                              \s \* MERGEFORMAT 
         	UNITED STATES ENVIRONMENTAL PROTECTION AGENCY
                                    		WASHINGTON, D.C. 20460
                                       
                                                                      
                                                                                                                              OFFICE OF WATER

MEMORANDUM
 
SUBJECT:	Estimated cost and benefit impacts resulting from a delay of the compliance date of the Lead and Copper Rule Revisions
            
FROM:	Erik C. Helm, Senior Economist
            Office of Ground Water and Drinking Water
            
TO:	LCRR Docket: EPA-HQ-OW-2017-0300

The following memorandum documents the impact to the estimated annualized societal costs and monetized benefits from a delay in the compliance date for the regulatory requirement of the Lead and Copper Rule Revisions (LCRR), published in the Federal Register on January 15, 2021. 

Background

On January 20, 2021, President Biden issued the "Executive Order on Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis." (The White House, 2021a) (EO 13990). Section 2 of EO 13990 directs the heads of all agencies to immediately review regulations that may be inconsistent with, or present obstacles to, the policy set forth in Section 1 of EO 13990. In the January 20, 2021 White House "Fact Sheet: List of Agency Actions for Review," the "National Primary Drinking Water Regulations: Lead and Copper Rule Revisions" (LCRR) is specifically identified as an agency action that will be reviewed in conformance with EO 13990 (The White House, 2021b). Also on January 20, 2021, Ronald A. Klain, the Assistant to the President and Chief of Staff, issued a Memorandum for the Heads of Executive Departments and Agencies entitled, "Regulatory Freeze Pending Review" (The White House, 2021c); the memorandum directs agencies to consider postponing the effective date of regulations that have been published in the Federal Register, but have not taken effect, for the purpose of reviewing any questions of fact, law, and policy the rules may raise.

Consistent with Executive Order 13990 and the "Regulatory Freeze Pending Review" memorandum, EPA decided to review the LCRR, which was published in the Federal Register on January 15, 2021. EPA  published a final rule on March 12, 2021 [86 FR 14003], which provided for a short delay of the LCRR's effective date to June 17, 2021, to allow the agency to seek comment on the proposal to extend the effective date further to December 16, 2021, allowing the agency adequate time to conduct a thorough review of the complex set of LCRR requirements to assess whether the regulatory changes are inconsistent with, or presents obstacles to, the policy set forth in Section 1 of the EO 13990, and to consult with stakeholders, including those who have been historically underserved by, or subject to discrimination in, Federal policies and programs prior to the LCRR going into effect. In the proposal, EPA also sought comment on an extension of the compliance dates by nine months from January 16, 2024, to Sept. 16, 2024 (86 FR 14063; March 12, 2021).  

Section 1412(b)(10) of the Safe Drinking Water Act specifies that drinking water regulations shall generally take effect (i.e., require compliance) three years after the date the regulation is promulgated. This 3-year period is used by states to adopt laws and regulations in order to obtain primary enforcement responsibility for the rule and by water systems to take any necessary actions to meet the compliance deadlines in the rule. As proposed, EPA would be extending the January 16, 2024, compliance date in the LCRR by nine months, to correspond to the delay in the effective date. EPA set the compliance date, to provide a full nine month delay, to maintain the same time period between the effective date and the compliance date in the LCRR, published on January 15, 2021. EPA expects that the duration of the compliance date extension will provide drinking water systems with adequate time to take actions needed to assure compliance with the LCRR after it takes effect. 

Estimation of the Impact to Social Monetized Costs and Benefits from a Nine Month Delay of the LCRR Compliance Date

EPA's Economic Analysis for the Final Lead and Copper Rule Revisions (USEPA, 2020)(final rule EA) estimated that the annual total monetized costs of the regulatory requirements, in 2016 dollars, would range from $161 to $335 million at the 3 percent discount rate, and $167 to $372 million at the 7 percent discount rate. These values are shown in Exhibit 1. The monetized costs of the rule primarily represent the implementation costs of the regulatory requirements of the rule for both water systems and State regulators. EPA also estimated the additional removal cost of sewage treatment plants as a result of increased phosphorus loadings. Note that EPA did not monetize the environmental impacts of increase phosphorus loads to surface waters. At the national level, these additional quantities of phosphorous loadings are small, only 0.1 percent of the total phosphorous load deposited annually from all other sources. However, national average load impacts may obscure significant localized ecological impacts. These localized impacts, such as eutrophication, may occur in water bodies without restrictions on phosphate deposits, or in locations with existing elevated phosphate levels. 

The annual total monetized benefits, in 2016 dollars, of the final rule were estimated to be between $223 to $645 million, at a 3 percent discount rate, and $39 to $119 million at the 7 percent discount rate. These values are shown in Exhibit 1. The monetized benefits represent annual intelligence quotient (IQ) point decrements avoided in children up to age seven in homes with lead service lines. EPA did not monetize impacts from multiple adverse health effects due to lead exposure that are expected to decrease as a result of the final LCRR. These adverse health effects are summarized in Appendix D, of the final rule EA, and are expected for both children and adults. In Appendix D, six categories of adverse health effects associated with lead exposures are summarized. These include: cardiovascular effects (both morbidity and mortality effects; Section D.1), renal effects (Section D.2), reproductive and developmental effects (Section D.3), immunological effects (Section D.4), neurological effects (Section D.7), and cancer (Section D.8). Additionally, the adverse health effects associated with copper that are expected to be reduced by the final LCRR are summarized in Appendix E, of the final rule EA. 

Exhibit 1: LCRR Final Rule Annualized Incremental Costs and Benefits (2016$)
 
                                 Discount Rate
                               Low Cost Scenario
                              High Cost Scenario
Annualized Incremental Costs
                                      3%
                                 $160,571,000 
                                 $335,481,000 
Annualized Incremental Benefits

                                 $223,344,000 
                                 $645,276,000 
Annualized Incremental Costs
                                      7%
                                 $167,333,000 
                                 $372,460,000 
Annualized Incremental Benefits

                                 $39,353,000 
                                 $119,102,000 
Note: Values come from the Economic Analysis for the Final Lead and Copper Rule Revisions (USEPA, 2020) Exhibits 7-5 and 7-6

These annualized cost and benefit estimates represent a stream of values which occur over the 35 year period of analysis used for the assessment of the regulatory impacts. The delay of the original compliance date, of January 16, 2024, by nine months pushes away in time both the cost born by complying entities and the monetized benefits received by the public, as a result of lower lead levels in drinking water, by nine months, assuming all other environmental and regulatory conditions remain the same. The extension of the compliance date affects both the streams of costs and benefits from the LCRR, delaying those streams by one year which produces a decrease in the net present value of both the cost and benefit streams. 

Because the economic models used (Safewater LCR) to estimate the cost and benefits of the final LCRR operate on an annual time step, to estimate the potential annualized impact of the delay in the compliance date, EPA selected the conservative assumption of delaying the regulatory costs and benefits by one year in the model. The actual calculation of the impacts of this delay of the LCRR for one year does not require the Agency to re-estimate the LCRR Safewater model. Computationally, EPA used the estimated annualized total incremental cost and benefit values, presented in Exhibit 1, to represent the constant annual value of both costs and benefits in each year of the 35 year period of analysis for the final LCRR. Using Microsoft Excel's net present value (NPV) and payment (PMT) financial functions EPA both verified the baseline LCRR final rule annual values and computed the impact of a one year, or one period, delay in the costs and benefits of the proposed extension of the LCRR compliance date. See the calculations in file, "Calculating Cost and Benefit Impact of Delaying LCRR Compliance Date.xlsx," in the docket at EPA-HQ-OW-2017-0300 at www.regulations.gov.

Exhibit 2: LCRR Final Rule Annualized Incremental Costs and Benefits Including a One-Year Delay in Compliance Date (2016$)
 
                                 Discount Rate
                               Low Cost Scenario
                              High Cost Scenario
Annualized Incremental Costs
                                      3%
                                 $153,316,000 
                                 $320,323,000 
Annualized Incremental Benefits

                                 $213,252,000 
                                 $616,120,000 
Annualized Incremental Costs
                                      7%
                                 $155,255,000 
                                 $345,575,000 
Annualized Incremental Benefits

                                 $36,512,000 
                                 $110,505,000 
Note: Calculations are provided in file "XXX.xlsx" in the docket at EPA-HQ-OW-2017-0300 at www.regulations.gov

The estimated annual total incremental cost of the rule given the one year delay, ranged from $153 to $320 million, at the 3 percent discount rate, and $155 to $346 million at the 7 percent discount rate, in 2016 dollars. The monetized total incremental annual benefits, in 2016 dollars, given a one year delay of the compliance date would range from $213 to $616 million, at the 3 percent discount rate, and $37 to $111 million at the 7 percent discount rate. 

The annualized incremental cost savings, in 2016 dollars, would range from $7 to $27 million, across the low and high scenarios, at the 3 and 7 percent discount rates. The annualized monetized incremental benefit reduction ranges from $3 to $29 million across the cost and discounting scenarios, in 2016 dollars. These differentials represent the impact of the delay in the stream of costs and benefit from the LCRR for one year, over the 35-year period of analysis. 

References

The White House. 2021a. Executive Order 13990. Protecting Public Health and the Environment and Restoring Science To Tackle the Climate Crisis. Federal Register 86 FR 7037. January 20, 2021. Washington, D.C.: Government Printing Office.

The White House. 2021b. Fact Sheet: List of Agency Actions for Review: https://www.whitehouse.gov/briefing-room/statements-releases/2021/01/20/fact-sheet-list-of-agency-actions-for-review/

The White House. 2021c. Memorandum for the Heads of Executive Departments and Agencies: Regulatory Freeze Pending Review Federal Register 86 FR 7424. January 28, 2021. Washington, D.C.: Government Printing Office.

USEPA. 2020. Economic Analysis for the Final Lead and Copper Rule Revisions. December 2020. Office of Water.
