WASHINGTON — The Institute for Energy Research filed a comment today on the administration’s use of the social cost of carbon (SCC). The comment reads:

The Administration’s Interagency Working Group (IWG) on the Social Cost of Carbon has issued two reports containing estimates of the social cost of carbon (henceforth SCC), first in February 2010 and then an update in May 2013. Federal agencies have been using these estimates of the SCC to conduct cost/benefit analyses of proposed federal rules. A major justification for many rules—in particular, regulations involving the energy and transportation sectors—is a reduction in greenhouse gas emissions. The SCC serves to quantify, in dollar terms, the value of such emission reductions, to be added to the “benefit” side of the ledger of a proposed rule.

This comment explains that the use of the SCC as an input into federal regulatory actions is totally inappropriate. The Administration is treating the SCC as if it is a scientifically valid, objective fact of the external world, akin to the charge on an electron or the boiling point of water at sea level. However, the SCC is no such thing, at least in our present state of understanding. Rather, the SCC is an arbitrary output from very speculative computer models. It can be adjusted up or down as the analyst wishes, Simply by adjusting the parameter and modeling choices in plausible ways, a knowledgeable economist can generate SCC estimates that are very high, very low, or even negative—meaning that carbon dioxide emissions actually shower “positive externalities” on humans beyond the direct benefits to the emitters, and therefore should (according to the Administration’s logic) receive federal subsidies.

The ultimate reason federal agencies use the SCC is in order to comply with Executive Order 12866, which requires agencies to “assess both the costs and the benefits of the intended regulation.” Yet Executive Order 12866 also requires costs and benefits to be quantified “to the fullest extent that these can be usefully estimated.”

This comment explains that the costs and benefits of proposed federal regulations cannot be “usefully estimated” by the inclusion of the SCC. Because the SCC as implemented by federal agencies is completely arbitrary and without theoretical or experimental support, not to mention a lack of data supporting the Working Groups calculation, this calculation of the SCC also violates the Information Quality Act of 2001 (IQA). According to OMB’s own guidelines, the IQA requires information disseminated by agencies to be “accurate, reliable, and unbiased” and “presented in an accurate, clear, complete and unbiased manner.”

To read the full comment, click here.


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