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Why Conservatives and Libertarians Should Think Globally About Environmental Policy

Summary:
Economists are debating whether to take a domestic or international perspective on environmental ... [+] policy. getty In recent years, an interesting debate has been taking place among economists. It centers around the appropriate scope of regulatory policy, with a particular emphasis on environmental regulation. Given the Biden Administration’s ambitious environmental goals, this debate may accelerate in the coming months and years. The issue economists are grappling with is whether benefits that accrue to foreigners from U.S. policies should receive the same weight in an economic analysis as costs that fall primarily on Americans. This dilemma comes up most often in climate policy, but is relevant to many other areas of policy as well. The question is ultimately one of

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In recent years, an interesting debate has been taking place among economists. It centers around the appropriate scope of regulatory policy, with a particular emphasis on environmental regulation. Given the Biden Administration’s ambitious environmental goals, this debate may accelerate in the coming months and years.

The issue economists are grappling with is whether benefits that accrue to foreigners from U.S. policies should receive the same weight in an economic analysis as costs that fall primarily on Americans. This dilemma comes up most often in climate policy, but is relevant to many other areas of policy as well.

The question is ultimately one of “standing,” meaning who gets counted in an economic analysis. One aspect of climate change that makes the issue so challenging is that the problem is global in nature. Our own emissions have effects that extend beyond our borders, and the same is true of other countries’ emissions.

The standing issue becomes more concrete when considering some of the technical inputs that go into regulatory economic analysis. Consider the “social cost of carbon” (SCC), which is a measure of the welfare cost from emitting a ton of carbon dioxide into the air. One estimate suggests that the domestic SCC is only about 7 to 23 percent of the total SCC, meaning most of the welfare benefits from U.S. actions to fight climate change go to foreigners. Meanwhile, the costs of complying with the same U.S. policies generally fall on Americans. 

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