Think Global: International Reciprocity as Justification for a Global Social Cost of Carbon

61 Pages Posted: 18 Aug 2016

See all articles by Peter Howard

Peter Howard

New York University (NYU) - Institute for Policy Integrity

Jason Schwartz

New York University (NYU) - Institute for Policy Integrity

Date Written: August 16, 2016

Abstract

U.S. climate regulations present a special case of federal agencies applying a global, rather than exclusively domestic, perspective to the costs and benefits in their regulatory impact analyses. Since 2010, federal agencies have emphasized global valuations of climate damages for policies that affect carbon dioxide emissions, using a metric called the “Social Cost of Carbon.” More recently, agencies have also begun to use a global valuation of the “Social Cost of Methane,” for methane emissions. Yet lately, these global metrics have come under attack in courtrooms and academic journals, where opponents have challenged the statutory authority and economic justification for global values. This paper defends a continued focus on the global affects of U.S. climate policy, drawing on legal, strategic, and economic arguments.

International reciprocity presents the strongest justification for a global focus. Because the world’s climate is a single interconnected system, the United States benefits greatly when foreign countries consider the global externalities of their greenhouse gas pollution and cut emissions accordingly. Game theory predicts that one viable strategy for the United States to encourage other countries to think globally in setting their climate policies is for the United States to do the same, in a tit-for-tat, lead-by-example, or coalition-building dynamic. In fact, most other countries with climate policies already use a global social cost of carbon or set their carbon taxes or allowances at prices above their domestic-only costs. President Obama’s administration has explicitly chosen to adopt a global social cost of carbon to foster continued reciprocity in other countries’ climate policies. Charged by the U.S. Constitution with managing foreign affairs and coordinating executive branch activities, President Obama deserves political and judicial deference on his choice to calculate the global benefits of U.S. climate regulations.

As for legal authority, the United States has already signed and ratified one international treaty that commits it to the consideration of global climate effects of its domestic actions. Two key statutes for U.S. climate policy — the Clean Air Act and the National Environmental Policy Act — do the same, and the other statutes most used to date for climate regulation give agencies enough discretion to consider global effects. Executive orders further show that administration priorities for international harmonization should shape U.S. regulatory analysis and decisionmaking. Finally, because of the inevitability of significant “spillover” effects and U.S. willingness to pay to prevent climate damages occurring outside U.S. borders, a domestic-only social cost of carbon or methane would fail to transparently disclose the true scope of climate-related costs and benefits that matter to U.S. policymakers and the public.

Keywords: social cost of carbon, integrated assessment models

JEL Classification: Q54, Q58, K32, K33

Suggested Citation

Howard, Peter and Schwartz, Jason, Think Global: International Reciprocity as Justification for a Global Social Cost of Carbon (August 16, 2016). Available at SSRN: https://ssrn.com/abstract=2822513 or http://dx.doi.org/10.2139/ssrn.2822513

Peter Howard (Contact Author)

New York University (NYU) - Institute for Policy Integrity ( email )

Wilf Hall
139 MacDougal Street
New York, NY 10012
United States

Jason Schwartz

New York University (NYU) - Institute for Policy Integrity ( email )

Wilf Hall
139 MacDougal Street
New York, NY 10012
United States

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