You are using an outdated browser.
Please upgrade your browser
and improve your visit to our site.
Skip Navigation

All Cost, No Benefit Is No Way To Do An Analysis

According to an EPA analysis released Monday, the Kerry-Lieberman climate bill—also known as the American Power Act—would cost $146 per year per household. The only catch? The EPA didn't assess the benefits of the bill, particularly the fact that it's a necessary step for averting the worst effects of climate change. And that's unfortunate, because when you look at what the $146 per year would buy us, it's a pretty good deal.

There will be costs to any carbon pricing mechanism. Some people will lose their jobs; everyone will pay a little more for their energy; and some companies may have to shutdown as we transition away from fossil-fuel-intensive products. These upfront costs will hurt, but they'll also save money in the long run. At the moment, consumers don't pay all the hidden costs of using fossil fuels—from the risks of an oil spill to the damage done by rising temperatures—and those costs will catch up with us eventually. Last year, the Institute for Policy Integrity conducted a survey and found that a majority of economists published in top journals agreed that the (relatively small) costs of climate change will outweigh the costs of curbing emissions.

In essence, we have two options: Pay a little bit now—the cost of a postage stamp per day—or pay immense costs down the line. One way to think of a carbon-pricing bill is that it's taking out insurance against the possibility of dramatic climate consequences in the future. The numbers suggest that if you believe that there’s even a 15% chance that carbon in our atmosphere will cause severe changes in our climate, then this insurance is "worth it." Yet, right now, consumers have no way to buy insurance. If just a few people internalize the long-term costs of fossil fuels, that would have a negligible impact on future warming. It's a collective action problem that the government can help solve.

As President Obama said in his speech Tuesday, we're still stuck in a mindset of “we can’t” when it comes to weaning ourselves of dirty fuels. But we have learned that American ingenuity and American industries are actually quite adaptive. When confronted with a problem or a necessary improvement, no one is better at finding cheap and efficient ways of solving it than U.S. businesses. Think about how quickly we transitioned away from CFCs when they were proven to be harmful to the ozone layer, or how quickly we moved from eight-tracks to storing thousands of MP3s on an iPod that’s smaller than a deck of cards. Often this innovation itself turns out to be beneficial in unexpected ways. It is a shame that the EPA did not look at these and other benefits its analysis.

Scott Holladay is an economics fellow at the Institute for Policy Integrity.