Two seemingly unrelated news items demonstrate our difficulty in balancing short-term benefits and costs with long-term ones: The relaxation of mark-to-market accounting rules and a Supreme Court decision allowing the EPA to use cost-benefit analyses.
With a collapsed demand for and an abundant supply of distressed properties, their values have plummeted, reducing the assets on banks' balance sheets.
In response, the Financial Accounting Standards Board relaxed its mark-to-market rule, essentially saying that the short-term value reflected in today's prices understate their long-term value. I can accept that logic.
However, in a 6-3 decision on April 1, the Supreme Court allowed the Environmental Protection Agency to use a cost-benefit analysis to relax its regulations on overheating rivers, lakes, and oceans when cooling electrical power plants. It's easy to determine the costs for controlling this thermal pollution, which cooks the animals unwillingly carried through the cooling pipes, but the benefits are harder to estimate.
As Justice Kennedy wrote in dissent, the EPA assigned value only to the 1.8 percent of the species that have a market value (think fish and shrimp), effectively assigning no value to 98.2 percent of the species that the agency serves to protect. As a result, the EPA estimated the benefits at $83 million instead of $735 million. The EPA then determined that the pollution control costs were too high for the limited benefit.
This Supreme Court ruling says the environment can be marked to today's market values, without regard for the services a well-functioning ecosystem provide, like enhanced water quality, carbon sequestration, not to mention an environment that feeds and supports marketable species and terrestrial wildlife. These services represent long-term goods that have value not marked to today's dollar estimates of marketable fish and shrimp populations.
Hopefully President Obama's EPA will consider the environment's broader and longer-term values better than the Bush administration's EPA if it continues to use cost-benefit analyses. In the meantime, we need to demand that Congress acts to undo the Supreme Court's damage allowing mark-to-market environmental values.
