Francis Menton, The Manhattan Contrarian
Somewhere along the line in the growth of the administrative state, some very naive people got the idea that giving bureaucrats arbitrary power is no problem because the bureaucrats can be constrained by a requirement that they do a “cost-benefit analysis” before they undertake major actions or regulations. Thus no bureaucratic regulation will proceed unless the benefits exceed the costs. Obviously, if the benefits exceed the costs, the regulation would be a net benefit, and of course it should take effect. What could go wrong?
In the ranks of such touchingly naive people we have, for example, the U.S. Congress and the Supreme Court. The Congress has indulged in hundreds of broad delegations of regulatory power to the administrative state, often with theoretically constraining language that either explicitly requires a cost-benefit analysis, or alternatively says something sort of close to that, such as that any regulation must be “appropriate and necessary.” In the case of a collection of power plant emissions regulations imposed by EPA in 2011, EPA attempted to take the position that the “appropriate and necessary” test under the Clean Air Act did not require it to consider cost before imposing the regulations. The Supreme Court disagreed in the 2015 case of Michigan v. EPA, and sent EPA back to the drawing board. So with that, agencies will almost always be required to assess cost against benefit before imposing any major action or regulation, and thus everything is now back to perfect balance and equilibrium in the world. Right??
Of course the flaw here is the naive faith that a bureaucracy can be trusted to do an honest cost-benefit analysis, when in fact the essential dynamic of all bureaucracies is that they are only interested in growing their own power, staff, and budget. For today’s lesson, consider what goes by the name of the “Social Cost of Carbon.”
The “Social Cost of Carbon” can fairly be described as the mother of all government cost-benefit analyses. Supposedly it is a sophisticated tote-up of plusses and minuses that stands behind all government efforts to impose regulations in the area of “climate change.” In reality it is a completely dishonest scam that wildly exaggerates costs and ignores benefits in order to justify vast seizures of power unto the government.
You may or may not have heard of the specific term “Social Cost of Carbon,” but undoubtedly you do know that in 2009 when the Obama administration came in, “climate change” was one of its top priorities; yet it was clear that there was going to be no new legislation (even though the Congress was fully in Democratic hands). The administration thus had a huge impetus to proceed by regulations to increase its power and authority. This was several years before the Supreme Court’s decision in Michigan v. EPA, but the Obamanauts were smart enough to realize that if they were going to have an aggressive regulatory agenda, somewhere in some statute would be something that someone would claim required a determination that the benefits of any proposed regulations exceeded costs. And this “climate change” thing had the potential to impose hundreds of billions, if not trillions, of dollars of costs on the U.S. economy.
This was way too big to entrust to any one little agency. So instead, the White House itself took the reins, and convened what it called the “Interagency Working Group on the Social Cost of Carbon.” To do the mother of all cost-benefit analyses, you need the mother of all Interagency Working Groups. What agencies? In government acronym-speak, it was CEA, CEQ, DOA, DOC, DOE, DOT, EPA, NEC, OECC, OMB, OSTP, and DOT (here’s a document with the list)—all co-ordinated through the White House itself. Whew! The mission was to assess the costs versus the benefits of emitting carbon into the atmosphere via the burning of fossil fuels. With this huge collection of scintillatingly brilliant geniuses from literally every important government agency, certainly you could be assured that the result would be perfect and fair and accurate. They came out with their initial results in 2010. The results were subsequently updated in a further document issued in 2013, with with yet a further revision in July 2015.
Now, step back from this for a moment. Think about what fossil fuels have brought to the world over the course of the past century or so. To start with, there’s electricity. Could you go as long as a few days without it? It is light, telecommunications, computers, smartphones, the internet, music, television and movies, refrigeration, air conditioning, tools, appliances, and so many other things. About 90% of electricity worldwide comes from fossil fuels and thus from the emission of carbon into the atmosphere; and by the way, most of the remaining 10% (nuclear, hydro) is also not OK with environmentalists. Next, coming virtually 100% from fossil fuels, we have transportation—automobiles, planes, trains, buses, ships, even motorcycles. Then we have mechanized agriculture, also depending almost entirely on fossil fuels. Mechanized agriculture is the difference between having our food supply produced by 2% of the population (as we have today) versus the 90% of the population it took to produce the food before mechanization. Without mechanized agriculture, you would almost certainly be working on a farm today if you wanted to eat; and by the way you would be using a horse to plow the field rather than a tractor. And your plow would be made of wood (can’t make metal without fossil fuels). Then come mechanized and automated factories, which also depend almost entirely on fossil fuels. Is it even possible to run a steel mill on power from wind turbines? Still other things dependent on fossil fuels: Try mowing your lawn without a mower powered by fossil fuels; or trimming a tree without a trimming device powered by fossil fuels; or plowing your driveway after a snowstorm without a plow powered by fossil fuels. Almost all homes that are heated use fossil fuels to do it. This list is almost endless. Fossil fuels literally have transformed human life, hugely for the better, over the course of little more than the past one hundred years.
Are there any negatives in the use of fossil fuels? Of course there are. Fossil fuels have impurities that end up as pollution in the atmosphere—SO2, NO2, “particulates” (but great progress has been made in reducing the amounts of these impurities that make it into the atmosphere). And then there’s the threat of “climate change,” largely theoretical at this point and projected in models that you may or may not believe.
Suppose that you even believe some of the worst case scenarios projected by the most alarmist of the climate models, and you are then given the task of doing a cost-benefit analysis for the use of fossil fuels by mankind. Your first reaction would probably be, how do you quantify something like this? How do you put a value on what it is worth to people to have basically free streaming music, or air conditioning in Texas, or jet travel to Europe and back? But even as you ponder some of those questions, I hope that your second reaction would be, this is not even remotely close. On any conceivable scale of measurement, the benefits to mankind from the use of fossil fuels have to outweigh the negatives by a factor of hundreds if not thousands. The benefits so wildly exceed the costs that the whole effort to try to quantify and weigh the two can’t really even be justified. Even if you hugely minimize the benefits and exaggerate the costs, there couldn’t possibly be any way to make the use of fossil fuels by mankind into a net negative. Indeed, if you need a reasonable proxy for the positive benefits of carbon-based energy, a pretty good start would be 100% of GDP. For the U.S. that’s around $17 trillion per year. After all, without carbon-based energy GDP would be a very small fraction of what it is. Maybe you could knock off a couple of trillion for the part produced by nuclear and hydro, the infinitesimal part produced by wind and solar, and the even more infinitesimal part that you could produce by your own backbreaking human labor in the absence of an energy boost from something else. So a good estimate of what we might call the Social Benefit of Carbon, or alternatively the Negative Social Cost of Carbon, would be around $15 trillion per year.
That’s how you would approach the problem if you were honest, or if you had even a smidgeon of integrity. But remember, this is the government, and their power is at stake.
So in case you haven’t already guessed, the huge collection of government geniuses in the mother of all Interagency Working Groups sweated and struggled over this problem for about a year, and then in February 2010 they came out with a document titled “Technical Support Document:—Social Cost of Carbon for Regulatory Impact Analysis—Under Executive Order 12866.” And sure enough, their conclusion was that the use of fossil fuels by mankind imposes big costs upon society, hereafter to be known as the “Social Cost of Carbon.” And not just small costs. Gigantic costs. Of course they give multiple scenarios and estimates to make the whole thing as confusing and incomprehensible as possible. But the simplest answer was, on our preferred assumptions and for this year of 2010, the Social Cost of Carbon is $35 per ton of carbon emitted. (Total carbon dioxide emissions in the U.S. run in the range of 7 billion tons per year. That would put the total annual “Social Cost of Carbon” in the range of $250 billion, for the U.S. alone.) As mentioned above, since 2010 there have been two updates, most recently in 2015, and you will not be surprised to learn that the claims as to the Social Cost of Carbon have only increased. At the comparable spot in the model ranges to the $35 per ton claim in 2010, the new 2015 number is $56 per ton. That would put annual U.S. SCC now at around $400 billion. But on other assumptions (particularly as to discount rate) it could be as high as $700 billion! And also, rapidly increasing every year!
So what possible approach to valuing costs and benefits could possibly lead to such frankly insane conclusions? Go to those two “technical support documents” put out by the IWG, and try to even figure out what they are doing. It’s endless bureaucratic doublespeak and bafflegab. We’re using really sophisticated models from the smartest of the smartest at the very best Ivy League schools! We have the DICE model and the FUND model and the PAGE model!
It’s impossible to quote from documents like these in a short blog post, but I’ll try to summarize at least a little. It seems that the enormous costs projected by the models trace almost entirely to temperature rises assumed to occur from greenhouse warming, and that the increased temperatures are assumed to cause harm in four main ways: sea level rise, health effects, agricultural productivity, and so-called “discontinuity events.”
For example, for sea level rise, here’s how they say it works: CO2 will cause global warming in the future; global warming will cause ice to melt; enough ice melting will cause sea level to rise; we project that rising seas will flood Manhattan in, say, the year 2060. How much loss will come from that? Pick an arbitrary large number! How about $1 trillion. No, make it $5 trillion! Now discount that back to the present at a ridiculously low discount rate. It’s easily $1 trillion of “present value.” (Less than that? Then make the 2060 loss $10 trillion!) Your heating your house puts 2 tons per year of CO2 into the air. The Social Cost of Carbon is $56 per ton. Thus your personal contribution from home heating to the flooding of Manhattan in 2060 costs “society” $112 right now this year! And sorry, there is no offsetting credit for your being warm in your house in the winter. You should have heated your house with a wind turbine! It is really far, far beyond ridiculous.
My short comments on the four things that underlie the bulk of the projected “loss”:
Sea level rise. I can find no convincing evidence that the rate of sea level rise is any faster now in the intensive fossil fuel era than it has been consistently since the end of the last ice age. (The rate, by the way, is about 8 inches per century.) Here’s my favorite indicator: The headquarters of Goldman Sachs is located just a few hundred feet from the Manhattan waterfront, and at most about 15 feet above sea level. That’s what the smart money thinks about sea level rise, at least over the next many decades. (At 8 inches increase in sea level per century, the Goldman Sachs headquarters is safe from the sea for another good couple of millennia.)
Health effects. Assume worst case projected scenarios of five or even six degrees of warming. That’s a lot less than the average temperature difference between, say, New York and Houston. As far as I know, Houston is no less healthy than New York.
Agricultural productivity. There is no question but that higher temperatures and more CO2 make for better, not worse, agricultural productivity.
“Discontinuity events.” This seems to refer to future natural and weather disasters that they have no reason to think will be more frequent or severe in a warmer future than they are now. They are completely making it up.
So to summarize: The government has convened literally everybody who is anybody in the regulatory apparat to put out a document to “prove” to the world what every thinking person knows can’t possibly be true, namely that carbon fuels are a cost rather than a benefit to humanity. It’’s hard to imagine a more transparent and obvious fraud.
Anyway, I take up this subject today because the internet has been abuzz this past week with critiques of the government]s Social Cost of Carbon analysis that somehow seek to deal with it on its own terms. A paper in April by Dayaratna, McKitrick and Kreutzer re-ran the government]s SCC numbers using lower climate sensitivity estimates based on empirical evidence (rather than just models). Michael Bastasch of the Daily Caller picked up on that article on June 7 in a piece titled “Experts Debunk Obama’s ‘Social Cost of Carbon’ Estimate—It Might Be Negative!” (Might be??? It’s at least $10 trillion per year negative on any reasonable assumptions.) The generally sensible Judith Curry also comments here on the issue, and equally points out that the government’s SCC figures rely on climate sensitivity estimates that have been refuted by empirical evidence of the past several decades.
Fair enough. But these people give the government way too much credit for fairness and honesty. The Social Cost of Carbon is a preposterous and transparent fraud by the government that is ridiculous in forty different ways. I suppose these people deserve some credit for doing hard work to establish that the government’s representations fall apart even on their own terms, but really, this whole Social Cost of Carbon thing is something that no intelligent person should take seriously. And yet, it seems that we have to. Meanwhile, the idea that imposing a “cost-benefit” requirement on the government is any meaningful constraint is exposed as complete futility. If they can put out an analysis purporting to make use of fossil fuels a negative for mankind, then they can do literally anything.