According to the Environmental Protection Agency, the Social Cost of Carbon (SCC) is supposed to be “An estimate of the economic damages associated with a small increase in carbon dioxide (CO2) emissions, in a given year”.
However, the EPA’s “analysis” of the “social cost of carbon,” developed recently as justification for a rule constraining energy use by microwave ovens, ignores the fact that U.S. emissions of greenhouse gases are about 17 percent of the world total. Therefore, even an immediate reduction by half in U.S. emissions would yield a reduction in world temperatures of about one-tenth of one degree by the end of this century, a change smaller than the standard deviation, and thus difficult to distinguish from statistical noise. That temperature change is trivial; accordingly, the “benefit” of U.S. carbon reductions is zero. As Asian emissions grow inexorably over time, even that temperature effect will become smaller, as the (logarithmic) relationship between emissions and temperatures declines as concentrations increase.
Moreover, the EPA analysis violates procedural guidelines imposed by the Office of Management and Budget: Only the supposed benefits and costs of a rule felt by the U.S.—not the rest of the world—are relevant for federal benefit/cost analyses, a constraint crucial in that incorporation of worldwide effects would leave the U.S. to bear all the costs of environmental protection for the entire globe while the rest of the world would be encouraged to obtain a free ride on U.S. efforts.
The EPA analysis assumes a range of discount rates—a crucial parameter sharply shifting the bottom line—that violates OMB guidelines. Moreover, because the costs of the rule are far more certain than the benefits—the climate models simply are unreliable in terms of the long-term effects of changes in GHG concentrations—the discount rate applied to costs should be substantially lower than that applied to benefits. And so on.
The bureaucracy is an interest group, the implication of which is that OMB directives cannot yield analytic objectivity; the routes by which benefit/cost analyses can be manipulated are too numerous. Instead, only political accountability—a requirement for Congressional approval of major rules—can impose discipline upon the bureaucracy and other political interests attempting to impose large costs upon the private sector in pursuit of political ends.
What’s your view on the EPA’s analysis of the “social cost of carbon”?
A couple of thoughts here: 1. Given the history of the development of cost-benefit analysis in rulemaking, a construct that was primarily advocated by the likes of AEI during the… Read more »
Dr. Zycher does not deny that climate change is occurring, that humans are principally responsible and that it is bad for the planet. Yet he recommends unilateral inaction by the… Read more »
Note that in response to criticism over the process by which the EPA estimate was developed, the Obama administration announced that it will open it up to public review and… Read more »
The new rules for quantifying the social cost of carbon (SCC) imply two sets of economic transfers. First, by basing the SCC on global rather than on U.S.-only costs, the… Read more »
Central planners will tell us it takes a village to build a brave new world. Lee Lane is spot on. So much of what passes for “policy” is nothing more… Read more »
Lee, good to hear you mention Tom Schelling — a personal hero of mine. I would like to suggest that the Hudson Institute look into the actual substance of the… Read more »
Ike, Thank you for your kind reply. On climate change as on a number of other vital issues, Tom Schelling has long been, and continues to be, a source of… Read more »
OurEnergyPolicy: I will take this opportunity to revise and extend my comments originally posted on OEP at https://www.ourenergypolicy.org/assessing-the-impacts-of-epas-new-coal-power-plants-rules/#comment-1464. When policy-makers and regulators oversimplify problems and make policies and rules based… Read more »
Well stated.
Ike, Thank you for this work. You have made a wonderful contribution to Our Energy Policy. We need to spread the information to those who may yet have an open… Read more »
Ike Kiefer makes some interesting points. We must have an overall method, such as “External Entropy” to judge all energy choices. Much of his fire is reserved for bio-fuels, but… Read more »
I wondered when people were going to pick on up on the massive implications of the misleadingly innocuous “microwave rule” and its groundbreaking inclusion of climate change emissions calculations and… Read more »
Ultimately, social cost only can be determined by society itself, not by a panel of technocrats. Society expresses its determination of costs or benefits through public behavior in commercial and… Read more »
Externalities are generally measurable. The question becomes what assumptions are used in the formula. Pols cannot be trusted to make objective judgements – I would rather see a group of… Read more »
Prices by fiat – now there’s a refreshing bit bit of candor. Throughout history, dictators and royals have always resorted to manipulating markets in efforts to monopolize their power over… Read more »
Herewith, a response to the comments above. I thank the several commentators for arguments both thoughtful and collegial on my brief observations on the EPA analysis of the “social… Read more »
Well, thanks for the “honorable mention” to my comment about market liquidity and depth. And the glib question. I guess I should respond. Where to begin while keeping it short?… Read more »
I engage in these discussions as much to learn as to sway others to my point of view. While I am gratified that Dr. Zycher did not skewer me to… Read more »
Captain Kiefer: I appreciate your comment, and empathize with your situation. I was a nuke way back in the day. I truly felt like a stranger in a strange land… Read more »
I’ve read the comments on both sides of the “Social Cost of Carbon” debate. The debate revolves around a variety of issues: whether global warming is real and if it… Read more »
Henry, by citing the 97% scientific consensus statistic uncritically, you make my point about the dangers of trusting the media and celebrities and politicians to be arbiters of truth instead… Read more »
Labelling U.S. greenhouse gas abatement as foreign aid seems to me to be no more than stating a simple truth. Henry M. Goldberg disagrees. Still, if 90 percent of… Read more »
Mr. Kiefer and Mr. Lane, thank you for your comments on my post on the “Social Cost of Carbon”. Mr. Kiefer you provide some interesting details on where the “97%… Read more »
Price is $75 too low.
Lots more to dissect on this topic as the White House has released its methodology and calculation for the social cost of carbon. http://
Looks like we shall all learn the benefit of central planning. Seems that the Soviet lesson was inadequate.
I must admit I find most of the conversation above almost surreal in the face of the risks that materially changing the atmosphere virtually has to entail (or that we… Read more »