Cost-Benefit Analysis

Preventing Fraud in the Labor Certification of Foreign Workers

ICF supported the U.S. Department of Labor's Employment and Training Administration with an economic analysis of a regulation proposed to reduce the incentives and opportunities for fraud and abuse related to the permanent employment of foreign workers in the U.S. For many of these certifications, the job was fictitious, and for others, the job was never truly open to U.S. workers since it was directed to a specific foreign worker in return for a fee or kickback.

We conducted a cost-benefit analysis of the key provisions of the regulation aimed at prohibiting the substitution of one foreign worker for another. This pattern of foreign worker substitution had turned labor certifications into commodities that were being sold by unscrupulous employers, attorneys, or agents to individuals seeking permanent residence in the U.S. We also analyzed the provision to impose clear time limits on the use of the labor certification applications. The open-ended nature of the labor certification process had significantly enhanced the opportunity for fraud because it provided a lengthy period during which labor certifications could be marketed.

Cost-Benefit Analysis of the Hours-of-Service Rule

For a regulation on the hours truck drivers are allowed to work and drive, ICF conducted a cost-benefit analysis of various policy options for reducing driver fatigue and the impacts of those options on carriers of different sizes. We developed and applied econometric and spreadsheet models to estimate the labor, non-labor, and social costs of the policy options under consideration.

ICF estimated the benefits of these options using models that relate sleep and work patterns to fatigue-related accidents involving trucks. This analysis enabled us to determine the reductions in crashes that can be expected from the various policy options. Estimating the costs and benefits allowed ICF to analyze impacts on carriers, including small independent owner operators.

Impact of the Cruise Industry in Hawaii

ICF supported the Hawaii Tourism Authority with analyses that evaluated the economic impacts incurred on the State of Hawaii by the cruise industry. The results of our study provided answers to these two questions:

1) Do the benefits of the cruise industry in Hawaii exceed the costs?
2) How do taxes and fees generated by the cruise industry compare to those generated by hotels?

ICF conducted a cost-benefit analysis to estimate the net return that the cruise industry provides the state and each island. We incorporated quantifiable impacts on the economy, the transportation infrastructure, the port infrastructure, utilities, community services, the environment, and cultural heritage sites. The analysis included the direct costs and benefits of the cruise industry as well as the costs and benefits that would have been incurred if cruise visitors had stayed in hotels in the hypothetical absence of the cruise industry.

Costs and Benefits of Environmental Infrastructure Improvements

In this project for a Mexican environmental agency and the World Bank, ICF conducted a study of the costs and benefits of projects to alleviate environmental problems near the delta of the Coatzacoalcos River in southern Mexico. The projects evaluated included the conversion of vehicles to natural gas, expansions of sewer systems, wastewater treatment plants, potable water systems, storage facilities for hazardous wastes, pipeline safety programs, and municipal waste collection and disposal systems. For each project, we compared the potential reduction in human health risks to the cost of implementation.

Economic Impact Modeling

Macroeconomic Impacts of Climate Change

ICF analyzed the regional and national economic impacts of various climate change policies. Analyses of the macroeconomic impacts of climate change policies would help inform the debate about greenhouse gases and their effect on global warming. Changes in local employment levels (job losses) and economic activity are metrics commonly used to measure these impacts, which have the potential to be large and incurred at the regional level. These impacts also have the potential to produce ripple effects in the local economies due to inter-industry linkages, creating regional winners and losers.

For this project, ICF worked with the proprietary simulation model IPM® and the Regional Economic Models, Inc.'s (REMI) Policy Insight model to estimate the economic impacts of cap-and-trade programs on conventional pollutants (e.g., sulfur dioxide, nitrogen oxides, and mercury) as well as carbon dioxide.

Job Creation Impact of Federal Investment in Smart Grid

At the request of the Edison Electric Institute, ICF assessed the job creation potential of a $30 billion investment in electricity grid and transmission construction (a smart grid). Using an input-output matrix model developed by Economic Modeling Systems, Inc. (EMSI), we estimated the number of jobs to be generated nationwide, capturing the direct, indirect, and induced effects of the investment. We also identified the industries that would enjoy the largest jobs effects and the occupations that would be most impacted.

The Economic Costs of Potential Terrorist Attacks

ICF modeled the economic impacts resulting from two hypothetical terrorist attack scenarios on potentially vulnerable economic sectors. In the first scenario, we analyzed the impacts of a coordinated attack on the electricity transmission grid in California. The other scenario assumed that terrorists deliberately spread the virus that causes foot-and-mouth disease in a predominantly agricultural state such as Iowa. The modeling focused on the economic damages resulting from these attacks.

ICF estimated the direct costs on affected industries and calculated the ripple effects on other industries and the economy as a whole. The analysis revealed significant economic damages impacting the sectors affected directly by the attacks as well as the regional economy. We also analyzed various strategies for policymakers to harden the economy in preparation for such events and how to mitigate damages once such events occur.

Cap and Trade Policy Analysis

Economic Impact of Allowance Allocations in Multi-Pollutant Utility Regulations

ICF developed and applied a market simulation model to assess the options for allocating tradable emission allowances. These allowances were to be distributed to participants in a multi-pollutant cap-and-trade program for electric utilities termed the Clear Skies Act. The pollutants to be controlled in this market-based program included nitrogen oxides, sulfur dioxide, and mercury. Our analysis examined the effects of the policy options on economic efficiency and the distribution of regulatory costs.

Our analytical approach was based on the theory of subsidy effects on market equilibria, including the creation of dead-weight losses and the magnitudes of tax interaction effects. The magnitudes of these effects were tested and illustrated through a detailed simulation model of electricity generation under emissions constraints in which dynamic emission allocations can distort electricity markets.

Support for Implementation of the EU Emission Trading Scheme

ICF supported the European Commission by designing a methodology and analytical tools for reviewing and analyzing the member states' National Allocation Plans (NAP) for the pilot emission trading phase in 2005-2007. One of the tools we developed enabled the European Commission to compare the relevant data (e.g., industry growth rates, utilization) by industry and by country across different data sources. This analysis helped the European Commission understand the uncertainties in meeting the Kyoto target that were associated with the choice of data used by the member states.

The approach and tools developed by ICF helped the European Commission assess compliance with the Emissions Trading Directive, as well as the validity of assumptions and quality of data that were used to forecast carbon dioxide emissions from the sectors included in the European Union (EU) Emission Trading Scheme. We also used the methodology and the analytical tools to provide detailed analyses of individual NAPs for European Commission policy makers. To help the European Commission assess the implications of the member states' allocation methodologies on the trading scheme, ICF prepared short studies on the issues central for effective implementation, including treatment of new entrants and implementation of closure rules.

Contributions of Market-Based Regulations to Reducing Carbon Emissions from Transportation

ICF conducted a study of the potential contribution of emission credit trading to carbon reduction policies in the Canadian transportation sector. This project started with the development of potential carbon reduction policies, incorporating emission trading components and scoring them for potential savings, administrative costs, and impacts. We then focused on the effects of opening Canada's car and light truck fuel economy standards to inter-firm trading.

To estimate the impacts of this policy, ICF developed marginal cost curves for reducing fuel consumption for the fleet of each foreign and North American manufacturer and built an interactive linear programming model to calculate and display the benefits of trading. This model incorporated the effects of transaction costs on both the volume of trading and the resources that could be saved.

Econometric and Statistical Analysis

Army Workforce Diversity

ICF conducted a diversity workforce analysis for the U.S. Department of the Army's Diversity Office. The purpose of the analysis was to determine if the Army has any potential structural barriers that limit employment or career progression opportunities according to race, ethnicity, gender, or any other characteristic. To isolate and identify these barriers, we conducted rigorous regression analyses using detailed individual records for officers and enlisted soldiers and summary data for the different military services. ICF analyzed the significance of various promotion factors, from personal characteristics to military experience. We examined the changes in these factors over time and compared the Army with the other military services.

Cost Projections for Louisiana's Housing Rebuilding Program

The Road Home Program, the largest single housing recovery program in the U.S. history, was designed to assist residential property owners in rebuilding Louisiana following the devastation of Hurricanes Katrina and Rita. The program offered applicants different compensatory amounts depending on their choice to: 1) repair or rebuild the home in the same location, 2) rebuild the home elsewhere in Louisiana, or 3) move out of the state.

ICF developed a regression model utilizing information on the sample of applicants who had chosen one of the offered options, along with their socioeconomic and geographical characteristics, to project the total costs of the Road Home Program. In order to find the best fit of the regression model, we segmented the dataset into four groups based on applicants' eligibility for grants and loans.

Response of the Markets for Platinum Group Metals to a Change in Emissions Standards

For the U.S. Environmental Protection Agency, ICF economists employed simultaneous equation econometric techniques to estimate individual elasticities of supply and demand for platinum, palladium, and rhodium. We used these elasticities to project the price impacts of proposals to tighten automobile tailpipe standards.

Labor Cost Effects of the Hours-of-Service Regulations

For proposed hours-of-service regulations for truck drivers, ICF estimated an earnings relationship for truck drivers using standard econometric analysis. We constructed a large dataset on truck driver wages, hours worked, and other demographic information. This dataset of more than 11,000 observations was based on multiple years of data from the Current Population Survey, published by the U.S. Bureau of Labor Statistics. We used regression analyses to estimate a wage equation for drivers and determine the labor costs of various hours-of-service regulatory options.

Non-Market Valuation

Investment Planning for Water Utilities in Great Britain

Several major water and sewerage companies in Great Britain engaged ICF to fulfill the objectives of the United Kingdom's 2009 Periodic Review regulations. We estimated the value that utility customers placed on improvements in water, sewerage, environmental, and customer service. We used a survey-based non-market valuation technique—choice modeling—to estimate customer willingness to pay for improvements in various utility services. These willingness-to-pay estimates are equal to the benefits to the utility companies of providing different service improvements to their customers.

The utility companies are using the resulting monetary benefit estimates to help prioritize the investments valued most highly by their customers. Across customer bases, ICF's non-market valuation studies showed strong support for investments by utilities to improve services, including both private (e.g., water safety, reduction of water restrictions, reduction of sewage flooding) and public services (e.g., reduction of carbon emissions and pollution events).

Benefit Transfer Database

ICF used its expertise in non-market valuation to create a database for the U.S. Environmental Protection Agency (EPA) on the state-of-the-art benefit transfer methodology. Benefit transfer refers to the practice of taking the monetary benefits that were estimated by non-market valuation methods for a particular environmental resource and applying them to a different resource. The database ICF created for the EPA reviewed and summarized the most prominent benefit transfer studies that had recently appeared in peer-reviewed journals, books, and private-sector studies.

ICF reviewed more than fifty studies and compiled the results in a searchable database. The studies were described in the database by a variety of metrics, including resource type, methodologies used, and data collection efforts. The database also included summaries of each study, including the contribution they made to the evolving methodology of benefit transfer.

Understanding Customer Preferences for Water Services

ICF was engaged to review and summarize non-market valuation studies undertaken by water and sewerage utilities in the United Kingdom. These studies, conducted to fulfill the regulatory requirements of the 2009 Periodic Review (PR09), used non-market valuation techniques to estimate the value to utility customers of various service improvements.

The first phase of this project involved preparing a report that summarized the various studies and compared their results according to a variety of metrics. In the second phase of this project, ICF assisted in the preparation of a report that examined the quality of the PR09 studies in terms of the methodologies used and their applications. ICF used its expertise in non-market valuation methods to critique the various PR09 studies and assess their validity. The PR09 studies will be used to formulate a set of best practices for the application of non-market valuation in water services.

Environmental Policy Analysis

Greenhouse Gas Allocations in Ireland under the Kyoto Accords

Under the Kyoto Accords, each member of the European Union is required to develop a National Allocation Plan (NAP) for dividing a limited allocation of greenhouse gas (GHG) emissions between industrial sectors that will engage in emissions trading and those parts of the economy for which trading would be too cumbersome to implement. To help Ireland make this distinction, ICF collected data on the sources of Irish GHG emissions and projected changes by sector and made recommendations on the division of Ireland's allocation between its trading and non-trading sectors. Criteria included equity, competitiveness, and economic efficiency.

ICF's methodology included modeling of national and international electricity markets to determine responses to carbon allowance pricing, construction or adaptation of marginal abatement cost curves for use in finding the economically efficient levels of emissions, and supervision of macroeconomic impact modeling.

Valuation of Climate-Related Amenities in Property Markets

For the U.S. Environmental Protection Agency, ICF developed an empirical model to quantify the relationship between specific climate attributes and property values using the hedonic modeling framework. The purpose of this exercise was to better understand how climate change affects human behavior by quantifying how much people value climate amenities in their living decisions.

ICF conducted an extensive literature review of the hedonic literature in general and hedonic models on climate amenities in particular. We also developed a national-level hedonic model using micro-level Census data, combined with other data sources. For climate attributes, we used detailed grid-based North American Regional Reanalysis climate model data that uses some of the most sophisticated climate modeling. The goal in this exercise was to develop a "baseline" for quantifying the impacts that climate amenities have on people's location decisions. At a later stage, this framework can be used for projecting the economic impacts of climate change using climate model predictions on how global warming can affect different U.S. regions.

Hedonic Analysis of the Benefits of Addressing Brownfields

ICF investigated the benefits of addressing potentially contaminated sites (commonly referred to as "brownfields"). ICF economists conducted a hedonic analysis to measure the effects of brownfields on the market value of nearby houses. After collecting data on the locations of brownfields in Lowell, Massachusetts, the characteristics of nearby houses and neighborhoods, and the market values of those houses over time, we estimated regression equations that explained most of the variability in market values. These equations showed that—all other things equal—houses closer to brownfield sites, or near greater numbers of sites, had significantly lower values. Just as important, the analysis showed that the negative effects of nearby brownfields disappeared once the U.S. Environmental Protection Agency (EPA) program addressed the potential contamination through site assessments and corrective action. We extended this case study to a larger city (Milwaukee, Wisconsin) and replicated the main points of its initial study.

These studies will help EPA's Brownfields program to fill an important gap in previous regulatory analyses, which relied on qualitative discussions of the benefits provided by cleanups and redevelopment. By demonstrating rigorously the value of addressing brownfield sites, ICF's research will help EPA's program energize its stakeholders and stand up to scrutiny.

Economic Development and Competitiveness Strategies

Connecticut Fuel Cell Cluster Strategy

After completing a comprehensive competitiveness strategy and implementation process for the Connecticut Department of Community and Economic Development, ICF was asked to work with industry, government, and non-governmental stakeholders to craft a Fuel Cell Cluster Strategy.

ICF analyzed the fuel cell value chain and its comparative position in Connecticut. The Fuel Cell Cluster Strategy further developed comparative analysis of organizational models and structure for this cluster and analyzed and benchmarked Connecticut's workforce and research and development (R&D) capabilities to support fuel cell development. We facilitated an all-day collaborative action planning session with the state's fuel cell companies and their suppliers. Data from this session, as well as earlier research, culminated in collaborative agreements for accelerating fuel cell cluster development.

Texas Industry Cluster Initiative: Energy, Petroleum Refining, and Chemical Products

ICF International was selected by the Texas Workforce Commission on behalf of the Governor's Competitiveness Council for services in support of a long-term job creation strategy. The effort was aimed at enhancing the competitiveness of Texas' Energy, Petroleum Refining, and Chemical Products Clusters through ensuring alignment of workforce supply with changing demand and to further strengthening sources of Texas's competitive advantage.

We conducted research on the challenges in building the workforce capacity necessary to support the anticipated growth in the energy and petrochemical industry clusters, which involved identifying labor market demand, skill needs, skills supply, and strategic directions. This project resulted in recommendations to improve the alignment and integration of the workforce, education, and economic development communities within the two clusters.

San Francisco Economic Development Plan

ICF supported the Mayor's Office of San Francisco to complete its first economic development plan. This project consisted of multiple phases. We first performed an economic performance review, highlighting key changes in the city's population, industrial composition, income distribution, regional patterns of transportation and economic development, and other socioeconomic outcomes. We then conducted a targeted industry assessment to identify industries that met two major criteria:

1) The industry is a viable growth target for the future.
2) The industry meets the goals and objectives of the plan, including generating high-wage jobs and a positive fiscal impact for the city.

We also examined each of the targeted industry clusters to determine which local business factors encouraged and discouraged growth. We then composed an industry competitiveness report that assessed San Francisco's competitive advantage compared to the surrounding Bay Area and the State of California. Finally, we helped create a policy agenda for San Francisco by drafting a best practice review of economic and workforce development policy.

Next-Generation Southeast Colorado Competitiveness Strategy

ICF conducted a regional competitiveness strategy process in the twelve-county Southeast Colorado region. We designed and implemented the mobilization of the region's business, government, and institutional stakeholders and performed a comprehensive analysis of the region's economy, including eight major clusters that ranged from emerging sectors, such as biofuels and biotechnology, to more traditional sectors, such as tourism.

Throughout this analysis, ICF employed innovative techniques using priority company-specific data sources to assess trends in newly emerging clusters (e.g., life-sciences, clean technology) not yet adequately defined by traditional, NAICS-based data sources. We managed the coordination and implementation of three rounds of market-driven work sessions for each of the eight cluster working groups.

Risk and Uncertainty Analysis

Application of Monte Carlo Simulation to Cost-Benefit Analysis

ICF frequently conducts Regulatory Impact Analyses (RIA) for U.S. federal agencies that need to determine the costs and benefits of proposed regulations. For the Nuclear Regulatory Commission (NRC), we recently used Monte Carlo simulation to examine the degree of uncertainty in the RIA and to identify the most important cost and benefit variables in the analysis. Through the application of Monte Carlo simulation, we analyzed the impact of every variable in the analysis on the net benefits (i.e., benefits minus costs) of the proposed regulation.

The results of the Monte Carlo simulation helped ICF conclude that the estimated net benefits of the proposed regulation were positive, even with the introduction of substantial uncertainty into the analysis. The Monte Carlo simulation allowed us to provide NRC with a list of variables that had the greatest influence on the net benefits.

Monte Carlo Analysis to Assess Uncertainty in Predicting the Costs of Multi-Pollutant Programs

ICF used Monte Carlo analysis to assess the uncertainty of the costs of multi-pollutant trading programs. Using a complex macro-driven spreadsheet model that has supported several U.S. Environmental Protection Agency rulemakings, ICF identified the most important variables determining the cost of trading programs, constructed reasonable distributions around the variables, and performed Monte Carlo analysis to find the distribution of costs projections. This analysis was used to meet requirements (as set forth in Circular A-4 from the Office of Management and Budget) that agencies conduct a formal, quantitative analysis of the uncertainty in the costs and benefits of rules with an anticipated cost of more than US$1 billion per year.

The Impact of Learning-by-Doing on Regulatory Costs

ICF explored the effect of learning-by-doing on the costs of pollution control technologies and the multipollutant trading programs to which they contribute. Studies have shown that ex-ante estimates of the costs of regulatory programs are typically overstated, and uncertainty surrounding the effects of learning-by-doing is one reason. ICF identified the rate of learning and its distribution for sulfur dioxide (SO₂) scrubbers, incorporated the effect of learning-by-doing into the cost estimation of multipollutant trading programs, and performed a Monte Carlo analysis to construct a distribution of projected program costs.

Qualitative Policy Analysis

Employee Preferences for Pension Plans' Financial Disclosures

For the U.S. Department of Labor's Employee Benefits Security Administration (EBSA), ICF prepared, conducted, and analyzed the results of a series of focus groups with public and private sector employees. These focus groups explored employee attitudes and preferences for the disclosure of pension plan information by employers.

ICF applied its expertise in qualitative data analysis to develop materials and conduct the focus groups. We also prepared detailed written transcriptions of the focus groups and summary reports that analyzed and synthesized the results. The focus groups results were intended for EBSA use as part of the development of regulatory decisions concerning the disclosure of financial information to employees.

Technological Innovations and Their Effects on Environmental Regulations

ICF authored two white papers for the U.S. Environmental Protection Agency presenting analysis of the effect of environmental regulations on technological innovations. The first paper, titled The Clean Air Act Amendments: Spurring Innovation and Growth While Cleaning the Air, documented the success of the Clean Air Act Amendments of 1990 (and to a lesser degree, the original Clean Air Act of 1970) in spurring innovation and growth of a vibrant pollution control industry in the U.S. The second, titled Technology Innovations and Environmental Regulation, analyzed the impact of technological innovations on the costs of environmental regulations. Both papers show how innovations have helped in reducing the costs of meeting targets within the Clean Air Act and under market-based systems.

Comparing Predicted and Actual Effects of Environmental Regulations

ICF conducted a study to compare the actual effects of regulatory actions to the effects that were predicted before implementation. We developed a framework for comparing predicted and actual costs and benefits of environmental regulations with the objective of increasing the predictive accuracy of Regulatory Impact Analyses (RIA). The project also included a theoretical discussion of the issues around the comparison of predicted (ex-ante) and actual (ex-post) costs of regulatory actions and an extensive literature review of other studies on this issue.

We used an "expected value of information" approach to compare ex-ante and ex-post estimates of the costs and benefits for a wide variety of environmental regulations. We used the results of this study to recommend improvements in the estimation of the costs and benefits of regulatory actions.

Market Profiling

The Mortgage Market and the Affordable Housing Goal

The U.S. Department of Housing and Urban Development (HUD) requires Government Sponsored Enterprises (GSE) to ensure that a specified share of their mortgage purchases benefit low- and moderate-income households and residents of underserved areas. ICF was engaged by the Federal Home Loan Mortgage Corporation (Freddie Mac) to provide an independent assessment of HUD's proposed affordable housing goals for the period 2005-2008. This project involved evaluating the past and projecting the future size of the conventional conforming mortgage market meeting the affordable housing goals.

ICF economists developed a method for characterizing U.S. housing markets in terms of the characteristics of the loans issued and market shares meeting the affordable housing goals. We employed statistical techniques to analyze datasets containing more than 100 million observations in order to help Freddie Mac better understand the uncertainties in estimating the affordable housing goals resulting from data quality and underlying assumptions about the U.S. housing markets.

Market Research and Simulations for a Water Utility in Ireland

For a major water and sewerage utility in Ireland, ICF economists used market research methods to estimate the value that customers place on improvements to various service attributes across the company's business. We used the study results to provide valuable information to the utility on the preferences of its customers. For example, we used information on customer preferences for water, sewerage, environmental, and customer services to conduct various "market simulations." These market simulations identified the combination of service improvements that was the most preferred by the utility's customer base.

We characterized the utility's customers and identified the demographic and attitudinal characteristics of customers preferring different kinds of service improvements. Applying cluster analysis methods, we were able to divide the population of customers into similar sub-groups of customers with distinct preferences for service improvements and willingness to pay for these improvements. This analysis allowed us to take the results of a highly technical study and convert them to information that was much more useful and relevant to managers.