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UW Economist Shogren Endorses Change in Reporting Climate Change Benefits

February 16, 2016

The federal government has a duty to inform Americans about the reductions in domestic climate damages that may result from federal regulation, according to University of Wyoming Professor Jay Shogren and a group of other renowned economists.

The current approach of reporting only the global benefits neglects that duty, Shogren and the others wrote in a letter that appears in the scientific publication Science. The group also explains its position in a column written for Forbes.

“In the context of international negotiations, such as the recent Paris accord, a global focus is clearly relevant,” writes Shogren, the Stroock Professor of Natural Resource Conservation and Management in the Department of Economics and Finance in the UW College of Business. “But, when evaluating regulations that will impose large costs on U.S. citizens, it is incumbent upon the federal government to estimate and report domestic benefits as well.”

He says the costs to the United States are relatively lower than many other nations because most of the economy does not depend directly on climate like it does elsewhere.

The National Academies of Sciences (NAS) has assembled a committee to review the economic aspects of climate change to better estimate the social cost of carbon (SCC). The SCC is an estimate in dollars of the long-term damage caused by a one-ton increase in global carbon emissions in a given year.

“Although the SCC oversimplifies a dauntingly complex reality, agreement on an SCC is necessary for cost-effective emissions controls,” the economists wrote. “A key question is whether the SCC should reflect social costs to the United States or the entire world.”

Shogren says using the global value, rather than the U.S. value on the SCC of carbon, implies more regulations aimed toward coal and other fossil fuels that drive Wyoming’s economy.

The economists say the NAS should refocus regulatory analysis of U.S. regulations on their domestic effects by recommending the use of a domestic SCC and supporting separate reporting of estimates of effects beyond the United States.

In 2013, an interagency group established the current federal SCC values -- $43 per metric ton of CO2 in 2020 assuming a 3 percent discount rate -- based on the estimated global SCC. Regulatory agencies use this global SCC as the sole summary measure of the value of reducing greenhouse gas emissions and compare it with estimates of domestic costs.

This approach, Shogren and the others write, conflicts with long-standing federal regulatory policy directing agencies to issue regulations only upon a “reasoned determination” that the benefits “justify” the costs.

“A decision to issue a regulation with substantial domestic costs based on a finding that benefits to foreigners ‘justify’ such costs would be irregular at best,” they conclude. “Even with explicitly stated altruistic or strategic motivations, analyses that present only global benefits of regulations to reduce U.S. emissions would be misleading.”

Other economists who contributed to the column and letter are Susan Dudley, director of the Regulatory Studies Center; Art Frass, visiting fellow at Resources for the Future; Ted Gayer, vice president and director of economic studies at the Brookings Institution; John Graham, dean of the School of Public and Environmental Affairs at Indiana University; Randall Lutter, professor of public policy at the University of Virginia; and W. Kip Viscusi, distinguished professor of law, economics and management at Vanderbilt Law School.

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