Feb 12, 2016 - 11:45am

Note to Regulators: Apples to Oranges Comparisons Are Misleading


Senior Economist, Regulatory Analysis

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Gina McCarthy, administrator of the U.S. Environmental Protection Agency, speaks during a news conference in 2014. Photo credit: Andrew Harrer/Bloomberg

Everybody understands the fallacy of comparing apples to oranges. Such comparisons are simply misleading. When making comparisons between regulatory costs and benefits or anything else one should be honest, fair and careful by comparing like items.

Federal regulators have engaged in such misleading “apples to oranges” comparisons for the past six years in their benefit versus cost analyses of more than one hundred proposed or final rules regarding environmental, energy efficiency, and transportation policy issues. They have touted benefits spread over the entire world to justify costs that fall only on Americans.

This week, seven of the most highly respected economists in the field from across the spectrum of institutional affiliations “called-out” the regulators at EPA, Department of Energy and other federal agencies in an open letter. The charge? Making misleading comparisons of the domestic costs to world-wide benefits to justify regulations that reduce emissions of carbon dioxide.

The authors -- Arthur Fraas, Randall Lutter, Susan Dudley, Ted Gayer, John Graham, Jason Shogren and W. Kip Viscusi -- argue regulators are misleading the American public when regulators issue a regulation imposing significant costs on U.S. residents based on a finding of significant offsetting benefits largely accruing to foreigners to “justify” such costs. Domestic costs must be weighed against domestic benefits.

The letter did not review the arguments pro or con regarding climate change or reducing carbon emissions, but, rather, described an ongoing violation of good regulatory analysis:

“The current practice—use of a GSCC [Global Social Cost of Carbon] as the sole summary measure of the value of reducing GHG emissions through federal rulemaking—lacks transparency and puts such actions on a collision course with long-standing federal regulatory policy.”  

The open letter was addressed to the National Academy of Sciences committee social cost of carbon values. It was joined by an op-ed on Forbes.com. In these communications, the authors said:

“…the government has adopted a lopsided practice of generally considering and reporting only an estimate of world-wide benefits, putting U.S. regulatory agencies at risk of adopting policies that impose costs on Americans on the peculiar grounds that they benefit others.”

While agreeing that it may be acceptable as supplemental information to mention additional benefits accruing to the rest of the world, the seven recommended the primary test of a regulation to reduce carbon dioxide emissions be whether its domestic costs are at least matched by its domestic benefits.

The administration’s social cost of carbon values (starting at about $40 per ton in current dollar terms) that federal agencies have been using to calculate benefits only considers global values of the anticipated effects.  Domestic benefits are only a fraction of the global value, perhaps less than $8 per ton for 2016. 

The economists’ letter concludes with an observation:

“Americans deserve to know how federal regulations may affect them. Consistency and transparency require that federal regulatory analysis provide Americans with estimates of domestic benefits that may result from federal regulation to compare with domestic costs. The current approach of reporting only the global benefits without providing estimates of the domestic benefits neglects that duty.”

The letter from these seven well-respected experts on regulatory economic analysis confirms the point that the Chamber has made repeatedly in public comments to the regulatory dockets and in testimony about the use of social cost of carbon to calculate regulatory benefits: Using global benefits of emission reductions to justify significant domestic costs is simply wrong. Regulators should report and base their decisions on the balance of domestic costs against domestic benefits.

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About the Author

About the Author

Senior Economist, Regulatory Analysis

Bird is a senior economist specializing in regulatory economics at the Chamber. His work includes analyzing and evaluating estimates of regulations’ costs and benefits produced by the government to identify significant errors and omissions.