ISEG needs estimates of the following types of variables
without and with the regulation for the time period of the analysis:
- facility- and industry-level impacts, which may include compliance
cost burden; revenue, cost, and profit changes; changes in capacity
utilization; facility and process closures; and employment changes;
- market-level impacts, which may include changes in market prices,
domestic production and consumption, and foreign trade;
- company-level impacts, which may include compliance cost burden
and its impact on financial viability and/or failure;
- community-level impacts, which may include changes in employment,
facility closures, and changes in emissions;
- governmental impacts, which may include the costs of administrative,
monitoring, and enforcement actions and changes in receipts from taxes
or fees; and
- social costs and benefits.
By quantifying and evaluating these impacts in the EIA, the ISEG analyst
is able to provide valuable inputs to policymakers in the regulatory
development process and, if applicable, improve the benefit-cost analysis.
The section continues with a description of the methodological approach
for performing EIAs in OAQPS. Section 5.1 provides a discussion of alternative
approaches for performing EIAs and the rationale for the partial equilibrium,
intermediate-run market model approach used in many ISEG analyses. Section
5.2 provides a conceptual overview of the market modeling approach for
estimating economic impacts. Section 5.3 moves beyond the conceptual
framework for market models to practical issues involved in developing
an economic model, when information on the economic phenomena of interest
is often sketchy and practical compromises must be made. Section 5.4
summarizes the analytical approach and concludes with the recommended
structure for organizing and reporting analytical results.
|1 For a more comprehensive review
of the basic economic concepts of social cost, the reader may
refer to the document Guidelines for Preparing Economic Analyses
prepared by EPA’s Office of Policy ( EPA, 1998d).
As of July 1998, that document was in draft form.