On the Path to Regulating Climate Change: The Costs and Benefits of Cost-Benefit

Seeming to stray widely from the subject at hand, environmental law professor Douglas Kysar related a story about cheese: an FDA food safety panel on which a friend of his sat had convened to discuss the relative safety of a synthetic additive for coloring cheese orange, a replacement for the natural additive then in use. Amid a flurry of narrowly focused questions and discussion over toxicology models and cost-benefit analyses, one scientist on the FDA panel who happened to be blind asked: “But why is the cheese orange?”

“And I’m wondering,” said Kysar, “are there moments like that out there now?” Are there moments, Kysar continued, in which we’re on the wrong path because we’re asking the wrong questions?

Professor Matthew Kotchen

Kysar told his cheese story at a September 22, 2011, debate with environmental economics professor Matthew Kotchen. The discussion, which was held at the Yale School of Law and moderated by Daniel Lashof, a visiting professor and senior scientist at the Natural Resources Defense Council, centered on the question of whether cost-benefit analysis (CBA) is an appropriate tool for creating climate change regulation.

CBA is a tool for comparing the relative, monetized benefits and costs incurred over the lifetime of a policy. Under CBA, lawmakers and administrative agencies rely heavily on the economic tool of discounting. Because a dollar received today can be invested for returns, it is worth more than a dollar received in the future. Thus, an air pollution policy that incurs one dollar of present-day cost in the form of power plant retrofits, and two dollars of future benefit in the form of lower rates of respiratory illness, may actually not make economic sense.

The discount rate determines by how much more a dollar today is valued over a future dollar.

Within the context of climate change, CBA has led to a vigorous disagreement within the worlds of policy-making and economics. Some say CBA is essential for making decisions about climate regulations that could have immense near-term costs. Others argue that the uncertain, but potentially catastrophic, impacts of climate change make it a unique problem, requiring a unique approach to decision-making.

Kysar, arguing against the use of CBA for evaluating climate change regulations, talked of cheese to demonstrate one of his key points: CBA frequently answers by assumption the real questions that should be under inquiry. In the case of climate change, these questions and assumptions become, “Biblical in scope,” said Kysar.

“We are talking about matters like the population size of the planet, we’re talking about the projected economic growth rate of the world over centuries, or the rate of technological innovation over centuries—wind back 300 years and try to predict today in your mind.” “The need to make assumptions about such large and unpredictable issues, argued Kysar, makes CBA unsuitable in the case of climate change regulation. The assumptions themselves “should be the things we’re talking about,” said Kysar. “These are the climate change conundrum.”

Kysar also noted that CBA promotes a “go slow” approach that is poorly suited to a problem like climate change, which threatens rapid and irreversible disaster; action must therefore be quick and extensive. Even aspirational statutes like the Clean Water Act, which passed in 1972 and proposed reducing pollutant discharge into U.S. waters to zero, would be unlikely to pass in today’s CBA-centric environment, said Kysar. Zero pollution discharge, much like a sharp reduction in greenhouse gas emissions, would be seen as an economic impossibility.


Though not at opposite ends of the spectrum, nor did Kysar and Kotchen agree.

Professor Douglas Kysar

Kotchen acknowledged his deep concern for catastrophic climate change, for discontinuities and tipping points. “Things could turn crazy really fast. So let’s throw out CBA,” he said, working from Kysar’s premise that its incremental process is inadequately slow and myopic. “Here we are in the world: we actually have an energy infrastructure, we have cars, everybody is living day-in-day-out. I want to do things to prevent disaster, and now I’ve got to decide what I’m going to do, not in an incremental way. But I can’t do everything. I can’t build a seawall that’s infinitely high.

“So what framework do I use?”

If we retreat from the premise that costs and benefits are central to making decisions, and instead work backwards from the ends we want to achieve — global sustainability, for example — the most appropriate and economical paths to global sustainability still cost something. We can’t have it all.

“What’s the alternative process?” asked Kotchen, “And I mean that in a sincere way.”

One method advocated by the National Academies of Sciences and raised by Daniel Lashof is iterative risk management. Put simply, this approach advocates for the creation of policies that limit climate change risks while regularly revising policies as new, better information emerges.

“To me,” said Kotchen, speaking to iterative risk management, “that whole idea is synonymous with ‘let’s make good decisions’.” But one needs to know what is being sacrificed — what are the tradeoffs — in order make good decisions. This, he argued, is the role that CBA fills.

But Kysar resisted the subdued acceptance that tradeoffs are inevitable, noting that, in the case of climate change, discussion of tradeoffs may miss the heart of the problem: we only have one planet with which to trade.

With climate change, said Kysar, “It’s like saying that your house is expected to burn down once every 250 years, so why insure it? Your expected lifetime experience is not a burnt down house.

“But what we do instead,” continued Kysar, “is think about that house, and we think: could we abide the loss of that house? No. And so we insure against it. We should be thinking: could we abide the utter disruption of the civility of our climate for all life—could we abide that? That’s how we need to think about climate change, but cost-benefit doesn’t allow for that mode of thinking.”

He extended this logic further with a self-described “cheap shot,” situating CBA in the context of the dominant economic framework for decision-making. When we begin to look for analogs in history, said Kysar — when else have we as a species faced a challenge on the scale of decarbonization, a challenge so deeply integrated into our global economy — the closest example we have is the abolition of slavery.

“Those early abolitionists in England must have seemed crazy, because they were crazy,” he said. “And so we have to be willfully ignorant of the economic absurdity of what we’re advocating. We must call for reasoned, engaged, moral discussion in politics about fundamental drivers and values.”

Kysar aligned himself with the natural scientists, and proposed simply picking a target: 350 parts-per-million. Two degrees Celsius. Simply pick a target, then get there.

Kotchen sat on that. The room was silent. “I would still want to know, though: how much will it cost to get there? I would always have a lingering question of whether or not we had made good choices. Are the scientists really in the best position to make that call? I mean.” He paused. “Why two?”



The discussion between Doug Kysar and Matt Kotchen was made possible thanks to the Yale School of Forestry and Environmental Studies Climate Change Student Interest Group, the Yale Center for Environmental Law and Policy, and the Yale Environmental Law Association. We welcome your comments on whether cost-benefit analysis, or other conventional economic valuation techniques, will lead us in the right direction on climate change.



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Dylan Walsh

Dylan Walsh graduated from the Yale School of Forestry and Environmental Studies in 2011 where he studied environmental communication. He is an Editor at The Solutions Journal and a freelance science/environment writer.

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  1. Pingback: What are the numbers on climate change, again? | Rodomontade

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