Benefits of carbon restrictions

An executive order from President Barack Obama requires that the Environmental Protection Agency analyze the costs and benefits of its regulations. But how exactly can it measure the economic benefits of the coming restrictions on greenhouse gases? For both policy and law (including the inevitable court challenges), it’s a crucial question.

This month, the administration provided a big part of the answer with a new report from its Interagency Working Group on the Social Cost of Carbon, which is intended to capture in dollar terms the damage from 1 ton of carbon emissions. (Disclosure: In 2009-2010, I helped convene the initial interagency working group on this subject.)

The central value is $36. So suppose that, next year, the EPA finalizes a rule meant to eliminate 200 million tons of carbon dioxide emissions annually. If so, the monetary value of the reduction would be calculated at $7.2 billion. And that number would loom large in the EPA’s decision about whether the benefits justify the costs – and in figuring out how stringent its regulation should be.

One basic question is whether the social cost of carbon should take account of the global damage done by emissions from the U.S., or only the domestic damage – which would significantly lower the dollar amount. Some commenters argued strongly that U.S. regulators should consider only harms to Americans. And indeed, that’s the usual U.S. way of calculating benefits and costs.

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But the working group argued forcefully that if all countries set policies only on the basis of domestic effects, their emissions reductions would end up being “economically inefficient,” because no country would take the slightest account of the harms that it imposed on others.

Even amid the most intense partisan controversies, it seems, government can sometimes focus on the best available evidence – and find reasonable answers. •

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