June 10, 2013

CPR Scholar Frank Ackerman on Secret Climate Cost Calculations: the Sequel

Three years later, it was time for a new episode.  Back in 2010, Congress listened to some climate-denial rants, counted votes, and decided to do absolutely nothing about climate change; this year on Capitol Hill, the magic continues.

Also in 2010, the Obama administration released an estimate of “the social cost of carbon”` (SCC) – that is, the value of the damages done by emission of one more ton of carbon dioxide. Calculated by an anonymous task force that held no public hearings and had no office, website, or named participants, the SCC was released without fanfare as, literally, Appendix 15A to a Department of Energy regulation on energy efficiency standards for small motors.

This year, the Obama administration updated the SCC calculation. The update was done by an anonymous task force that held no public hearings, and had no office, website, or named participants. It first appeared as – yes! – Appendix 16A to a Department of Energy regulation on energy efficiency standards for microwave ovens.

Something has to change in a sequel (unless it’s in Congress); this year’s SCC number is bigger. For a ton of CO2 emitted this year, the estimated damages were bumped up from $25 in the 2010 calculation to about $40 in the revised version (all in today’s dollars). Since the SCC is used in the administration’s cost-benefit evaluations of new regulations, a bigger number means stronger arguments for energy efficiency and conservation standards. That’s the good news.

The bad news is that behind the veil of secrecy, the same nonsensical methodology was used both times. In 2010 and again in 2013, the anonymous task force members decided to apply three simple models, PAGE, DICE, and FUND,[1] to five emissions scenarios from other models. The average of these results is the SCC.

The administration’s SCC increased because the models have been revised, and the latest versions of all three yield larger SCC values. Most of the increase comes from changes in PAGE, which now includes much greater estimates of certain climate risks.

It’s nice that three modelers have increased their SCC estimates. But why should the U.S. government adopt a policy of turning over its judgment about the severity of the climate problem to them? There are critiques of the task force’s use of the three chosen models, and proposals for other approaches to calculation of the SCC, available in the research literature. One journal published a special issue on the SCC, inspired by questions about the 2010 calculation. Did the anonymous task force thoughtfully consider all these alternatives? Or did they just rush through an update of their previous work? As things stand now, we’ll never know.

The task force did release summary descriptions of the changes in the models, which sound like incremental improvements. The biggest change could be the explicit and expanded treatment of sea-level rise.

On a personal note, I was happy to see that one of my criticisms of FUND has been accepted. In a research article published last year, a coauthor and I pointed out that a mistake in FUND’s agricultural damages equation created a risk of dividing by zero. Richard Tol, the developer of FUND, launched a massive, long-lasting – but ultimately unsuccessful – campaign to deny the mistake and prevent discussion of our article. This year’s SCC task force says that the key equation in the previous version of FUND “had the potential for unintended extreme behavior as… the denominator approached zero or went negative”; the new version of FUND has restructured that equation, “eliminating the potential for divide by zero errors.”

Again, this is modestly good news: the anonymous task force believes in correcting algebra mistakes. Still missing, though, is any explanation of why Tol’s model deserves to account for one-third of the U.S. government’s SCC. In the same article, we pointed out that FUND uses dated and in some cases physically implausible information in estimating agricultural damages, which are a large part of the SCC.

In the bigger picture, what’s missing is any defense of policymaking by anonymous task forces. Once upon a time, democracy was thought to include requirements of public notice of major decisions, sometimes followed by 90-day comment periods, and even agency responses to public comments. But that was so twentieth-century.

A whispered, informal defense of the no-comments approach is that, if the discussion was opened up to the public, climate deniers would take over and force elimination of the SCC altogether. As long as Congress acts like zero is an excellent estimate of climate damages, shouldn’t we count our blessings and pledge allegiance to the anonymous task force and its chosen modelers? George Orwell wrote novels about this approach to government; they don’t end well.

Democracy is hard, and doesn’t always get the right answer – but it is a better way to live. Let’s try it again, soon.

 


[1] The rarely-used full names of the models (with links to model descriptions) are: Policy Analysis of the Greenhouse Effect; Dynamic Integrated model of Climate and the Economy; and Climate Framework for Uncertainty, Negotiation and Distribution. Many critiques of this style of modeling are also available. 

 


Frank Ackerman, CPR Member Scholar; Senior Economist, Synapse Energy Economics. Bio.

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1 Ackerman is mistaken as usual. We reformulated the agricultural impacts of climate change so that the equations are less susceptible to misinterpretation. The effect on the estimated social cost of carbon is minimal, however. The change in the estimates from FUND are due to our reformulation of space heating and global warming.
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