IER Senior Economist to Testify on Dubious Social Cost of Carbon

Posted July 17, 2013 | folder icon Print this page

WASHINGTON — IER Senior Fellow Robert P. Murphy will testify Thursday at 10:00 AM ET before the Senate Environment and Public Works Committee on the White House’s recently revised “social cost of carbon” (SCC). Murphy’s testimony will show that the SCC is a malleable concept dependent on modeling assumptions that can have an enormous impact on the cost-benefit analyses of federal regulations. Key findings from Murphy’s testimony include:

  • Without soliciting public comment, the White House Working Group achieved a much higher figure for the SCC by explicitly disregarding two default guidelines from the Office of Management and Budget (OMB). Had the Working Group heeded the guidelines, the officially reported SCC would be virtually $0 if not negative, meaning there would actually be net benefits to increased carbon dioxide emissions.
  • The OMB recommends using discount rates of 3 and 7 percent, yet the May 2013 Working Group update omits the latter. This matters since cutting the discount rate in half causes the reported SCC to more than quadruple. In the May 2013 update, for example, the SCC in the year 2010 was reported at $11 per ton at a 5 percent discount rate, but $52 per ton at a 2.5 percent discount rate.
  • OMB guidance requires agencies to analyze the impact of regulations from a domestic perspective, while analysis from a global perspective is optional. However, the oft-quoted $33 per ton figure from the May 2013 update was just the global estimate. From the domestic perspective, the SCC would have been in the range of $2 to $8 per ton.

The American people have been led to believe that the “social cost of carbon” is an objective scientific concept, when in fact it is heavily dependent on flexible assumptions. If the White House Working Group had followed OMB guidance on either the choice of discount rate or reporting from a domestic perspective, official estimates of the current SCC would likely be close to zero, or possibly even negative. Before exploiting the “social cost of carbon” as a pretext for imposing economically damaging regulations, policymakers must realize the dubious nature of this concept.

 

To read the full testimony, click here.

To watch tomorrow’s hearing live, click here.

Author:
IER