Executive Order 12866 in the United States requires benefit-cost analysis for any new regulation that is “economically significant,” which is defined as having “an annual effect on the economy of $100 million or more or adversely affect[ing] in a material way the economy, a sector of the economy, productivity, competition, [or] jobs,” or creating an inconsistency with other law, or any of several other conditions. The Order established a “regulatory philosophy” and several “principles for regulation,” among them requirements to explicitly identify the problem to be addressed, determine whether existing regulations created or contributed to the problem, assess alternatives to direct regulation, and design regulations in the most cost-effective manner. § 1(a) summarizes this regulatory philosophy as follows:
- Federal agencies should promulgate only such regulations as are required by law, are necessary to interpret the law, or are made necessary by compelling public need, such as material failures of private markets to protect or improve the health and safety of the public, the environment, or the well-being of the American people.
Agencies were directed to fulfill these requirements though economic analysis, most notably the preparation of Regulatory Impact Analyses (RIAs). Regulations within this definition are colloquially termed “economically significant.”
Though the term “effect” is crucial for determining the likelihood that a rule is economically significant, the term was not internally defined. Rather, all interpretative determinations critical to implementation were delegated to the Office of Information and Regulatory Affairs (OIRA) within the Office of Management and Budget (OMB).[non-primary source needed]
Executive Order 12,866 provides for a centralized review conducted on behalf of the President by OIRA (the same agency directed by Congress to implement the Paperwork Reduction Act). Under Executive Order 12,291 from the 1980s, OIRA formally reviewed all draft proposed and final rules before they were published in the Federal Register. Under Executive Order 12,866, OIRA formally reviews only those draft rules covered by § 3(f) (“significant regulatory action”) During the 12.5 years in which Executive Order 12,291 was in place, OIRA reviewed an average of 2,382 draft rules per year, but during the 24 years that Executive Order 12,866 has been in force, OIRA has reviewed only 596 draft rules per year.
Under Executive Order 12,866, the procedure for determining whether a draft rule is significant (and thus subject to OIRA review) or economically significant (and thus subject to the requirement to prepare a Regulatory Impact Analysis), begins with agencies preparing entries to the semi-annual Unified Regulatory Agenda, which OIRA reviews before publication in the Federal Register, along with each agency’s Regulatory Plan. Agencies are required to engage in prior consultation with both private and public stakeholders before drafting notices of proposed rulemaking, and ensuring that they have at least 60 days for public comment.
Agencies are required to provide to OIRA comprehensive lists of planned regulatory actions, including agencies’ provisional determinations of whether each action is significant. Drafts of significant regulatory actions must be transmitted to OIRA for review, along with assessments of their potential costs and benefits. For economically significant regulatory actions, agencies also must provide OIRA with a Regulatory Impact Analysis. After OIRA review is completed and each draft proposed or final rule is published in the Federal Register, agencies are required to make all analyses public and “[i]dentify for the public, in a complete, clear, and simple manner, the substantive changes between the draft submitted to OIRA for review and the action subsequently announced; and ... those changes in the regulatory action that were made at the suggestion or recommendation of OIRA.”
OIRA may return a draft rule to an agency “for further consideration of some or all of its provisions,” accompanying any return with “a written explanation … setting forth the pertinent provision of [Executive Order 12,866] on which OIRA is relying.”
The reach of Executive Order 12,286 was extended in 2011 to require agencies to conduct retrospective reviews of existing regulations.
Regulatory Impact Analyses are governed by guidance issued by OMB, OMB Circular A-4.
Enforcement of the Order occurs during a public comment period after the agency receives public comments, and before the agency publishes a final rule. Notices of Executive Order reviews are not published—an interested member of the public has to watch OMB’s web site daily to see when the agency submits a rule for review.
Origin of benefit-cost analysis -- President Reagan's Executive Order 12,291
Executive Order 12,291 required OIRA review for regulations that “may [h]ave an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities.”
Replacement by President Clinton
Executive Order 12,866 (October 1993) replaced Executive Orders 12,291 and 12,498.
Revisions by President Bush -- Executive Orders 13422 and 13535
President George W. Bush amended Executive Order 12866 in Executive Orders 13422 and 13535.
Revisions by President Obama -- Executive Order 13563
Early in the Obama Administration, President Obama revoked President Bush's Executive Orders 13422 and 13535.
In 2002, Cass Sunstein, who would later serve as President Obama's Administrator of the Office of Information and Regulatory Affairs, co-authored an article on a proposed replacement.
Executive Order 13563, Improving Regulation and Regulatory Review, was issued by President Barack Obama in 2011.
- William J. Clinton, Exec. Order No. 12,866, Regulatory Planning and Review, , 58 Fed. Reg. 51,735 (Oct. 4, 1993).
- Exec. Order 12,866, § 1(b)(1)
- Exec. Order 12,866, § 1(b)(2)
- Exec. Order 12,866, § 1(b)(3)
- Exec. Order 12,866, § 1(b)(5)
- Exec. Order 12,866, § 1(b)(6)-(8)
- Exec. Order 12,866, § 6(a)(3)(C)
- Exec. Order 12,866, § 6(b)
- Data from www.reginfo.gov, comparing the period Feb. 19, 1981 through Sept. 30, 1993, with the period Oct. 1, 1993 through Sept. 30, 2017.
- 5 U.S.C. § 602.
- Exec. Order 12,866, § 3(c)
- Exec. Order 12,866, § 6(1)(a)
- Exec. Order 12,866, § 6(a)(3)(A)
- Exec. Order 12,866, § 6(a)(3)(B)
- Exec. Order 12,866, § 6(a)(3)(C)
- Exec. Order 12,866, § 6(a)(3)(C)(ii) to (iii).
- Exec. Order 12,866, § 6(b)(3).
- See Barack Obama, Exec. Order No. 13,563, Improving Regulation and Regulatory Review (Jan. 18, 2011), 76 Fed. Reg. 3821-23 (Jan. 21, 2011).
- Office of Management and Budget, OMB Circular A-4, Regulatory Analysis, https://www.whitehouse.gov/omb/circulars_a004_a-4, (Sept. 17, 2003).
- See Ronald W. Reagan, Exec. Order No. 12,291, Federal Regulation, 48 Fed. Reg. 13,193 (Feb. 19, 1981) and Exec. Order No. 12,498, Regulatory Planning Process, 50 Fed. Reg. 1036 (Jan. 8, 1985).
- Robert W. Hahn and Cass R. Sunstein, A New Executive Order for Improving Federal Regulation? Deeper and Wider Cost-Benefit Analysis, 150 Univ. Penn. Law Rev. 1489-1552 (May, 2002).
- , 76 Fed. Reg. 3821 (Jan. 21, 2011).