You Ought to Have a Look: The Hows and Whys of the Social Cost of Carbon

You Ought to Have a Look is a feature from the Center for the Study of Science posted by Patrick J. Michaels and Paul C. (“Chip”) Knappenberger.  While this section will feature all of the areas of interest that we are emphasizing, the prominence of the climate issue is driving a tremendous amount of web traffic.  Here we post a few of the best in recent days, along with our color commentary.

There are several notable pieces this week that relate to the social cost of carbon (SCC)—the government’s powerful tool to aid in justifying all manner of rules and regulations. The SCC is supposed to represent the negative externalities (i.e., projected economic damages in a projected society resulting from projected climate change) that are associated with the emissions of each ton of carbon dioxide. It was developed as a way to translate carbon dioxide emission reductions into dollars savings and to make the “benefits” of proposed climate actions hit closer to home for more people.

But as you may guess from the number of “projected”s in the above parenthetical, the SCC is so highly malleable that you can pretty much game it to produce any value desired—the perfect characteristic for an all-purpose economic cost/benefit tool wielded by an opportunistic and activist government.

The situation is well-described by American Enterprise Institute’s Benjamin Zycher in his recent post for The HillThe magic of the EPA’s benefit/cost analysis.”

Welcome to the fascinating world of EPA benefit/cost analysis… the administration conducted an “analysis” of the “social cost of carbon” (SCC), in order to generate an estimate of the marginal externality cost of greenhouse gas emissions (GHG). The problems with that analysis are legion, but the central ones are the use of global (rather than national) benefits to drive the benefit/cost comparison; the failure to apply a 7 percent discount rate to the streams of benefits and costs, despite clear direction from the Office of Management and Budget; and — most important — the use of ozone and particulate reductions as “co-benefits” of climate policies. The administration’s estimate is about $36 per ton in 2015 ($31 per ton in 2010).

And that is how a regulation yielding future changes in temperatures and sea levels approaching zero can be claimed to yield net benefits “exceeding $100 billion, making this a highly beneficial rule.” In the EPA’s benefit/cost framework, the actual effects of the policies literally are irrelevant; just compute the assumed reduction in GHG emissions, multiply by $36, and voila!

Zycher takes us through the absurdities of just how small the impact of Obama’s “climate” actions is on the actual climate and how the actions are enormously magnified they become when they are run through the social cost of carbon. He concludes:

It is the delegation of legislative powers to the regulatory agencies that has allowed such game-playing in pursuit of an ideological agenda. The only means with which to restore political accountability to the regulatory process is a requirement that all regulations be approved by Congress.

You can check out his entire article, here.

If you wonder if the government’s SCC of $36/ton of carbon dioxide (as mentioned by Zycher) is scientifically robust: it isn’t.

This embarrassment is shown by some new work from a team led by Heritage Foundation’s Kevin Dayaratna that also included Ross McKitrick and David Kreutzer. These researchers re-ran the models used by the Obama Administration to determine the social cost of carbon with the most recent estimate of the earth’s climate sensitivity (i.e., how much global warming we should expect to result from our carbon dioxide emissions). The estimate they used came from a paper published by Nic Lewis and Judy Curry last year, replacing the climate sensitivity used by the government which was based on the U.N.’s Intergovernmental Panel on Climate Change (IPCC) estimates from 2011.

What did they find?

The resulting Social Cost of Carbon (SCC) estimates are much smaller than those from models based on simulated parameters. In the DICE model the average SCC falls by 30-50% depending on the discount rate, while in the FUND model the average SCC falls by over 80%. The span of estimates across discount rates also shrinks considerably, implying less sensitivity to this parameter choice… Moreover FUND, which takes more explicit account of potential regional benefits from CO2 fertilization and increased agricultural productivity, yields a substantial (about 40 percent or more) probability of a negative SCC through the first half of the 21st century.

Did you catch the end? The model that also includes positive externalities of carbon dioxide emissions (e.g., increased agricultural productivity) produces a decent probability that the social cost of carbon is negative for decades to come. In other words, instead of regulations trying to restrict carbon dioxide emissions, the government ought to be encouraging those emissions.

Given the growing evidence for a low climate sensitivity (see here for our latest on this topic) along with the firmly established evidence that carbon dioxide is a plant fertilizer that increases crop yields (among other benefits), you’d think that science organizations would be pushing the federal government to revise their SCC estimates.

Well, some are, like us. But others, with seemingly more clout (and much more government reliance) are pushing for the opposite.

Take the National Academy of Sciences (NAS), for example. This week they released the results of their examination of ways that the government could improve their SCC determination. Judy Curry has the low down. Notably absent from the NAS’s myriad suggestions was using an updated estimate of the climate sensitivity. Curry writes. “I am gobsmacked that they think the current … values of [equilibrium climate sensitivity] are fine.”

As for us, we are hardly surprised and had this to say in her comment section:

Judy–why are you surprised about not re-examining the ECS distribution? NAS was created to advise the Federal government by Abraham Lincoln and it has not deviated from that mission. The members of this particular committee are pretty much all on the global warming dole, big time. Why would they behave counter to their interests, which would be to admit that the [climate sensitivity] distributions are wrong and that the most likely values are near the low end of the present (AR4) [IPCC] distribution? That would be the end of the dole and an admission that billions were wasted on a minor issue whose solution is best left to private investment rather than public taxation.

Sadly, we can’t foresee the government letting loose its grip on its all-too-powerful social cost of carbon tool so long as we have a ruling Administration that takes an activist’s role in climate change—despite overwhelming evidence that such a role in unjustified. But we’ll keep trying our best to wrest this abusive device from them.