The intragency panel price per ton of carbon incorporated into the Environmental Protection Agency’s microwave rule seems to set the standard, or at least the starting point, for the federal government’s estimate of the social cost of carbon.

Benjamin Zycher, visiting scholar at the conservative American Enterprise Institute, has argued that that cost “fails”. Zycher hosted a discussion at OurEnergyPolicy.org about the EPA’s calculated cost of carbon.

Zycher’s criticisms of the EPA’s analysis of the social cost of carbon are as follows:

• It ignores the minimal temperature impact – one tenth of one degree by the year 2100 – of even a 50% reduction in US emissions, and that the US’ contribution would diminish over time as emissions from other countries continue to grow.
• It violates Office of Management Budget guidelines that only the costs and benefits to the US, rather than the international community, be considered in federal cost-benefit analyses, and through its use of a range of discount rates. “Because the costs of the rule are far more certain than the benefits—the climate models simply are unreliable in terms of the long-term effects of changes in GHG concentrations—the discount rate applied to costs should be substantially lower than that applied to benefits,” Zycher writes.
• It is not objective, as bureaucracies are interest groups whose cost-benefit analyses can be easily manipulated. Congressional approval should be required for major rules. 

Many respondents shared Zycher’s views that climate action by the EPA is a politically rather than scientifically motivated process, and that US actions alone will simply penalize US businesses while allowing other countries to “free ride” on its reductions. But others argued that as a global problem, it makes little sense to view emissions and climate change solely through a domestic lens, that cost-benefit analysis is intended to avoid political influence, and that having a price on carbon – even if it’s not the best price – at least offers a starting point that businesses can use for planning purposes.

US Action on Climate Change is Necessary

The US should take a leadership role:

“U.S. action would help to galvanize other countries, e.g. the EU, to take on more stringent commitments due to a reduction of competitiveness concerns (something the EU Commission has stated), as well as help to provide more moral authority to pressure emerging economies to do so.” – Wil Burns, Director, Energy Policy & Climate program, Johns Hopkins University

The US sets a bad example if it ‘free-rides’ on other countries’ emissions reductions:

“If all countries only take into account the domestic benefits of reducing global GHG pollution, the global damages will be far above the ‘optimal’ level including for the United States. We do indeed need other countries not to ‘free ride,’ but we cannot expect them to if we justify our own free-riding!” – Matt Cox, Doctoral Candidate/NSF IGERT Fellow, Georgia Institute of Technology

Climate change is an international problem, not a domestic one:

“Global warming can only be solved if all nations take appropriate policies to address it, particularly led by the U.S., other developed nations, and large emitters like China and India. Developing nations may be hardest hit first, but the U.S. will have massive problems to deal with over the long term.” – Henry M Goldberg, Independent Consultant

Broader change will require lots of changes at the margin:

“US emissions are only about 1/6 of total emissions right now, but it is worth noting that the U.S. is responsible for roughly 27% of the CO2 in the atmosphere that are currently impacting the climate. And the logic of his [Zycher’s] first argument – that the marginal reduction of pollution effectively “rounds to zero” – ignores the basic fact that it is the cumulative impact of many small actions that leads to significant change.” – Cox

US Action on Climate Change Will Come at the US’s Expense

Imposing a Cost on Carbon is Tantamount to Foreign Aid:

“By basing the SCC [social cost of carbon] on global rather than on U.S.-only costs, the rules implicitly support transferring income from U.S. citizens to foreigners—especially to those living in poor countries with tropical climates. By basing the calculations on artificially low discount rates, the rules impose tacit income transfers from people living now to those who will come long after them.”

“Even if one believes that the proposed transfers are somehow ethically right, greenhouse gas controls are a costly way of making them.” – Lee Lane, Visiting Fellow, Hudson Institute

Taking uninformed action is worse than taking no action at all:

“When policy-makers and regulators oversimplify problems and make policies and rules based on those oversimplifications, they are bound to do more harm than good.  If we are going to attack global warming by limiting GHG emissions, we need a coherent, comprehensive, and evenhanded policy that covers all GHG emissions in proportion to their IPCC-ranked global warming potential, and considers climate risks and damages in the context of other risks and damages.” – Ike Kiefer, Captain, US Navy (retired)

Costs determined by cost-benefit analysis distort markets: 

“In the case of real energy markets, the price signals crucial to cost-benefit calculus have an event horizon that thins out to illiquidity beyond 6 months and essentially dissipates to nothing 12-18 months out. But in the black arts of cost-benefit analysis, price signals live on for years, buoyed by an imaginary market of limitless depth, and immune to distortions from all other effects, including central bank policies injecting trillions per year and inflating asset prices at 2% per year compounded (or worse).” – Stephen Maloney, Partner, Azuolas Risk Advisors

The EPA’s Cost of Carbon is Politically Motivated

Cost-benefit analysis is designed to protect against political influence:

“A primary rationale for the use of CBA [cost-benefit analysis] is to attempt to denude the influence of political inputs into the rulemaking process in favor of a more objective approach driven by science. I would suggest that the prospects for manipulation of the process are reduced by insulating the process from elected officials.” – Burns

EPA’s analysis may be guided by the Administration’s political agenda:

“There is no such thing as ‘objective’ analysis by a government bureau headed by an administrator appointed by an elected official and confirmed by the Senate.” – Zycher

A cost of carbon is a moral question:

“Earlier emissions rules could make significant changes by targeting single industries with large, integrated supply chains and near-hegemonous power over their industry in aggregate. Greenhouse gases – particularly carbon dioxide – are more diffuse in production, harder to monitor and harder to directly point to negative effects.”

“Ultimately the question is moral, which means it is political, not bureaucratic.” – Peter Gardett, CEO, The Energy Agency

The EPA’s social cost analysis does not reflect the public’s preferences:

“The attempt to marshal scientific expertise to advance an ideological objective does not alter the balance of public preferences. Rather, at most it inflames political polarization, politicizes science, and aggravates political gridlock, limiting the capacity to undertake any constructive action.” – Lewis J. Perleman, Principal, Perelman Group

A Cost of Carbon is a Starting Point for a Necessary Conversation:

“I for one am relieved to have a price to discuss, even if the price formation was by fiat. If this issue is ever going to come up for meaningful policy discussion and help control the huge unpriced risk for companies producing these emissions, there has to be a starting number and now we have it, buried deftly inside the microwave rule.” – Gardett