As part of the legislative process, the Congressional Budget Office supplies the Congress with cost estimates for legislation, economic and budget projections, and other economic assessments. Information from the research community is an important element of CBO’s analyses. This is the first in a series of blog posts discussing research that would enhance the quality of the information that CBO uses in its work. Please send comments to communications@cbo.gov.
Federal regulations and permitting requirements can affect the amount and composition of energy produced and used, prices of different sources of energy, and carbon dioxide (CO2) emissions. The federal government also provides funds to prepare for disasters and reduce the resulting damage they cause. CBO is on the lookout for new research related to various topics in the area of energy and the environment—specifically, research that addresses how changes to federal regulations and permitting would affect energy markets and CO2 emissions, and how changes in federal spending on efforts to adapt to climate change would affect the amount of damage it causes. CBO is currently working on those topics, and there are significant gaps in the relevant research literature.
The Congress often considers legislation intended to hasten the federal approval process for building large infrastructure projects by reducing regulatory and permitting requirements, including projects to produce and deliver energy. CBO is responsible for estimating the effects of such legislation on the federal budget (for example, CBO 2023, CBO 2019a, CBO 2018) and for incorporating those effects in its baseline projections if the legislation is enacted. Although there is ample literature on the market effects of government regulation, there is little research for CBO to draw upon about how changing regulatory and permitting requirements for energy-related infrastructure would affect the quantities and prices of energy produced and the resulting amount of CO2 released. A recent report on the nonbudgetary effects of charging the oil and gas industry for methane emissions (CBO 2022a) made use of the available, albeit limited, research in that area.
When assessing the effects of policies, CBO generally considers the time it takes to obtain the variety of federal, state, local, and, in some cases, tribal permits or approvals required to develop infrastructure to produce and deliver energy—including oil and gas wells, pipelines, wind and solar facilities, and electric transmission lines. The National Environmental Policy Act (NEPA) additionally requires federal agencies to consider the potential environmental effects of their decisions when granting project approvals (Congressional Research Service 2022, Environmental Protection Agency 2021). Some industry analysts and lawmakers have raised concerns that environmental reviews under NEPA take too long and thereby slow the development of existing projects too much and discourage new ones (Dourado and Smith 2020). Although some projects qualify for abbreviated review under NEPA, others are subject to extensive environmental study—particularly those, such as natural gas pipelines or electric transmission lines, that cover long distances and cross multiple jurisdictions.
CBO is also often asked to provide the Congress with information about how increased federal spending on measures to adapt to climate change might reduce the amount of damage from flooding or from other effects of the changing climate (CBO 2022b, CBO 2022c, CBO 2019b, CBO 2016). Research that related spending on climate adaptation to changes in future damage suffered by households, businesses, and governments or to future federal budgetary effects associated with the effects of climate change would help CBO develop more informative analyses.
In the past, CBO drew upon an analysis of a small sample of adaptation projects (Multihazard Mitigation Council 2005) to estimate the potential cost savings attributable to spending on the Federal Emergency Management Agency’s Pre-Disaster Mitigation Program (CBO 2007). A recent update of the underlying analysis did not appreciably increase the size or representativeness of the sample (National Institute of Building Sciences 2019).
How Would Changes to the Federal Permitting Process Affect Energy Production and Prices and the Resulting CO2 Emissions?
Analyzing the effects of regulations on businesses and the economy has been an active line of research (Coffey, McLaughlin, and Peretto 2020; Dawson and Seater 2013; Djankov, McLiesh, and Ramalho 2006). But there has been little research on the expected economic and environmental effects in energy-producing sectors from changes to permitting or to environmental reviews under NEPA or other laws. Some research has considered federal environmental protections as a whole but has not identified the relative importance of particular requirements for environmental protection (Lewis 2019). Other studies have focused on specific environmental protections but not the role of environmental review under NEPA (Ryan 2012, Greenstone 2002). Research that evaluates how changes to the federal permitting process and related environmental reviews would affect domestic energy sectors could enhance CBO’s analysis of the budgetary and economic effects of future changes in federal permitting.
How Would Changes in Federal Spending on Climate Change Adaptation Affect Damage From Floods or Other Consequences of Climate Change?
The research that estimates the damage from climate change that could be avoided by implementing various types of adaptation projects generally falls into three categories, each with advantages and disadvantages. First, some studies directly estimate the relationship between historical spending and subsequent disaster damage (Davlasheridze and Miao 2021, for example). One limitation of those studies is that the estimate might not reflect future savings if mitigation projects (that is, projects designed to reduce damage from future disasters) exhibited diminishing returns or if climate change and economic development substantially altered the risk of damage. Second, other studies estimate how the presence of infrastructure intended to mitigate damage from disasters affects property values (Kelly and Molina forthcoming, Bradt and Aldy 2023). Those studies can account for an array of private benefits and reflect expectations about amounts of damage in the future; but they underestimate the future damage such infrastructure prevents when people have imperfect information or misperceive risk. Third, studies can rely on engineering-based models of disaster damage rather than econometric estimates (Neumann et al. 2021, Wobus et al. 2021, Johnson et al. 2019, Aerts et al. 2014). Those studies can model future conditions and simulate many years of hypothetical flooding rather than relying on a small sample of historical disasters. However, they represent an idealized model of damage reduction subject to considerable uncertainty. Also, they do not typically account for behavioral responses by households, businesses, and state and local governments, which could increase risk or reduce complementary spending and affect the net reduction in damage.
CBO is conducting research on the effects of federal spending on climate change adaptation, and that work would be enhanced by additional research that extends, compares, and combines different approaches to help fill gaps in the literature. Studies that cover more federal disaster mitigation programs, additional kinds of disasters, and federal programs that promote adapting to climate impacts beyond property damage (for instance, funding research on developing climate-resilient crops) would be particularly useful.
Joseph Kile is CBO’s Director of Microeconomic Analysis. This blog post includes contributions from the following CBO staff: Nicholas Chase, Scott Craver, Ann E. Futrell, Ron Gecan, Evan Herrnstadt, Jeffrey Kling, Robert Reese, Chad Shirley, William Swanson, and Susan Willie.