Sunday, January 18, 2015

Cost-benefit analysis in recent history

Michael Livermore and Richard Revesz recently posted "Interest Groups and Environmental Policy: Inconsistent Positions and Missed Opportunities". In it they argue that over the last few decades the positions of polluters and environmentalists on two of the central questions of environmental law and policy have flipped. The abstract:
This Essay examines and explains the positions of the principal interest groups over the past four decades with respect to the two central questions of environmental policy: the appropriate policy goal and the instrument that should be used to carry out the policy. With respect to the first question, the Essay observes that, at the beginning of the contemporary period of environmental law, industry groups strongly supported setting the stringency of environmental standards by reference to cost-benefit analysis. At the same time, environmental advocacy organizations strongly opposed the use of cost-benefit analysis. As environmental regulators gained greater proficiency in the quantification and monetization of environmental benefits, industry groups came to see that, when properly conducted, cost-benefit analysis could justify stringent environmental protection. Consequently, they have abandoned their original enthusiasm for the technique. Similarly, over the same period of time, environmental groups came to see the promise of cost-benefit analysis, for similar reasons.
An example of an industry attack on marketable permits
With respect to instrument choice, industry groups were originally attracted to marketable permit schemes as a lower-cost means of achieving pollution reduction, while environmental groups were skeptical of the these approaches. First with the Clean Air Act Amendments of 1990, and then when faced with the daunting challenge of climate change, environmental groups acknowledged that market mechanisms are more economically and politically viable than command-and-control regimes because they impose far lower aggregate costs on society. And, industry groups realized that by attacking marketable permit schemes they might defeat greenhouse gas regulation altogether. 
While environmental groups and industry have largely switched positions on the two central questions of environmental policy, the points at which their positions overlapped were fleeting, and opportunities to make substantial progress in rationalizing the system of environmental regulation have largely been unrealized.

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