Why the “Social Cost of Carbon” Matters

Posted June 13, 2013 | folder icon Print this page

In a previous post, we discussed the recently announced increase in the White House estimate of the “social cost of carbon” (SCC). The SCC refers to the present-value of projected future net damages from emitting an additional unit (a ton, say) of carbon into the atmosphere. As we explained, the estimate of the SCC has increased drastically in just three years. Now a Bloomberg article on the revised figures underscores just how politically significant the change is; this isn’t merely a technical bookkeeping operation.

To review from our previous post: The latest figures from the White House show an enormous increase in the estimated SCC, particularly if we focus on emissions in the near future. For example, back in 2010, if we used a 5 percent discount rate, then the original Working Group estimate was that a ton of carbon dioxide emitted in the following year would carry an excess social cost of $5, while the new numbers just released say that a ton of emissions back in 2010 had a social cost of $11. Thus, the estimate of the SCC for current emissions—if we use a 5 percent discount rate—went up by 120 percent, in just the last three years. If we tweak the discount rate or look at the SCC for a different date, the increase may not be as drastic, but nonetheless the latest revision raises the estimated SCC across the board.

The Bloomberg article commenting on the update explains the significance of these revised figures:

The increase of the so-called social cost of carbon, to $38 a metric ton in 2015 from $23.80, adjusts the calculation the government uses to weigh costs and benefits of proposed regulations. The figure is meant to approximate losses from global warming such as flood damage and diminished crops.

With the change, government actions that lead to cuts in emissions — anything from new mileage standards to clean-energy loans — will appear more valuable in its cost-benefit analyses. On the flip side, approvals that could lead to more carbon pollution, such as TransCanada Corp. (TRP)’s Keystone pipeline or coal-mining…on public lands, may be viewed as more costly. [Bold added]

Thus we see that the SCC is not some scientific curiosity, with little impact on our daily lives. On the contrary, government agencies will have the ability to use existing regulations in order to effectively tighten the screws on carbon-emitting activities, by claiming that the new measures pass a cost/benefit test. Even if the public will never support an explicit carbon tax, the machinery is being constructed to achieve the same de facto result—except with greater economic inefficiency—without the need for pesky tax bills.  And, it is being done largely in backrooms by the political class or their designees, outside of the view of the public, an increasingly worrisome trend in a system designed to protect liberties through open government with checks and balances.

For those who would pooh-pooh such thoughts as paranoid delusions, we only need to continue reading in the Bloomberg article. We learn:

Even supporters questioned the way the administration slipped the policy out without first opening it for public comment. The change was buried in an afternoon announcement on May 31 about efficiency standards for microwave ovens, a rule not seen as groundbreaking.

“This is a very strange way to make policy about something this important,” Frank Ackerman, an economist at Tufts University…said in an interview. The Obama administration “hasn’t always leveled with us about what is happening behind closed doors.”

In addition to winning the prize for understatement of the year, Professor Ackerman is exactly right: With regulations that could impose hundreds of billions of dollars in compliance costs on not just energy-intensive businesses but also household appliances and car prices, the government’s “social cost of carbon” figures are incredibly important.

When the Administration more than doubles the figure (under certain parameter choices) in a mere three years, that type of radical change should have been announced with great fanfare and an explanation of how they could have been so wildly off the mark just 36 months ago, and a further assurance that this time they’ve got it right.

Yet instead, the most transparent Executive branch in history asked for no public comment on the shift, and released the update amidst an announcement about microwaves. Even if one passionately believed that carbon emissions posed a serious threat to humans in the form of future climate change, trusting the political process for a “scientific solution” is itself a very unscientific approach.

Author:
Robert Murphy
  • Peter Erik Bensen

    Let’s face facts: There is no new scientific study used to demonstrate this so called “need”. This is just a shameless and naked money grab by a government who knows no bounds in spending someone else’s money.