Biden’s Bogus Climate Report on the ‘social cost of carbon’

Biden’s Bogus Climate Report
Science Matters / by Ron Clutz /

The latest criticism comes from James Broughel writing at Real Clear Politics Biden’s Climate Report Is Based on Personal Values, Not Science. Excerpts in italics with my bolds.

Late last month, the Biden administration quietly released an update of the government’s “social cost of carbon” (SCC) estimate, a metric used to value the benefits of global warming policies, especially regulations. The update hasn’t received much attention yet, but it will be important in justifying the administration’s climate agenda in the months ahead.

There are numerous shortcomings with the Biden team’s calculations. Some may be due to the report being rushed, but others reflect misunderstanding of economic principles, and, more simply, poor judgment.

Biden’s People Get the Units Wrong
First, numerous tables in the document released by the administration are mislabeled. The interagency working group that produced the update claims its primary estimate of the SCC is 51 dollars per ton. But the models the working group uses calculate the figure in terms of social welfare — not dollars. Thus, 51 is a measure of the amount that the current generation’s “welfare” is reduced by carbon pollution. Even assuming that number is credible (and measuring welfare is no easy task), the administration doesn’t get the units right.,

This is a big deal because the numbers in the new report shouldn’t be used in cost-benefit analysis unless further adjustments are made. Cost-benefit analysis is supposed to measure impacts in dollars, not the Biden administration’s social welfare units. So any analysis that tries to compare these numbers to financial costs will be nonsensical. These problems with units extend to estimates of the social cost of methane and of nitrous oxide, which also appear in last month’s report.

Misleading Social Discount Rate
There are other misleading parts of the document. For example, there is extensive discussion about the correct “social discount rate” to use in cost-benefit analysis. The social discount rate describes how much less a future benefit from a policy should count relative to a present benefit. For example, many economists generally assume a life saved in 100 years is far less valuable than a life saved today — which is, of course, controversial and has implications beyond economics.

The report makes a number of dubious claims about the social discount rate, but here are just a few worth highlighting.

First, Biden’s team argues that risk-free market interest rates have declined in recent years, and that this provides a basis for using a lower social discount rate. However, claims like this reflect a misunderstanding of the discounting concept.

The decision of how much to weight future health, wellbeing, and lives saved is an ethical choice. One cannot find the correct social discount rate by opening up the Wall Street Journal and turning to the page on interest rates. Ultimately, we need some philosophical compass to guide our choice. Yes, one could choose to base an ethical decision on market criteria, but one could just as easily choose an alternative paradigm, like introspection. Nor should this issue be conflated with the rate of return on capital, which is a separate issue that is sometimes confused with social discounting.

In fact, it would be just as legitimate to pick any plausible number out of a hat (you might laugh, but some approaches do draw a discount rate from a distribution of rates based on surveys of economists). Whatever method is chosen, the choice of the social discount rate is inevitably a value judgment.

Similarly, the report tries to justify lower discount rates in the future by pointing to “Ramsey discounting,” a method named after the early 20th century mathematician Frank Ramsey. Under this approach, analysts assume a benevolent dictator — a proxy for our whole generation’s social welfare — centrally plans the economy. Economists have concocted various mathematical schemes to estimate how the dictator discounts the future.

Again, because the choice is an ethical one, there is no particular reason to believe this Ramsey discounting approach is wrong. But there’s no reason to believe it’s right, either.

Personal Preferences, Not Science

The problem with the government’s report is that it presents these various approaches as somehow scientific. In fact, they conceal what is fundamentally a question about values and make it appear as though the answer can come from technical measurement.

Perhaps most concerning is that the administration is already violating its own principles of social justice. In a memo signed by President Biden on his first day in office, he identified promoting the interests of future generations as a top priority, which is a noble goal, to be sure.

But the SCC is calculated using a version of the Ramsey model. In it, the present generation functions as the dictator whose welfare is measured, while the welfare of future generations counts for basically nothing. Present citizens may display some empathy for future generations — for example, the administration’s climate policy is probably motivated by their concern for the future — but the analysis doesn’t consider the welfare of future generations in a direct way.

The new social cost of carbon report comes across like an attempt by experts to ram through a political agenda, while trying to pass off their efforts as scientific. But the public should not be fooled. What’s behind the updated numbers is the administration’s personal values, for better or worse, not science.

Background from Previous Post Biden’s Arbitrary Social Cost of Carbon: What You Need to Know

The news on Friday was Biden signing another order, this one restoring the so-called “Social Cost of Carbon” to Obama’s $51 a ton, along with threats to raise it up to $125 a ton. The whole notion is an exercise in imagination for the sake of adding regulatory costs to everything involving energy, that is to everything. A background post below describes the history of how this ruse started and the manipulations and arbitrary assumptions to gin up a number high enough to hobble the economy.
Background from 2018 post: US House Votes Down Social Cost of Carbon
The House GOP on Friday took a step forward in reining in the Obama administration’s method of assessing the cost of carbon dioxide pollution when developing regulations.

The House voted 212-201, along party lines, to include a rider blocking the use of the climate change cost metric to an energy and water spending bill.

The amendment offered by Texas Republican Rep. Louie Gohmert bars any and all funds from being used under the bill to “prepare, propose, or promulgate any regulation that relies on the Social Carbon analysis” devised under the Obama administration on how to value the cost of carbon. (Source Washington Examiner, here)

To clarify: the amendment in question defunds any regulation or guidance from the federal government concerning the social costs of carbon.

The Obama administration created and increased its estimates of the “Social Cost of Carbon,” invented by Michael Greenstone, who commented on the EPA Proposed Repeal of CO2 emissions regulations. A Washington Post article, October 11, 2017, included this:

“My read is that the political decision to repeal the Clean Power Plan was made and then they did whatever was necessary to make the numbers work,” added Michael Greenstone, a professor of economics at the University of Chicago who worked on climate policy during the Obama years.

Activists are frightened about the Clean Power Plan under serious attack along three lines:

  1. No federal law governs CO2 emissions.
  2. EPA regulates sites, not the Energy Sector.
  3. CPP costs are huge, while benefits are marginal.

Complete discussion at CPP has Three Fatal Flaws.

Read below how Greenstone and a colleague did exactly what he now complains about.

Social Cost of Carbon: Origins and Prospects

The Obama administration has been fighting climate change with a rogue wave of regulations whose legality comes from a very small base: The Social Cost of Carbon.

The purpose of the “social cost of carbon” (SCC) estimates presented here is to allow agencies to incorporate the social benefits of reducing carbon dioxide (CO2) emissions into cost-benefit analyses of regulatory actions that impact cumulative global emissions. The SCC is an estimate of the monetized damages associated with an incremental increase in carbon emissions in a given year. It is intended to include (but is not limited to) changes in net agricultural productivity, human health, property damages from increased flood risk, and the value of ecosystem services due to climate change. From the Technical Support Document: -Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis -Under Executive Order 12866

A recent Bloomberg article informs on how the SCC notion was invented, its importance and how it might change under the Trump administration.
How Climate Rules Might Fade Away; Obama used an arcane number to craft his regulations. Trump could use it to undo them. (here). Excerpts below with my bolds.

In February 2009, a month after Barack Obama took office, two academics sat across from each other in the White House mess hall. Over a club sandwich, Michael Greenstone, a White House economist, and Cass Sunstein, Obama’s top regulatory officer, decided that the executive branch needed to figure out how to estimate the economic damage from climate change. With the recession in full swing, they were rightly skeptical about the chances that Congress would pass a nationwide cap-and-trade bill. Greenstone and Sunstein knew they needed a Plan B: a way to regulate carbon emissions without going through Congress.

Over the next year, a team of economists, scientists, and lawyers from across the federal government convened to come up with a dollar amount for the economic cost of carbon emissions. Whatever value they hit upon would be used to determine the scope of regulations aimed at reducing the damage from climate change. The bigger the estimate, the more costly the rules meant to address it could be. After a year of modeling different scenarios, the team came up with a central estimate of $21 per metric ton, which is to say that by their calculations, every ton of carbon emitted into the atmosphere imposed $21 of economic cost. It has since been raised to around $40 a ton.

Trump can’t undo the SCC by fiat. There is established case law requiring the government to account for the impact of carbon, and if he just repealed it, environmentalists would almost certainly sue.

There are other ways for Trump to undercut the SCC. By tweaking some of the assumptions and calculations that are baked into its model, the Trump administration could pretty much render it irrelevant, or even skew it to the point that carbon emissions come out as a benefit instead of a cost.

The SCC models rely on a “discount rate” to state the harm from global warming in today’s dollars. The higher the discount rate, the lower the estimate of harm. That’s because the costs incurred by burning carbon lie mostly in the distant future, while the benefits (heat, electricity, etc.) are enjoyed today. A high discount rate shrinks the estimates of future costs but doesn’t affect present-day benefits. The team put together by Greenstone and Sunstein used a discount rate of 3 percent to come up with its central estimate of $21 a ton for damage inflicted by carbon. But changing that discount just slightly produces big swings in the overall cost of carbon, turning a number that’s pushing broad changes in everything from appliances to coal leasing decisions into one that would have little or no impact on policy.

According to a 2013 government update on the SCC, by applying a discount rate of 5 percent, the cost of carbon in 2020 comes out to $12 a ton; using a 2.5 percent rate, it’s $65. A 7 percent discount rate, which has been used by the EPA for other regulatory analysis, could actually lead to a negative carbon cost, which would seem to imply that carbon emissions are beneficial. “Once you start to dig into how the numbers are constructed, I cannot fathom how anyone could think it has any basis in reality,” says Daniel Simmons, vice president for policy at the American Energy Alliance and a member of the Trump transition team focusing on the Energy Department.

David Kreutzer, a senior research fellow in energy economics and climate change at Heritage and a member of Trump’s EPA transition team, laid out one of the primary arguments against the SCC. “Believe it or not, these models look out to the year 2300. That’s like effectively asking, ‘If you turn your light switch on today, how much damage will that do in 2300?’ That’s way beyond when any macroeconomic model can be trusted.”

Another issue for those who question the Obama administration’s SCC: It estimates the global costs and benefits of carbon emissions, rather than just focusing on the impact to the U.S. Critics argue that this pushes the cost of carbon much higher and that the calculation should instead be limited to the U.S.; that would lower the cost by more than 70 percent, says the CEI’s Mario Lewis.

Still, by narrowing the calculation to the U.S., Trump could certainly produce a lower cost of carbon. Asked in an e-mail whether the new administration would raise the discount rate or narrow the scope of the SCC to the U.S., one person shaping Trump energy and environmental policy replied, “What prevents us from doing both?”

See Also:

Six Reasons to Rescind Social Cost of Carbon

SBC: Social Benefits of Carbon