“The determination of the social cost of carbon (SCC) as made by [federal agencies] is discordant with the best scientific literature on the equilibrium climate sensitivity and the fertilization effect of carbon dioxide—two critically important parameters for establishing the net externality of carbon dioxide emissions…. The [federal government] should act not just to revise the current determination of the SCC, but to suspend its use in all federal rulemaking.”
– Patrick Michaels and Chip Knappenberger (Center for the Study of Science, Cato Institute). “Comment on ‘Technical Support Document, Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866’,” January 27, 2014.
Federal legislative attempts to price and regulate carbon dioxide have failed. Cap-and-trade, which passed the House in 2009, died the next year in the Senate. A carbon tax, much discussed, has not gotten the traction to reach a House vote.
However, a back-door energy tax is alive and well in a monetary-damage value assigned to carbon dioxide emissions in regulatory justification. Under federal cost/benefit analysis, for example, an energy efficiency standard can become more onerous by assigning a monetary benefit of reduced CO2 emissions.
The determination of the social cost of carbon by the Interagency Working Group (IWG), detailed in the May 2013 Technical Support Document (updated in November 2013) is worse than highly subjective, thus an arbitrary calculation. It is knowingly improper, inaccurate and misleading. It should be expunged from all federal matters.
What follows are some highlights of our new Cato study, which can be read in its entirety here.
Domestic vs. Global Costs
The IWG only reports the global value of the SCC, which the IWG determines to accrue from continued carbon dioxide emissions in the United States. This is in direct violation of existing OMB guidelines….
In the same manner, the IWG ignores Office of Management and Budget (OMB) guidelines in its selection of discount rates to use in calculating the SCC. OMB Circular A-4 refers to OMB Circular A-94 which states that “a real discount rate of 7 percent should be used as a base-case for regulatory analysis” and to show the sensitivity of the results to the discount rate assumptions “[f]or regulatory analysis, you should provide estimates of net benefits using both 3 percent and 7 percent.”
Instead, the IWG opted to determine the SCC using discount rates of 2.5, 3, and 5 percent, and did not include results for a 7 percent rate….
Equilibrium Climate Sensitivity
In May 2013, the Interagency Working Group (IWG) produced an updated SCC value by applying updates to the underlying three Integrated Assessment Models (IAMs) used in its initial 2010 SCC determination, but did not update the equilibrium climate sensitivity (ECS) employed in the IAMs. This was not done, despite there having been, since January 1, 2011, at least 11 new studies and 17 experiments (involving more than 44 researchers) examining the ECS, each lowering the best estimate and tightening the error distribution about that estimate….
Agricultural Impacts of Carbon Fertilization
Carbon dioxide is known to have a positive impact on vegetation, with literally thousands of studies in the scientific literature demonstrating that plants (including crops) grow stronger, healthier, and more productive under conditions of increased carbon dioxide concentration.
A recent study (Idso, 2013) reviewed a large collection of such literature as it applies to the world’s 45 most important food crops (making up 95% of the world’s annual agricultural production). Idso (2013) summarized his findings on the increase in biomass of each crop that results from a 300ppm increase in the concentration of carbon dioxide under which the plants were grown. This table is reproduced below, and shows that the typical growth increase exceeds 30% in most crops, including 8 of the world’s top 10 food crops (the increase was 24% and 14% in the other two)….
The social cost of carbon as determined by the Interagency Working Group in their May 2013 Technical Support Document (updated in November 2013) is unsupported by the scientific literature, not in accordance with OMB guidelines, fraught with uncertainty, and thus unsuitable and inappropriate for federal rulemaking. As such, use of the SCC in cost/benefit analyses in proposed federal regulation should be suspended.
It is unlikely, in light of the large uncertainties and low level of understanding in critical economic, scientific, social, etc. factors that are vital to the projections of future climate impacts, that determinations of the SCC will ever become robust enough for use in federal rulemaking. M.I.T. economist Robert Pindyck (2013) recently summed up the situation as it applies to the use of Integrated Assessment Models (IAMs)—the preferred tool used by the IWG in their determination of the SCC:
Given all of the effort that has gone into developing and using IAMs, have they helped us resolve the wide disagreement over the size of the SCC? Is the U.S. government estimate of $21 per ton (or the updated estimate of $33 per ton) a reliable or otherwise useful number? What have these IAMs (and related models) told us? I will argue that the answer is very little. As I discuss below, the models are so deeply flawed as to be close to useless as tools for policy analysis. Worse yet, precision that is simply illusory, and can be highly misleading.