Abstract

At the request of the California Attorney General’s Office, I analyzed the discussion of economic analysis of potential greenhouse gas regulation in EPA’s Advance Notice of Public Rulemaking (ANPRM) and Technical Supporting Document (TSD). Summary: EPA’s ANPRM and TSD display an impressive awareness of most of the major issues concerning the economics of climate change, but stop short of following these issues to their logical implications. A commendable review of the big picture, recognizing several recent developments, is followed by a reliance on a small number of traditional methods and models. EPA should be encouraged to think as creatively about models and policy analysis as it did about the nature of climate crisis. Meanwhile, the numerical estimates and partial literature review in these documents should not be used as the basis for policy. What EPA did right: The TSD (in particular, section 3, pp. 4-9) raises many important theoretical points, echoed briefly in the ANPRM (sections G.1 – G.3, pp. 44414-44415): • the need for a very low discount rate for intergenerational analyses • the centrality of low-probability, catastrophic risks, and the inherent uncertainty in evaluating these threats • the impossibility of monetizing all benefits, and the resulting indeterminacy in any cost-benefit calculations • the absurdity of evaluating U.S. climate policy on the basis of U.S. impacts alone, in isolation from the impacts on the rest of the world Taken together, these points argue for a global analysis, focusing on safe minimum standards and prevention of catastrophe over generations to come, paying little or no attention to the narrowly constrained cost-benefit calculations and marginal cost / marginal benefit estimates that have appeared in a number of past economic analyses. Indeed, EPA’s theoretical framework in these documents suggests, in keeping with much

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