This chapter proposes an alternative framework for conducting a cost analysis, with an emphasis on defining the implementation time paths of the various rules and consideration of uncertainty. The chapter begins by describing the difference in the rules according to what is required in EPA’s 2010 Guidelines for Preparing Economic Analysis (EPA, 2010a). Those guidelines call for first establishing a baseline “defined as the best assessment of the world absent the proposed regulation,” including identifying starting and ending points over time for the baseline scenario (EPA, 2010a, p. 5-1, 5-2). To develop such a baseline for this chapter, the water quality management process is divided into five broad stages, and a description is provided of how the narrative rule, the NNC rule, and the proposed Florida rule would affect each stage over time. By comparing the three implementation time paths, with the narrative rule as a baseline, one can isolate the differences in the rules in order to determine how these differences might affect costs. In fact, many of the differences in cost estimates made by EPA and others can be traced to different assumptions made about how the rules would affect actions taken in each of the stages.
That discussion is followed by presentation of a framework for predicting incremental costs of the various rules. In describing the logic of the framework and graphically illustrating its application, the text demonstrates that predictions of costs over time depend on many assumptions about (1) current and future regulatory agency behavior, (2) future political and legal decisions and interpretations, (3) waterbody response to load reductions, (4) unit costs of current load reduction activities, (5) changes in cost and effectiveness of load reduction activities, and (6) socioeconomic, demographic, and land use change. Indeed, what was assumed about these various factors explains the differences in the EPA and stakeholder estimates of the cost of the NNC rule. Use of this framework can highlight differences in assumptions, help to narrow differences in the cost estimates if similar assumptions can be agreed to, and highlight how uncertainties can be reduced analytically or by clarification of ambiguities in the rules. What the framework also suggests is that the results of all cost analyses are contingent on the assumptions made by the analysts and that it is an unrealistic expectation of any analysis to produce a single, agreed upon cost estimate.
For the purposes of this comparison, the water quality management process shown in Figure 1-8 was divided into five stages. This section summarizes the actions taken during those five stages under the narrative rule (which is considered the baseline), under the NNC rule that was the motivation for this report, and under the recently proposed Florida rule which EPA