Timing of Cost-Benefit Analyses

One thing I was particularly glad of during my internship was our class discussions regarding cost-benefit analyses, since the policy world is abuzz with the term at the moment. However, I began to think hard about a dimension of CBA that had not been discussed at CEP—the timeline of the analyses. Where this issue was expressed the most strongly was the discussion over the recent EPA rules for the electric sector. I watched a number of Congressional hearings on the rules, and the Representatives from states with a coal-heavy electric fleet expressed a very real concern—that customers would no longer be able to afford to turn their lights on. One of the largest utilities in southeast, Southern Company, noted that as many as 40% of their customers have incomes near or below the poverty line and already struggle to pay their electric bills. One Congressman relayed stories from his constituents who must choose between turning on the lights and buying medicine. The Representatives’ concerns over the new EPA regulations are therefore well justified—the rules will require large and expensive retrofits that will unavoidably raise costs for those customers who can least afford it.

On the other side of the discussion is evidence that people are already paying the price of dirty coal in the form of increased health costs. Numerous analyses have shown that the benefits of stronger emissions standards far outweigh the costs. So who is “right” in this discussion? It seems to me that both sides are. The problem is that CBA calculations are typically performed over a long timeline and examine the costs/benefits to society rather than to an individual. The truth is that the EPA regulations will in fact benefit society in the long run, but at the cost of significant hardship for some members of that society in the short run. That is a difficult fact to accept, but I believe it is something that we must start discussing openly if we are to have any hope of progress on the issues we are facing.

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