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The Independent Institute
Commentary

The Stealth Carbon Tax


Using Executive Order 12866 (Regulatory Planning and Review, issued by President Bill Clinton back in 1993), the White House Office of Management and Budget (WH-OMB) has published numerical estimates for the ‘Social Cost of Carbon’ (SCC). In Public Comments, we have challenged these OMB numbers in three respects: use of outdated climate science; internal inconsistency; omission of CO2 benefits. These miscalculations—whether politically inspired or innocently overlooked—could end up costing the American public hundreds of billions in higher dollar costs, as well as millions of lost jobs.

OMB’s announced purpose is to arrive at validated and consistent dollar figures that can be used in OMB Regulatory Impact Analysis. However, I strongly suspect that the real purpose of the White House is to establish a de facto carbon tax. Such a scheme would usurp the authority of Congress and likely violate the U.S. Constitution, since all tax bills must originate in the House of Representatives.

Adding to my suspicion is the sneaky way in which the White House is going about this exercise. With a minimum of notice, and without publicity, OMB assembled an Interagency Working Group (IWG), which arrived at a cost of about $12 per ton of emitted carbon, based on a Technical Support Document (TSD) of Feb. 2010. This TSD was updated in May 2013, upping the SCC to about $36 per ton—and rising over time. The Department of Energy (DOE) then promptly used this figure in setting an efficiency standard for microwave ovens.

In June 2013, the Landmark Legal Foundation, a public-interest group, unsuccessfully petitioned the DOE, stating: “DOE’s unannounced, dramatically increased, and improperly altered ‘Social Cost of Carbon’ (‘SCC’) valuation presented for the first time in this microwave oven regulation will certainly become the standard by which all other agencies will place a purportedly beneficial economic value on new carbon regulations.” [For details, see Federal Register, Vol. 78, No. 251, Dec. 31, 2013]

Subsequently, in August 2013, the House passed two bills (H.R. 367 and H.R.1582)—which would block a carbon tax and also aimed to enjoin the EPA from using SCC. However, the Senate never scheduled a debate and vote, and the White House has threatened a veto. The next session of Congress may have more success.

The White House effort is fundamentally prejudiced; an unbiased study would have allowed for the a priori possibility that the so-called ‘cost’ is in fact a ‘benefit.’ Instead, the OMB studies implicitly assume that the rise of atmospheric carbon dioxide, a known greenhouse gas, will inevitably lead to adverse climate impacts. Here we critique this facile assumption and also describe major positive consequences. We conclude that the historic increase of CO2 in the past 200 years has benefited humanity and will continue to do so in future.

Outdated Climate Science

The most fundamental problem with the Technical Support Documents is the absence of any empirical evidence for significant climate effects of rising CO2 levels. [We note in particular a lack of global warming over the past 17 years!] The only ‘evidence’ comes from (so far) unvalidated climate models that disagree even with each other, and from unsubstantiated claims of anthropogenic global warming (AGW) in successive UN-IPCC (Inter-governmental Panel on Climate Change) reports. [For details, see reports of the more credible NIPCC (Non-governmental International Panel on Climate Change) at www.NIPCCreport.org . A critique of the latest (2013) IPCC Summary can be accessed at Scientific Critique of IPCC’s 2013 “Summary for Policymakers”]

Internal Inconsistency

The TSD estimates for SCC are based on the arithmetic average of three integrated assessment models (IAMs): DICE, FUND, and PAGE. Each IAM has its own damage function, based on estimated economic and non-economic damages for each sector (such as agriculture, sea level rise, etc). Not surprisingly, dollar figures for ‘damage per sector’ disagree among the three models, reflecting the wide choice of assumptions by the three model builders. More seriously, however, the integrated damage figures diverge in sign (!) for modest increases in global temperature: below 3 degC; FUND shows benefits, while DICE and PAGE show costs; see Fig. 1 of the 2010 Technical Support Document Social Cost of Carbon for Regulatory Impact Analysis ­Under Executive Order 12866; the 2013 Technical Support Document Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866 does not show or discuss this significant inconsistency. MIT Professor Robert Pindyck has prepared a detailed critique of the IAMs [NBER, Working paper 19244, July 2013]; he says they are flawed and useless for policy purposes.

There has been much debate about the proper choice of discount rate in the final calculation. There is no need to enter into this debate here; we only note that the OMB uses 7% as its standard for project calculations and that the IWG rejects the near-zero rate used by Lord Nicholas Stern, which yields huge values for SCC.

Three Benefits of Rising CO2 Levels

1. Even under the popular but unproven assumption that there will be a modest global-mean warming caused by increasing CO2, the overall economic effect may well be beneficial, mainly for agriculture. This is the conclusion of Yale University economist Professor Robert Mendelsohn and 23 collaborating economists. Their study was published in book form in 1994 by Cambridge University Press.

Their beneficial results can be further amplified as follows:

  • All IAMs over-estimate damages from future sea level rise; but the rate of sea-level rise does not seem to depend on CO2 at all.

  • Climate forcing increases only slowly, as the logarithm of CO2. In any case, the US contribution to global CO2 values is becoming ever smaller over time and may soon be negligible.

  • Climate models suggest that warming increases with latitude; therefore, a warmer ‘mean’ might result in Siberian winter nights at -35 degrees C instead of -40 degrees C.

2. The direct benefits of CO2 as a plant fertilizer are well known; the ‘greening’ of the planet has been directly measured [1]. Historically, major agricultural crop varieties developed when CO2 levels were several times present values. The slight reduction in ocean alkalinity from increasing CO2 is not considered to be a problem. [Scientific details are fully discussed in the 2013-14 reports of the NIPCC.]

3. Finally, we have a recent study (Jan. 2014) that notes the striking correlation, since 1850, between the rise of both global GDP and atmospheric CO2 (i.e., through the use of concentrated energy, mostly from fossil fuels). Even assigning only a fraction of the benefits of the industrial revolution (and modern civilization) to CO2, yields huge benefit numbers—50 to 500 times the typical cost estimate of the IWG’s $36 per ton of carbon.

Conclusion

The use of fossil fuels, and the resultant rise in atmospheric CO2, yield benefits that far outweigh any conceivable estimate of social cost; hence using an SCC does not make economic sense. The OMB should publicize this view and encourage reasoned debate. Beyond a possible use in allowing rational regulation, establishing an SCC as a Carbon Tax is likely unconstitutional.

[1] The Positive Externalities of Carbon Dioxide, Center for the Study of Carbon Dioxide and Climate Change (CSCDCC) (Oct. 21, 2103).

Dr. Craig Idso, director of CSCDCC and a co-author of the NIPCC reports, states:

Advancements in technology and scientific expertise that accompanied the Industrial Revolution initiated a great transformation within the global enterprise of agriculture. More efficient machinery and improved plant cultivars, for example, paved the way toward higher crop yields and increased global food production. And with the ever-burgeoning population of the planet, the increase in food production was a welcomed societal benefit. But what remained largely unknown to society at that time, was the birth of an ancillary aid to agriculture that would confer great benefits upon future inhabitants of the globe in the decades and centuries to come. The source of that aid: atmospheric carbon dioxide (CO2).

[2] The Social Costs of Carbon? No, The Social Benefits of Carbon, American Coalition for Clean Coal Electricity (Jan. 2014).

"Coal leaders: Obama’s ‘Social Cost of Carbon’ Flawed," by Tim Devaney (The Hill, Jan. 22, 2014).

Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866, Interagency Working Group on Social Cost of Carbon (Technical Support Document, Feb. 2010).

Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis Under Executive Order 12866, Interagency Working Group on Social Cost of Carbon (Technical Support Document, May 2013).


Atmospheric physicist S. Fred Singer is a Research Fellow at the Independent Institute, Professor Emeritus of Environmental Sciences at the University of Virginia, and former founding Director of the U.S. Weather Satellite Service. He is author of Hot Talk, Cold Science: Global Warming’s Unfinished Debate (The Independent Institute).


From S. Fred Singer
HOT TALK, COLD SCIENCE: Global Warming’s Unfinished Debate
Distinguished astrophysicist S. Fred Singer explores the inaccuracies in historical climate data, the limitations of attempting to computer climate models, solar variability, the effects of clouds, ocean currents, and sea levels on global climate, and factors that could mitigate any human impacts on world climate.