[Federal Register Volume 83, Number 114 (Wednesday, June 13, 2018)]
[Proposed Rules]
[Pages 27524-27528]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-12707]
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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Ch. I
[EPA-HQ-OA-2018-0107; FRL-9979-41-OP]
RIN 2010-AA12
Increasing Consistency and Transparency in Considering Costs and
Benefits in the Rulemaking Process
AGENCY: Environmental Protection Agency (EPA).
ACTION: Advance notice of proposed rulemaking.
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SUMMARY: EPA promulgates regulations under authority provided in the
federal environmental statutes such as the Clean Air Act (CAA), Clean
Water Act (CWA), Safe Drinking Water Act (SDWA), and many others. Most
statutory provisions require or allow some consideration of cost and
benefits when setting pollution standards, but there is variation in
terminology and specificity provided in each law regarding the nature
and scope of the cost and benefit considerations. In this advance
notice of proposed rulemaking (ANPRM), EPA is soliciting comment on
whether and how EPA should promulgate regulations that provide a
consistent and transparent interpretation relating to the consideration
of weighing costs and benefits in making regulatory decisions in a
manner consistent with applicable authorizing statutes. EPA is also
soliciting comment on whether and how these regulations, if
promulgated, could also prescribe specific analytic approaches to
quantifying the costs and benefits of EPA regulations. This ANPRM does
not propose any regulatory requirements.
DATES: Comments must be received on or before July 13, 2018.
ADDRESSES: Submit your comments, identified by Docket ID No. EPA-HQ-OA-
2018-0107 at http://www.regulations.gov. Follow the online instructions
for submitting comments. Once submitted, comments cannot be edited or
removed from Regulations.gov. EPA may publish any comment received to
its public docket. Do not submit electronically any information you
consider to be Confidential Business Information (CBI) or other
information whose disclosure is restricted by statute. Multimedia
submissions (audio, video, etc.) must be accompanied by a written
comment. The written comment is considered the official comment and
should include discussion of all points you wish to make. EPA will
generally not consider comments or comment contents located outside of
the primary submission (i.e., on the web, cloud, or other file sharing
system). For additional submission methods, the full EPA public comment
policy, information about CBI or multimedia submissions, and general
guidance on making effective comments, please visit https://www.epa.gov/dockets/commenting-epa-dockets.
FOR FURTHER INFORMATION CONTACT: For further information on this
document, please contact Elizabeth Kopits,
[[Page 27525]]
National Center for Environmental Economics, Office of Policy, 1200
Pennsylvania Avenue NW, Mail Code 1809T, Washington, DC 20460, Phone:
(202) 566-2299; [email protected].
SUPPLEMENTARY INFORMATION: This notice is organized as follows:
I. Background
II. Topics for Which EPA Is Seeking Input
A. The Nature of Potential Problems of Inconsistency and Lack of
Transparency
B. Possible Approaches for Increasing Consistency and
Transparency in Considering Costs and Benefits in the Rulemaking
Process
C. Potential for Issuing Regulations To Govern EPA's Approach in
Future Rulemakings
III. Statutory and Executive Order Review
I. Background
EPA promulgates regulations to protect public health and the
environment under authority provided in the federal environmental
statutes that it implements, such as the CAA, CWA, SDWA, and many
others. The specific authorities given to the Administrator are
established in various sections and subsections of each statute, which
range from broad authority (e.g., to protect public health with an
adequate margin of safety) to detailed requirements that specify
standards or require that standards be at least as stringent as the
best controlled similar source. In addition to legislative direction,
regulatory agencies also take direction from the President and the
Office of Management and Budget within the Executive Office of the
President regarding what type of formal regulatory evaluation should be
performed during rulemaking. For decades, Presidents have issued orders
providing instruction to agencies concerning the consideration of
benefits and costs in regulatory analysis.\1\ Executive Order 12866,
Regulatory Planning and Review, requires an assessment of benefits and
costs for all significant regulatory actions--with benefits and costs
expressed in quantitative terms to the extent feasible--and instructs
agencies that, to the extent permitted by law, regulatory actions
should have benefits that justify their costs (58 FR 51735, October 4,
1993).\2\
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\1\ This became more formalized in 1981 with Executive Order
12291 which required executive agencies to perform a cost-benefit
analysis for all major rules and centralized the regulatory review
process by directing the Office of Management and Budget (OMB) to
serve as a central clearinghouse for the review of agency
regulations.
\2\ Over the past decade, the estimated costs and benefits
resulting from EPA regulations have been the highest within the
federal government. See Table 1-1 of the Office of Information and
Regulatory Affairs' (OIRA) 2017 Draft Report to Congress on the
Benefits and Costs of Federal Regulations and Agency Compliance with
Unfunded Mandates Reform Act.
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OMB's Circular A-4 \3\ and EPA's Guidelines for Preparing Economic
Analyses \4\ provides the Agency with peer-reviewed guidance on how to
conduct the analysis of regulatory actions to comply with E.O. 12866
and other executive orders and statutory requirements (e.g., Small
Business Regulatory Enforcement Fairness Act of 1996 considerations).
EPA's Guidelines establish a scientific framework for analyzing the
benefits, costs, and economic impacts of regulations and policies,
including assessing the distribution of costs and benefits among
various segments of the population. They incorporate recent advances in
theoretical and applied work in the field of environmental
economics.\5\ In this ANPRM, EPA is taking comment on the role that
regulatory analysis or aspects of that analysis play in decision making
consistent with statutory direction, not what these existing guidance
documents recommend about how best to conduct the underlying analysis
of regulatory actions.
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\3\ https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/circulars/A4/a-4.pdf.
\4\ https://www.epa.gov/environmental-economics/guidelines-preparing-economic-analyses.
\5\ All chapters undergo an external peer review prior to
finalization, either through the EPA's Science Advisory Board
Environmental Economics Advisory Committee or through independent
reviews by external experts. OMB's Circular A4 also underwent
extensive review before being finalized. Circular A-4 was subject to
public comment, interagency review and external expert peer review.
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Most statutory provisions require or allow some consideration of
cost and benefits when setting regulatory standards to achieve public
health and environmental benefits, but there can be a significant
variation in terminology and specificity provided in each law regarding
the nature and scope of cost and benefit considerations. For example,
Section 301 of the CWA instructs the Administrator to select the ``best
available technology economically achievable'' (33 U.S.C.
1311(b)(2)(A)), and then requires EPA to take into account the cost of
achieving effluent reductions when assessing best available technology
(33 U.S.C. 1314(b)(2)(B)). Section 111 of the CAA, however, requires
the Administrator to set ``standards of performance'' for reducing air
pollution (42 U.S.C. 7411), defined as ``the best system of emission
reduction which (taking into account the cost of achieving such
reduction and any non-air quality health and environmental impact and
energy requirements) the Administrator determines has been adequately
demonstrated'' (42 U.S.C. 111(a)(1)). Other provisions may only
implicitly direct EPA to consider costs, alone or in conjunction with
benefits and other factors, or be silent on whether costs should or may
be considered.
Virtually all environmental statutes leave the specifics on how
costs and benefits are to be considered to EPA. The Agency interprets
the terms used in the relevant statute and decides how best to weigh
costs against benefits and other factors in making regulatory
decisions. A few statutory provisions require that specific metrics
(e.g., particular price changes) be included among the ``costs'' to be
considered (see e.g., Federal Insecticide, Fungicide, and Rodenticide
Act (FIFRA), 7 U.S.C. 6(b)),\6\ but in most provisions ``costs'',
``economic factors'', and similar terms remain undefined and are
included as one item of unspecified weight among a list of multiple
factors that EPA is required to consider (e.g., CWA, 33 U.S.C.
304(b)(2)(B); CWA, 33 U.S.C. 1314(b)(2)(B); CAA, 42 U.S.C. 111(b)(1)(B)
and 42 U.S.C. 111(a)(1) \7\). Even when Congress does include statutory
language to indicate how EPA should weigh cost considerations against
benefits and other relevant factors, there is considerable variation in
the language used and the statutory instruction provides little, if
any, direction on what constitutes ``appropriate consideration'',
``reasonableness'', ``practicable'',
[[Page 27526]]
``achievable'', a ``feasible'' threshold, and related terms.
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\6\ FIFRA section 6(b) elaborates on the costs to be taken into
account in cancellation of agricultural pesticide registrations by
making clear that ``the Administrator shall include among those
factors to be taken into account the impact of the action proposed
in such notice on production and prices of agricultural commodities,
retail food prices, and otherwise on the agricultural economy.''
(Emphasis added.)
\7\ CWA Section 304(b)(2)(B), 33 U.S.C. 1314(b)(2)(B), states
that ``Factors relating to the assessment of best available
technology shall take into account the age of equipment and
facilities involved, the process employed, the engineering aspects
of the application of various types of control techniques, process
changes, the cost of achieving such effluent reduction, non-water
quality environmental impact (including energy requirements), and
such other factors as the Administrator deems appropriate.''
(Emphasis added.) CAA Section 111(b)(1)(B), 42 U.S.C. 7411(b)(1)B),
requires EPA to set standards of performance for certain categories
of new stationary sources, where Section 111(a)(1), id. Sec.
7411(a)(1), defines ``standard of performance'' as ``a standard for
emissions of air pollutants which reflects the degree of emission
limitation achievable through the application of the best system of
emission reduction which (taking into account the cost of achieving
such reduction and any nonair quality health and environmental
impact and energy requirements) the Administrator determines has
been adequately demonstrated.'' (Emphasis added.)
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This has resulted in a variety of concepts of `costs' that may be
considered across statutes and even under the same statute. These
concepts include many different metrics that estimate financial impacts
to the regulated entity, e.g., direct costs for compliance activities
incurred by a regulated entity, compliance cost per ton of pollutant
reduced, the number of regulated facilities that may go out of business
as a result of the proposed regulation, or compliance cost as a percent
of firm revenues. EPA's Regulatory Impact Analyses (RIAs), as guided by
its Economic Guidelines, typically also quantify the standard economic
measure of cost used in benefit-cost analysis -i.e., the broader
concept of the ``social cost'' of the regulation (the sum of all
opportunity costs incurred as a result of a regulation)--and ultimately
reach an estimate of ``net benefits'' (social benefits minus social
costs).
For many of EPA's regulatory programs, the courts have weighed in
on the scope of costs to be considered during the development of a
regulation. For example, in Michigan v. EPA, 135 S. Ct. 2699, 192
L.Ed.2d 674 (2015), the Supreme Court held that EPA is required to
consider costs when determining whether it is ``appropriate and
necessary'' to regulate power plants under CAA section 112 (42 U.S.C.
7412(n)(1)(A)), and indicated that ``cost'' can extend well beyond
financial outlays by regulated entities to include all of the negative
repercussions of this action, whether economic or otherwise (135 S. Ct.
at 2707). Many court rulings acknowledge the discretion provided to the
agency in how relevant factors are measured and weighed. For example,
in 2009, the US Supreme Court ruled in Entergy Corporation et al. v.
Riverkeeper, Inc. that EPA may use cost-benefit analysis in setting
standards and issuing permits under Section 316(b) of the CWA.
Many technical and practical factors play a role in how EPA
implements statutory instruction related to cost considerations in
regulatory decisions. Any assessment of costs (and benefits) is limited
by the state of scientific and economic modeling, quantification
methods, and available data--all of which change over time and across
industries and sectors of the economy. Similarly, statutory authority
to collect information from regulated industries varies, and in some
cases EPA may choose not to exercise that authority in order to reduce
the costs of data collection to the regulated entity (relying instead
on voluntary provision of information or publicly-available data, or
simply doing without data where the burden appears to outweigh the
data's anticipated utility). In these instances, EPA may be limited in
what cost metrics can be used for a specific regulatory decision and
may not be able to use identical cost considerations across rules. A
lack of data and a lack of a regular process for ongoing or
retrospective review after rules have been implemented \8\ also
inhibits EPA's ability to gain insights about the realized costs and
benefits of actions that may help inform how it considers costs and
other factors in future rulemakings. Finally, industry or sector
specific factors may play a role, as some metrics may be more or less
relevant to the affected industries, sectors, or question at hand. For
example, potential plant closures is a metric sometimes used to measure
a potential impact and inform stakeholders about regulatory actions on
some industries (e.g., manufacturing industries dominated by privately-
owned businesses), but this may not be an appropriate or viable measure
of a potential financial impact for other types of regulated entities
(e.g., some wastewater treatment plants, or electric power plants that
are not otherwise economical must still operate to ensure adequate
reliability of the system).
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\8\ Many previous administrations have periodically undertaken
programs of retrospective review or issued executive orders urging
agencies to reassess existing regulations and eliminate, modify, or
strengthen those regulations that have become outmoded in light of
changed circumstances. Agencies are also subject to some limited
regulatory lookback requirements mandated by statute, but for the
most part retrospective review has not become institutionalized
practice within EPA nor other regulatory agencies as has prospective
review (such as ex ante benefit-cost analysis conducted under
Executive Order 12866).
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EPA regularly receives much public comment related to how costs and
benefits are considered in decision making. On April 13, 2017, in
accordance with Executive Order 13777, ``Enforcing the Regulatory
Reform Agenda,'' EPA issued a request for comment on regulations that
may be appropriate for repeal, replacement, or modification.\9\ While
that solicitation was broad in scope and generated comments on a myriad
of regulatory reform issues, one common theme in many industry comments
related to how the Agency considers cost in developing its regulations.
For example, some commenters argued that the approach of considering
compliance cost divided by the total emission reductions (i.e., summing
across pollutants) resulted in controls that appear cost-effective that
may not have been deemed cost-effective if each pollutant was
considered separately. Such a situation arose in in consideration of
the best system of emissions reductions (BSER) for the Oil and Natural
Gas NSPS (81 FR 35823, June 3, 2016). Other commenters argued in past
rulemakings the Agency has justified the stringency of a standard based
on the estimated benefits from reductions in pollutants not directly
regulated by the action (i.e., ``ancillary benefits'' or ``co-
benefits'').\10\ For example, in the Mercury and Air Toxics Standards
(MATS) rule (77 FR 9304, February 16, 2012), the monetized benefits
from one of the pollutants being directly regulated (i.e., mercury)
were significantly lower than the estimated costs of the rule, and the
quantified benefits in the regulatory impact analysis outweighed the
costs because of the benefits from reductions in ambient fine
particulate matter (82 FR 16736, April 6, 2017). Similar criticisms
have been made regarding the extent to which EPA has considered key
uncertainties, baseline assumptions, and other analytical factors in
quantifying both benefits and costs relevant to decision making.
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\9\ See Federal Register notice: Evaluation of Existing
Regulations (82 FR 17793). The comment period closed on May 15, 2017
and EPA received over 460,000 comments. All public comments are
accessible online in our docket on the Regulations.gov website
identified by Docket ID No. EPA-HQ-OA-2017-0190.
\10\ OMB Circular A-4 defines ancillary benefit as ``a favorable
impact of the rule that is typically unrelated or secondary to the
statutory purpose of the rulemaking (e.g., reduced refinery
emissions due to more stringent fuel economy standards for light
trucks) while a countervailing risk is an adverse economic, health,
safety, or environmental consequence that occurs due to a rule and
is not already accounted for in the direct cost of the rule (e.g.,
adverse safety impacts from more stringent fuel-economy standards
for light trucks). You should begin by considering and perhaps
listing the possible ancillary benefits and countervailing risks . .
. . Analytic priority should be given to those ancillary benefits
and countervailing risks that are important enough to potentially
change the rank ordering of the main alternatives in the analysis.
In some cases the mere consideration of these secondary effects may
help in the generation of a superior regulatory alternative with
strong ancillary benefits and fewer countervailing risks . . . .
Like other benefits and costs, an effort should be made to quantify
and monetize ancillary benefits and countervailing risks.'' (OMB
2003).
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The purpose of this ANPRM is to request more information about the
nature and extent of issues raised by stakeholders regarding EPA
practices in considering costs and benefits in the rulemaking process,
and to solicit comment on potential approaches that would provide
improved consistency and transparency. EPA specifically seeks comment
on whether, and if so, how EPA should promulgate regulations
[[Page 27527]]
that specify how the Agency will approach its consideration of costs
and benefits in setting pollution standards, consistent with statutory
direction.
II. Topics for Which EPA Is Seeking Input
EPA is requesting comments regarding perceived inconsistency and
lack of transparency in how the Agency considers costs and benefits in
rulemaking, potential approaches for addressing these concerns, and the
scope for issuing regulations to govern EPA's approach in future
rulemakings. Questions pertaining to each of these topics are provided
below. EPA invites comments on all aspects of this ANPRM. Comments
should provide enough detail and contain sufficient supporting
information (e.g., citations to published studies and or data related
to your comments) in order for the Agency to understand the issues
raised and give them the fullest consideration.
A. The Nature of Potential Concerns Regarding Perceived Inconsistency
and Lack of Transparency
EPA requests more information about the nature and extent of the
concerns relating to possible inconsistency and lack of transparency in
considering costs and benefits in the rulemaking process. The most
helpful comments would provide specific examples with context and
specify relevant statutory provisions. What impact could greater
consistency or transparency have on regulated entities, states, tribes,
and localities, and the public?
B. Potential Approaches for Increasing Consistency and Transparency in
Considering Costs and Benefits in the Rulemaking Process
EPA requests comment on approaches for increasing consistency and
transparency when and how EPA considers cost and benefits in setting
pollution standards, consistent with statutory direction.
1. What would increased consistency look like?
a. Given statutory constraints, how could EPA more consistently
adhere to existing guidance on benefit-cost analysis principles,
definitions and analytical techniques whether across the entire
agency or specific programs? For example, to what extent, if any,
should EPA develop a regulatory action that commits the Agency to
following its existing peer-reviewed guidance documents on risk
assessment \11\ and Guidelines for Preparing Economic Analysis \12\
when developing future rulemakings?
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\11\ https://www.epa.gov/risk/risk-assessment-guidelines.
\12\ https://www.epa.gov/environmental-economics/guidelines-preparing-economic-analyses.
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b. Should EPA consider adopting uniform definitions of specific
terms used in statutes--e.g., ``cost,'' ``benefit,'' ``economic
factors,'' ``reasonable,'' ``appropriate,'' and ``weight of
scientific evidence''--and specifying ex ante how they will be
factored into subsequent regulatory decisions?'' How should EPA
approach the scope of the uniformity of these definitions (e.g.,
within a particular regulatory program; within statute; across
statutes)?
c. To what extent should standard benefit-cost analysis
principles (e.g., setting a standard to maximize net benefits) guide
the selection of specific statutorily required metrics and
thresholds (e.g., ``reasonableness'') against which to measure the
effects of a proposed regulation?
d. What improvements would result from a general rule that
specifies how the Agency will factor the outcomes or key elements of
the benefit-cost analysis into future decision making? For example,
to what extent should EPA develop a general rule on how the Agency
will weigh the benefits from reductions in pollutants that were not
directly regulated (often called ``co-benefits'' or ``ancillary
benefits'') or how it will weigh key analytical issues (e.g.,
uncertainty, baseline assumptions, limited environmental modeling,
treatment of regulating multiple pollutants within one regulatory
action) when deciding the stringency of future regulations? In
addition, frequently scientific understanding is not adequate either
to quantify or to monetize the effects of some pollutants or other
impacts. How should these potentially important but non-quantified
and/or non-monetized effects be included in decision making?
e. To what extent would it be helpful for EPA to require
consideration of cumulative regulatory costs and benefits of
multiple regulations during the rulemaking process, including how
such consideration may affect the design or implementation of a
regulation (i.e., longer or different compliance timeframes)?
2. What would improved transparency look like?
a. How might the documentation of how EPA considered costs and
benefits in a regulatory decision be improved from current
practices?
b. In what ways can EPA increase transparency about the
decision-making process in cases where the decision was based on
information that is barred from release by law?
3. To what extent would requiring a systematic retrospective
review element in new regulations help to provide ongoing
consistency and transparency in how regulatory decision making will
adapt over time to new information? Such a requirement might provide
a more regular and systematic approach to ex-post (i.e. after
regulations have been promulgated and become effective) evaluation
of the costs and benefits of EPA regulations, as compared with the
periodic regulatory reviews the EPA has historically conducted.\13\
This might help identify needed revisions, inform future regulatory
approaches, and improve methods of ex ante analysis.
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\13\ It would also supplement existing statutory requirements
for periodic review of the adequacy of standards or guidelines
(e.g., CAA 42 U.S.C. Sec. 109(d)(1); CWA 33 U.S.C. Sec. 304(b)).
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a. What are the opportunities and challenges associated with
issuing regulations to require retrospective analysis and the
concomitant need to collect data in order to conduct a meaningful
retrospective analysis? Would it be more challenging under some
provisions of key environmental statutes? If so, which ones?
b. What criteria should EPA use to determine when retrospective
review is needed? For example, should selection criteria be tied to
the estimated impacts of the regulation, the degree of uncertainty
at the time of ex ante analysis, the extent to which retrospective
analysis will be feasible/successful?
c. How specific should prospective plans for such a review be?
For example, should plans specify the methodology that will be used,
the coverage or scope of the analysis, the data that will be used
and data collection plans?
C. Potential for Issuing Regulations To Govern EPA's Approach in Future
Rulemakings
EPA requests comment on opportunities and challenges associated
with promulgating regulations to govern EPA's approach to cost and
benefit considerations in future rulemakings. EPA is soliciting comment
on whether and how best to develop such regulations.
1. What are the most pressing economic or legal considerations
that should be taken into account when deciding the appropriate
level of specificity (all activities, by statute, by specific
statutory provision) at which to formulate regulations?
2. What are the opportunities and challenges with issuing
regulations to govern EPA's practice when statutory provisions do
not mention costs or imply these are factors to be considered
alongside benefits and other factors when setting pollution
standards?
3. How can EPA best promote more consistency and predictability
while still leaving room for consideration of regulatory context and
for flexibility to adapt to new information and methodological
advances?
4. In cases where current EPA practice reflects prior judicial
decisions, a change in course may come with significant burden to
the Agency. Is there a way to address this concern in regulations
governing the consideration of costs and benefits?
5. Are there ways to improve consistency and transparency using
methods other than a regulatory approach (e.g., additional
guidance)? What are the opportunities and challenges associated with
these approaches?
6. Are any of the opportunities and challenges identified above
specific to a
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particular statute or statutes? If so, please provide examples.
III. Statutory and Executive Order Reviews
Under Executive Order 12866, entitled Regulatory Planning and
Review (58 FR 51735, October 4, 1993), this is a ``significant
regulatory action'' because the action raises novel legal or policy
issues. Accordingly, EPA has submitted this action to the Office of
Management and Budget (OMB) for review under Executive Order 12866 and
any changes made in response to OMB recommendations have been
documented in the docket for this action. Because this action does not
propose or impose any requirements, and instead seeks comments and
suggestions for the agency to consider in possibly developing a
subsequent proposed rule, the various statutes and Executive Orders
that normally apply to rulemaking do not apply in this case. Should EPA
subsequently determine to pursue a rulemaking, EPA will address the
statues and Executive Orders as applicable to that rulemaking.
Dated: June 7, 2018.
E. Scott Pruitt,
Administrator.
[FR Doc. 2018-12707 Filed 6-12-18; 8:45 am]
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