A major project has been quietly underway, within the executive branch of the U.S. government, trying to calculate a “social cost of carbon” (SCC)—a so-called “non-market externality” (i. e., not captured by the normal price system of a free market). This calculated cost would then be imposed on all government programs in order to “fix” the price system—so they say.
The SCC report was published in May 2013, with little fanfare; public comments had to be submitted by Sept. 16. But this whole misconceived exercise has no valid scientific basis and can destroy the supply of low-cost, reliable electric power. It is certain to face legal challenges from industry and informed consumer groups; it should be abandoned.
Even the terminology is confusing. The interagency SCC group, made up of the top brains from about a dozen departments, cannot even define their terms properly. What they label “cost” is the damage (disbenefit) of a hypothesized global warming, supposedly caused by atmospheric carbon dioxide (CO2). These imagined disbenefits will eventually be compared with the better-defined real cost of controlling CO2 emissions in the United States—a kind of benefit-cost analysis.
This control cost, of course, translates into higher energy prices, which will make life extremely difficult for lower-income groups. Such a carbon tax creates more poverty, and will cause businesses and jobs to flee to other countries where conditions are more hospitable.
Other countries
Aware of this issue, Australia not only has just decided to scrap its tax on carbon emissions, but is proceeding to dismantle its whole climate apparatus. Europe may likewise abandon its CO2 goals, which had been laboriously negotiated by bureaucrats of the European Union. We will get some inkling of what happens in Germany from their forthcoming federal elections. Here, however, is a typical comment from the British Parliament:
Does my hon. Friend agree that the Climate Change Act is without doubt the most foolish piece of statute that any of us here is likely to see in Parliament? Does he further agree that the very principle of unilaterally re-embarking on a crash programme of carbon reduction can only have the effect of exporting our energy-intensive industries to places where they may emit more carbon, and that carbon reduction will have only a nugatory effect on the problem because, as he correctly states, the Chinese are increasing carbon emissions faster than we are succeeding in reducing them? —Andrew Tyrie MP, House of Commons, 10 September 2013.
IPCC vs. NIPCC
There is always hope that the U.S. will follow these examples—even as the IPCC (Inter-governmental Panel on Climate Change), the U.N.’s climate science panel, issues its fifth Assessment Report, proclaiming its members’ increasing certainty (66% in 2001, 90% in 2007, and more than 95% in 2013) in the existence of AGW (anthropogenic global warming)—while temperatures have not shown any warming trend for more than 17 years—even as CO2 keeps on rising.
The just released report of the NIPCC (Non-governmental International Panel on Climate Change) explains its rationale as follows: Climate Change Reconsidered-II is a counter to IPCC’s reliance on unvalidated climate models rather than observations, and IPCC’s selective use of data, ignoring evidence that disagrees with AGW, their preferred conclusion.
EPA’s war on coal plants
Unfortunately, in the U.S., the EPA seems to be moving in the opposite direction, trying to repeat and even outdo Europe’s near-fatal errors:
- The EPA is issuing greenhouse gas (GHG) performance standards for new coal and natural gas-fired electric generating units (EGUs). The EPA’s proposed standards for coal-fired EGUs are expected to require untested “carbon capture and storage” (CCS) technology. [The EPA’s justification for these highly aggressive standards is expected to rely heavily on the Kemper County IGCC facility in Mississippi, which is still under construction and not expected to begin operation and tests until next spring.]
- These proposed standards are not appropriate under the Clean Air Act (CAA), which provides that performance standards must reflect “the best system of emission reduction, which (taking into account the cost of achieving such reduction and any non-air quality health and environmental impact and energy requirements) the [EPA] Administrator determines has been adequately demonstrated.”
A CCS-based standard is not the “best system of emission Reduction” under this language because:
(a) Kemper is not even running yet, and so its performance level has not been demonstrated;
(b) Kemper could not have been built without significant government support; and
(c) Kemper has access to enhanced oil recovery sites where the captured CO2 can be injected, whereas coal-fired EGUs built in other areas of the country will not be located near such sites and will not be able to store CO2—unless significant new storage sites and pipelines are developed and a permitting and legal liability system put in place.
- The EPA’s aggressive standards for new units create significant concern that the EPA will adopt comparably aggressive standards for existing units. Although the EPA is not expected to require CCS-based standards for existing units, the EPA is expected to adopt minimum requirements that can be met only by either retiring existing coal units or reducing their hours of operation. This approach could lead to significant stranded investment. Utilities around the country, in response to other EPA regulations, have been forced to install very expensive pollution-control technology on their existing units. Unless these units can run as intended, this investment cannot be fully amortized.
- The CAA (Clean Air Act) does not give the EPA authority to dictate existing-source performance standards. Unlike for new units, where the EPA promulgates standards that apply directly to sources, the states, not the EPA, adopt existing-source performance standards. Under Section 111(d) of the CAA, the EPA has authority to issue regulations calling for states to adopt plans that contain performance standards. The states themselves, however, promulgate the performance standards.
The EPA claims that it has authority to issue guidelines setting forth minimum requirements and has recently said that those guidelines will be “binding” on the states. Eighteen state attorneys general, however, have written a White Paper that expresses the legal opinion that states retain ultimate power to decide how stringent the standards must be.
SCC calculations of disbenefits
Returning to the SCC calculations of disbenefits, which of course would occur very much later than the actual costs of CO2 mitigation, much of the debate has involved the topic of proper discount rate. (This debate is of some importance in its own right; a choice of 2 percent results in large disbenefits, while the choice of 7 percent [the value recommended by the OMB] reduces the “present value” of disbenefits to near zero and makes any attempts at CO2 mitigation look ridiculous.)
Seasoned economists like Yale Prof. William Nordhaus argue for a value of 4 percent, a kind of compromise. Meanwhile, in Great Britain, the report by Lord Nicholas Stern had used a discount rate close to zero—backing the political position of former prime minister Tony Blair to control CO2.
The SSC report of May 2013 determined that the price of carbon (actually, of CO2) should be $36 per ton. (SCC computer models vary in their estimates of the correct social cost—i.e., carbon prices—from $12 to $129 in the year 2020.) Electricity from wind would then be cheaper than electricity generated by coal—a complete distortion of economic reality. As Donn Dears’s blog reminds us, the DOE and EPA introduced this new price when establishing guidelines for microwave ovens (!)—but no one noticed. There were no public hearings.
The interagency SSC panel seems to have latched on to sea level rise (SLR) as another source of major disbenefits. Unfortunately for them, they are, again, wrong about the science—and so are many IPCC scientists who haven’t studied the matter. There is absolutely no evidence that GH warming, lasting only decades or even centuries, will speed up SLR. As measured by tide gauges, sea level seems to be rising at about 7 inches per century, no matter what we do—completely independent of the level of atmospheric carbon dioxide or of global temperatures of the past centuries.
A crucial question
In this debate about discount rate and all of the details of the disbenefits, the interagency SCC panel seems to have lost sight of the main point: Wouldn’t both a warmer climate and increased CO2 produce positive net benefits rather than just (negative) disbenefits? This seems to be the position of a group of 23 credible economists, who looked at the question sector by sector and found that a modest warming and higher CO2 levels would increase GDP—mainly by improving agricultural yields.
This is not rocket science. It is well-known that higher CO2 levels promote more rapid and better growth of crops and that a warmer climate will lengthen the growing season and reduce frosts that kill fruit trees.
Of course, we are talking about net benefits. The season for ski resorts may become shorter, but the beach season will become longer. And would a colder climate really be better than a somewhat warmer one? We merely note that people from North Dakota choose to move to Palm Springs in California, and New Englanders tend to move to sunny Florida, especially in the winter.
One concludes that the White House’s war on coal, our cheapest and most plentiful fuel for electric generation, is totally misplaced. Carbon dioxide is a global constituent of the atmosphere—and there is no way that the EPA can control emissions from China or India or other developing countries that wish to produce more electricity to provide a better way of life for their populations.
It is telling that in this war to destroy the U.S.’s capacity to generate low-cost, reliable electricity, the EPA relies on the Clean Air Act of 1970, which mandates that the EPA set National Ambient Air Quality Standards (NAAQS). Ignoring this crucial part of the Act, the EPA has never promulgated a NAAQS for CO2, doesn’t even know how to calculate it, and certainly could never enforce such a global value.
