This post was originally published by Legal Planet. Reprinted with permission.
On April 6, the Biden White House released proposed changes in the way the government does cost-benefit analysis (CBA). CBA has been a key part of rulemaking for 40 years. The proposal is very technical and low-key, but the upshot will be that efforts to reduce carbon emissions will get a leg up. In particular, the changes will support higher estimates of the harm done by each ton of carbon emissions (the “social cost of carbon” in economics lingo).
One controversy has been whether the analysis should include climate impacts outside the U.S. Leaving out those impacts was the way the Trump administration slashed the social cost of carbon to almost nothing. The Biden proposal makes it clear that foreign impacts should be included when there’s reciprocity between our government and other nations. Obviously, they won’t take our climate harms into account if we ignore theirs. The change in the guidelines supports the approach that Biden and Obama have taken on this issue, as opposed to Trump’s effort to slash the social cost of carbon by ignoring all impacts outside the U.S.
A second point involves discounting. My students’ eyes tend to glaze over when I try to explain discounting, so I’m going to stick to the key point: Cost-benefit analysis uses something called the discount rate to account for lags between a regulation’s costs and its future benefits. The discount rate proposed by the Biden administration is dramatically lower than those in existing guidance. The effect is that the future impacts of climate change will get more weight.
The proposal suggests that the discount rate could go down even lower for effects in the far future (going down from 1.7 percent to 1 percent over the next 150 years). For the geeks in the crowd, the proposal also advocates use of something called the shadow price of capital, which again will tend to favor investments that produce long-term benefits as compared with the current guidance about capital costs.
A third point involves climate justice. How should we account for the fact that the impacts of climate change will fall most heavily on low-wealth people? The guidance seems to encourage consideration of these disparate impacts. Moreover, it goes into some detail about one promising way to do so: the use of an economic technique called equity weighting.
A final point involves the risks of tipping points. The previous guidelines embodied an assumption of risk neutrality. The proposed guideline allows consideration of risk aversion, which basically means the desire of people to insure against risks. In this framework, agencies can take into account the desirability of providing insurance against tipping points by increasing investments in emissions reductions.
EPA recently proposed a new estimate of the social cost of carbon, which more than triples previous estimates. The new estimate embodies a lot of cutting-edge economics thinking. So far as I can tell, the new guidelines would be entirely supportive of the approach EPA has proposed.
I’m not an environmental economist, but I do read a lot of work in climate economics. My impression is that the proposed guidelines are consistent with the more sophisticated techniques used by economists today, as opposed to those that were in use when the current version of the guidelines was adopted years ago.
I’m sure that there will be a lot of discussion among experts and advocates about the proposed changes. My discussion here is based on an initial reading of the proposed guidelines. I’ll be writing more when there’s been more time for reflection and when more economists have had a chance to chime in. At this point, though, it looks like the changes are in the right direction and should help support vigorous climate action.
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Daniel Farber | April 17, 2023
On April 6, the Biden White House released proposed changes in the way the government does cost-benefit analysis (CBA). CBA has been a key part of rulemaking for 40 years. The proposal is very technical and low-key, but the upshot will be that efforts to reduce carbon emissions will get a leg up. In particular, the changes will support higher estimates of the harm done by each ton of carbon emissions (the “social cost of carbon” in economics lingo).
Kimberly Shields | April 17, 2023
Chester, Pennsylvania, located in Delaware County just southwest of Philadelphia, was founded in 1681, making it the oldest city in the state. Situated directly on the Delaware River, Chester was a manufacturing and industrial community for much of its history, though that activity began to decline starting in the 1950s. That legacy and other factors make the city of 32,000 potentially prone to a catastrophic toxic flooding event, now and in the future as the effects of climate change continue to intensify.
Sophie Loeb | April 12, 2023
On the 16th of every month, I dread it: opening my Duke Energy bill. After the shock of seeing our first electric bill of $182 back in October 2022, I knew we were in for a long winter. I thought I was imagining bills going up every month, but it’s not all in my head. In December 2022, Duke Energy rates where I live in Asheville, North Carolina, rose 10 percent due to increased fuel costs. I’m in a privileged position, but the price hike still hurts. But there is a better way.
Katlyn Schmitt | April 11, 2023
On April 10, the Maryland General Assembly passed the Private Well Safety Act (HB 11/SB 483) before it wrapped up the 2023 legislative session at midnight (Happy Sine Die!). With its passage, the Private Well Safety Act will provide roughly 830,000 Marylanders who get their drinking water from a private well with the necessary resources and information to monitor and safeguard their household drinking water and ultimately protect their and their family’s health.
Federico Holm, Katlyn Schmitt | April 10, 2023
The Maryland Senate has just one day left to pass a bill that would deliver greater energy savings for Marylanders through the EmPOWER program — the state’s energy efficiency and weatherization program. The bill would build on the success of the EmPOWER program by ensuring lower energy bills for low-wealth Marylanders, as well as greater public health and climate benefits that coincide with improved energy efficiency.
Kimberly Shields | April 3, 2023
In a recent post, my colleague M. Isabelle Chaudry provided readers with an overview of some of the toxic chemical threats facing the Delaware River basin in the northeastern United States. In this post, I dig deeper into the modern history of flooding in a region that will be home to 9 million people by 2030 and how this poses a growing risk of toxic floodwaters for families and communities in Pennsylvania, Delaware, New Jersey, and New York.
Sidney A. Shapiro | March 30, 2023
The American public has lost faith in expertise. The reason why, as author and national security expert Tom Nichols points out in his 2017 book The Death of Expertise, includes the transformation of the news industry into a 24-hour entertainment machine, the number of “low-information voters,” political leaders who traffic in “alternative facts,” and, as Nichols puts it, a “Google-fueled, Wikipedia-based, blog-sodden collapse of any division between professionals and lay people, students and teachers, knowers and wonderers — in other words between those of any achievement in an area and those with none at all.” Bill Araiza offers another important insight in his book, Rebuilding Expertise: Increasing legal and political efforts to oversee agencies have resulted in the deterioration of civil service expertise and, with it, of public faith in government. On the front end, these efforts send a message that expertise can’t be trusted. On the back end, when the government stumbles in carrying out its functions, the message is that experts are not so expert after all. What is missed, as Liz Fisher and I contend in our book, Administrative Competence, is that law and politics can hold agencies accountable and still facilitate their capacity to do their job. Araiza’s last chapter ably discusses how this can be done.
James Goodwin | March 16, 2023
The regulatory policy world is often a sleepy one — I’m the first to admit that — but last week was a notable exception. In addition to a U.S. House Judiciary subcommittee hearing on regulations, the Biden administration’s Office of Information and Regulatory Affairs (OIRA) wrapped up efforts to solicit public input on its recommendations for broadening public input in the regulatory process.
Daniel Farber | March 16, 2023
EPA proposed new regulations last week to reduce the water pollution impacts of coal-fired power plants. As EPA regulations go, these count as fairly minor. They got a bit of news coverage in coal country and industry publications. But they will eliminate the discharge of thousands of tons of pollutants, including a lot of metals that pose health problems. The rulemaking illustrates the highly technical nature of regulations and the lawless nature of Trump’s EPA. It also gives some clues about where the Biden administration may be headed in the way it approaches regulatory decisions.