Critics ‘connect the dots’ on Obama admin cost estimates

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Michael Bastasch DCNF Managing Editor
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Did the Obama administration tinker with an obscure White House estimate to make its sweeping environmental agenda seem less costly?

“Connecting the dots, it’s clear the administration updated the social cost of carbon, without much notice, in order to justify sprawling new regulations,” said California Republican Rep. Duncan Hunter. “And not long after, the president pulls back the curtain on a new agenda that will lean heavily on rule making, and now there’s a clear line of sight into the administration’s plans.”

President Barack Obama unveiled his plan to address global warming late last month, but about three weeks before the announcement, the White House quietly released an update on its estimates for the social cost of carbon — buried in a rule regarding microwave ovens.

“It is a pretty shady deal. You know, I am not saying that it is a drug deal, but there are probably drug dealers that are more open and honest than the EPA was on this thing,” Michael McKenna, president of the consulting firm MWR Strategies, told The Daily Caller News Foundation.

“They call it the social cost of carbon, but really the important part of it is that it is going to be used to calculate benefits for all kinds of EPA regulations from microwave ovens all the way to new CAFE standards and cars,” McKenna added. “It is how you are going to end up with trillions of dollars’ worth of benefits and swamped in whatever the costs are.”

However, environmentalists hailed the move. “As we learn that climate damage is worse and worse, there is no direction they could go but up,” Laurie Johnson, chief economist for climate at the Natural Resources Defense Council, told Bloomberg.

“Conservatives criticize environmental and climate regulations for their effect on economic growth, but these updated numbers help clarify exactly how much carbon pollution harms the economy,” writes Ryan Koronowski for ThinkProgress.

The social cost of carbon estimate is crucial to determining the financial benefit of reducing carbon emissions. It is used by federal agencies when crafting regulations. As the social cost of carbon is increased, the benefits of reducing carbon emissions is increased as well, making it easier to justify expensive environmental regulations through cost-benefit analysis.

On the flip side, it will make projects that could lead to more carbon dioxide emissions, like the Keystone XL pipeline or the Pebble Mine in Alaska, look more costly as they go through environmental reviews, according to McKenna.

“And you know that can amount to killing it,” McKenna added. “There is no action I can think of on energy and the environment that this thing is not going to find its way into. Whether it finds its way in during the regulatory process or during the litigation process is immaterial – it is going to find its way into everything.”

Part of the president’s plan to address global warming is to cap emissions from existing power plants, which would be costly, especially to coal-fired power plants.

“For existing [power plants] it is tremendously important because there are going to be costs and they are going to be big and the only way the agency is going to justify it is to twist the benefit numbers, like they did when deriving the social cost of carbon,” McKenna said.

Lawmakers expressed concerns about the transparency behind the new estimate.

“There must be a more transparent process, allowing the public and industry to weigh-in on something so significant,” said Hunter, who along with West Virginia Democratic Rep. Nick Rahall introduced legislation that would require cost-benefit analyses and key methods used in formulating regulations to be made public for at least 60 days for review.

“It is really kind of questionable — it was not peer reviewed it was not ever put out for public notice or comment,” McKenna said. “We do not even know what agencies were in the room along with what people were in the room. We’ve got no clue if they talked with environmentalist, communists, Buddhist monks — we’ve got no idea.”

The economics behind the social cost of carbon have also been challenged by critics. For example, the SCC takes into account global benefits while the costs of environmental regulations are shouldered by Americans.

“They counted all of the imagined international damages from greenhouse gas emissions and that got tucked into the costs,” McKenna told TheDC News Foundation. “You end up with American regulations that affect only American producers, but the benefits calculations are structured to take in benefits accrued to the whole world.”

Slate contributor Eric Posner writes that “96 percent of the global population lives outside the United States. Obama lacks any clear authority to regulate for their benefit, and in other contexts, when agencies perform cost-benefit analyses, they generally take account of the effects on Americans only.”

Critics also point out that the SCC could be rendered a useless metric due to “carbon migration.” Essentially, raising the price of emitting carbon in the U.S. — for example, from burning coal — may simply push the emissions into other countries.

“Strictly speaking, the ‘social cost of carbon’ is directly relevant for government policy only in the context of a worldwide uniform enforcement of the penalty on emissions,” said Institute for Energy Research senior fellow Robert Murphy. “But if, say, the estimated theoretical social cost of carbon is $20 per ton, and the US unilaterally imposes a $20 per ton carbon tax, then that is actually inefficient, because much of the emission activities will simply migrate to other jurisdictions.”

Many countries that would be more open to carbon-heavy fuels, like China and India, have laxer environmental rules and produce power less efficiently than U.S. producers.

“[Lots] of migration diminishes the benefits of regulation — which means that regulation based on the $38 per ton SCC could cost us a lot of money without improving the climate,” writes Posner.

The SCC estimate has also risen dramatically from its 2010 estimate of $23.80 per metric ton to a whopping $38 per metric ton, while global temperatures have remained flat for about the last 15 years.

McKenna noted that this is “a pretty fantastic increase in four years, given that temperature records tell you that there has been no increase in four years. So it is kind of tough to argue that damages have been jumping.”

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