The Social Cost of Carbon and Carbon Taxes "Pick a number, any number"
From the Executive Summary Leaving aside its scientific and economic uncertainties, the government’s Social Cost of Carbon is so sensitive to input assumptions that small, quite reasonable variations can produce almost any price you wish. As a result it is not a suitable tool for guiding public policy, including taxes on energy. The U.S. Government requires that the benefits of any proposed regulation be greater than its costs to the economy. To make decisions in the energy sector, the Obama administration established a Social Cost of Carbon (SCC), which has been continued by the Trump administration. This price, currently set at $42, is an estimate of the discounted future costs to the world economy due to the atmospheric warming caused by a metric ton of carbon dioxide (CO2) emissions. The scientists in the C02 Coalition strongly dispute that expected emissions of CO2 will cause dramatic increases in temperature and economic damage. Their review of government data from the past 30 years concludes that the “climate sensitivity” assumed by the SCC models — that a doubling of CO2 levels leads to a 3.5 degree Celsius increase in temperature — is much too high. Recent C02 Coalition White Papers show that any adverse effects of CO2 will likely be outweighed by its beneficial effects on plant growth and drought resistance, and by the health benefits of a warmer climate. This White Paper, however, takes a different tack, demonstrating that even with the government’s assumed temperature increases and resulting damages the SCC is extraordinarily dependent on financial assumptions that have nothing to do with climate or economics:
- The discount rate tells us how a “real” dollar (meaning one adjusted for inflation) in the future should be valued today. The choice of a discount rate is critical in evaluating potential damages that occur in the distant future. The SCC uses a discount rate of three percent per year, meaning that a real dollar that is available in one year should be valued at 1/1.03 or 97 percent of a dollar that is in hand, ready to use today. A real dollar two years from now would be worth 1/1.032 or 94 percent and so on.
- The time horizon determines how far into the future we should attempt to calculate climate damages. Currently the government sets the SCC end year at 2300, 281 years from now. Most of the modeled damages occur far in the future, and we demonstrate that such projections are virtually impossible.