Determining the Proper Scope of Climate Change Policy Benefits in U.S. Regulatory Analyses: Domestic versus Global Approaches

Abstract

Although benefit assessment principles are well established for specific populations, very little attention has been paid to how to define the scope of the pertinent population for such assessments. Whose social welfare matters and whose benefits should be included in the assessment? In the case of U.S. regulatory policies, the norm has been to assess the benefits to U.S. citizens. However, in 2010, the Obama Administration’s Interagency Working Group on Social Cost of Carbon adopted a global perspective on assessing the benefits associated with reductions in carbon dioxide emissions. This article examines whether U.S. policymakers should assess the benefits of climate change policies from a domestic or a global perspective. Drawing from executive orders and the laws governing risk and environmental regulations, we review the norms used for the scope of benefit assessments. Then we examine specific examples of the use of the global approach to benefit assessments of carbon dioxide reductions for energy efficiency regulations. We also compare the U.S. approach to that of other developed countries. Finally, we discuss how reciprocity should be incorporated into global benefits within a benefit-cost framework, and the role of altruism in considering the proper scope of benefits.

Keywords: climate change, benefit-cost analysis, willingness to pay

JEL Classification: H43, Q48, K32