Tag: social cost of carbon

When “Conservative” Means “Alarmist”

Global Science Report is a feature from the Center for the Study of Science, where we highlight one or two important new items in the scientific literature or the popular media. For broader and more technical perspectives, consult our monthly “Current Wisdom.”


There is a new study out that purports to make a “conservative” estimate of the social cost of carbon and in doing so arrives at a figure nearly four times larger than the central estimate currently used by the U.S. government—the latter a figure which we and others have voluminously argued is itself several times too high. Perhaps the authors of the new report ought to look up the definition of the word “conservative.”

Recall that the social cost of carbon is supposed to represent the total value of future damages from climate change resulting from the current emission of a ton of carbon dioxide. As you may imagine, coming up with the SCC involves more imagination than actual science.

The primary “tools” used for determining the SCC are “integrated assessment models,” or IAMs, which incorporate a very simple climate model into an economics model. Writing in the journal Nature Climate Change, Jeroen van den Bergh and Wouter Botzen review elements (economic and climatic) that are poorly incorporated or missing entirely from the IAMs.

A prominent characteristic of the IAMs is that they are notoriously malleable and able produce virtually any value for the SCC that the modeler or end-user desires.

Judging from the introductory sentence of their paper

Climate change has been called “the biggest market failure the world has seen” and “the mother of all externalities.”

you can pretty much guess what kind of SCC value van den Bergh and Botzen prefer.

To support their apparent preference for a high SCC, they spend the bulk of their paper imagining bad climate outcomes—with high monetary damages—and are generally dismissive of positive climate impacts. For example:

Nevertheless, our summary of the main effects provides a clear insight, namely that unquantified negative effects of climate change tend to domi­nate unquantified positive effects. The negative effects comprise large biodiversity losses, political instability, violent conflicts, large-scale migration, extreme weather events, natural disasters and the effect on long-term economic growth. Accounting for the latter is likely to increase the SCC because large impacts of cli­mate change are expected to reduce the rate of GDP growth, partly because of negative effects on labour and capital productivity.

Unsurprisingly, when you include a lot of negative impacts along with a low discount rate, the IAMs produce very high estimates of the SCC.

In fact, van den Bergh and Botzen arrive at a “conservative” SCC value of $125. For comparison, value used by the Obama Administration for cost/benefit analyses of new regulations is $36.

Interestingly, in their “conservative” analysis, they never once mention the growing body of new and prominent scientific literature that produce updated estimates of the earth’s climate sensitivity—a measure of how much climate change we expect from carbon dioxide emissions—that are much lower and much more tightly constrained than the ones used in all of the studies reviewed by van den Bergh and Botzen.

The lower climate sensitivity estimates not only reduce the overall impacts from expected climate changes, but they do so primarily by reducing the chances of unexpected and catastrophic changes—the biggest drivers of the high SCC values in the IAMs. It has been repeatedly shown (see here, here, and here for example) that incorporating the new, lower climate sensitivity estimates reduce the IAMs’ SCC determinations by some 40 percent.

And there are lots of other things, which, if better incorporated in the IAM’s, would lead to lower SCC values.

If the positive benefits from carbon dioxide emissions on the planet’s crop production were better included in the IAM’s, the SCC value drops further.  And if arguments for the use of a higher discount rate, rather than the very low one espoused by van den Bergh and Botzen win the day, the SCC drops further still.

Add to the mix a more reasoned view of future climate extremes, and before you know it, it is an easy argument to make that the SCC value should fall significantly below the Administration’s $36 rather than some three to four times higher.

It is bad enough that van den Bergh and Botzen present a rather one-sided view of the science of climate change/climate extremes and the economics concerning the choice of discount rate, but for them to term their analysis “conservative” is really taking things too far. “Alarmist” would be a more apt description.

Our hope would have been that the reviewers for Nature Climate Change would have caught the glaring oversight of the current climate sensitivity literature (with one of the most persuasive articles appearing in the sister journal Nature Geosciences), but that didn’t happen. We’ll withhold speculation as to why that was the case.

Reference:

Van den Bergh, J.C.J.M., and W.J.W. Botzen, 2014. A lower bound to the social cost of CO2 emissions. Nature Climate Change, 4, 253-258, doi:10.1038/NCLIMATE2135.

Social Cost of Carbon Inflated by Extreme Sea Level Rise Projections

Global Science Report is a feature from the Center for the Study of Science, where we highlight one or two important new items in the scientific literature or the popular media. For broader and more technical perspectives, consult our monthly “Current Wisdom.”


As we mentioned in our last post, the federal Office of Management and Budget (OMB) is in the process of reviewing how the Obama administration calculates and uses the social cost of carbon (SCC). The SCC is a loosey-goosey computer model result that attempts to determine the present value of future damages that result from climate change caused by pernicious economic activity. Basically, it can be gamed to give any result you want.

We have filed a series of comments with the OMB outlining what is wrong with the current federal determination of the SCC used as the excuse for more carbon dioxide restrictions. There is so much wrong with the feds’ SCC, that we concluded that rather than just update it, the OMB ought to just chuck the whole concept of the social cost of carbon out the window and quickly close and lock it.

We have discussed many of the problems with the SCC before, and in our last post we described how the feds have turned the idea of a “social cost” on its head. In this installment, we describe a particularly egregious fault that exists in at least one of the prominent models used by the federal government to determine the SCC: The projections of future sea-level rise (a leading driver of future climate change-related damages) from the model are much higher than even the worst-case mainstream scientific thinking on the matter. This necessarily results in an SCC determination that is higher than the best science could possibly allow.

The text below, describing our finding, is adapted from our most recent set of comments to the OMB.

The Dynamic Integrated Climate-Economy (DICE) model, developed by Yale economist William Nordhaus (2010a), is what is termed an “integrated assessment model” or, IAM. An IAM is computer model which combines economics, climate change and feedbacks between the two to project how future societies are impacted by projected climate change and ultimately to determine the social cost of carbon (i.e., how much future damage, in today’s monetary terms, occurs for each unit emission of carbon (dioxide)).

The Current Wisdom: The Administration’s Social Cost of Carbon Turns “Social Cost” on Its Head

This Current Wisdom takes an in-depth look at how politics can masquerade as science.

                      “A pack of foma,” Bokonon said

                                                Paraphrased from Cat’s Cradle (1963), Kurt Vonnegut

In his 1963 classic, Cat’s Cradle, iconic writer Kurt Vonnegut described the sleepy little Caribbean island of San Lorenzo, where the populace was mesmerized by the prophet Bokonon, who created his own religion and his own vocabulary. Bokonon communicated his religion through simple verses he called “calypsos.” “Foma” are half-truths that conveniently serve the religion, and the paraphrase above is an apt description of the Administration’s novel approach to determining the “social cost of carbon” (dioxide). 

Because of a pack of withering criticism, the Office of Management and Budget (OMB) is now in the process of reviewing how the Obama Administration calculates and uses the social cost of carbon (SCC).  We have filed a series of Comments with the OMB outlining what is wrong with the current SCC determination. Regular readers of this blog are familiar with some of the problems that we have identified, but our continuing analysis of the Administration’s SCC has yielded a few more nuggets.

We describe a particularly rich one here—that the government wants us to pay more today to offset a modest climate change experienced by a wealthy future society than to help alleviate a lot of climate change impacting a less well-off future world.

Say What!?

While the social cost of carbon (SCC) is still being mulled over by the Office of Management and Budget, other federal agencies continue to push ahead with using the SCC to help justify their many regulations.

The way this works is that for every ton of carbon dioxide (CO2) that any new regulation is supposed to keep from being emitted into the atmosphere, the proposing agency gets about $32 credit to use to offset the costs that the new regulation will generate. This way, new regulations seem less costly—an attractive quality when trying to gain acceptance.

The idea is that the damage resulting from future climate changes will be decreased by $32 for every ton of carbon dioxide that is not emitted.

There is so much wrong with the way the government arrives at this number that we have argued that the SCC should be tossed out and barred from use in all federal rulemaking. It is far better not to include any value for the SCC cost/benefit analyses, than to include one which is knowingly improper, inaccurate and misleading.

Further, that the federal regulations limiting carbon dioxide emission will have any detectable impact on future climate change is highly debatable. To see for yourself, try out our global warming calculator that lets you select the magnitude of future carbon dioxide emissions reductions as well as which countries participate in your plan. The best that the U.S. can do—even if it were to halt all CO2 emissions now and forever—is to knock off about 0.1°C from the total climate model-projected global temperature rise by the year 2100.  In other words, U.S. actions are not very effective in limiting future climate change.

Apparently, the feds, too, agree that their plethora of proposed regulations will have little impact on carbon dioxide emissions and future climate change. But that doesn’t stop them from issuing them.

The passage below is from the proposed rulemaking from the Department of Energy to alter the Energy Conservation Standards for Commercial and Industrial Electric Motors  (this is only one of many proposed regulations making this claim):

The purpose of the SCC estimates presented here is to allow agencies to incorporate the monetized social benefits of reducing CO2 emissions into cost-benefit analyses of regulatory actions that have small, or “marginal,” impacts on cumulative global emissions.

In other words, DoE’s regulations won’t have any real impact on global CO2 emissions (and, in that manner, climate change), but nevertheless they’ll take a monetary credit for reduced damages that supposedly will result from the non-effective regulations.

(I wonder if can try that on my taxes)

It seems a bit, uh, cheeky, to take credit for something that you admit won’t happen.

But that’s the logic of the federal government for you!

Victory for Cato: Feds Now Seeking Input on the Social Cost of Carbon

It’s about time!

For months, we have been hammering away at the point that the Feds’ current determination of the social cost of carbon is grossly out of touch with the relevant scientific literature and economic guidance.

Perhaps in response to the fact that they can’t argue against what we have been saying, the Administration has finally capitulated and is opening up their determination of the social cost of carbon (SCC) for public comment.

Their SCC calculation—in keeping with the playbook of the president’s Climate Action Plan—is a backdoor way of implementing a carbon tax. And it is slowly, pervasively, and worse of all, silently, creeping into all of our lives.  We’ve been trying to stop all of this by, at the very least, pulling back the cloak of secrecy and trying to make this once-esoteric  subject a topic of dinnertime conversation.

Meanwhile,  the government’s regulatory push using the SCC continues.

The Institute for Energy Research has recently identified nearly 30 federal regulations which have incorporated the SCC into their cost benefit analysis (and several more have been recently announced).

The SCC is used to make regulations seem less costly.  We say “seem,” because the “benefit” from reducing carbon dioxide (CO2)  emissions, as valued by the SCC, is likely never to be realized by the American consumer—yet the other costs (such as increased manufacturing costs) most assuredly will be.

The SCC is a theoretical cost of each additional CO2 emission. But the theory is so loosey-goosey that with a little creativity, you can arrive at pretty much any value for  the SCC—a point noted by M.I.T.’s Robert Pindyck in an article for the Summer 2013 edition of Cato’s Regulation.

As the Obama Administration wants to regulate away as many carbon dioxide emissions as possible, it is in its own self-interest to try to arrive at the highest SCC value possible.  This way, the more that CO2 emissions are reduced, the more money is “saved.”

Or so the idea goes.

But their path towards a high SCC is one away from both the best science and the most common-sense economics.

We imagine that readers of this blog probably are well-aware of the details behind this reality, as we have laid them out on many occasions,  so we won’t go into them again here.

Instead, we want to point out several opportunities to draw further attention to the short-comings in the Administration’s SCC determination.

The period for accepting public comments on several proposed rulemakings is open, and provides a good opportunity to remind the issuing agency what they did wrong. For example, here is a recently-announced regulation proposal from the Department of Energy (DoE) which seeks to impose higher energy efficiency rules for residential furnace fans. It employs the SCC to make this rule seem a lot sweeter than it actually is.

We have already submitted comments on several of these proposed regulations, including DoE regulations to increase the efficiency standards for Microwave Ovens, Walk-In Freezers, and Commercial Refrigeration Equipment.

So, it’s important that  the White House’s  Office of Management and Budget (OBM)  just announced that the social cost of carbon determination currently in force will be open to public comment starting sometime in the presumably near future (keep an eye on the Federal Register for the official announcement).

While it is too early to tell, this willingness to hear public comments on the SCC probably originated from the comments received on the Petition to Reconsider the proposed Microwave Oven ruling—the first rulemaking to incorporate the Administration’s latest-worst iteration of the SCC (which was about a 50% increase over its original figure). There hasn’t been an official announcement as to the result of Petition, but the scientific argument against it is a Cato product.

More than likely, though, this will all be for show.  The feds could selectively use some comments and  somehow find a way to raise the SCC even further.  Like we said, that’s easy to do—crank down the discount rate, or  crank up the damage function (make-up new damages not included in the current models)—even while paying lip service to the lowered equilibrium climate sensitivity and the CO2 fertilization effect.

We’d be more than happy to be wrong about this. But until then, our efforts to set things straight will continue.

A Further Look at the Social Cost of Carbon

We are in the process of putting the final touches on our Public Comment concerning the Department of Energy’s use of the social cost of carbon in its recent rulemaking regulating the energy efficiency of microwave ovens. (We’ll make our Comment available as soon as we file it.) The social cost of carbon (SCC) is the government’s idea of how much future damage will be caused by each ton of carbon dioxide emitted today.

Our DOE Comment focuses entirely on the new science concerning the equilibrium climate sensitivity, that is, how much the earth’s average surface temperature will increase from a doubling of the atmospheric carbon dioxide content. We argue that had the new science indicating a lower equilibrium climate sensitivity been properly incorporated into the determination of the SCC used by the DOE, it would have had a significant impact on the cost/benefit analysis used to justify the new regulation. The “benefits” of requiring lower energy consumption from microwave ovens would have been reduced.

But, as we have discussed previously, the new, lower estimate of the equilibrium climate sensitivity is just one of several key variables to which the SCC is very sensitive.

Another is whether or not the social cost of carbon used in U.S. government cost/benefit analyses of proposed rules and regulations should reflect an estimate of global or domestic costs. Currently, in a departure from its own guidelines, the government uses the global SCC in determining the benefits accrued by reducing domestic carbon dioxide reductions. Unsurprisingly, the global SCC is many times higher than the domestic SCC.

And another variable is the “discount rate” used in the SCC calculation. The discount rate reflects how much we are willing to pay now to reduce the costs of projected carbon-related damages in the future. The lower the discount rate, the more we must pay now and thus the higher the current SCC seems to be. In another departure from its own guidelines, the government’s calculation uses an especially low discount rate, resulting in a high SCC and thus more “benefits” from regulations reducing carbon emissions.

Social Cost of Carbon Goes Mainstream

I have been worried that the social cost of carbon was a concept a bit too esoteric to grab the public’s attention despite the vast importance that it may play in our daily lives. I have heard it described as “a little wonky” and “difficult for a mainstream audience.”

But my worries have been alleviated a bit with yesterday’s article in the Wall Street Journal by Keith Johnson.

The social cost of carbon, or SCC, is the current dollar amount that is assigned to the future damage that each emitted ton of carbon dioxide from human activities (mostly energy-related) is purportedly going to cause. (For a broader discussion of “social costs,” see here.)

Johnson hits the nail on the head in summarizing the significance of the SCC:

The number is important because the more costly carbon pollution is deemed to be, the greater the apparent economic benefits of new environmental regulations. The climate plan hinges on such regulations, including restrictions on new power plants that the Environmental Protection Agency is set to release in late September.

As I and others (including Johnson in the Journal article) have pointed out, there are so many variables whose values are unknown (or unknowable) involved in its determination that the SCC can be set at virtually any value that the user desires it to be.