The Biden Administration announced on November 9, 2023, that the Office of Information and Regulatory Affairs (OIRA) issued final revisions to Circular A-4, the government-wide guidance on regulatory analysis. Issued in 2003, Circular A-4 has been updated to help agencies more accurately estimate the impacts of their regulations and, according to the press release, “thereby enable them to craft better regulations which, in turn, means lower costs for consumers; cleaner food, air, and water; less fraud and exploitation; increased workplace safety; more innovation; and a stronger economy.”

The final revisions relate to:

• Discounting:
  
  • Estimating the Default Discount Rate: The revised Circular A-4 takes an almost identical approach to estimating the discount rate as was taken in 2003 using up-to-date numbers; the only differences are the use of a new, more-accurate data series and an alternative inflation index, both of which raise the estimate of the discount rate relative to the approach taken in 2003. The result is a new default estimate of two percent, down from the default estimate of three percent in the 2003 version of Circular A-4. To ensure that this estimate does not fall out of date over time, it will be updated every three years, evolving with changes in the economy.
  • Accounting for Capital and Systematic Risk: The 2003 version of Circular A-4 advised agencies to use a seven percent discount rate, as well as a three percent discount rate. The seven percent discount rate is dropped from the revised Circular A-4 to reflect advances in the economics literature.
  • Long-term Discounting: Circular A-4 now provides default long-term discount rates to use, based on prominent models in the economic literature. These rates gradually fall, from 2.0 percent for effects in 2023 to 2079, to 1.1 percent for effects in 2164 to 2172. These default long-term rates will be updated every three years.
• Distributional Analysis: The revised Circular provides expanded guidance for agencies on how to determine the distributional effects of regulations and clarifies that distributional analysis is important not just for its own sake, but also because it can directly improve estimates of a regulation’s benefits and costs. According to the press release, the approach of the revised Circular allows agencies to tailor better their approaches in light of their particular statutory mandates. The revised Circular provides a methodology that agencies may choose to measure the effects of regulations on welfare, if they choose to take account of distributional consequences quantitatively instead of qualitatively.
• Spatial Scope of Analysis: The revised Circular keeps the focus of analysis primarily on effects experienced by citizens and residents of the United States. It notes that there are a variety of situations where analyzing regulatory effects experienced by noncitizens residing abroad may be relevant, however, even when focusing on U.S. citizens and residents.
• Non-Monetized Effects: The revised Circular A-4 emphasizes that some effects will not come with a dollar figure. To capture these kinds of effects, Circular A-4 now advises agencies to include a summary table of all important non-monetized effects, and a brief description of why they are important.

To promote transparency and inform the public of the reasons underlying OIRA’s decisions, OIRA has published a detailed explanation and response to public commenters and peer reviewers in a separate document, OMB Circular No. A-4: Explanation and Response to Public Input.