All the Tools in the Toolbox: A Plea for Flexibility and Open Minds in Assessing the Costs and Benefits of Climate Rules

Abstract

As the Biden Administration works on updating the social cost of carbon (SCC), some economists are urging a different approach, known as the “Marginal Abatement Cost” (MAC) method or the “target-consistent” approach. Rather than attempting to calculate all the damage caused worldwide by each ton of carbon dioxide released into the atmosphere, the MAC approach instead asks: what is the highest amount of money per ton that society will need to be willing to pay if we are going to successfully meet greenhouse gas reduction targets? This approach has the virtue of avoiding the most intractable complexities and uncertainties involved in estimating the SCC, including embedded ethical judgments about the degree to which the interests of future generations should be discounted in comparison to our own and the scope of the relevant “society” across which climate damages should be measured. Nonetheless, the MAC approach has come under fire from cost-benefit purists who argue, first, that it is inappropriate as a matter of good policymaking and, second, that it is prohibited by law. Both claims are at a minimum overstated and arguably outright wrong. As a matter of both legal mandate and good policy, the Biden Administration would do well to avoid the CBA orthodoxy that some commentators advocate. Instead, the Administration should as a matter of good policy—and can as a matter of law—make use of the rich variety of tools in the regulatory decision-making toolbox, including the MAC approach, in developing climate policy.