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What Climate Change Policy Puts America First?

The Trump administration’s social cost of carbon is misguided.

The unraveling of federal environmental protection under the Trump administration is well underway. Over the past several months we’ve seen moves to axe, roll backsuspend, delay, halt, deny, and postpone environmental protection and health-based standards. Last month, the EPA initiated a repeal of the Clean Power Plan (CPP), the centerpiece of Obama’s climate change legacy.

Under the Obama administration, you might remember that projected net benefits of the CPP were on the order of $67 billion (by 2030). In sharp contrast, Trump’s EPA has concluded that we should scrap the Clean Power Plan because estimated costs exceed the benefits.

There are a number of accounting changes and questionable assumptions that explain the striking change in these cost-benefit estimates from one administration to the next. (If you are wondering about the “efficiency benefits” grey area, this is an accounting shell game described here.)

One of these accounting changes has particularly important and far-reaching policy implications. Whereas the Obama White House directed agencies to consider global climate change impacts when assessing the benefits of GHG reductions, the Trump administration has adopted a narrow definition of domestic damages for accounting purposes. This helps explain why you can barely see the Trump administration’s revised estimates of climate change benefits (blue bar) in the graph above.

This narrowing of focus to consider only direct U.S. impacts may seem like a pro-America policy position. But in climate change policy, as in other critical areas (trade agreements, nuclear proliferation, alliance commitments, cybersecurity, to name a few), Trump’s brand of “America First” is crude and misguided. A recent paper by our colleague Matt Kotchen helps to drive this point home in a carbon context. Before digging into these details, let’s introduce the numbers that are at the crux of this debate.

The Social Cost of Carbon

The “social cost of carbon” (SCC) is a policy-critical number. It aims to measure, in dollar terms, how much damage is caused over the long run by one metric ton of CO2 emissions in a given year.

Back in 2009, economist Michael Greenstone and legal scholar Cass Sunstein convened an Interagency Working Group (IWG) tasked with quantifying the social cost of carbon for the United States government. Because the health, environment, and economic damages caused by climate change are felt globally, they drew from the latest research in science and economics to account for the full global impact. The central global cost estimate reaches $45/ton of CO2 by 2020.

Given the inherent complexity and uncertainty surrounding climate change damages, this IWG effort may seem like an exercise in futility. But given the potentially devastating consequences of making policy decisions that entirely ignore climate change damages, this is an exercise worth pursuing. It’s really important to uncover the best possible (albeit imperfect) estimates of climate change damages to guide policy actions that directly and indirectly affect GHG emissions. Many of our colleagues have been working hard to refine and improve this process.

In March, Trump issued an executive order that disbanded the working group and dismissed the global SCC estimates as “no longer representative of government policy”. The order paved the way for a “domestication” of the SCC where only damages that directly impact the United States are used to steer policy decisions. Trump’s EPA uses a domestic SCC (aka DSCC) in the range of $1-$6/ton. This accounting change helps explain why climate-related benefits practically disappear from the Trump balance sheet above.

The CPP repeal effort is stoking the debate over which (if any) social cost of carbon should be used to guide policy. As I see it, most opinions can be grouped into four camps:

Scrap it

There are some who argue that the SCC should not be used at all. If you don’t believe that climate change is happening, there are no damages to worry about (let alone measure). Fortunately, the courts have upheld the scientific finding that greenhouse gases endanger public health or welfare, and ruled that agencies are acting arbitrarily if they assume an SCC of zero. These rulings make it difficult to eradicate or ignore the SCC.

Globalize it

Key arguments in favor of using the global SCC (GSCC) estimates often appeal to reciprocity and altruism. To solve the global climate change problem, all countries will need to account for the global damages of their emissions. If every country considers only the direct effect on itself, we will make little progress. And if Americans care about people beyond our borders, our policy actions should reflect that altruism.

These arguments resonate with me. I’m sold. But if a majority of Americans do not share this cooperative and moral imperative, where does that leave us? We certainly cannot bank on these global-spirited arguments prevailing under this administration…

 

Domesticate it

Although the Trump administration may have had “America First” motives in mind when the executive order invalidating the global approach to estimating the SCC was issued, on paper the order cites only precedent and standard practice.

Legal scholars have advanced similar arguments. In this review, for example, Ted Gayer and Kip Viscusi survey the history of regulatory impact assessments (a more compelling read than you might think) and argue that the use of global benefits in policy analysis runs boldly counter to standard cost-benefit practice.

It’s true that accounting for global damages in domestic policy decisions departs from historical precedent and standard application of statutory guidance. But climate change presents an unprecedented and non-standard policy challenge. Past precedent makes sense for local and regional environmental problems where the majority of costs and benefits accrue here at home. In contrast, GHGs emitted anywhere mix globally in the atmosphere and have global impacts. The response to global climate change requires international cooperation, foreign relations, and diplomacy.

I see no reason to confine our domestic policy response to the narrow scope of standard regulatory impact analysis in the name of historical precedent and standard procedure. Particularly when a more global perspective will better serve the U.S. interest in the long run. This leads us to the fourth perspective on the social cost of carbon…

Strategize it!

The Trump administration’s decision to focus on the DSCC is the right strategy in a textbook prisoners’ dilemma model where (1) each country chooses its policy actions based on narrowly defined self-interest and (2) the policy choices that one country makes has no influence or bearing on the choices made by other countries.

Of course, this naïve model ignores the critical role of international relations, diplomacy, and the potential to influence other countries with our policy leadership. Strategic policy design choices can look very different when countries recognize that their domestic policy choices can induce a favorable policy response from other countries. We have seen clear evidence of this already. For example, after the Obama administration adopted the global SCC for use in domestic policymaking, our neighbors to the north and south (Canada and Mexico) adopted our global SCC numbers with only minor adjustments.

Our colleague and friend Matt Kotchen has been thinking a lot about what this kind of reciprocity implies for how we should choose an SCC, also recognizing that policy interactions are a repeated game. In this important paper, he shows how it can be individually rational for countries to internalize more than just the direct domestic damages from GHG emissions. So long as increased domestic policy commitment makes it more likely that other countries will reciprocate, all countries have an incentive to choose a social cost of carbon that exceeds their direct domestic damages.

Which SCC puts America first?

Last week, 13 federal agencies released an exhaustive scientific report affirming that climate change is driven almost entirely by human activity and warning of devastating impacts ahead. This is not fake news. And these risks will only intensify without aggressive action.

To solve this global commons problem, there is one right SCC number and that number is global. To establish a norm where all countries fully internalize this global SCC requires leadership. I understand that President Trump is unlikely to be swayed by the moral imperative to lead on this one. But his administration is misled by its own “America First” rhetoric when it adopts a DSCC that is practically $0. Given our powerful global position, the United States has a strong strategic reason to account for global benefits when defining domestic climate change policies. Our current failure to do so is reckless and self-defeating.

 

 

 

 

 

 

6 thoughts on “What Climate Change Policy Puts America First? Leave a comment

  1. There are a couple of major reasons to be considering the global SCC that don’t really get attention in your note:
    (1) Our economy is part of a global economy, such that the US economic footprint is really global. As just a couple of examples of our needs from outside our border, consider coffee, lamb, year-round fruits and vegetables, and so on–just imagine the US public without coffee (an industry that is working hard to adapt). Then too, US agriculture and industry sells overseas–having a bit of knowledge about how markets outside our country would seem essential to be considering.
    (2) Environmental refugees and resulting instability have gotten the attention of the US national security community. Being a country of immigrants, there is a concern about the rest of the world and people in countries everywhere. As climate changes, there will be impacts and large populations are going to be on the move, creating all sorts of challenges we simply cannot ignore, from providing aid to those in most trouble to taking in environmentally displaced peoples.
    Thinking our nation is an island is really non-sensical.
    On the actual estimates of SCC, that they are bottom up necessarily makes them very seriously low as not every type of impact (bad or beneficial) can be included, and putting a value of things such as the inundation of low-lying island nations is quite problematic. An alternative approach is to accept the international consensus of seeking to stay below 2 C warming (or better yet, 1.5 C warming), which was agreed to in order to avoid what international leaders think would be too high a risk of very disruptive to catastrophic impacts, and to then determine what the implementation costs will be to assure this. An estimate of this so-called top-down “shadow price of carbon” (or, in effect, a risk-based price of carbon) would come out at a price of order several times or more than the attempt to make the calculation bottom-up, and were this being used, the benefit side of the Clean Power Plan would be huge. The Administration’s actions really are just very mistaken, to put it mildly.

  2. Dr Koonin was previously Professor of Physics at ” Cal Tech”

    He points out that climate scientists often present alarmist information that is incomplete to the point of being deceptive. He is suggesting that there needs to be in climate science a jury of independent scientists, presumably whose funding and positions are not entirely dependent on the more alarmist side, and could present an adversarial review of major US climate science reports:

    A Deceptive New Report on Climate

    True, the U.S. has had more heat waves in recent years—but no more than a century ago.

    By Steven E. Koonin, Nov. 2, 2017 6:14 p.m. :

    The world’s response to climate changing under natural and human influences is best founded upon a complete portrayal of the science.
    The U.S. government’s Climate Science Special Report, to be released Friday, does not provide that foundation. Instead, it reinforces alarm with incomplete information and highlights the need for more-rigorous review of climate assessments.A team of some 30 authors chartered by the U.S. Global Change Research Program began work in spring 2016 on the report, “designed to be an authoritative assessment of the science of climate change.” An early draft was released for public comment in January and reviewed by the National Academies this spring. I, together with thousands of other scientists, had the opportunity to scrutinize and discuss the final draft when it was publicized in August by the New York Times . While much is right in the report, it is misleading in more than a few important places.
    One notable example of alarm-raising is the description of sea-level rise, one of the greatest climate concerns. The report ominously notes that while global sea level rose an average 0.05 inch a year during most of the 20th century, it has risen at about twice that rate since 1993. But it fails to mention that the rate fluctuated by comparable amounts several times during the 20th century. The same research papers the report cites show that recent rates are statistically indistinguishable from peak rates earlier in the 20th century, when human influences on the climate were much smaller. The report thus misleads by omission.
    This isn’t the only example of highlighting a recent trend but failing to place it in complete historical context. The report’s executive summary declares that U.S. heat waves have become more common since the mid-1960s, although acknowledging the 1930s Dust Bowl as the peak period for extreme heat. Yet buried deep in the report is a figure showing that heat waves are no more frequent today than in 1900. This artifice also appeared in the government’s 2014 National Climate Assessment, which emphasized a post-1980 increase in hurricane power without discussing the longer-term record. The National Oceanic and Atmospheric Administration recently stated that it has been unable to detect any human impact on hurricanes.
    Such data misrepresentations violate basic scientific norms. In his celebrated 1974 “Cargo Cult” lecture, the late Richard Feynman admonished scientists to discuss objectively all the relevant evidence, even that which does not support the narrative. That’s the difference between science and advocacy.
    These deficiencies in the new climate report are typical of many others that set the report’s tone. Consider the different perception that results from “sea level is rising no more rapidly than it did in 1940” instead of “sea level rise has accelerated in recent decades,” or from “heat waves are no more common now than they were in 1900” versus “heat waves have become more frequent since 1960.” Both statements in each pair are true, but each alone fails to tell the full story.
    Several actions are warranted. First, the report should be amended to describe the history of sea-level rise, heat waves and other trends fully and accurately. Second, the government should convene a “Red/Blue” adversarial review to stress-test the entire report, as I urged in April. Critics argue such an exercise would be superfluous given the conventional review processes, and others have questioned even the minimal time and expense that would be involved. But the report’s deficiencies demonstrate why such a review is necessary.
    Finally, the institutions involved in the report should figure out how and why such shortcomings survived multiple rounds of review. How, for example, did the National Academies’ review committee conclude that the chapter on sea level rise “accurately reflects the current scientific literature on this topic”? The Academies building prominently displays Einstein’s dictum “one must not conceal any part of what one has recognized to be true.”

    Mr. Koonin was undersecretary of energy for science during President Obama’s first term and is director of the Center for Urban Science and Progress at New York University.
    Appeared in the November 3, 2017, print edition as ‘A Deceptive New Report On Climate.’

    • Somehow, Steve Koonin does not recognize any of the many assessments and evaluations of climate change science around the world, whether by the Intergovernmental Panel on Climate Change, the US National Academy of Sciences and many other national academies of science around the world, the statements and evaluations of many professional societies with more expertise in the area than his (even the evaluation effort he chaired on the statement of the American Physical Society), the assessments carried out by the US Global Change Research Program (one of which I helped coordinate, many others I offered review comments on), and so on. Somehow, all of these assessments that have taken place over the past several decades and most had very extensive peer-review processes are in his view flawed. And now he wants to have more–he’s persisted in his views for a quite long time and given no indication that his views could be changed by any evidence on any of the issues, never seeming to acknowledge the very well established evidence that human activities are changing atmospheric composition in ways that will, based on quite straightforward physics, lead to significant climate change. If he wants acknowledgment that there are indeed aspects and understanding of the issue still to be refined, the community certainly agrees that more and more can be learned, but that this is an issue that merits public policy attention has been clear for decades (the first report on the issue from a panel of the President’s Science Advisory Council having been submitted to the President and Congress in 1965, and its basic points on the science of the issue remain essentially unchanged). As the most recent report reiterates from quite a number of earlier assessments and vast amounts of earlier literature, there is simply no other plausible explanation for the changes in the climate over the last half century and more than that the dominant influence has been human activities.

  3. Thanks for bringing to light the fledgling debate between the localists (Gayer-Viscusi/Fraas-Lutter-Dudley-Gayer-Graham-Shogren-Viscusi) and Matt Kochen.

    Kochen is appropriately modest: “In conclusion, a central contribution of this paper is demonstration of the need to do more research on the theoretical underpinnings of the SCC.”

    Matt considers cases in which the “strategic” SCC is greater than the domestic SCC. But there are other cases in which a country’s non-cooperative carbon tax is less than the DSCC (e.g. higher domestic carbon taxes lower the price of the dirty input).

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