Novel Accounting

The Economist describes the "novel accounting" by the Environmental Protection Agency (EPA) concerning the EPA's proposed greenhouse gas regulations [bold added]:

the Environmental Protection Agency routinely applies a cost-benefit test. Its sweeping proposal to cap greenhouse gas emissions from existing power plants appears to pass with flying colours. By the EPA's reckoning, the rule will, by 2030, cost just $7.3 billion to $8.8 billion a year (in 2011 dollars), while producing benefits worth $55 billion to $93 billion per year.

But this calculation rests on a novel calculation of the benefits of reducing greenhouse gases that takes regulatory policy into contentious new territory. As calculated, the costs are borne entirely by Americans, but the benefits accrue to the whole world.

Comments:

1) A frequent criticism of government that bears repeating: if a business were to do its accounting this way, the executives would be prosecuted by the SEC and thrown in jail, after much public shaming. [For example, Google's free search engine benefits humankind by $XX billion, so EPA-style accounting would allow Google to add that amount to its revenue.]

2) The U.S. will be in a position to eliminate its foreign-aid budget since according to the EPA the world will be receiving new benefits of at least $55 billion per year (minus the U.S. share of about 20%).

3) The current EPA budget is $8 billion. The greenhouse gas regulations alone, by the EPA's own reckoning, would cost Americans about the same amount. The latter $8 billion of regulatory cost is a small fraction of the economic cost of existing air, water, and land use regulations (for instance, Environmental Impact Reports add months, if not years, of delay to every major construction project). We are not saying that there are no benefits to protecting the environment, just observing that the true cost of government vastly exceeds the amount that it spends.