The Environmental Protection Agency has argued that its new climate rule will yield tens of billions of dollars in benefits in the coming decades by reducing carbon dioxide emissions from existing U.S. power plants.
But the supposed $30 billion in climate benefits in 2030 touted by the EPA is overstated, according to a new study by the liberal Brookings Institution. The agency’s methodology on the rule overstates the benefits to make its regulations more attractive.
A working paper by Brookings fellow Ted Gayer and Vanderbilt University economist Kip Viscusi found that recent assessments of EPA climate policies have “shifted to a worldwide benefits approach, leading to a substantial increase in the estimated benefits.”
What does this mean? Global warming is a policy issue with no domestic solution. The U.S. may reduce emissions, but the benefits of those reductions to the U.S. alone would be minimal because it’s a global issue. This means the costs of fighting global warming often outweigh the domestic benefits.
The EPA has gotten around this hurdle lately by calculating the global impacts of climate rules, which greatly inflate the benefits of reducing carbon emissions. But calculating the global benefits of a rule is misleading because U.S. citizens bear all the costs of the regulation while enjoying a small portion of the benefits.
“If global benefits are counted, one should also count global costs,” write Gayer and Viscusi. “At present, the [greenhouse gas] policy assessment experience is one in which agencies apparently are permitted to pick and choose what perspective to take and which benefits and costs to count.”
“As a result, there will be an incentive to engage in cherry picking whereby agencies will count global effects that are favorable to the agency’s agenda and ignore global impacts that put the agency’s concerns in an unfavorable light,” the authors add.
The most recent example of the EPA “cherry picking” cost-benefit impacts is in the recently announced carbon dioxide emissions limits for existing power plants. The EPA says that the benefits of reducing carbon emissions will total $30 billion in 2030, while only costing $7.3 billion.
But using a more traditional cost-benefit calculation that only looked at the benefits to U.S. citizens would mean the power plant regulation would only yield between $2 billion and $7 billion — meaning the rule’s benefits were inflated about 4-fold to 15-fold.
Furthermore, the benefits of reducing 30 percent of carbon dioxide emissions from power plants by 2030 would be slightly less than the costs to the U.S. economy — not a good sell for President Obama who wants to stake his legacy on fighting global warming.
“If global consequences are permitted to govern the terms of the benefit-cost analysis, then the selection of policy initiatives likewise should be governed by global considerations, subject to compliance with U.S. law,” argue Gayer and Viscusi.
“Whether it makes sense to routinely expand the scope of the assessed policy impacts beyond the citizenry of the nation bearing the costs is highly problematic,” the authors write. “What is clear at this juncture is that the recent expansion of GHG benefit assessments to include global impacts merits much more scrutiny and justification than it has received to date.”
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