Because it can shift some of the costs of its oil and natural gas conservation to other countries, the United States would incur a lower cost for reducing CO 2 emissions than would the world. Some analysts would incorporate this cost shift into the analysis, and as shown in Figure III , the lower marginal cost implies that a greater reduction in CO 2 emissions would be optimal. Such a conclusion is flawed, however. Optimality cannot be found by equating the marginal benefit to the world with the marginal cost to the United States. This is like comparing apples to oranges.
Sound analysis requires consistency in defining the incidence of costs and benefits.
There Is No Such Thing. A number of energy analysts argue that the United States can cut its energy consumption by 25 percent and achieve a cost saving at the same time. Some analysts who consider this cost curve accurate and who favor the extreme precautionary approach to reducing CO 2 emissions have criticized the president's target as too conservative. As shown in Figure III , reducing CO 2 emissions from fossil fuels to 3 percent below 1990 levels would have a marginal cost that is above the mean estimate of marginal benefit but below the likely upper bound. Analysts who believe in the free lunch use conceptually flawed studies to support their claims.