RFF Rethink on ‘Social Cost of Carbon’: You Have Just Begun (SBC, SCG need to be added)

“A major new variable to estimate the social cost of carbon [SCC] is the positive side of CO₂ emissions and atmospheric concentrations, which promote plant growth and economic activity…. A negative value for the SCC creates a new, better term: SBC, or social benefit of carbon.”

“Will RFF hold an open debate with critics of Obama’s SCC in the months ahead? Or will RFF continue to circle the wagons? Scholarly integrity demands the former, while persuading its funders to be realistic toward the tiring Malthusianism of catastrophic climate change.”

Resources for the Future (RFF) has launched a project to (re)estimate, post-Obama, the social cost of carbon (SCC), defined as “an economic tool used to quantify the societal benefits of reducing —or conversely the damages of emitting—one ton of carbon dioxide emissions in the atmosphere.”

This Obama-era regulatory tool (before, there was no assigned value), governs “billions of dollars of policy and investment decisions by federal and state governments, as well as businesses.” RFF notes that it has impacted  more than 150 proposed and final regulatory measures.

Two Issues

Richard Newell, president and CEO of RFF, recently registered his concern about the Trump Administration’s revision of two assumptions responsible for the Obama-estimated $45 per carbon ton SCC, changes that reduced the estimate to $1–$6 per metric ton (and hardly worth regulating over).

While “very technical,” Newell discusses the appropriateness of using a higher discount rate (reducing future calculated benefits from CO₂ regulation), as well as limiting the benefits to the US, not to the world. The first issue (the discount rate) can be resolved by adding a scenario (for a 7 percent discount rate) that the Obama Administration erred by not including (per regulatory norms).

The second issue is more knotty for Newell, since it is not at all clear that US “leadership” will mean effective world CO₂ emission reductions. (Led by Southeast Asia, global coal capacity is expacted to significantly expand, according to the International Energy Agency.)

Two Other SCC Issues

“The issues raised by this interim revision of the SCC are by no means settled,” RFF’s Newell goes on to state, “and represent only a few of the many questions that need to be resolved on our way to greater consensus and confidence in the SCC.”

Indeed. A major new variable to estimate the social cost of carbon is the positive side of CO₂ emissions and atmospheric concentrations, which have beneficial effects on plant growth and economic activity.

Secondly, Newell must bring in the “Public Choice” side of the equation to judge the social cost of government intervention to address market failure along side the alleged social cost of nonregulated CO₂ emissions. If the SCG (social cost of government) in greater than the SCC, then the verdict should be do not regulate.

A negative value for the SCC creates a new, better term: SBC, or social benefit of carbon.

This Scientific American article reflects the growing ‘mainstreaming’ of CO₂ benefits. (Also see the NYT article from earlier this year.) The important point is not so much the net effect of CO₂ as it is establishing a positive side to CO₂ emissions/concentrations that weighs against the (high-sensitivity-climate-estimated) negatives.

The other side has to argue the negatives offsetting the positives—not that the positives do not exist.

“It is true than an increase in available carbon dioxide can be a boon for plants …. But the idea that increasing CO₂ will be a pure advantage for plants everywhere ignores the negative side effects that human-induced climate change may have on vegetation.”

There are two offsetting variables under even the alarmist’s scenario. Including the new one offsets the old one under anyone’s climate math. RFF take note.

US EPA on SCC

Talking points issued by EPA prior to Pruitt’s announcement of withdrawal of the Clean Power Plan discussed the revision of Obama’s SCC to come.

The proposed repeal [of the Clean Power Plan] examines the Obama admin’s cost-benefit analysis and provides an updated analysis of the environmental, health and economic effects of the proposed repeal. This administration estimates the proposed repeal could provide up to $33 billion in avoided compliance costs in 2030.

The previous administration’s estimates and analysis of these costs and benefits was, in multiple areas, biased and methodologically flawed. In this proposed repeal and its accompanying technical documents, this administration is, in a robust, open, and transparent way, presenting a wide range of analytical scenarios to the public.

As part of the notice-and-comment process for this proposed repeal, EPA will continue this analysis and inform the public as necessary to get its feedback on new modeling and other information. The final action on this proposed repeal will address the results of this ongoing work.

Specific areas of bias and uncertainty in the Obama CPP’s original analysis include:

• • • • Domestic versus global climate benefits; social cost of carbon. The previous administration compared domestic costs against its estimate of global climate benefits. The proposed repeal also presents a scenario looking specifically at domestic climate impacts. EPA is tasked with protecting the environment and human health of this nation, and our alternative analysis reflects that. This administration also returns to longstanding OMB practice by using appropriate discount rates to compare apples to apples when estimating the current value of future scenarios.

      • “Co-benefits” from pollutants indirectly linked to CPP. Billions of dollars of the previous administration’s claimed savings from the CPP came from “co-benefits”: reductions of other substances, such as particulate matter, emitted by power plants that are not the actual target of the CPP. The purpose of the CPP was to regulate carbon dioxide emissions to address climate change, but the CPP’s claimed benefits relied heavily on reductions in other pollutants emitted by power plants. Essentially, they were hiding the true net cost of the CPP by claiming benefits from reducing pollutants that had nothing to do with the CPP’s stated, direct purpose. The previous analysis also assumed linear health benefits from these reductions, all the way down to zero. This is controversial in the literature and defies common sense.  For example: doubling your exercise regime may cut your risk of a heart attack in half, but you can’t bring your risk to zero by quadrupling your exercise. This administration presents estimates including some, all, or none of these co-benefit claims, and examines the uncertainty underlying those claims, to provide the public with a better sense of the relevant effects of the proposed repeal.

      • Accurate energy accounting. The Obama administration counted “energy efficiency” results of the CPP as an avoided cost. This resulted in the cost estimate being considerably lower than it would otherwise have been. This administration returns to longstanding and appropriate practice required by OMB by considering these effects as benefits, rather than subtracting them from costs, to present a more accurate accounting of the total cost of the CPP (and the corresponding benefits of repealing it). For example: if a person buys new windows, it costs them a lot up front, but their energy bill goes down over time. The previous administration counted all future savings on the family’s energy bill as an upfront negative/avoided cost. The previous administration’s analysis also assumed far more widespread adoption of efficiency measures in response to the CPP than many outside observers found credible. For example, the previous analysis assumed that the entire country could achieve efficiency gains only demonstrated in the best-performing cities.

Resources for the Future, as previous posts at MasterResource have documented, has hitherto been ‘all-in’ with climate alarmism and forced energy transformation. It will be increasingly difficult for RFF to isolate itself from true debate on each and every assumption behind the social cost of carbon.

Will RFF hold an open debate with critics of Obama’s SCC in the months ahead? Or will RFF continue to circle the wagons? Scholarly integrity demands the former, while persuading its funders to be realistic toward the tiring Malthusianism of catastrophic climate change.