Regulatory News
October 23
The National Electric Energy Agency (ANEEL) has started discussions on regulating the establishment of hybrid power plants in Brazil. This type of enterprise combines two or more different kinds of technology for energy generation, and may also include energy storage.

In his evaluation, ANEEL Director, Christiano Vieira da Silva said that hybrid plants can be an alternative in the northeast part of the country, where there is potential for complementarity technology, with generation of solar energy during the day and wind power at night, when the winds are strongest. He also mentioned the possibility of combining diesel thermoelectric plants with solar or wind power plants in isolated regions in the north of the country to reduce costs.
October 10
The Special Bidding Commission of the National Agency of Petroleum, Gas and Biofuel (ANP), of Brazil, approved the registration of six more companies for the permanent offer of exploratory blocks and areas with marginal accumulations in terrestrial or maritime basins. With that, the total is now 63 companies which are able to participate in the auctions.

According to the ANP schedule, the registered companies have until October 13 to submit declarations of sectors of interest along with offer guarantees. The public session for presenting offers is scheduled for early December.
October 07
An Interview with Jim Tozzi

Interfases.legal/interfases.org is an online open access law blog (ISSN 2674-9084). The head of Interfases is Professor Antonio Sepulveda, PhD, and members of its Editorial board are affiliated with the Institutional Studies Lab (Letaci) of the Federal University of Rio de Janeiro Law School. The blog publishes original analyses by distinguished scholars and Law professionals on different issues relevant to Law.

(01) Can you tell us a bit more about your experience in the OMB (Office of Management and Budget) and about your participation in the creation of the OIRA?

The creation of the OIRA (Office of Information and Regulatory Affairs) goes back to my initial position as an overseer of the Army Corps of Engineers. In addition to their military function the Corps also has a domestic function of constructing civil works projects such as dams and waterways. Under US law the Corps must conduct a benefit-cost analysis of each project before it is entitled to funding. A colleague of mine who worked with me in the Office of the Secretary of the Army, who oversees the Corps, suggested we begin applying benefit-cost analysis to regulations and we then started a regulatory review program on the Corps. The program I administered has two essential components: (1) conducting benefit-cost analyses of regulations and (2) having an overseer review the benefit-cost analysis. These two components remain the essential components of the current US program regulatory review program. For additional background:

Evolution of Benefit-Cost Analysis into Federal Rulemaking
National Archives Interview March 2009: Centralized Regulatory Review

(02) When/How did administrations realize it was necessary to create a centralized agency (OIRA) to review and coordinate other agencies’ regulation?

The Nixon Administration realized that they were assuming office as the environmental movement in the US was emerging as a national priority. Nixon decided that the good news was that he was going to sign more environmental legislation than any other President; the bad news was that all proposed regulations had to be first reviewed by the OMB. Nixon’s program was called the Quality of Life program; it applied only to environmental regulations. Nixon then moved me from the Pentagon where I worked for the Secretary of the Army to the OMB. Reagan expanded the Nixon program to apply to all federal regulations when he signed Executive Order 12291. I talk about this here and here.

(03) Could you point out the main challenges and difficulties regarding the creation of the OIRA?

This question is central to the entire issue of centralized regulatory review. The enormity of the action was such that it needed two very important components: (1) political leadership with a vision and (2) career federal employees who were policy entrepreneurs who would stay the course and nurture the program, defend it and expand it. With respect to the second item, it took me twenty years to get the program going and at high personal costs. In the last ten years of my career I might have eaten dinner with my family five times. In that I worked weekends, I missed most of their soccer games and birthday parties. Without career policy entrepreneurs the system would never have gotten off the ground and survived, (click here, here and here).

(04) In an ideal Administrative State, what is the role or how indispensable is the OIRA and the OMB? How would the OIRA and the OMB help in reducing regulatory capture?

The White House, I worked for five of them in a very key position, is going to get involved with controversial rulemaking. They can either do it overtly through a Congressionally established institution, such as the OIRA, or covertly through backdoor midnight calls to the agencies. The President is responsible for the actions of his minions and no President is recent times is going to give his or her subordinates an open reign on the powerful bureaucracy. That said, for the first 50 years of centralized regulatory review, lawyers and occasionally economists were in charge of the operation. Here is a first draft of an article in which I argue that it is time to welcome political scientists to manage the OIRA, (here and here). As long as the OMB remains in the seat of final reviewer, the impact of regulatory capture at the agency level is minuscule. The question then arises, what about agency capture at the OMB/OIRA? Rotating the head of OIRA between economists, attorneys and political scientists will go a long way in maintaining the “neutral competence” role of the OMB/OIRA.

(05) Many scholars in the United States accuse the Administrative State to be "illegal" (e.g. Philip Hamburger). Is that, in your opinion, a legitimate concern? How might a reviewing agency (the OMB or OIRA) improve the "legality" of the Administrative State?

A strong constitutional argument can be made that the administrative agencies as they presently operate are not sanctioned by the constitution. That said, what is the alternative? Congress cannot pass a budget, let alone a law explaining the technical rationale for regulating a pollutant at 5 ppm.  In my view, we should manage the administrative state, not abolish it. In response to this statement the critics of the administrative state reply:

To some, establishing principles for the management of the administrative state is akin to going to the street with a proposal to take a brothel public.

I am not sure whether a properly functioning OIRA will ever solve its legal challenge but it most certainly will lessen opposition to it. To this end I think it is time to loosen the hold that lawyers, and to some extent, economists, have on being appointed the leader of OIRA. More specifically the next Administrator of OIRA should be a political scientist, here.

(06) What should be main goal for the OMB: regulatory efficiency or democratic legitimacy of regulations?

For decades the thrust of economic analysis has been national efficiency, i.e., assessing the contribution that a proposed action has on increasing the size of the economic pie. However, there are other considerations of interest to the body politic; for example, to some, the distribution of the economic pie is more important that its size. I expressed this concern to the Secretary of the Army some fifty years ago. Over the years an emphasis on national efficiency gains has led, to a degree, to questioning the merits of economic analysis, click here. Nonetheless, as economists often state: “there is no free lunch,” meaning one should always be advised of the decrease in national efficiency gains necessary for the accomplishment of other societal goals.

(07) Could you identify necessary changes to improve the U.S. regulatory design?

Thus far, the current administration has addressed this issue by making these fundamental changes in the regulatory system. The implementation of a regulatory budget is one of the most fundamental changes made in the US regulatory system since the founding of OIRA; the implementation of a regulatory budget was set forth in a proposal by the Carter Administration,

Nonetheless, recent events, particularly the pandemic, demand a revisiting of the mandate given to the OIRA. More specifically, since its establishment, the OIRA has focused its activities on the individual review of a small subset of the total rules issued by federal agencies. In doing so, it has worked in a reactive mode; consideration should be given to its working in a proactive mode instead. A regulatory budget allows such proactive actions to take place. A regulatory budget, as is the case with a fiscal budget, is far more than a control mechanism, it is a management mechanism. Furthermore, its implementation should be preceded by a public discussion of its operating principals. These ideas are set forth in this publication. One essential element of my proposal is that management of the OIRA has been monopolized by attorneys, and to a considerably lesser degree, economists. It is time to share leadership responsibilities by appointing a social scientist to lead the OIRA. Finally, and most importantly, the above recommendations are made in vein if the OIRA’s staff level, which has been reduced by 50% from its establishment, is not restored to its original level of nearly one hundred.

(08) You are the head of the Center for Regulatory Effectiveness, which has a research center in Brazil; what is your current analysis of the Brazilian regulatory framework? Could you highlight the main problems related to Brazilian national regulation?

We have an office in Brazil in large part because I became a fan of Brazilian jazz as a result of the actions of Felix Grant, a radio personality in DC in the 1960’s; he introduced us to the beauty of Brazilian jazz. We prepare periodic reports on the activities of Brazilian regulatory agencies, click here and here. Brazil is constantly working to improve its regulatory machine; see these reports issued by CRE, here, here and here. I think a major issue to be addressed is asked in the following question.

(09) In Brazil, agencies lack coordination and act in an independent way, which leads to regulatory disputes. Do you believe that the creation of a "Brazilian OIRA" would be relevant or necessary?

I am reluctant to unilaterally transplant an American institution into a different cultural scene without first identifying the cultural differences between the entities. That said, I did make a presentation to Brazilian officials regarding the need for centralized regulatory review, see here and here for the English version. In essence the answer to the question is “yes” allowing for different approaches for implementation.

(10) How may the current pandemic scenario have an impact on regulation?

A number of Americans have only a nanosecond interest in history. How many of us had any knowledge of previous pandemics; and if we did not have such knowledge, how many reviewed the literature in search of the problems and how they were solved?

That said, the pandemic does open the door for a greater role for proactive programs administered by the OIRA in addition to the existing reactive reviews as described in this publication, see here.

Jim Tozzi
Center for Regulatory Effectiveness

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