The cost of developing site-specific environmental regulations: Evidence from EPA's Project XL

The flagship of the Environmental Protection Agency's regulatory reinventio n initiative, Project XL has been touted as a regulatory blueprint for a si te-specific, performance-based pollution-control system, but widespread com plaints about the costs of the program beg the question of whether the cost s of tailoring regulations to individual facilities are manageable. To addr ess this question, this paper presents original survey data on a sample of 11 XL projects. We find that the fixed costs of putting in place XL agreeme nts are substantial, averaging over $450,000 per firm. While stakeholder ne gotiations are widely cited as the principal source for these costs, we fin d that they actually arise mainly from interaction between participating fa cilities and the EPA. Moreover, EPA management problems are perceived by ou r survey respondents as having inflated project development costs. Finally, we find that the key factors that explains differences in costs across XL projects are the scope and complexity of the project proposal. These findin gs suggest that Project XL favors large firms that can afford to pay signif icant project development costs, that EPA management problems must be resol ved to reduce costs, and that there may be a significant economic bias agai nst complex and innovative proposals-precisely the type of proposals that P roject XL was designed to foster in order to improve the efficiency of the regulatory system.