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On Balance: How Is the US Pricing Carbon? How Could We Price Carbon?

Economists have for decades recommended that carbon dioxide and other greenhouse gases be taxed to provide incentives for their reduction. The United States does not have a federal carbon tax; however, many state and federal programs to reduce carbon emissions effectively price carbon—for example, through cap-and-trade systems or regulations. There are also programs that subsidize reductions in carbon emissions. At the 2022 meetings of the American Economic Association, the Society for Benefit-Cost Analysis brought together five well-known economists—Joe Aldy, Dallas Burtraw, Carolyn Fischer, Meredith Fowlie, and Rob Williams—to discuss how the United States does, in fact, price carbon already and how it could do so more effectively. Maureen Cropper chaired the panel.

Meredith Fowlie discussed problems that a carbon tax would present if levied on the US energy sector. As Fowlie pointed out, setting a carbon tax equal to the social cost of carbon assumes that the prices of carbon-intensive goods reflect suppliers’ marginal private costs. In many US states, however, regulated retail electricity and natural gas prices exceed marginal supply costs—in the case of electricity, sometimes by a factor of two to three. Electricity prices have risen to cover the costs of upgrading generation, transmission, and distribution systems and making the grid more resilient to extreme weather events. Adding a carbon tax to these prices would slow the pace of electrification for the clean energy transition and would burden low-income households. Fowlie discussed these issues and suggested that retail rate reform is needed.

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On Balance: Major Questions about West Virginia v. EPA and Benefit-Cost Analysis

On June 30, 2022, the Supreme Court of the United States decided West Virginia v. Environmental Protection Agency. The case was about whether EPA in the Clean Power Plan could set the carbon emissions standard for existing power plants at a level that would require the power plants to reduce coal use and shift to or subsidize natural gas or renewable-energy electricity generation (referred to as “generation shifting”). But the focus was not on whether such a level would be benefit-cost justified—but rather on whether the agency was allowed to set a standard requires generation shifting for compliance under this provision of the Clean Air Act. Writing for the majority, Chief Justice Roberts applied the “major questions” doctrine and concluded that EPA could not do this despite reasonable textual support for it; on issues like this one, which have “vast economic and political significance,” Congress must clearly authorize an agency to act in this way.

It is tempting to conclude that this decision about statutory interpretation has no relevance for benefit-cost analysis (BCA). But unfortunately, the decision contains language that suggests the Court misunderstands and disregards the value of using BCA in federal regulatory policy.

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On Balance: SBCA Continues to Expand Its Worldwide Influence

The primary way the Society pursues its mission to improve the theory and practice of benefit-cost analysis is by bringing people together, particularly during its annual meetings held each March. It is therefore very rewarding to note the recent increases in conference attendance and the associated increases in Society membership.

The first Society conference took place in 2008 and drew 79 people (Table 1). Attendance has grown steadily since then. In particular, the move to an online format in 2021 and 2022 resulted in very large increases in attendance, with attendance topping 600 people.

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On Balance: China's Belt and Road Initiative: New Research Agenda in Cost-Benefit Analysis

China is investing trillions of dollars in hundreds of projects, mainly infrastructures under its Belt and Road Initiative. This Initiative termed the BRI seeks to increase trade and contribute to global economic growth through increased connectivity, ports' development, building transport networks, pipelines, and other major infrastructures stretching from the northwestern part of China through Central Asia and Middle East through Africa and onwards to Europe.

We discuss some implications of this BRI in the context of new developments and key challenges it faces, not widely covered in the literature. Specifically, we identified three major areas which require immediate attention if any success of the BRI is to materialize. Such new areas may constitute the new research agenda for Cost-Benefit Analysis. One concern is the issue of NIMBYs (Not In My Backyard) which essentially deals with siting decisions. The second concern has to do with applying Cost-Benefit Analysis to BRI countries and that is whether the framework of conventional Cost-Benefit Analysis remain the same as with applications in developed countries. And, thirdly, the arrival of competing initiatives from the United States and European Union on the BRI. We discuss some conflict resolution instruments to siting issues and the role of auctions. Highlights from the new Health and Digital Silk roads are also presented.

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