Dodgy estimation of costs and benefits should expose climate rules newly proposed in the US to political if not legal challenge.
Huge potential for error exists fundamentally in the evaluation of benefits to be derived from lowering emissions of greenhouse gases. Much depends, for example, on assumptions about the sensitivity of global mean temperature to increasing concentrations of carbon dioxide and other greenhouse gases in the atmosphere. That relationship remains uncertain and controversial. Furthermore, action by a single country, even a major though diminishing emitter of carbon dioxide such as the US, can have negligible effect on globally averaged temperature at best. Dollar values assigned to benefits subject to this much judgment thus imply an impossible degree of precision. They are, in fact, guesswork.
Welcome to the social cost of carbon (SCC).
Globalizing benefits
In its June 2 proposal for emission cuts from power plants, the Environmental Protection Agency skewed SCC beyond reason—and, possibly, legality—by estimating benefits on a global rather than national scale. From a required 30% cut in emissions of CO2, EPA projected public health and climate benefits of $55-93 billion/year in 2030 at costs of $7.3-8.8 billion. But the climate component of those benefits, about $30 billion, is global; the costs are all American.
"Imposing a global perspective on benefits will increase the apparent desirability of the policy but will overstate the actual benefits to the American people," notes a June 3 critique of EPA's climate-benefit analysis in the power-plant proposal and earlier measures. The commentary comes not from someone resistant to climate-change remediation but rather from the liberal-leaning Brookings Institution.
In it, Brookings Vice-Pres. Ted Gayer, director of economic studies, and Vanderbilt University Prof. W. Kip Viscusi say the global orientation emerged in the Obama administration's Interagency Working Group on Social Cost of Carbon in 2010. The group argued that climate change is a global phenomenon, responses to which need to be global in scope. Gayer and Viscusi counter that the Clean Air Act, under which EPA is regulating greenhouse-gas emissions, and government guidelines for benefit analysis call usually for a domestic view. Where guidelines accommodate worldwide assessment of benefits, they require global values to be appended to domestic estimates.
In its power-plant proposal, EPA provides only global values.
"Agency analyses that only present the global benefits are not calculating the pertinent effects from the standpoint of US citizenry," Gayer and Viscusi write in their critique. "This failure serves to inflate the level of estimated benefits by a factor of 4.4 to 14.3, depending on which end of the estimated domestic benefits share is used." The reference here is to estimates by the SCC working group of the US share of global benefits assumed to result from climate-change mitigation. One estimate put the share at 7-10%. Another estimate, based on the US role in the global economy, was 23%. Use of these factors lowers estimates of climate benefits in the US from proposed power-plant regulations to $2.1-6.9 billion—below the range of estimated compliance costs. Benefit values above the $30 billion attributed to global climatological effects in 2030 relate to lower emissions of precursors of ozone and soot.
Lawsuits and voters
EPA's methods thus inflate headline climate benefits in relation to costs, which by the agency's estimates fall far below the expectations of industry groups. Especially since those methods contradict existing guidance for benefit analysis, its justifications are unpersuasive; indeed, they seem self-serving. This is not an even-handed agency. The framework for EPA's power-plant proposal came from the Natural Resources Defense Council, a group whose president responded to EPA's proposal by saying it should be a step toward ending the use of all fossil energy.
The agency has resorted to manipulation to advance high-cost energy activism most Americans would oppose if provided reasonably balanced assessments of costs and benefits. Its arbitrary departure from normal methods of cost-benefit analysis should elicit lawsuits. Its politically motivated distortions should infuriate voters.
