How to Improve Retrospective Review and Reduce Regulatory Burdens

Dept. of Energy
by Sofie E. Miller, Senior Policy Analyst
July 18, 2014

Through its Regulatory Burden Request for Information (RFI), DOE is seeking comment from the public on how to effectively review its existing regulations, pursuant to Executive Order 13563. In response to this RFI, we filed a comment offering three recommendations to DOE to further its retrospective review efforts.

First, DOE should incorporate plans for retrospective review into its economically significant or major rules. Second, DOE should allow enough time between its energy efficiency standards to allow for an effective review of each rule’s effects before issuing updated rules. Third, DOE should use the Herfindahl-Hirschman Index to measure whether its existing energy efficiency standards have had negative effects on competition in the regulated industries.

Incorporate Retrospective Review into Proposed Rules

As a part of its ongoing Retrospective Review Comment Project, the Regulatory Studies Center examines significant proposed regulations to assess whether agencies propose retrospective review as a part of their regulations, and submits comments to provide suggestions on how best to incorporate plans for retrospective review into their proposals. However, our research indicates that many agencies—including DOE—are not currently complying with EO 13563 and OMB’s direction to write and design their rules “so as to facilitate retrospective analysis of their effects.”

While each economically significant rule proposed by DOE this year mentions EO 13563, none includes a plan for retrospective review of its standards.  The rules in question are all energy efficiency standards that have the potential to incur billions of dollars of costs and benefits. Because of the magnitude of these rules, and the frequency with which DOE updates the stringency of its energy efficiency standards, DOE should write plans for retrospective review into the text of its rules to facilitate transparency, public accountability, and measurement of the success of its rules.

Review of Previous Standards

DOE should also review the efficacy of its existing energy efficiency standards before making a determination that further standards are necessary. DOE tends to conduct detailed ex ante analyses of the costs and energy savings associated with its proposed rules, but these (necessarily) are heavily dependent on assumptions about future prices of energy and other goods, opportunity costs, and producer and consumer preferences and behavior. Retrospective review that compares predicted outcomes with actual outcomes is essential to test these assumptions and calibrate DOE’s models. This should be done before DOE proposes new standards based on uncertain parameters.

For example, pursuant to the Energy Policy and Conservation Act (EPCA), DOE is required at intervals to determine whether updates to its existing energy efficiency standards are “technically feasible and economically justified.” However, DOE does not test its existing standards and assumptions before issuing new, updated standards. Conducting retrospective review on its existing standards would allow DOE to incorporate any lessons learned or unintended consequences into its future standards, both to improve ex ante analysis and to improve rulemaking outcomes.

Measuring Anti-Competitive Effects

Pursuant to the EPCA, DOE is required to consider “the impact of any lessening of competition, as determined in writing by the Attorney General, that is likely to result from the imposition of the standard” before finalizing a new energy efficiency rule.  While this prospective evaluation is finalized before the rule goes into effect, it is also important to measure anti-competitive effects after a standard is implemented to determine whether the standard is economically justified, as required by statute.

DOE’s retrospective reviews of its existing energy efficiency standards should include application of the Herfindahl-Hirschman Index to measure any potentially anti-competitive effects, especially energy efficiency standards that the Department of Justice has determined would have anti-competitive effects on the regulated industries.