Tuesday, June 17, 2014

Can the U.S. Government cost-benefit analysis of climate change policies not look outside of the U.S.?

The post by Timothy Taylor, managing editor of the Journal of Economic Perspectives, "Should U.S. Government Cost-Benefit Analysis Look Outside the U.S.?" made me go back to a common question in environmental economy, how to manage externalities. 

Investopedia defines externality as "a consequence of an economic activity that is experienced by unrelated third parties". Basically externalities are any effect of an action done outside of the considered system. While using the word "unrelated" is misleading as if there´s an effect there will be always related, the meaning here is that is  consider unrelated, that is, it is excluded from the analysis. The reason why this is a central problem in environmental economy is that perhaps the most used example of negative externalities is pollution, an effect done by an activity that is usually not considered as part of the analysis of the activity. Externalities however can be also positive.

The relevance of this is because in Taylor's post he comments on whether including global benefits while evaluating a climate change policy of the US makes sense. His conclusion being that a cost-benefit analysis of US policies should make sure it has "benefits that exceed costs for the U.S. population, and then to look at the global dimensions [as something independent]". This agrees with the basic notion that a government has to be held accountable with its population. 

While I agree in general that a government has to put as its first priority its own people, I believe Taylor argument can be criticized at least in 3 ways.

The first critic is the responsibility of US in terms of climate change which has been broadly discussed in the international climate change negotiations. If you break your neighbors fence by mistake, saying you won´t fix it because it doesn´t benefit your family is irresponsible and unethical even if there is no power to enforce justice and make you pay for your damage. The same goes for climate change where the relevance of the U.S. as an emitter of greenhouse gases (GHG) is clear. According to this page of the US Environmental Protection Agency (EPA) "In 2008, the top carbon dioxide (CO2) emitters were China, the United States, the European Union, India, the Russian Federation, Japan, and Canada". A more recent article from the PBL Netherlands Environmental Assessment Agency shows an interesting graph that shows the USA as the greatest cumulative emitter of GHG emissions until 2010, and is still projected to be the greatest historical contributed at least until 2030. As a matter of coherence between domestic and international principles, the US should compensate for the damage that it has caused abroad with their actions.


The second critic to Taylor's argument comes from the global implications of a climate change policy. While in his article Taylor brings Gayer and Viscusi points (from Ted Gayer and W. Kip Viscusi "Determining the Proper Scope of Climate Change Benefits" (June 3, 2014) that considering global benefits vs local costs would lead to policies against the interests of the US population in areas such as migration or social transfers. However the global dimension of the effects of policies as such is totally different from the ones of a climate change policy. While closing the borders to migrants or having subsidies for poor US citizens might have global implications, the main effect is domestic. On the contrary, climate change is a recognized global issue, where the policies taken by the US, as one of the main global emitters, will have clear global implications both at the political and at the environmental level as have been noted at least here, and here.Other than the US reduction in emissions (which is actually not that significant), the mentioned effects include China's commitment to reduce its own emissions and an increased hope for global climate change negotiations which aim for a global climate deal to be agreed by 2015.

Lastly, US has been acting in the world arena as the "world's police" for over half a century now by actively affecting countries all over the world by diplomatic, violent, economic, cultural, and any other available means. The relative weight of US economy in the international arena gives him a big muscle that it has not hesitated to use to influence the world. In this context including global costs and benefits into its analysis makes sense not only from the moral side, but also because the role of the US internationally is so extended that creating global benefits can easily come back to the US as increased support in other policies. While these benefits are really hard (probably impossible) to evaluate, it is evident that they exist as protests to US policies in foreign countries have been common in the past (for example against Afghanistan war and also against the lack of support for global climate change efforts such as the Kyoto Protocol).

From this arguments I would like to raise the same question Timothy Taylor brought from a different perspective. Given the global influence of the US, can the U.S. Government cost-benefit analysis of climate change policies not look outside of the U.S.?





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