Congressional Budget Office
Director’s Blog

CBO recently transmitted to the Congress a table showing budget projections for policy paths that may serve as useful alternatives to CBO’s current-law baseline projections. The new table is very similar to the table of selected policy alternatives that CBO published in January in our Budget Outlook report, reflecting CBO’s updated March baseline projections.

As we often remind consumers of CBO reports, the baseline is not a forecast of future outcomes but rather a benchmark that encompasses present laws and policies, which lawmakers and others can use to assess the potential impact of future policy decisions.  Actual budgetary outcomes are almost certain to differ from CBO’s baseline projections because of future legislative actions, unanticipated changes in conditions affecting the economy and national security, and many other factors that affect federal programs and sources of revenues.

In this analysis, CBO projected the budgetary impact of policy action including alternative troop levels in Iraq, Afghanistan, and elsewhere in support of the war on terrorism; alternative paths for other discretionary spending; and alternative revenue provisions.

Today’s Wall Street Journal quotes me saying that CBO has between 40 and 50 people working “more than full time” on health reform.  Yesterday’s Politico included me in an article about “Names, Faces to Watch for In Debate Over Care,” and the story referred to “Elmendorf and his team of anonymous analysts.”

Clearly, analyzing health reform proposals is a team effort. Indeed, projecting the behavioral consequences and budgetary impact of a variety of proposals to make major changes in a sector that accounts for one-sixth of the U.S. economy poses an enormous analytical challenge.  CBO is meeting that challenge because of the skill, knowledge, and hard work of our talented staff (and of our colleagues on the staff of the Joint Committee on Taxation, with whom we are collaborating in this effort). 

Because CBO believes that its estimating methodology should be as transparent as possible, perhaps our estimating team should be transparent as well.  In that spirit, here are the previously anonymous analysts at CBO who deserve a great deal of credit for their fine work analyzing health reform and related legislative proposals (I realize this list has more than 50 names; that’s because some of these people have other responsibilities beyond health reform):

Human activities around the world—primarily fossil fuel use, forestry, and agriculture—are producing growing quantities of emissions of greenhouse gases, other gases, and particulates and are also greatly altering the Earth’s vegetative cover. A strong consensus has developed in the expert community that if allowed to continue unabated, the accumulation of those substances in the atmosphere and oceans, coupled with widespread changes in patterns of land use, will have extensive, highly uncertain, but potentially serious and costly impacts on regional climate and ocean conditions throughout the world.

Today CBO released a paper presenting an overview of the current understanding of the impacts of climate change in the United States. CBO cannot independently evaluate the relevant scientific research, so our paper draws from numerous published sources to summarize the current state of climate science and provides a conceptual framework for addressing climate change as an economic concern. The paper was reviewed by several knowledgeable external reviewers and, as with all CBO analysis, makes no recommendations.

The paper discusses potential impacts on the physical environment (temperature, precipitation, severe storms, ocean currents, climate oscillations. sea level, and ocean acidification); biological systems(ecosystems and biological diversity, agriculture, forestry, and fisheries); and the economy and human health (water supply, infrastructure, human health, and economic growth).

The paper emphasizes the wide range of uncertainty about the magnitude and timing of impacts and the implications of that uncertainty for the formulation of effective policy responses. Uncertainty arises from several sources, including limitations in current data, imperfect understanding of physical processes, and the inherent unpredictability of economic activity, technological innovation, and many aspects of the interacting components (land, air, water and ice, and life) that make up the Earth’s climate system.  This does not imply that nothing is known about future developments, but rather that projections of future changes in climate and of the resulting impacts should be considered in terms of ranges or probability distributions. For example, some recent research suggests that the median increase in average global temperature during the 21st century will be in the vicinity of 9° Fahrenheit if no actions are taken to reduce the growth of greenhouse-gas emissions. However, warming could be much less or much greater than that median level, depending on the growth of emissions and the response of the climate system to those emissions.

Given current uncertainties, crafting a policy response to climate change involves balancing two types of risks: the risks of limiting emissions to reach a temperature target and experiencing much more warming and much greater impacts than expected versus the risks of incurring costs to limit emissions when warming and its impacts would, in any event, have been less severe than anticipated. Climate policies thus have a strong element of risk management: Depending on the costs of doing so, society may find it economically sensible to invest in reducing the risk of the most severe possible impacts from climate change even if their likelihood is relatively remote. In particular, the potential for unexpectedly severe and even catastrophic outcomes, even if unlikely, would justify more stringent policies than would result from simply balancing the costs of reducing emissions against the benefits associated with the expected or most likely resulting degree of warming. At the same time, the uncertainties in the link between emissions and climate change mean that even rigid quantitative targets are not likely to achieve a specific warming target.  Uncertainties may thus justify flexible mechanisms even though they may simultaneously justify relatively stringent policies.

The report was written by Bob Shackleton.  He has been at CBO for the past 10 years and working on climate issues here and elsewhere for nearly 20 years.  Bob holds a Ph.D. in economics from the University of Maryland.  In addition to his interest in climate issues, he satisfies his intellectual curiosity through a wide variety of pursuits including publishing original scholarly research on the history of American dialects and studying quantum mechanics in his free time.  In short, he is a true geek . . .