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“All costs, no benefits …”

June 16th, 2010 · 2 Comments

The EPA has issued its analysis of the financial and economic impacts of the Kerry-Lieberman American Power Act.  The bumper sticker summary of their (fundamentally flawed) analysis: action to mitigate climate change is affordable.  Sadly, however, the EPA has continued the strong economic tradition of robust analysis of costs of action with dramatic understating of the benefits of action in the domain of climate mitigation.  As Michael Livermore put it, “all costs, no benefits …” 

Even with flawed analysis, the EPA concluded that, “averaged over 2010-2050, households will pay an extra $79 to $146 a year. Not exactly a steep price to pay to avoid catastrophe.”

Again, however, that “not exactly steep price” is a misrepresentation of the true fiscal impacts for American, American businesses, American communities, and Americans.  In fact, the EPA analysis simply has the sign wrong.  More robust analysis, which includes at least some of the key benefit arenas would show significant benefits from action as opposed to quite limited costs of action.

What are some of the excluded benefit arenas …

  • Avoided costs: The reason for climate change mitigation is that unchecked climate change will have catastrophic impacts. For the EPA, reducing the costs of those catastrophic impacts has zero value in their analysis of the American Power Act. 
  • Health Benefits: Fossil Fuel pollution fosters asthma, heart disease, cancers … with analysis suggesting a fiscal cost of some $130 billion per year in added costs to the American economy. Reducing fossil fuel pollution, a corollary impact of climate change mitigation efforts, will lower that toll on Americans’ health and lower the fiscal cost to households and the nation.
  • Productivity Implications: Reducing the health impacts would mean, surprisingly perhaps, that there would be fewer sick leave days with generally healthier workers — that translates to higher productivity. Climate mitigation would hasten ‘green building’ and study after study shows that ‘green building’ improves worker productivity and educational performance and … The ‘productivity’ impact of greening a building can range from 5 to 10s of percent. The economic value for a society-wide (including schools) 5 % jump in productivity and performance, alone, would turn the EPA calculation from “cost” to “benefit”.
  • Competitive Implications: Climate mitigation would foster investment in clean energy technologies that are proving ever-more critical for international competitiveness.  The competitive benefits, however, go into other realms. For example, climate mitigation efforts would create funds for protecting rainforests, with fewer trees cut down to create farms. American farmers, therefore, would face less competition in the international market place from megafarms created on the ash of burned down rainforests.  “Ending deforestation will boost revenue for U.S. producers by between $196-$267 billion by 2030 – approximately equivalent to the entire amount projected to be spent by farmers on energy during that time.” 

And, in addition to these sort of excluded benefit arenas, the EPA explicitly chose not to analyze many arenas of APA such as “”lighting standards, new regulation for offshore oil and gas extraction, powering vehicles with natural gas provisions, and GHG tailpipe standards.””. Each of these has significant economic impact implications, with lighting standards and GHG tailpipe standards driving significant financial benefits, the NGV provisions potentially having limited economic value, and (to me at least) likely economic benefits from regulation reducing the chances for a Deepwater Horizon II. 

Sadly, yet again, analysis of climate legislation has left so much unexamined that “this kind of modeling is worth about as much as throwing darts at a dartboard” … blindfolded.

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Tags: analysis · climate change · environmental · Global Warming

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