Free-Market Groups Target Obama’s Made-Up “Social Cost of Carbon”

July 19, 2016

This week, the MacIver Institute joined a coalition of free-market groups in applauding Congressman Evan Jenkins’ (R-WV) efforts to bring attention to the use of two deeply flawed calculations in the creation of rules and regulations by the Obama Administration.

Jenkins is attempting to prevent the use of the “social cost of carbon” (SCC) and “social cost of methane” (SCM) calculations in the creation of regulations.

The coalition believes that the use of the social cost of carbon by the Obama Administration is “an attempt to generate numbers that justify their administrative actions in pursuit of their political Global Warming agenda” which results in higher energy prices for American families and businesses.

The letter reads in part:

The SCC and SCM are products of the Obama administration’s Interagency Working Group (IWG) on the Social Cost of Carbon. The problems with these calculations are many, but the most important are that these calculations are “wholly arbitrary,” that the IWG refuses to follow OMB’s guidelines for economic analysis, and that these are economic models which are calibrated to follow climate model projections, not actual, real-world data. The problems are too large to ignore, especially since they are being used to justify regulations that make energy more expensive for American families and businesses.

The biggest problem with the SCC was explained by MIT Professor Robert Pindyck, who writes that computer-generated SCC estimates are “close to useless” for guiding policymakers, and models are “arbitrary” having no basis in either economic theory or empirical observation.

If the arbitrary nature of the SCC and SCM wasn’t a big enough problem, OMB’s Circular A-4 outlines some requirements for “good regulatory analysis.” The administration’s IWG, however, refused to follow two of the important guidelines (an analysis at a 7 percent discount rate and an analysis of only domestic benefits instead of only global benefits). Their failure to comply has the combined effect of justifying much more costly regulations which, in turn, drive up the cost of energy in the United States.

Another major flaw is that the IWG tuned their calculation of the SCC to follow computer climate models, rather than real world data. If the calculations are re- run using empirical data, according to one SCC model the numbers should be 30 to 50 percent lower and according to another SCC model, the SCC should be over 80 percent lower. In fact, if the IWG only used this second model, there is a 40 percent chance that the SCC would be negative, i.e., carbon dioxide actually turns out to be a bene t to the economy. For more on this issue, see this op-ed and this paper.

Read the full letter here.