Whether or not dead people vote in significant numbers may be an open question, but dead policies are flourishing in DC right now. For example, in his extensive list of Inauguration Day executive orders, President Biden brought back the interagency working group for the social cost of carbon (SCC). The mandate has been expanded to include two other greenhouse gasses, but carbon dioxide (shortened to the sootier-sounding “carbon”) is the main target.
The unknown and virtually unknowable SCC is based on compelling theory and generated with very sophisticated analysis. However, this sophisticated analysis employs inputs that are so arbitrary, that it is not even clear whether CO2 emissions should be taxed or subsidized.
The working group’s mandate for determining the SCC is entirely based on getting an answer that justifies taxing and regulating CO2 emissions. The evolution of the old working group’s SCC is a story of picking inputs that increase the estimated SCC value—avoiding Office of Management and Budget’s guidance on discount rates, running damage functions out three centuries, and only using IPCC-vetted research, except when other research helps juice the number.
In 2010, the Interagency Working Group on the Social Cost of Carbon (IWG) published its technical support document offering up a SCC that started at $24 in 2015 and rose to $45 in 2050. Even though these numbers were generated using an expected rate of return that was less than half of the historical return on the New York Stock Exchange, calculated damages out to the year 2300, and used a too-high estimate of CO2’s impact on world temperatures, the SCC was too small to justify the regulations carbon activists wanted.
Three years later the IWG revised its estimate for the SCC. Capitalizing on a paper making new and significantly higher projections for sea-level rise—a paper that had not yet been vetted by the Intergovernmental Panel on Climate Change, a requirement for the previous estimate—the IWG’s new SCC started at $37 in 2015 and rose to $71 in 2050.
In what appears to be a calculated attempt to avoid scrutiny of the IGW’s work, the Obama-Biden Administration sought to establish precedent for the new SCC by first employing it in a regulation of energy efficiency of microwave oven displays. That’s right, in a 54-page rule, “Energy Conservation Program: Energy Conservation Standards for Standby Mode and Off Mode for Microwave Ovens,” the Department of Energy set standards for how much electricity microwave ovens can use when they are not being used. They determined that each microwave with the old technology did $0.50 worth of climate damage per year. Surprisingly, this microwave story is even worse than it sounds, but the new, higher SCC was embedded in the regulatory firmament.
A former colleague and I ran two of the models used to develop this SCC (the proprietor of the third model would not allow independent evaluation) to test them for sensitivity to assumptions. We found them to be too sensitive and arbitrary for serious regulatory application. Most notably, perhaps, was that using a seven-percent discount rate (as stipulated by the Office of Management and Budget, and as would comport with the historical rate of return on US stocks) caused one of the models to generate a negative SCC. A negative SCC implies that regulators should subsidize CO2 emissions.
Reasonable alternative assumptions regarding climate sensitivity and time horizon reduced the SCC estimates by more than 50 percent. When combined with reasonable alternative discount rates, the SCC dropped by more than 90 percent.
In a paper in the journal Climate Change Economics, my coauthors and I updated the models to use newer empirical (as opposed to model-generated) estimates of climate sensitivity and ocean heat uptake. We found these updates caused estimates for the SCC to drop 40 to 80 percent.
The lesson, here, is not that we should subsidize CO2 or that alternatives estimates are dead-on. Instead, the lesson is that the SCC estimates are so sensitive to reasonable alternative inputs/assumptions that they are unfit for the purposes of imposing regulations that could cost hundreds of millions to trillions of dollars.