How do Congressional Budget Office Scores Impact Climate Policy?

Part 1: The Current State of the Congressional Budget Office

Since its establishment, the Congressional Budget Office (CBO) has been a linchpin of the Congressional policy and budget-making process. CBO was created by the Congressional Budget and Impoundment Control Act of 1974 in response to budgetary conflicts between the executive and legislative branches, with President Richard Nixon threatening to withhold appropriated funds for programs inconsistent with his policy priorities. CBO provides Congress with non-partisan analyses but does not make recommendations. Nevertheless, CBO analyses, seemingly bound by statute, often have the effect of determining policy outcomes due to the economic decision-making methodologies used.

Mandatory and discretionary spending are controlled by different statutory procedures whose goals are essentially the same: deficit neutrality. The Budget Enforcement Act of 1990 (BEA) limits discretionary spending through “caps,” while mandatory spending is limited by the Statutory Pay-As-You-Go Act of 2010 (PAYGO). CBO uses a methodology called scoring to ensure compliance with these laws. In the executive branch, the President’s Office of Management and Budget (OMB) uses the same process to review annual agency budget requests.

CBO is required to prepare cost estimates for each bill approved by a House or Senate committee. It also creates baseline projections of the budget and economy and estimates of a bill’s effect on spending or revenues over the next 10 years. In the decades since CBO was established, lawmakers have increasingly relied on its scores to guide policy. This becomes an issue if CBO scores are taken out of context: CBO scores are intended as data points, but policymakers have used them as justification to prevent legislation from passing. In practice, the pursuit of a “good” CBO score can influence members of Congress to avoid introducing certain kinds of policy.

In the case of climate change, CBO’s methodology often unintentionally serves to discourage climate change mitigation policies that may have high short-term budget cost impacts but will more than payback those costs with economic, social, and environmental dividends in the long term. For example, CBO's narrow focus on potential hurricane-related damage impacts on the federal budget do not consider impacts on the nation as a whole. There have been calls throughout the past decade to reform the CBO scoring process to provide a more complete understanding of the impact of legislation on climate, but questions still remain regarding what kinds of changes are needed or possible.

How CBO Falls Short on Climate

CBO identifies actions that may increase the federal deficit, which then triggers offsetting actions. Unfortunately, the models it uses may actually result in higher long-term costs to the government. According to former Senate Budget Committee economist Stephanie Kelton, assumptions within CBO models minimize the long-term economic benefits of public investments by assuming that large public investments crowd out private investment. This assumption has been criticized for being based on too little empirical evidence. It also disincentivizes climate policies that include significant public investment in solutions like clean energy, energy efficiency, and sustainable infrastructure, since policymakers can improve bills’ CBO scores by avoiding public investment and instead relying on private investors to enact climate solutions.

Other assumptions in CBO scoring models lead to scores that do not capture the full extent of policies’ impact on the climate. The models' ten-year time frame, for example, does not look at the full life cycle of policy that may have benefits or consequences that take longer than a decade to be reflected in economic data. Similarly, the limited time frame prevents CBO scores from fully accounting for the benefits of mitigating the long-term impacts of climate change. Many co-benefits of climate policy, including things that are difficult to monetize, are also not included in CBO scores. Finally, the CBO does not score bills based on their impact on greenhouse gas emissions as a standard practice. This means that only bills with the explicit goal of reducing emissions are evaluated in their potential to do so, and the potential for other legislation to increase emissions is not taken into consideration.

Calls for Change

Members of Congress have recognized gaps in CBO’s evaluation of climate policy and have proposed changes. The Carbon Pollution Transparency Act (H.R.5733/S.2905), last introduced by Representative Jared Huffman (D-Calif.) and Senator Bernie Sanders (I-Vt.) in 2014, sought to directly resolve the incongruity between CBO scores and climate impacts. The bill, which died in committee in both chambers, required the CBO to calculate a carbon score for legislation along with the other economic markers it already produces. If passed, it would have expanded all CBO scores to include the projected net greenhouse gas emissions resulting from the bill.

Other members have demonstrated interest in some form of climate-related scoring. Draft legislation for the Climate Equity A