6.4 Distributional Impacts

The impacts of a regulation may be distributed unevenly across a number of personal or demographic characteristics. These characteristics include income, gender, race, and age. Also, decisionmakers may be interested in the impact of a regulation on certain sensitive subpopulations. Although the term “sensitive subpopulations” is not clearly defined, it is often used in reference to individuals whose existing health status may make them especially vulnerable to environmental hazards. While impact analyses can be conducted to determine the distribution of effects across any or all of these categories, two EOs (12898 and 13045) specifically require Federal agencies to consider the three primary characteristics (income, race, and age) when proposing or promulgating a regulation:

• EO 12898—Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Population—requires each agency to address and identify “...disproportionately high and adverse human health or environmental effects of its programs, policies, and activities on minority and low-income populations...” (Section 1.1). An analysis of the distribution of benefits and costs of a regulation across individuals of different races and levels of income serves to inform decisionmakers of the environmental justice consequences of OAQPS regulations.
• EO 13045—Protection of Children from Environmental Health Risks and Safety Risks—requires that Federal agencies examine the impacts of each regulatory action on children for any economically significant regulation (as defined by EO 12866) that the agency has reason to believe may disproportionately affect children.  This EO implicitly requires an analysis of the distribution of impacts across age cohorts within the population for any OAQPS regulation designed to protect human health.

As mentioned above, unevenly distributed economic impacts often result in concerns about equity and fairness.  Although classical economics and benefit-cost analysis avoid the direct evaluation of fairness, an analysis of the distribution of impacts across various segments of society provides decisionmakers with a framework in which to judge the equity of a regulatory action.  In an effort to incorporate notions of equity and fairness in EPA decisionmaking, OP has drafted Evaluating the Equity of Environmental Policy Options Based on the Distribution of Economic Effects:  Preliminary Draft ( EPA, 1997g).  This document provides guidance on how to incorporate distributional impacts analysis into an EA.  In particular, the following recommendations are made:

• Do not address very low impact regulations, options, and effects.  For regulations with small distributional impacts, the additional information provided by an impact analysis may not warrant the resources required to conduct the analysis.
• Identify and define the personal and demographic characteristics (e.g., race, age) of concern. In this step, the analyst should list all expected distributional effects and prioritize them.
• Determine the limits of the analysis by identifying the markets in which
  distributional effects are expected to occur.
• Determine whether distributional impacts exist within the scope of the analysis, noting that, in some cases, distributional effects may not occur in the markets directly affected by the regulation.
• Measure distributional impacts using a range of assumptions to characterize the possible distributions of expected impacts.
• Examine distributional impacts over the expected course of market adjustments because some impacts may be a direct result of markets adjusting to regulatory requirements and may change over time.