Posts Tagged ‘cost benefit analysis’

Benefit of environmental regulations generally outweighs cost

January 6, 2011

Steven Cohen writes in the Huffington Post:

EPA has historically been quite careful about gradually phasing in environmental rules to minimize economic disruption. (…)

According to this [OMB] analysis, EPA issued 30 major regulations from 1999 to 2009 at an estimated cost of $25.8 billion to $29.2 billion against estimated benefits ranging from $81.9 billion to $533 billion. As a society we have really not taken leave of our senses. When we make policies, the benefits generally outweigh the costs. Of course, for any given corporation or particular factory in any given financial quarter, the costs may be far higher than the benefits. And the costs might be borne by one group while the benefits may be felt by another. Still the idea that environmental rules kill jobs and destroy our quality of life is deceptive propaganda. It is part of a subtle and symbolic political campaign with the goal of delegitimizing government’s role in protecting the environment.

The rest of the article is well worth reading as well, in which Cohen fulminates against the “fact free climate policy debate” and the inconsistent position of the antiregulatory zeal that’s been getting more political momentum:

We seem willing to ensure [via government regulation] that the food we eat and the toys we give our children are free of poison, but seem reluctant to keep our land, air and water free of toxics.

(Hat tip Paul Luttikhuis)


Bjorn Lomborg’s eternal postponement

September 14, 2009

(Nederlandse versie hier)

Lomborg suggests we keep on gambling with the planet’s climate by postponing measures far into the future. Not a good idea.

The problem with CO2 is that a large part of our emissions stays in the atmosphere for centuries or even millennia. On top of that, the climate responds slowly to changes in greenhouse gas concentrations. This combination leads to great risks for the future climate if we don’t curb our emissions soon. This is being consistently ignored by Lomborg’s analyses.

If big changes, such as melting of the great icesheets, are initiated due to elevated concentrations of greenhouse gases, they are not necessarily reversible. The costs of taking measures now is lower than the costs of cleaning up our mess later; that is the conclusion of e.g. McKinsey ( here and here), the Stern review, and the International Energy Agency. The bottom line of these studies is that for about 1% of global GDP the most dramatic consequences of climate change can be prevented. The costs of unlimited global warming are much greater.

Unfortunately risks that only materialize far into the future are underestimated and undervalued by people, with respect to the cost of limiting those risks. Take smoking: For many people, stopping that ‘nice’ habit is too large a price to pay in order to limit future health risks. And it’s addictive of course. Just like our high energy use is, apparently. In contrast to smoking, actively decreasing climate risks is complicated by the ‘tragedy of the commons’, which Lomborg frequently (ab)uses in his argument. Another one of his favorites is to put up a false dilemma.

Let’s indeed look for solutions that keep the consequences of global warming within acceptable limits (and outside of the dikes). A precondition for that is of course that we base ourselves on the scientific insights about the climate system. Lomborg seems to have another view.

(For more background on how Lomborg bends the science, see here)

A few cost estimates:

IEA: The investment required to prevent dangerous climate change is “an average of some 1.1% of global GDP each year from now until 2050. This expenditure reflects a re-direction of economic activity and employment, and not necessarily a reduction of GDP.” In fact, this investment partly pays for itself in reduced energy costs alone (not even counting the pollution reduction benefits)! (via Joe Romm)

Stern: “Using the results from formal economic models, the Review estimates that if we don’t act, the overall costs and risks of climate change will be equivalent to losing at least 5% of global GDP each year, now and forever. If a wider range of risks and impacts is taken into account, the estimates of damage could rise to 20% of GDP or more.
In contrast, the costs of action – reducing greenhouse gas emissions to avoid the worst impacts of climate change – can be limited to around 1% of global GDP each year.”

McKinsey: “The macroeconomic costs of this carbon revolution are likely to be manageable, being in the order of 0.6–1.4 percent of global GDP by 2030. To put this figure in perspective, if one were to view this spending as a form of insurance against potential damage due to climate change, it might be relevant to compare it to global spending on insurance, which was 3.3 percent of GDP in 2005.”

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