A group of economists and lawyers are trying to resurrect a contentious climate policy battle, by criticizing the Trump administration’s abandoning of the “social cost of carbon” (SCC) estimate used by the Obama administration.
They argued the SCC is still the “best estimate” for figuring out the future cost of global warming. The group published a letter in the journal Science co-authored by Michael Greenstone, the chief economist of former President Barack Obama’s economic advisers council.
The “social cost of greenhouse gases should be regularly updated, especially to reflect the latest evidence about damage functions,” reads the letter co-authored by Greenstone. He also helped create the federal working group that developed the SCC.
The authors have “confidence that it is still the best estimate of the social cost of greenhouse gases.” The other authors included members of the Institute for Policy Integrity, a liberal think tank.
President Donald Trump disbanded the inter-agency working group behind the SCC earlier this year, sparking outrage from environmentalists and former Obama administration officials.
The White House had serious questions about two key aspects of the SCC, but conservative economists have been voicing objections to the metric for years.
David Kreutzer, an economist at the conservative Heritage Foundation, co-authored a 2016 study that found the SCC was much smaller than the Obama administration claimed and depended highly on the discount rate and models used.
In fact, the SCC is negative when based on observed temperature increases rather than climate models, according to Kreutzer’s study.
Likewise, Robert Murphy, an economist with the free market Institute for Energy Research, argued in 2013 the SCC “is a very malleable concept that can be inflated or deflated by turning certain wheels.”
And why not?
Carbon dioxide fuels the modern world. Human prosperity during the 20th Century was largely propelled by the internal combustion engine and other such innovations, almost all using CO2-emitting fossil fuels.
A May study by University of Sussex economist Richard Tol found that while there is a social cost to burning CO2, the private benefit of doing so was “much higher.” On average, the private benefit of CO2 was $411 per ton — more than eight times larger than the Obama administration’s estimate.
Greenstone and his co-authors went after two specific objections to the SCC cited by the Trump administration — the discount rate and use of global benefits.
Greenstone and company argued the Obama administration was correct in using a 2.5 to 5 percent discount rate, instead of a higher one. They say a higher discount rate would make future damages from global warming seem less.
“National Academies of Sciences and the U.S. Council of Economic Advisers strongly support a 3% or lower discount rate for intergenerational effects,” they wrote.
“A 7% rate based on private capital returns is considered inappropriate because the risk profiles of climate effects differ from private investments,” Greenstone and his co-authors wrote in their letter.
Greenstone also took on the criticism that the SCC estimated global benefits to domestic regulations. Not only did the authors argue taking international damages into account was appropriate, they admitted “current models cannot accurately estimate a domestic-only share of the social cost of greenhouse gases.””
So, is there any chance the Trump administration will re-adopt the SCC? Administration officials are reportedly “working on something coming in the not-too-distant future,” according to an official.
But don’t expect it to be a guidepost for a policy like in the Obama administration.
Some states are using the SCC in energy policy decisions, which make adopting green policies more economically viable on paper.
Both Colorado and New York require utilities to consider the SCC when planning electricity generation. New York went further and used the metric to set subsidy rates for ailing nuclear power plants.
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