benefit-cost analysis Archives - Page 2 of 9 - An Economic View of the Environment

Reflecting on Trump’s Record and Anticipating Biden’s Performance

On January 20th, a bit more than two weeks from today, Joe Biden will be sworn in as the 46th President of the United States, along with Kamala Harris as Vice President. Changes from one U.S. administration to another are always significant, but sometimes the anticipated changes are not dramatic when the same political party retains the White House, although the last time that happened was the transition in 1988 from Ronald Reagan to George H.W. Bush. That said, I do not recall a transition that has represented anticipated changes – in terms both of style and substance – as great as the transition from President Trump to President-Elect Biden.

One of the areas – among others – where that is the case is the realm of environmental, energy, and natural resource policy. And there is no one better qualified to reflect on the environmental record of the Trump administration and the prospects of the forthcoming Biden administration that Richard Revesz, my long-time colleague, co-author, and friend. He is my guest in the latest episode of my podcast, released today, January 5^th, on the day a pair of Senate runoff elections in Georgia are taking place (which will determine which political party controls the Senate for at least the next two years).

As readers of this blog know, in these podcasts – “Environmental Insights: Discussions on Policy and Practice from the Harvard Environmental Economics Program – I talk with well-informed people from academia, government, industry, and NGOs. Ricky fits the bill as the Lawrence King Professor of Law at New York University, where he was previously Dean, and was the co-founder of the Institute for Policy Integrity. He is also the co-author with Michael Livermore of a new and important book, Reviving Rationality: Saving Cost-Benefit Analysis for the Sake of the Environment and Our Health.

You can hear our complete conversation in the Podcast here.

First of all, reflecting on the past four years of the Trump Administration, Revesz points to the decisions to: roll back motor vehicle energy efficiency (or CAFE) standards; repeal the Obama Administration’s Clean Power Plan; and pursue what the Trump administration termed “strengthening” regulation – all as examples of bad policies with negative consequences.

“On virtually any significant environmental issue, the Trump Administration was on the wrong side. It was on the wrong side of the legal issues; it was in the wrong side of the economic issues; it was in the wrong side of the scientific issues. And it was really on the wrong side of history,” he remarks. Revesz also implies that the administration’s disrespect for science and economics might have very deep and injurious impacts on environmental policy going forward.

However, Revesz expresses optimism that the incoming administration may be able to undo some of the damage done over the past four years.

“I am extremely hopeful and very optimistic that the Biden Administration will restore confidence in science and economics, and that these will be taken as serious analytical frameworks, and not as tools to be bent at will to justify the political preferences of the moment,” he says. “And that is extremely important because I don’t think our country could take another four years of the bending of truth without it having very serious long-term repercussions.”

Revesz also says he expects the Biden-Harris Administration to hold true on its campaign promises to push forward with tough greenhouse gas emission policies.

“I expect we’ll see a continued significant ratcheting down of automobile emissions, including much greater penetration of zero emitting vehicles. And we will see very significant work, I assume and hope, on the stationary source side. Even in the Obama Administration, where we ended up with regulations for new oil and gas facilities, we didn’t have regulations for existing facilities, which is where a lot of the emissions are. The electric sector will have to be looked at. And then other industrial sectors that have not yet been being gotten attention, like refinery cement plants, will need to get significant attention. So, I see a lot happening on the regulatory side.”

Despite the challenges the Biden-Harris Administration may face from legal challenges to new regulatory actions because of the 220 judges appointed by President Trump as well as the new 6-3 conservative majority in the Supreme Court, Ricky Revesz maintains that the new administration will be much more successful in defending its regulatory actions in the courts than was the Trump administration, which lost an astonishingly high 83 percent of challenges against its regulatory actions.

All of this and more is found in the latest episode of “Environmental Insights: Discussions on Policy and Practice from the Harvard Environmental Economics Program.” I hope you will listen to this latest discussion here. You can find a complete transcript of our conversation at the website of the Harvard Environmental Economics Program.

My conversation with Professor Revesz is the 19th episode in the Environmental Insights series, with future episodes scheduled to drop each month. Previous episodes have featured conversations with:

Gina McCarthy, former Administrator of the U.S. Environmental Protection Agency
Nick Stern of the London School of Economics discussing his career, British politics, and efforts to combat climate change
Andrei Marcu, founder and executive director of the European Roundtable on Climate Change and Sustainable Transition
Paul Watkinson, Chair of the Subsidiary Body for Scientific and Technological Advice (SBSTA) within the United Nations Framework Convention on Climate Change
Jos Delbeke, professor at the European University Institute in Florence and at the KU Leuven in Belgium, and formerly Director-General of the European Commission’s DG Climate Action
David Keith, professor at Harvard and a leading authority on geoengineering
Joe Aldy, professor of the practice of public policy at Harvard Kennedy School, with considerable experience working on climate change policy issues in the U.S. government
Scott Barrett, professor of natural resource economics at Columbia University, and an authority on infectious disease policy
Rebecca Henderson, John and Natty McArthur University Professor at Harvard University, and founding co-director of the Business and Environment Initiative at Harvard Business School.
Sue Biniaz, who was the lead climate lawyer and a lead climate negotiator for the United States from 1989 until early 2017.
Richard Schmalensee, the Howard W. Johnson Professor of Management, and Professor of Economics Emeritus at the Massachusetts Institute of Technology.
Kelley Kizier, Associate Vice President for International Climate at the Environmental Defense Fund.
David Hone, Chief Climate Change Adviser, Shell International.
Vicky Bailey, 30 years of experience in corporate and government positions in the energy sector.
David Victor, professor of international relations at the University of California, San Diego.
Lisa Friedman, reporter on the climate desk at the The New York Times.
Coral Davenport, who covers energy and environmental policy for The New York Times from the Washington bureau.
Spencer Dale, BP Group Chief Economist.

“Environmental Insights” is hosted on SoundCloud, and is also available on iTunes, Pocket Casts, Spotify, and Stitcher.

What Can Economics Really Have to Say About COVID-19 Policies?

Recently, economists and other policy analysts have called for the use of benefit-cost analysis to assess existing and proposed public policies to address the novel coronavirus pandemic, the incidence of COVID-19, and the deaths that may follow. These calls for a benefit-cost perspective have unfortunately generated both confusion and controversy; and – most important – are unlikely to be persuasive to key decision makers. But ignoring economics when considering alternative policy responses to the pandemic would be a mistake.

Fortunately, a different type of economic analysis is available, which is much more likely to be acceptable to policy makers, and would enable government authorities to identify policy instruments that minimize costs to achieve given objectives. I’m referring to cost-effectiveness analysis, which differs in important ways from the benefit-cost analysis now being recommended by my fellow economists, as well as others.

First, I should note that in principle, sensible arguments can and have been made in favor of the use of benefit-cost analysis. I endorse the use of such analysis to assess the wisdom (efficiency) of a wide range of government policies (through what is known as Regulatory Impact Analysis in the U.S. government), and I have been teaching these methods, under the rubric of “net present value analysis,” in my environmental economics course at Harvard for some 30 years. This type of analysis facilitates the identification of efficient policies that generate the greatest net benefits, that is, benefits minus costs.

So, to be perfectly clear, I enthusiastically endorse the work being carried out by economists and others to execute such benefit-cost analyses of COVID-19 policies. My concern, however, is that in the current context, policy makers are likely to be highly resistant to embracing this type of analysis for assessing existing and potential pandemic responses. Rather than throwing out the (economic analysis) baby with the (benefit-cost) bath water, I am suggesting that other forms of economic analysis — namely cost-effectiveness analysis — can be useful, and the results of such analysis should be seriously considered by policy makers.

The problem is that executing benefit-cost analysis requires evaluating not only the costs, but also the benefits of policies in economic terms. In the COVID-19 context, that is difficult enough on the cost side because of the great uncertainties involved, but at least those costs – largely the loss of GDP due to slowdown in economic activity – are fundamentally financial.

The benefit side – primarily the reduced risk of mortality – requires estimates of the value of a statistical life (VSL), which typically draw upon empirical evidence from markets in which people receive higher wages for taking on more risky jobs (in sectors such as mining, forestry, and commercial fishing). The concept and use of VSL – estimated by the U.S. Environmental Protection Agency to be about $10 million per life saved – is well accepted by economists, but is highly controversial among nearly everyone else.

For these reasons, politicians are reluctant, to say the least, to adopt the benefit-cost paradigm to help them formulate better policies to address the current pandemic. But much of the confusion and nearly all of the controversy could be avoided by employing cost-effectiveness analysis, in which economics is brought to bear only on the cost-side of an issue.

I need not tell readers of this blog that this is an approach that is frequently employed in the environmental realm to examine alternative policies that would bring about a given degree of environmental benefits, that is, a given reduction in environmental damages. For example, in the case of carbon dioxide (CO₂) emissions, a variety of analyses have found that cost-effective approaches would cost just 25% of what the costs would be with some other approaches.

In the current, COVID-19 context, take some policy objective as given (presumably not a reckless one such as reopening “large sections of the country” by Easter Sunday with “packed churches,” as President Trump had recently promised). Rather, a policy objective to be used in such analysis might be a specified maximum mortality number, a specified mortality risk reduction, or – more simply – a specified case transmission rate. Then, the economic costs of achieving that objective by using various alternative policy instruments can be estimated and compared. At a minimum, these policy instruments would include – among others – the current approach of social distancing of nearly the entire population to suppress the curve of new incidence; and a targeted approach to reduce transmission – more testing, more contact tracing, and more and better facilities for those who need to be separated from others or treated.

For example, one recent study estimated that the current practice of widespread social distancing may be expected to save some 1.2 million lives at an economic cost of $6.8 trillion. Without resorting to trying to value human lives, the question is “simply” how much would it cost with an alternative, more targeted policy to save a similar number of lives?

By the way, the uncertainty that plagues various aspects of these and other policy approaches can be taken into account in the cost-effectiveness calculations. Likewise, constraints – whether physical (such as limited availability of ventilators or cotton swabs), economic, institutional, or political – can all be included in the analysis. In my work as an environmental economist (focused on climate change policies), we do this regularly. My professional cousins – health economists, principally in schools of public health – are equally or more familiar with these approaches, and are well equipped to make the cost comparisons.

In this way, without the confusion and controversy that arises with trying to quantify the economic benefits of mortality risk reduction, economic analysis can still play an exceptionally important role by identifying policies through cost-effectiveness analysis that can help achieve sensible objectives with as little sacrifice as possible of the many other things we value.

We Have Launched “Environmental Insights,” a New Podcast

I’m delighted to announce that the Harvard Environmental Economics Program has just launched a new podcast at the intersection of economics and environmental policy, “Environmental Insights: Conversations on policy and practice from the Harvard Environmental Economics Program.” I serve as host, and in that role I have the pleasure of interviewing some very interesting and very accomplished people who are working on some of the most challenging problems we face. My guests have worked and are working at the interface between economics and the environment, whether within government, the private sector (including NGOs), or academia.

The podcast is intended to inform listeners about important issues relating to an economic perspective on developments in environmental policy, including – but not limited to – the design and implementation of market-based approaches to environmental protection.

The inaugural guest for the podcast is Gina McCarthy, professor of the practice of public health at the Harvard T.H. Chan School of Public Health, director of the Center for Climate, Health, and the Global Environment, and former administrator of the U.S. Environmental Protection Agency. My interview with Gina touches on her many years of experience in community health, state government, and, of course, her years at EPA, where she focused on domestic initiatives relating to public health and the environment and work in the international domain. She also discusses her relatively new role as director of the Center for Climate, Health, and the Global Environment at the T.H. Chan School of Public Health.

You can listen to the interview here, and sign up to Follow (for future episodes of the podcast). Environmental Insights is hosted on SoundCloud, and is also available on iTunes