In the News

As Michael Livermore wrote last week, the “all costs no benefits” method of analysis utterly distorts lawmakers’ perspectives. Obviously if the costs of unrestrained climate change were included, the bill would look like a screaming bargain.

This afternoon, the EPA is said to be sending its economic analysis of the climate bill proposed by Kerry and Lieberman to the Senators’ offices. It’s a scoring of how the legislation would affect the American economy. Hopefully that analysis will include the benefits, not just the costs of the measure. The agency has not incorporated benefits into its past economic analysis of climate legislation. Usually it looks exclusively at the price tag, giving legislators nervously poised to vote on the controversial proposal a clear view of the downsides but none of the upshots.

“For years we have been looking at only one side of the coin — the negative effects of regulating carbon emissions,” writes Michael A. Livermore, executive director of the Institute for Policy Integrity at New York University School of Law. His institute put together a report looking at the benefits of carbon-reduction strategies – something that estimates of cost from the Environmental Protection Agency and the Congressional Budget Office don’t take into account:

The cost of federal flood insurance, including the program’s $20 billion deficit, is “likely dwarfed” by its harmful impacts on natural areas vulnerable to construction, according to a new report. The program, launched 42 years ago as a financial safeguard for threatened homes, is clashing with adaptation policies being prepared for the impacts of climate change, cautions the paper by the Institute for Policy Integrity at New York University’s School of Law.

A policy research group study has found that the National Flood Insurance Program, a division of FEMA, primarily benefits wealthy homeowners who build in high-risk coastal areas at the expense of U.S. taxpayers. According to the Institute for Policy Integrity’s analysis, “Flooding the Market”, the flood insurance program’s subsidies help wealthy Americans with large beachfront properties or vacation homes in a typical year, and low-income individuals only during severe catastrophes.

Michael Livermore…with New York University, said the government’s social cost of carbon analysis is not perfect. He would like to see a higher price per ton, and more consideration given to potential catastrophic risk. (Requires subscription.)

Earlier this week, several environmental groups fired off a letter to the Obama administration condemning the Office of Management and Budget (OMB). Their complaint? The green groups believed that OMB was incorrectly devaluing the cost savings that would come from a new EPA rule on vehicle fuel efficiency. Many greens were outraged. And if OMB was doing what it was accused of doing, it would be a real outrage. Except that, as it turns out, OMB was doing no such thing.

Under President Bush, not much happened at the federal level when it came to climate change. During that bleak time, environmentalists could at least look to the states for a glimmer of progress. States in several regions organized carbon cutting initiatives and proposed some moderate but important greenhouse gas reductions. These local, largely market-based programs could jump-start America’s climate efforts and prove to the nation that cap-and-trade is not a dirty word.

A quick scan of OIRA’s public meeting records shows that, since President Obama took office, industry and trade associations have held many more meetings with OIRA than advocacy NGOs or unions-something like eight times as many. If OIRA were turning down greens in favor of business interests, this would be a major cause for concern. But, according to the folks in that office, they take every meeting requested to discuss regulations under review. That means the reason for the lopsided meeting log is a lack of requests from groups working for stronger protections.

As Richard L. Revesz and Michael A. Livermore argue in a recent book, Retaking Rationality, there is nothing intrinsically illiberal about cost-benefit analysis. Indeed, it can be quite consistent with a progressive faith in social science.