Economists, legal experts challenge Trump on carbon pricing

Source: Arianna Skibell, E&E News reporter • Posted: Monday, August 21, 2017

A group of economists and lawyers is arguing that the current calculation of the societal cost of greenhouse gas emissions is the best estimate available, despite President Trump’s decision to withdraw the metric and disband the interagency working group that developed it.

The social cost of carbon, which currently sets the price of CO2 at $50 per ton emitted, has been used in cost-benefit analyses of more than 150 proposed and final rules. Its intended purpose is to help regulators draft rules that will ultimately reduce emissions associated with global warming, and it was first adopted by an Obama administration interagency working group in 2010.

When Trump assumed office, he instructed federal agencies to stop using the calculation and instead individually monetize climate damage. The group of analysts and experts is arguing the move is a mistake.

In a letter published today in the journal Science, a number of prominent scholars urge both government and the private sector to continue using the metric.

They write that the calculation reflects peer-reviewed scientific and economic models, noting that many state and federal policies use the metric.

Among the experts signing the letter is Michael Greenstone, economics professor and director of the Energy Policy Institute at the University of Chicago. Greenstone also co-led the original development of the working group under President Obama.

Richard Revesz, professor and dean emeritus at New York University School of Law and director of the Institute for Policy Integrity, also signed the letter.

In March, Trump asked agencies to reconsider two specific elements of the social cost of carbon: the discount rates and the domestic versus global impacts.

The discount rate allows regulators to convert future costs and benefits into current values. Obama’s working group used values ranging from 2.5 percent to 5 percent, while critics say that rate is too low, pushing for a 7 percent value.

The letter writers said a higher rate would place less value on avoiding future damage. It would impose higher costs on future generation, they said, noting that the higher rate has gained little support in the economic community.

“The National Academies of Sciences and the U.S. Council of Economic Advisers strongly support a 3% or lower discount rate for intergenerational effects. A 7% rate based on private capital returns is considered inappropriate because the risk profiles of climate effects differ from private investments,” they wrote.

Critics of Obama’s domestic versus global impact calculations argue that current regulatory policy states that damage and benefits should be considered in rulemaking only if they are national, not international. The letter authors counter that climate change is a global phenomenon and that United States’ emissions contribute to global damage.

Each ton of carbon emitted outside the U.S. has national consequences. The authors wrote that, therefore, estimating the damage of U.S. emissions reinforces “reciprocal climate policies in other countries.” They also note that “current models cannot accurately estimate a domestic-only share of the social cost of greenhouse gases.”

The letter was also signed by Michael Hanemann, a professor of environmental and resource economics at the University of California, Berkeley; Thomas Sterner, a professor of environmental economics at the University of Gothenburg in Sweden; Michael Livermore, a professor at the University of Virginia School of Law; Jason Schwartz, the legal director of the Institute for Policy Integrity at NYU School of Law; Peter Howard, the institute’s economics director; and Denise Grab, a senior attorney at the institute.

Key Republican senators on the Environment and Public Works Committee have questioned the use of the social cost of carbon, saying it suffers from “procedural flaws” and “troubling substantive assumptions.”

“We request EPA re-evaluate any rules that relied on those metrics to justify regulatory impact,” Chairman John Barrasso (R-Wyo.) and seven committee members wrote in a letter to EPA (E&E Daily, May 16).

The Department of Energy has incorporated the SCC in rulemaking at least twice. Last year, the 7th U.S. Circuit Court of Appeals upheld the agency’s use of the metric (Greenwire, Aug. 9, 2016).

And even though the president disbanded the working group, the Office of Information and Regulatory Affairs has not abandoned the calculation and is working quietly on updating it (Greenwire, June 15).