06.21.2021

CEI Files Comments on Biden Administration Social Cost of Carbon Estimates

By Marlo Lewis, Jr.

CEI today is filing comments on the Biden administration Interagency Working Group’s (IWG) Interim Technical Support Document on the social cost of greenhouse gases. CEI climate scientist Patrick J. Michaels, Kevin D. Dayarata, and I coauthored the comments. Dr. Dayaratna, who is Principal statistician, Data Scientist, and Research Fellow at the Heritage Foundation, is commenting as an independent scholar, not as a spokesperson for any organization.

Our comments develop a multilayered case against using social cost of carbon (SCC) analysis as a basis, framework, or tool for guiding or informing federal agency regulatory, permitting, or procurement decisions. In a nutshell, SCC analysis is too dependent on non-validated assumptions and inputs to be fit for policy making.

Worse, as in the IWG’s 2010, 2013, and 2016 technical support documents (TSDs), the IWG’s 2021 interim TSD utilizes highly questionable and cherry-picked assumptions and inputs to support the climate crisis narrative and promote climate policies whose very real costs would hugely exceed the undetectably small hypothetical benefits.

Our comments are organized as follows.

Section 1 provides an overview of SCC analysis basics. It explains why the integrated assessment models (IAMs) used to estimate SCC values are not fit to guide policymaking. We also outline specific flaws in the IWG’s methodology. The IWG uses outdated climate sensitivity assumptions, below-market discount rates, an analysis period extending far beyond the limits of informed speculation, and implausible (“return to coal”) emission baselines. Two of its IAMs unscientifically depreciate carbon dioxide fertilization benefits, and one unreasonably depreciates human adaptative capability.

Section 2 discusses the IWG’s reliance on climate sensitivity estimates from models that substantially overestimate observed tropical tropospheric warming during the past 40 years. We caution that the IWG’s SCC estimates will become even more unrealistic if IAM sensitivity assumptions are derived from the CMIP6 models that will be used in the forthcoming Sixth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC). The social cost of carbon is too speculative and assumption-driven for any government to adopt official SCC estimates. However, if the IWG insists on doing so, it should use only the climate sensitivity estimates similar to those of the Russian Institute of Numerical Mathematics (INM) suite of general circulation models (GCMs)—the only models to accurately track observed tropical tropospheric warming since 1979.

Section 3 sets the stage for the next sections that show in detail how IAM assumptions and inputs can easily be manipulated for political purposes. Sections 3-8 draw upon Kevin Dayaratna’s 2020 congressional testimony.

Section 4 shows how discount rates affect SCC estimates. We make a case for using a 7 percent discount rate, which would allow the public to compare the productivity of climate policy investments to market-driven investments. Using a 7 percent rate would dramatically reduce the IWG’s SCC estimates. If the IWG continues to produce SCC estimates, it should include a 7 percent discount rate. It should not use below-market (1-2 percent) discount rates, which are useful only for propaganda purposes such as making fossil fuels look unaffordable no matter how cheap, and renewables look like a bargain at any price.

Section 5 discusses how the time horizon affects SCC estimates. The IWG estimates cumulative climate damages out to the year 2300—well beyond the limits of informed speculation. Even if the IWG gets climate sensitivity right, it is in no position to make official pronouncements about the economic and technological evolution of the 22nd and 23rd centuries. If the IWG continues to produce SCC estimates, it should limit the analytic horizon to 2150, which could reduce SCC estimates by more than 25 percent. 

Section 6 explains that the IWG relies on an outmoded climate sensitivity probability distribution that inflates SCC estimates. If the IWG continues to produce SCC estimates, it should use sensitivity estimates from recent empirically constrained studies. Doing so could dramatically reduce the IWG’s SCC estimates.

Section 7 shows that running the FUND model with updated empirical information regarding climate sensitivity produces significant probabilities of negative SCC estimates through at least the mid-21st century. That means there is a significant probability that the agricultural benefits of CO2 emissions will outweigh any climate change-related damages beyond the next 30 years. If the IWG continues to produce SCC estimates, it should clearly present the probabilities of negative SCC values.

Section 8 documents the immense agricultural benefits of CO2 fertilization. DICE and PAGE—two of the three IAMs used by the IWG—effectively assign a value of zero dollars to those benefits. The FUND model estimates CO2 fertilization benefits on the basis of studies from the 1990s. If the IWG continues to produce SCC estimates, it should not use models that ignore CO2 fertilization benefits, and it should utilize the best available science to estimate such benefits.

Section 9 provides an assessment of human adaptive capabilities based on various long-term trends such as the 99 percent reduction globally since the 1920s in the average person’s risk of dying from extreme weather events. If the IWG continues to produce SCC estimates, it should eschew models that assume adaptation is futile beyond 2°C of warming and 10 inches of sea-level rise.

Section 10 discusses the implausibility of the baseline emission scenarios used by the IWG to estimate the incremental impact of an additional ton of CO2 emissions. Four of the IWG’s five baseline emission scenarios implausibly assume that, absent specific climate policies, the world returns to a coal-based energy system, not just for the remainder of the 21st century, but through the entire analysis period ending in 2300. This assumption dramatically inflates SCC estimates. Replacing it with more realistic emission baselines would reduce those estimates just as dramatically. If the IWG continues to produce SCC estimates, it should replace its outmoded emission baselines with new baselines reflecting recent energy market and emission trends.

Section 11 presents our conclusions. The social cost of carbon lacks robustness to be a useful tool in federal agency regulatory, permitting, and procurement decisions. Agencies should not use the metric to guide policy, but if they do, they should present the results under a variety of plausible assumptions. The current Technical Support Document needs to be substantially rewritten to accommodate this requirement.

Twelve other organizations signed on to our comments: Energy & Environment Legal, Center for the American Experiment, CO2 Coalition, Cornwall Alliance for the Stewardship of Creation, Center for Political Renewal, Energy Policy Advocates, National Center for Public Policy Research, Committee for a Constructive Tomorrow, Caesar Rodney Institute, John Locke Foundation, Rio Grande Foundation, and the Buckeye Institute. Heritage Foundation energy analyst Katie Tubb also signed on in her capacity as an independent scholar.

This article appeared on the Competitive Enterprise Institute website at https://cei.org/blog/cei-files-comments-on-biden-administration-social-cost-of-carbon-estimates/

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