Published: January 8, 2024 |

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This month, the Environmental Protection Agency (EPA) published revised estimates of the social cost of carbon dioxide, methane, and nitrous oxide — the three main greenhouse gases emitted by industrial civilization. The EPA’s new estimates of the social cost of carbon dioxide (SC-CO2) are not only higher than those published by the U.S. government less than three years ago, but also weirder.

In a nutshell, the EPA’s new report estimates about three times as much societal damage from each ton of CO2 emissions than the government’s previous analysis. Yet the EPA also projects less than one-third the total quantity of CO2 emissions during the 300-year (2000–2300) analysis period.

A basic idea in analyses of the social cost of greenhouse gases (SC-GHG) is that the damage from the next ton of emissions depends entirely on the cumulative quantity of tons projected in the baseline. To infer dramatically higher per-ton social costs from dramatically smaller quantities of total emissions is quite paradoxical. Far from explicating this less-is-more paradox, the EPA’s 176-page report does not even acknowledge it.

POLITICAL SCIENCE

The federal government’s ostensible aim in estimating the social cost of greenhouse gases is to improve the accuracy and completeness of benefit–cost analyses in regulatory proceedings. Unsurprisingly, the true aims are political. Publishing estimates of societal damages out to the year 2300 imparts an aura of “knowledge and precision” to an agency like the EPA that seeks, via controversial CO2-emission standards, to shutter coal power plants and phase out gasoline-powered cars.

There is an even bigger PR payoff. The SC-GHG is a dollar estimate of the social harms of the next ton of emissions and the social benefits of eliminating that ton. SC-GHG estimates can make even all-pain-for-no-gain regulations seem desirable.

Here’s a recent example. In December 2022, the EPA proposed to establish methane-emission standards for oil and gas infrastructure. The EPA estimated that those industries would have to spend $13 billion to comply — but also that the rule would deliver $55 billion in climate benefits. How did the EPA calculate those benefits? It multiplied the rule’s projected emission reductions (920 million tons) by the per-ton social cost of methane (SC-CH4).

Is the projected four-to-one benefit-cost ratio credible? No. Under standard U.S.-government climate-policy modeling, eliminating 920 million tons of methane would avert 0.004 degrees Celsius of global warming by 2050 and 0.011 degrees Celsius by 2100. Such effects are too small for people to notice. Undetectable, non-experiential effects are “benefits” in name only. Artifactual benefits do not belong in the same scales with multibillion-dollar compliance costs that verifiably impose measurable burdens on identifiable firms.

Note, too, that even apart from wholesale upward revisions like the EPA’s new estimates, SC-GHG values increase annually as atmospheric GHG concentrations rise. With each increase in estimated social costs, agencies such as the EPA get a little closer to making fossil fuels look unaffordable no matter how inexpensive, so climate policies look like a bargain — regardless of cost.

OLD HABITS ...

The EPA’s new methodology is intended to supersede that of the federal government’s interagency working group (IWG), which published SC-GHG reports in 2010, 2013, 2016, and 2021. Is the EPA’s redo an improvement? First, let’s recall the IWG’s multiple biases.

Bias 1: Run the social-damage calculators — formally known as “integrated assessment models” (IAMs) — with climate-sensitivity estimates derived from climate-change prediction models that overshoot observed warming in the tropical troposphere by a factor of 2.5. Overly sensitive IAMs will forecast too much warming and, hence, too much heat-related mortality, sea-level rise, and agricultural loss.

Bias 2: Run the IAMs with discount rates lower than those recommended by the Office of Management and Budget, thereby increasing the estimated value of future climate damages and emission reductions.

Bias 3: Project cumulative damages over a 300-year period — well beyond the limits of informed speculation about future emissions and adaptive capabilities. Extrapolating losses into the distant future increases SC-GHG estimates without providing real information about public health and welfare in 2200 and beyond.

Bias 4: Minimize the agricultural benefits of atmospheric CO2 fertilization by averaging the results of three IAMs, two of which (DICE and PAGE) do not explicitly quantify such benefits.

Bias 5: Exaggerate social vulnerability by including an IAM (PAGE) that unrealistically assumes that adaptation cannot reduce social damages once 21st-century warming and sea-level rise exceed 1 degree Celsius and ten inches, respectively.

Bias 6: Inflate warming projections by running the IAMs with implausible emission scenarios in which coal increasingly dominates global energy through the 21st century and beyond.

Bias 7: Conceal the aforesaid biases by not running the IAMs with reasonable alternative assumptions to show how the chosen inputs drive results, and by ignoring such sensitivity analyses in the peer-reviewed literature.

On that last point, note that the IWG reports’ ever-growing citations did not include any of three sensitivity analyses published in the refereed literature by Heritage Foundation data scientist Kevin Dayaratna and colleagues. Their latest study found that when one of the IAMs (FUND) is run with updated empirical information about climate sensitivity and CO2 fertilization, the SC-CO2 drops to very low numbers, with substantial probabilities of being negative through 2050. A negative SC-CO2 is another way of saying a net benefit.

DIE HARD

In one respect, the EPA’s reboot is superior to its predecessor. The EPA’s emission baselines, developed by Resources for the Future (RFF), are far more realistic than the IWG’s return-to-coal baselines. The RFF baseline projects about 5,000 gigatons of CO2 emissions during 2000–2300 — less than one-third of the IWG’s average baseline projection of 17,195 gigatons.

However, the EPA’s SC-CO2 estimate for 2050 is $310, whereas the IWG’s February 2021 estimate for 2050 was $85. (To reiterate, the EPA’s baseline CO2 emissions during 2000–2300 are less than one-third those projected by the IWG, yet the EPA’s SC-CO2 estimates are more than three times higher.)

The EPA uses “transparent” and similar forms of the word 14 times to describe its new SC-GHG methodology. However, the report contains nothing like a table, chart, or paragraph explaining which factors contribute what percentage of the increase in social cost — despite the gigantic reduction in emission baselines.

One factor obviously contributing to higher SC-GHG values is the EPA’s reduction of the discount rate from 3 percent to 2 percent (albeit now with approval from the Office of Management and Budget). That may not seem like much, but through the miracle of compounding over 300 years, it makes a significant difference. Although, as noted, the EPA does quantify its specific contribution to the new estimates.

The EPA apparently puts more weight on heat-related mortality studies than the IWG did. How reasonable is that? Economist Bjørn Lomborg documents that decadal average annual deaths related to extreme weather have declined by 96 percent since the 1920s. Factoring in the fourfold increase in global population, the individual risk of dying from extreme weather has decreased by more than 99 percent over the past 100 years.

That is a very big picture. The EPA does not mention it. Nor does the EPA take note of the almost fivefold decline in weather-related damages as a percentage of exposed GDP since the 1980s.

The EPA’s higher SC-GHG values also derive from Moore et al. (2017), who calculate that agricultural losses from rising temperatures more than double the FUND model’s SC-CO2 estimate. (Color me skeptical.)

Moore et al. project reductions in crop yields from an emission scenario called RCP8.5, which is as inflated and outmoded as the old IWG baselines. The EPA’s embrace of RCP8.5-estimated agricultural damages is hard to square with its adoption of the new RFF baselines, as Guelph University economist Ross McKitrick points out.

The EPA has not significantly revised the IWG’s climate-sensitivity estimates, preferring instead to defer to the U.N. climate panel’s “best estimate” of 3 degrees Celsius and to the “likely range” of 2.5 to 4 degrees Celsius. However, empirical research shows that climate sensitivity is at or below the low end of that range, which entails less warming, milder climate impacts, and lower social costs, as the Heritage Foundation’s studies found.

Speaking of which, although the EPA’s references list spans 33 pages, it does not mention the Heritage Foundation’s contributions to the literature. Old biases die hard.

By: Marlo Lewis, National Review

Marlo Lewis is a senior fellow in environmental policy at the Competitive Enterprise Institute, where he researches and writes on global warming, energy policy, and regulatory process reform.