Policy Documents

Research & Commentary: Social Cost of Carbon

September 12, 2013

The Obama administration recently increased the federal government’s estimated social costs for carbon emissions. The federal government’s asserted social costs for carbon emissions are important because they are a major factor in federal government decisions regarding land development, business permits, energy production, carbon dioxide restrictions, and a host of other applications. A review of the Obama administration’s asserted costs show they are flawed in many particulars.

The White House Interagency Working Group technical document for how to calculate a “Social Cost of Carbon” (SCC) will be used to “allow agencies to incorporate the social benefits of reducing carbon dioxide (CO2) emissions in cost-benefit analyses of regulatory actions that impact cumulative global emissions.”

The White House document makes many scientifically dubious assumptions that allow the federal government to assign unrealistic social costs to carbon dioxide emissions. For example, the technical document dubiously assumes higher atmospheric carbon dioxide concentrations harm agricultural production, even though carbon dioxide serves as aerial plant fertilizer. U.S. crop production continuously sets new records for gross yields and yields per acre as atmospheric carbon dioxide levels rise. The same holds true on a global scale, with global production of food staples doubling and tripling during the past 40 years as atmospheric carbon dioxide levels rise.

Similarly, the White House’s technical document dubiously assumes rising sea levels will inundate coastal regions, resulting is substantial land loss. There was no such occurrence during the twentieth century, as sea level rose approximately seven inches, and there has been no acceleration of sea level rise during the twenty-first century.

Strikingly, the technical document totally ignores the many benefits of carbon dioxide emissions and their assumed climate impacts. Hurricane frequency and severity have substantially lessened as carbon dioxide emissions have risen. Tornado frequency and severity have substantially lessened as carbon dioxide emissions have risen. Global and U.S. soil moisture have substantially improved, and foliage density, particularly in the U.S. West and arid regions throughout the world, has dramatically increased.

In another glaring shortcoming, the technical document does not provide relative comparisons for the social costs of the environmental impacts of non-carbon energy sources. For example, U.S. wind turbines, while providing less than 3 percent of the nation’s electricity, kill at least 1.4 million birds and bats—including many endangered species—every year. Also, according to the wind industry’s own numbers, it requires 300 to 600 square miles of wind turbines to replace a single conventional, carbon-emitting power plant (and the plant must remain open and running anyway, because of the unreliable, intermittent nature of the wind). Measuring and placing a price on the asserted social costs of carbon emissions, while failing to do the same for negative environmental impacts and social costs associated with other energy sources, is not an honest, apples-to-apples assessment.

Dr. Robert Murphy of the Institute for Energy Research told the U.S. Senate the SCC estimates could have “profound impacts on both industry and consumers.” SCC estimates are extremely malleable, Murphy testified, because they depend on very subjective modeling assumptions which can allow government agencies to produce studies justifying whatever policy they desire. Policymakers and regulators should be aware of the SCC’s unreliability as a scientific measure and not use it to justify regulations. 

The following documents provide additional information about the social cost of carbon.

 

Ten Principles of Energy Policy
http://heartland.org/policy-documents/ten-principles-energy-policy
Heartland Institute President Joseph Bast outlines the ten most important principles for policymakers confronting energy issues, providing guidance to deal with ongoing changes in markets, technology, and policies adopted in other states, supported by a thorough bibliography. 

Dr. Robert Murphy Testifies Before the US Senate Committee on Environment and Public Works
http://www.youtube.com/watch?v=5CWHfPlXX14
In his testimony to the Senate Environment and Public Works Committee, Dr. Robert Murphy, senior economist at the Institute for Energy Research, notes policymakers have been misled into believing the SCC is an objective, measurable figure that can be relied on to justify numerous conservation policies. In reality, Murphy says, the SCC is heavily dependent on assumptions, albeit plausible assumptions, that can be adjusted to suggest either a high SCC figure or even a negative one (suggesting carbon is good for the environment and we should therefore subsidize coal-fired power plants), such that no one on either side is technically a liar. 

A Closer Look at the Government’s Determination of the Social Costs of Carbon
http://www.cato.org/blog/closer-look-epas-determination-social-costs-carbon
Cato Institute scholars explain how the very name of the Social Cost of Carbon concept doesn’t make scientific or economic sense. They argue the SCC is a poor measure for justifying policy, given the extreme sensitivity to input parameters which can easily be molded to the user’s desire, resulting in an unnecessary expansion of state powers. 

Climate Change Policy: What Do the Models Tell Us?
http://www.nber.org/papers/w19244
In his peer-reviewed, National Bureau of Economic Research working paper, Massachusetts Institute of Technology economist Robert Pindyck evaluates the integrated assessment models (IAMs) that have been constructed and used to estimate the social cost of carbon. Pindyck concludes these models “have crucial flaws that make them close to useless as tools for policy analysis.” Pindyck also says the models “create a perception of knowledge and precision, but that perception is illusory and misleading.” 

The Social Cost of Carbon: Garbage In, Garbage Out
http://reason.com/archives/2013/08/02/the-social-cost-of-carbon-garbage-in-gar
Reason magazine science correspondent and Liberation Biology author Ronald Bailey discusses Robert Pindyck’s working paper on the social cost of carbon. Bailey concludes Pindyck makes a “devastating argument that recent estimates of the SCC amount to garbage.” However, Bailey also says this does not mean Pindyck rules out the threat of catastrophic climate change. Bailey says Pindyck favors a carbon tax “roughly equal to the social costs of carbon concocted by the Working Group” as it "would help establish that there is a social cost of carbon, and that social cost must be internalized in the prices consumers and firms pay." However, this view fails to acknowledge that there is more to the combustion of carbon-containing compound than just social costs, and that there are several social benefits that are not reflected in the price we pay. 

Research & Commentary: Fossil Fuels and the Environment
http://heartland.org/policy-documents/research-commentary-fossil-fuels-and-environment
Heartland Policy Analyst Taylor Smith examines global environmental trends since the widespread combustion of fossil fuels, concluding fossil fuel use provides numerous positive externalities for human civilization. If markets are allowed to function as they’re supposed to, future economic expansion and increases in human capital will lead to any necessary technological breakthroughs to discover greater, cleaner sources of energy, Smith writes.

 

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the Environment & Climate News Web site at http://news.heartland.org/energy-and-environment, The Heartland Institute’s Web site at http://www.heartland.org, and PolicyBot, Heartland’s free online research database, at www.policybot.org.

If you have any questions about this issue or The Heartland Institute, contact Heartland Institute Policy Analyst Taylor Smith at tsmith@heartland.org or 312/377-4000.