EPA is planning major changes to its stormwater regulations. These would be the most significant changes since the federal stormwater regulations were enacted nearly a quarter century ago.
The New Rule: Broad in Scope
Based on EPA’s initial announcement in 2009 and other statements EPA has made, it appears that the new regulations will expand both the scope and the stringency of the federal stormwater regulations.
The Need for an Accurate Accounting of Costs and Benefits
Cost-benefit analysis is central to the federal regulatory process. Cost-benefit analysis refers to weighing the economic costs of a proposed course of action against its economic benefits (using dollar values wherever possible). A federal Executive Order, in place since the Reagan Administration, requires federal agencies to issue only rules for which the benefits exceed the costs. Agencies can also use cost-benefit analysis to compare different regulatory options, and to choose the one that maximizes net benefits to society.
Maximizing Efficiency Through Innovative Rule Design
In addition to weighing the costs and benefits of different regulatory approaches, EPA will also have to decide how the rule should be designed. Policy Integrity encourages EPA to consider innovative ideas that have the potential to achieve greater environmental benefits at a lower cost. These ideas include market-based approaches, limits on “grandfathering” (a term that refers to exempting existing sites from the regulation), carrying out stormwater permitting on a watershed basis, and using the power of citizen involvement to strengthen enforcement of the regulations.
First, EPA should determine whether, and where, regulatory approaches based on market principles would be more efficient than traditional top-down regulations. Stormwater runoff is a classic example of what economists call an “externality.” Dischargers do not bear the costs of their stormwater runoff. Therefore, they lack an incentive to reduce it. Market-based approaches create an incentive for discharging sites to control their own stormwater runoff. These approaches could involve assessing a fee in proportion to a discharger’s runoff by means of a stormwater utility or requiring dischargers to purchase credits on a market in proportion to their runoff, thereby creating a marginal cost for stormwater disposal.
Hundreds of municipalities in the United States have already adopted stormwater utilities. EPA should promote the adoption of stormwater utilities and assist municipalities with designing optimal rate structures. Additionally, market-based approaches such as cap-and-trade programs, emissions fees, offsets, and in-lieu fee programs have worked effectively in other environmental contexts. EPA should consider whether these types of regulatory approaches would make the stormwater regulations more effective.