On August 8 the 7th Circuit U.S. Court of Appeals denied petitions to review the Department of Energy’s final rules pertaining to energy efficiency standards in commercial refrigeration equipment. The petitioners (a small business and two trade associations) had levied objections against both the process and the outcome of DOE’s rulemaking. The court denied the petitions and ruled that DOE’s use of the “social cost of carbon” as a tool in federal cost/benefit analysis was neither “arbitrary nor capricious.”
Now we at IER have been writing for years about the dubious “social cost of carbon”; for example you can read our in-depth Comment submitted to the Office of Management and Budget. Over the next few weeks, we will have many things to say about the recent court ruling.
However, in the present article I want to keep things simple and focus on a Bloomberg reaction written by Cass Sunstein, who was overjoyed at the court ruling. I will demonstrate to any open-minded reader that the American public has indeed been grossly misled on the issue of a carbon tax…and I will use nothing but Sunstein’s own statements. If even a huge fan of the court ruling unwittingly shows just how outrageous it was, then that is a slam dunk in the case against the “social cost of carbon” as a guide to federal policy.
Sunstein’s Awkward Admission #1: The “Scientific” Estimate Is All Over the Map
We should first establish who Cass Sunstein is, and why his opinion is so instructive. Sunstein is a legal scholar currently at Harvard, who had also spent 27 years at Chicago. Indeed, in recent years Sunstein was the most frequently cited American legal scholar. Besides his academic work, Sunstein also held a powerful political post, serving President Obama as the Administrator of the White House Office of Information and Regulatory Affairs from 2009 – 2012. Finally, Sunstein is perhaps best known in policy wonk circles for his book Nudge, in which he and co-author Richard Thaler argue that “it’s time for institutions, including government, to become much more user-friendly by enlisting the science of choice to make life easier for people and by gentling nudging them in directions that will make their lives better.”
Now that we have some background on Sunstein’s position in policy-making circles, let’s turn to his shocking (and unwitting) admissions on the climate change debate. First, Sunstein doesn’t pull punches when opening his column:
A federal court this week upheld the approach that the government uses to calculate the social cost of carbon when it issues regulations — and not just the cost imposed on Americans, but on people worldwide. It’s technical stuff, but also one of the most important climate change rulings ever. [Bold added.]
So there should be no doubt that Sunstein is a huge fan of the ruling. In that context, then, it’s odd that Sunstein soon follows up with the following discussion:
First established by the Barack Obama administration in 2010, the central value for the social cost of carbon, last updated in 2015, is now $36. That figure is set within a range from $11 to $105, meant to acknowledge scientific and economic uncertainty. (Disclosure: As administrator of the White House Office of Information and Regulatory Affairs, I was involved in the process.) The $36 figure has international resonance; many nations are paying attention to it. It also plays a large role in discussions about the size of any possible carbon tax.
Although Sunstein doesn’t seem to realize it, the above statements contain a shocking admission. The “scientific and economic uncertainty” surrounding the concept mean that the Obama Administration was reporting a range for the “social cost of carbon” going from $11 to $105. When journalists or others cite the point estimate of $36, that is simply the “central value” in the broader range. As Sunstein himself admits later in his article: “Any particular number will of course be highly controversial.”
That range is enormous if the “social cost of carbon” (SCC) is going to be the foundation of the cost/benefit analyses of regulations involving greenhouse gas emissions. What would the world need to look like for Sunstein (or the circuit judges) to agree with the petitioners, that the SCC is an arbitrary concept?
Things that are actually settled science do not exhibit such controversy. For example, this NASA page reports that the (equatorial) radius of the moon is 1,738.1 kilometers. Now that’s just a rounded estimate, of course. If we polled various astronomers and physicists, they might disagree slightly on the best figure to report for “the radius of the moon.” However, no reputable scientists would say, “Any particular moon radius reported is controversial, but we are confident the range of the true figure is between 531 kilometers and 5,069 kilometers.” Would that make you confident that the scientists had a good idea of how big the moon was? Note that I used the same ratio of lower and upper bounds to the “central value” that Sunstein used for the social cost of carbon.
Or take human population. Nobody knows for certain how many people are on planet earth right now, but surely the proper experts have a pretty good idea. This website for example says the figure is some 7.4 billion people. To repeat, this is obviously just an estimate, and various scientists might disagree with each other and the best figure to report. But surely they wouldn’t say, “To account for the uncertainty in our analysis, we will report a range for the total global population between 2.3 billion and 21.6 billion. This is settled science—we are really confident the human population is somewhere in that range.”
If a government agency issued that kind of statement—saying the global population was somewhere between 2.3 billion and 21.6 billion—after studying the matter, and then issued regulations and taxes costing trillions of dollars on the basis of these calculations, would you feel good about the process?
Of course not. Such huge disparities in the bounds would indicate that scientists don’t really have a handle on these issues. And by the same token, when Cass Sunstein proudly tells us that the Obama Administration thinks the social cost of carbon is $36 per ton, but that it issued a range of $11 to $105 because of the “scientific and economic uncertainty” (his phrase, not mine), that should be Exhibit A in the petitioners’ case.
Sunstein’s Awkward Admission #2: Government’s Procedure Massively Overstates Benefits to Americans
Later in his piece, Sunstein drops another bombshell on readers who know how to interpret his unwitting admission:
In deciding on the social cost of carbon, the Department of Energy considered global damages, not damages limited to the U. S.. That means that if a power plant in New York emits carbon, the U.S. government will consider not merely costs to Americans, but also costs to people in Canada, China, Germany, Russia and anywhere else. Indeed, it will treat the latter costs as if they were every bit as important as the former.
This is an admittedly unusual step. In making regulatory choices, the federal government doesn’t ordinarily take account of global damages. A purely national social cost of carbon would be a lot lower than $36 — certainly less than $10, and possibly below $5. [Bold added.]
Now we who have been objecting to the use of the “social cost of carbon” have emphasized this point repeatedly, but it’s refreshing to see Sunstein admit it so candidly. Even if we put aside the “scientific and economic uncertainty” from the last section and accepted the $36 figure at face value, it is crucial to realize that this is a global figure. The alleged damage to Americans from the emission of another ton of CO2 is “certainly less than $10, and possibly below $5.”
In other words, when using the Obama Administration’s official estimates for the social cost of carbon, rules that hurt the U.S. economy – and only the U.S. economy and citizens — are being credited with benefits (from mitigated climate change) where perhaps 90 percent of these alleged gains accrue to foreigners.
To be sure, those who favor aggressive government intervention to restrict greenhouse gas emissions have argued that if emissions hurt humanity, then cutting them is the right thing to do, costs to Americans be damned. But when the DOE reports that these particular energy conservation rules will cost $93.9 million to $165 million annually for manufacturers, while providing “total benefits in excess of $4 billion,” did Americans realize that the vast majority of the “climate benefits” would go to foreigners? Or did they actually think that the cost/benefit analysis of a policy imposed on Americans was quantified in terms of impacts on Americans? (After all, this is the guideline from OMB on how to do a cost/benefit analysis—you are supposed to report the domestic figures. This accords with common sense, because Americans would want to know how American policies affect Americans.)
If Americans want to use climate change policy as a form of international aid—where Americans make themselves poorer in order to make foreigners better off—that is certainly their prerogative. But nobody in the Obama Administration is making the case in this way. No, the public is being told that climate catastrophe is just around the corner unless we take immediate action, and they are told that this is a wonderful plan that will be good for the U.S. economy. The average American has no idea that the vast bulk—perhaps more than 90 percent—of the alleged climate benefits from reducing U.S. emissions accrue to foreigners, and that these benefits are included when the EPA or DOE reports on the “efficiency” of new interventions. Indeed, it would be accurate to describe the analysis and policies as “un-American,” not as a pejorative slogan, but as a simple statement of fact.
The debate over climate change policy is a difficult and technical one. However, in this article I quoted from Cass Sunstein, who is a fan of the recent court ruling upholding the DOE’s use of the “social cost of carbon.” Sunstein’s own statements unwittingly reveal just how unsettled the science is, if we wish to use computer models to impose a carbon tax. Furthermore, he shows that if such a tax ever is levied, the alleged climate benefits will accrue largely to foreigners.
The American public has been sold a bogus narrative, in which the experts all agree on how bad the situation is, and how “commonsense” interventions will more than “pay for themselves” in benefits to Americans. As Cass Sunstein’s own article reveals, this is all nonsense. The official range for the social cost of carbon varies by almost a factor of ten, and even if we could agree on what the number was, it would still be the case that the vast majority of any climate “benefits” would not accrue to Americans. They would bear almost all of the economic cost of new climate regulations or carbon tax, while foreigners would reap the lion’s share of the alleged climate benefits.
 To avoid confusion: Recent analyses of federal policies that would restrict carbon dioxide emissions include other alleged benefits besides mitigated future climate change damages, and these alleged benefits (such as energy savings for consumers) accrue to Americans. However, it is very dubious to assume that American consumers are unable to take into account the advantages of energy efficiency when making product purchases, and so (allegedly) need federal regulators to “help” them by restriction their options.