The Social Cost of Carbon Fantasy

The climate activists’ frustration with something called the social cost of carbon (SCC) reached a breaking point recently.  In their recent article in Nature Climate Change, Kaufman et al. admit that the estimates for the SCC are so divergent as to be useless for policy making.  They overcame their frustration by, in essence, simply assuming the SCC is infinity.

My coauthors and I found also found SCC estimates to be useless for policy making, years ago.  (For example, see here, here, and here.)  It is fine to not use it, but it isn’t fine to not use it and act like you did.   In the Kaufman et al. world, the economics start after you have already decided to zero-out all CO2 emissions by 2040 (or 2050 or 2060).

A little history can help explain what games are going on, here.  For a century, economists have made a living finding examples where one person’s activity has some impact on other people.  They call the impacts “externalities” and they think they can fix them with taxes or subsidies that exactly offset the value of these other-people impacts.  Pigouvian (named after the early-Twentieth-Century economist, Arthur Pigou) taxes or subsidies are imposed to correct “market failures.”

The SCC is the purported measure of one such externality.  It is the estimate of the negative impact on others per ton (actually, usually tonne) of CO2 emissions.  This negative impact takes many forms—impacts from incrementally higher storm surges, incrementally worse storms, floods, tornadoes, other adverse weather impacts, and anything else they can think of.  The calculators of damage are undeterred by the lack of increases in hurricanes, tornadoes, floods, and droughts, so far.  You see, they are looking into the future—way into the future.  The models used for these calculations sum up the estimated damage per ton of CO2, which is assumed to persist for years or centuries or, even millennia.  However, let us look backward about a decade.

Early in its mission to “slow the rise of the oceans,” the Obama Administration was intent on using regulation (in lieu of a Pigouvian tax) to correct the alleged market failure in energy markets.  Their tool would be the SCC.  In what is best interpreted as an attempt to sneak the novel use of SCC into the regulatory cost-benefit world, the maiden case for SCC was in the August 31, 2009 edition of the Federal Register with this rule: “Energy Conservation Program: Energy Conservation Standards for Refrigerated Bottled or Canned Beverage Vending Machines.”  Yes, the Department of Energy regulatory juggernaut did not miss anything.  New standards for the efficiency of compressors in soda pop vending machines was the tip of the green spear that would save us from another degree of global warming.

It turns out this regulation did, indeed, fall pretty much under the radar.  After all, it was a rule to regulate the efficiency of compressors in Coke machines, but it was also a disappointment for the climate crusaders.  The $19 most-likely estimate for the SCC would not justify killing energy jobs fast enough or drive up energy prices high enough.  It was no fun.

A couple of years later, while ignoring their previous rule to use only publications cited in an Intergovernmental Panel on Climate Change Assessment Report, the believers in science at the Interagency Working Group on the Social Cost of Carbon were able to juice the SCC to $41/ton.  It was duly integrated into the Department of Energy’s regulatory tool kit with another below-the-radar regulation.  This rule, “Energy Conservation Program: Energy Conservation Standards for Standby Mode and Off Mode for Microwave Ovens,” set tough new standards on the amount of energy a microwave oven can use when it is not being used.  That was not a joke, at least not beyond the normal self-parody that is DC.  Untold hours of analysis, tests, comments and responses were devoted to mandating which technologies would be allowed for the digital displays on microwave ovens. All of it to save an average of two watts.  According to the numbers, the avoided climate damage, summed for every year between 2013 and 2300 (yes, nearly three centuries in total), by using the more efficient digital display worked out to $0.50 per year per for the lifetime of an oven.  That is about $5 total per microwave for avoiding 300 years of theoretical damage.  Go, here, for a more thorough expose of this tragic comedy.  (Spoiler alert: The DoE buried the fact that half of the new efficient-tech displays failed in testing.)

This SCC of $41/ton was eventually used in more substantial energy regulations, but it was never enough to justify any of them.  The climate regulations required co-benefits (of dubious legitimacy) to make them pass cost-benefit tests.

Those who want to look like rational and data-driven Cassandras as they make ten-years-to-act proclamations are totally frustrated by the economics.  Even the SCC calculations from Nobel Laureate, William Nordhaus, cannot justify 1.5- or 2.0-degree caps that are the de rigeur targets of the climate establishment.

So, what can you do?  Assume the answer (the SCC is whatever it takes to totally eliminate CO2 emissions by whatever year sounds good) and then work the regulations and taxes backwards from there.  When you are done, pretend it is economically justified.

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