. "3 A Framework for Incremental Cost Analysis of a Rule Change." Review of the EPA's Economic Analysis of Final Water Quality Standards for Lakes and Flowing Waters in Florida. Washington, DC: The National Academies Press, 2012.
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Review of the EPA’s Economic Analysis of Final Water Quality Standards for Lakes and Flowing Waters in Florida
designated use (Stage 5)] should be predicted and the prediction explained, based on how the rule governs these stages and the available funding. Costs are calculated by multiplying the load reduction effort (grey cells) by the cost per unit of effort. This is how the EPA analysis was completed, but unlike the EPA analysis, this framework would make explicit that costs will occur at different times under the two rules.
The content of the cells, as well as the costs and outcomes, can be based on trend analysis of historical records, predictive models, statistical equations, and expert judgment. Once complete, the costs of the narrative process could be subtracted from the numeric process to get a total cost difference, which could be compared to the incremental differences in water quality outcomes and interpreted in light of the uncertainty of the total cost estimates of each process. This can be done for each time period and would provide information on the implication for annual public budgets and when water quality results might be realized. Of course the total cost of either rule can still be calculated as the difference in the present value of the annual total cost between the two rules.4
If uncertainty was not going to be considered in the analysis, then the grey cells simply would record what assumptions were made to warrant the costs shown. However, if there are different assumptions made, then the analysis described above would be repeated for each set of assumptions and cost estimates and water quality outcomes for the narrative process, and then for the NNC process and the array of different outcomes described. These different outcomes might be assigned a probability of occurrence and an expected value, or they may be left as individual scenarios (see Task 3).
Most importantly, the framework encourages decision participants and analysts to explicitly discuss and test assumptions and transparently articulate the differences in costs that might result from these assumptions. For instance, the number of permits modified and stringency of controls within the permits over the period of analysis can be compared with and without the NNC rule. Such a comparison would clearly define what might occur under the baseline condition and transparently illustrate how the level and pace of activities would differ under an alternative rule and alternative assumptions.
How to Use the Cost Estimation Framework
This section offers illustrative examples of how an analyst might fill out the rows in the general framework described by Figure 3-1, for both the narrative (baseline) and the NNC rules. Because differences in the assumptions
4 Also other outcomes of interest such as effects on employment could be made and reported in the same format.