While the limelight continues to focus on more headline-friendly issues like the upcoming IPCC ‘AR 5’ reports, an intriguing, but wonkish, story continues to play out on social cost of carbon cost/benefit analyses.
Secretary of Energy Ernest Moniz in late August became the highest ranking official to date to confront simmering opposition to the Obama Administration’s practice of assigning a cost to carbon emissions as a tool to evaluate benefits of new CO2 regulations.
The estimated cost to society for every ton of carbon dioxide emitted into the atmosphere, which the Administration raised in June to a central estimate of $36 — up from $21 — is “well within the spectrum of other analyses, perhaps even on the low end,” Moniz said during a speech at Columbia University’s Center on Global Energy Policy. (His relevant comments are at 12:40 in this video of his remarks.)
The Secretary’s comments come at a time when Republican politicians’ anger is growing over the rise in the so-called “social cost of carbon” used by Obama Administration regulatory agencies. In the absence of any comprehensive energy bill by the federal government, the new increase amounts to a carbon tax — and one being raised without input from lawmakers, several GOP legislators argue.
House ‘Kill’ Efforts Under Way…but Slim Prospect for Senate Action
In fact, several legislative moves are in the works not only to kill the recent increase, but also to threaten the Administration’s practice of using the “social cost of carbon” metric at all.
The House of Representatives on August 1 voted to block the Environmental Protection Agency from “weighing the benefits of curbing carbon emissions when crafting major energy-related regulations,” The Hill has reported.
Rep. Tim Murphy (R-Pa.), who authored the amendment to a larger bill that gives the Department of Energy veto power over major energy-related EPA rules, was quoted in The Hill report: “We have already seen what the social cost of the war on coal is today. The cost is jobs.”
Murphy’s bill is widely seen as having only a slim chance of passing the Democratically controlled Senate. But that bill is only one of several efforts:
- Sen. David Vitter (R-La.) is considering proposing an amendment similar to Murphy’s in a Senate energy efficiency bill set for a vote in the fall.
- Rep. John Culbertson (R-Tx.) has succeeded in adding an amendment similar to Murphy’s to the House Interior and Environment Appropriations bill for fiscal 2014. Culbertson’s amendment also is seen as having little chance of passing in the Senate.
- Back in July, Rep. Duncan Hunter (R-Calif.) accused the administration of secretly increasing the social cost of carbon metric “in order to justify sprawling new regulations,” The Hill reported.
‘SCC’ Rules as a Surrogate for National Carbon Tax
Hunter has argued that the increase, made by a federal interagency group in May and revealed in new Department of Energy rules on microwave oven efficiency, paves the way for President Obama and EPA to move forward on his agenda to adopt new regulations to cut carbon emissions from new and existing power plants.
The Republican lawmaker and Rep. Nick Rahall (D-W.Va.) introduced a bill soon after the Energy Department rule on microwaves that requires “a 60-day public review period for new analyses of a rule’s impacts, costs and benefits,” The Hill reported.
Not surprisingly, social cost of carbon calculations have also raised the ire of energy industry lobbyists. Among them are the American Energy Alliance and the Industrial Energy Consumers of America.
In an early August story, E&E Daily quoted Paul Cicio, president of the IECA offering this concern: “It’s not a one-for-one carbon tax cost, but it is a cost, because as EPA does a cost-benefit calculation for new regulation, they will consider the cost versus the benefit. That’s going to help drive the justification for a regulation, and the regulation is real. It stops being theoretical and becomes a cost.”
Lobbyists’ Challenge: Capturing Public’s Interest
Will the public become actively engaged on the issue? One who is skeptical about efforts to raise awareness about the social cost of carbon is long-time climate change activist Myron Ebell of the Competitive Enterprise Institute. In the same E&E Daily story, he said it will be tough to get people beyond Washington’s I-495 wonkish “beltway” to listen.
“It’s just much harder to explain why through a long series of government actions this could be just as bad as a carbon tax,” Ebell acknowledges.
Despite doubts in some quarters about reaching American voters, the fossil fuel industry is not standing idly by. According to second-quarter lobbying filings, “coal giant Peabody Energy, oil-and-gas producer Marathon Oil Corp. and refiner Tesoro Corp. all list (the social cost of carbon) topic among their top lobbying issues,” The Hill has reported.
Meanwhile, the conservative legal group “Landmark Legal Foundation” has submitted a formal petition to the Department of Energy to withdraw the microwave oven efficiency rules that use the latest, increased social cost of carbon value.
Examining Administration’s Rationale
As political battles continue over the Administration’s embrace of social cost of carbon estimates, it’s worth considering the Administration’s explanation of the metric in the first place.
A good place to start is congressional testimony on July 18 by Howard Shelanski, administrator for the Office of Information and Regulatory Affairs in the Office of Management and Budget.
Speaking before the House Committee on Oversight and Government Reform, Shelanski offered historical background of the Administration’s use of social cost of carbon estimates. Shelanski began:
When I refer to the “social cost of carbon” (SCC) I mean the values used to calculate the monetary costs and benefits of incremental changes in the volume of carbon emissions in a given year. The social cost of carbon includes, for example, changes in net agricultural productivity and human health, property damage from increased flood risk, energy system costs, and the value of ecosystem services lost because of climate change.
Executive Orders 12866 and 13563 direct agencies to use the best available scientific, technical, economic, and other information to quantify the costs and benefits of rules. Rigorous evaluation of costs and benefits has been a core tenet of the rulemaking process for decades through Republican and Democratic Administrations. This fundamental principle of using the best available information underpins the Administration’s efforts to develop and update its estimates of the social cost of carbon. Indeed, cost benefit analysis better informs decision makers if it takes into account the current and future damages from carbon pollution.
The ‘FUND,’ ‘DICE,’ and ‘PAGE’ Models
In his testimony on July 18, Shelanski referred to three “integrated climate change assessment models” from which the social cost of carbon (SCC) values were derived. They are called FUND, DICE and PAGE. Shelanski:
These models combine climate processes, economic growth, and interactions between the climate and the global economy into a single modeling framework. These are by far the most widely cited models that link physical impacts to economic damages for the purposes of estimating the SCC.
According to Shelanski, in his testimony, “the updates to FUND, DICE, and PAGE reflect, among other things, improvements in the way economic damages from climate change are modeled. The net result of these updates to the three peer-reviewed models was to increase the SCC estimates.”
As he wrapped up his testimony, Shelanski pointed out that the U.K. and Germany have identified similar SCC values, and that ExxonMobil, Shell, and other major corporations “have also used similar estimates to evaluate capital investments.”
“The Administration will continue to investigate ways to improve the social cost of carbon estimate,” the OMB official testified. “The current estimates will be used in the economic analysis of rulemakings, and we fully expect comments on the SCC values in the context of future rules. We will consider those comments to ensure that we use the best available information to evaluate the costs and benefits of our regulation.”
Pros and Cons: ‘SCC’ Approach or Carbon Tax?
The debate over the “social cost of carbon” may, in the end, be sidestepping a larger issue, some economists say. In an analysis in June, Brad Plumer of The Washington Post wrote that many economists are skeptical that EPA rules — the instruments the Obama Administration is aiming to use to cut emissions from power plants — will be effective.
Rather than use the “blunt instrument” of EPA regulation, many economists say that “a better approach … would be for Congress to set a price on carbon that required polluters to pay for the damage caused by their emissions,” Plumer wrote. “People would then decide how best to adjust to the new price of fossil fuels on their own. That would be cheaper and more efficient.”
Plumer’s article goes on to acknowledge that the choice may be more complicated than that. A recent discussion paper by Nathan Richardson and Arthur G. Fraas of the Resources for the Future says either one might be more effective than the other — it depends on the details of each specific approach.
In one interesting observation, Richardson said a carbon tax would prove ineffective if damages caused by climate change become worse than now projected:
“Imagine that our estimates of the social cost of carbon rise in the future,” Richardson said. “If you have a carbon tax set by Congress, it might be hard to change the tax in light of the new information. But if you’re regulating through the Clean Air Act, then the EPA is required to continually reassess the threat and adjust regulations as needed.”
At this stage, that sounds an awful lot like the process that the Obama Administration is following now. Where will it all end up?
As the Obama Administration rolls out new regulations for cutting carbon emissions from power plants, the ensuing fight on Capitol Hill may determine the future — in more ways than one — of the social cost of carbon.
Here’s some introductory information from the FUND site:
The Climate Framework for Uncertainty, Negotiation and Distribution (FUND) is a so-called integrated assessment model of climate change. FUND was originally set-up to study the role of international capital transfers in climate policy, but it soon evolved into a test-bed for studying impacts of climate change in a dynamic context, and it is now often used to perform cost-benefit and cost-effectiveness analyses of greenhouse gas emission reduction policies, to study equity of climate change and climate policy, and to support game-theoretic investigations into international environmental agreements.
FUND links scenarios and simple models of population, technology, economics, emissions, atmospheric chemistry, climate, sea level, and impacts. Together, these elements describe not-implausible futures. The model runs in time-steps of one year from 1950 to 2300, and distinguishes 16 major world regions.
The FUND model is co-developed by Prof. Richard Toi at the University of Sussex in the U.K. and David Anthoff at the University of Michigan.
The “Dynamic Integrated model of Climate and the Economy” (DICE) model is an integrated economic and geophysical model of the economics of climate change. DICE was developed along with another model called RICE (Regional Integrated model of Climate and the Economy) at Yale University by William Nordhaus, David Popp, Zili Yang, Joseph Boyer, and colleagues.
The Policy Analysis of the Greenhouse Effect (PAGE) model “projects future increases in global mean temperature (GMT), the economic costs of damages caused by climate change, the economic costs of mitigation policies, and the overall image of adaptation measures (including costs of adaptation measures and reduction in damage costs that results from adaptation).”
The model was developed by Chris Hope and colleagues at the Judge Business School at the University of Cambridge in the U.K.