Coping with Uncertainty: Cost-Benefit Analysis, the Precautionary Principle, and Climate Change

INTRODUCTIONAs two leading climate scientists have said, "[t]he further we push our Earth outside of its mode of operation of the past millennia, the further we steer it into uncharted waters."1 Any approach to climate policy must contend with this uncertainty. Ideally, when deciding how much to reduce emissions or whether a particular species is likely to be endangered by climate change, policymakers would have a reliable forecast of the precise future impacts of climate change. Although scientists have learned a great deal about climate change, climate science still falls short of this ideal. Yet, decisions must be made in the meantime.Two rival approaches for dealing with this problem are on the table: the precautionary principle (which is favored by most environmentalists) and cost-benefit analysis (which is favored by most economists).2 Many scholars have taken one side or the other on this debate. A few have attempted to reconcile the two.3 There have also been examinations of some key decisions in climate policy. But a more systematic, detailed analysis of how the two approaches operate in practice is essential to improving policy analysis. This Article aims to supply that analysis.Part I of the Article examines the scientific uncertainties that policymakers must confront. The key uncertainties do not involve the existence of climate change or its link with greenhouse gas emissions, both of which are accepted by the overwhelming majority of climate scientists.4 Rather they involve its severity. Although we have learned a great deal about the Earth's climate, there are still some significant gaps. Unless or until these gaps are filled by research, they mean that climate policy must build on a scientific foundation that cannot fully predict just how bad climate change will be.Parts II and III examine the theory and practice of the two contesting approaches to climate policy through use of case studies. As these case studies show, the dispute over the best way to deal with uncertainty is pressing and already confronts government leaders and administrative agencies.Part II focuses on the precautionary principle as a guide to climate policy. Here, the examples are the international effort to establish the level at which the risks of climate change become unacceptable, the Environmental Protection Agency's (EPA) finding that greenhouse gases warrant regulation under the Clean Air Act, and the Fish and Wildlife Service's (FWS) determination that because of climate change, polar bears are likely to become an endangered species.Part III analyzes efforts to determine the economic impact of future climate change as a factor in cost-benefit analysis. The main example is the federal government's estimate of the social cost of carbon, but understanding that estimate requires considerable preliminary exploration of climate economics. As we will see, the economic uncertainties amplify the scientific ones, making confident conclusions difficult. But the economic models do confirm the crucial role of three factors in determining the social cost of carbon: the magnitude of climate sensitivity, the size of the discount rate, and the handling of possible catastrophic outcomes.Part IV then offers some brief conclusions based on these case studies. The precautionary principle seems to work well enough in identifying when climate risks require serious policy responses, but provides less guidance about the extent of the response. On the cost-benefit side, uncertainty about the economic impact of climate change remains great, driven largely by disagreements about how heavily to weight harms decades or even centuries in the future and about how to take into account the risks of high climate sensitivity and of catastrophic outcomes.Some ways of combining use of the precautionary principle and economic analysis have been suggested, but these hybrid approaches have difficulties as well as promise. …