Determining the Proper Scope of Climate Change Benefits

June 3, 2014

Ted Gayer
W. Kip Viscusi

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Although benefit assessment principles are well established for defined populations, there has been very little attention to how one defines the scope of the pertinent population for the assessment. Whose social welfare matters and whose benefits should be included in the assessment? Should there be any linkage between the benefits and the political jurisdiction whose citizens are paying for the policy? For national regulatory policies, the norm has been to assess benefits to U.S. citizens. This article reviews the norms for the scope of benefit assessment base on executive orders and the laws governing risk and environmental regulations. Recent assessments of climate change policies have shifted to a worldwide benefits approach, leading to a substantial increase in the estimated benefits. In 2010 the Obama Administration’s Interagency Working Group on Social Cost of Carbon developed the guidelines that provide the basis for the assessment of the benefits associated with reductions in carbon dioxide emissions. Based on the estimates in one integrated assessment model that permitted a U.S. analysis, the estimate of the average U.S. benefit is about 7 to 10 percent of the global benefit. Alternatively, if one does not rely on a direct benefit estimate but assumes that the domestic share of the benefits is proportional to the current U.S. share of the global GDP, then the domestic benefit is 23 percent of the global benefit. This article reviews specific examples of such practices for energy efficiency regulations and the broader benefit assessment guidelines that have been developed for greenhouse gas initiatives, including the CAFE rule for passenger cars and light trucks, the carbon pollution rule for existing power plants, the clothes dryer rule, and the phase out of general service incandescent lamps.