The Questionable Social Cost of Carbon

The Role of the Social Cost of Carbon in Energy Policies

In Douglas Adams' The Hitchhiker’s Guide to the Galaxy, the number forty-two was presented as the answer to life, the universe, and everything. Today, a similar mystical number, known as the social cost of carbon (SCC), is being employed as a justification for the implementation of stringent energy policies by the Environmental Protection Agency and state regulators who are keen on green energy.

The SCC serves as a convenient tool that can be used to validate virtually any policy aimed at phasing out fossil fuels. For instance, when the EPA initially proposed its rule to decrease mercury emissions from coal-fired power plants, the agency's cost-benefit analysis found that the benefits would be negligible. However, the supposed benefits would primarily stem from a reduction in carbon emissions, calculated based on the SCC. This was also the case for the EPA's previous attempt at carbon regulation via the "Clean Power Plan," which was ultimately blocked by the Supreme Court. Despite this, the EPA is once again pushing for stricter rules to further decrease mercury emissions from coal plants and to compel both coal and natural gas-fired power plants to capture 90% of their carbon emissions. This is despite the fact that the technology to achieve this does not currently exist, and EPA Administrator Michael Regan has conceded that the rule will result in the closure of fossil-fuel power plants.

Understanding the Calculation of the Social Cost of Carbon

The SCC values utilized by the EPA are derived from integrated planning models (IPMs). These models make the simplistic assumption of a linear relationship between carbon emissions and global temperature, a premise that is highly debated within scientific circles. The models then presume that the resulting temperature increases will lead to various environmental catastrophes, such as rising sea levels, increased disease, and declining agricultural production. Estimates are then made to assign future cost consequences to these events. The IPMs then project these costs for the next 300 years, after which these future costs are "discounted" to estimate a value in today's dollars, based on questionable assumptions about factors like inflation and economic growth.

The idea of predicting the future three centuries in advance is a concept more suited to science fiction than to the formulation of energy policies. To illustrate this point, consider the impossibility of someone in 1724 accurately predicting life and technology in the present day. At that time, Benjamin Franklin was just 18 years old and working in his father's print shop, George Washington had not yet been born, and the first patent on a flush toilet was still half a century away. The concept of automobiles, mobile phones, and MRI machines would have been unimaginable. Therefore, the notion that we can accurately predict what the world will look like 300 years from now is equally absurd. Yet, these simplistic models and arbitrary assumptions are being used to guide energy policy decisions today.

The Impact of the Social Cost of Carbon on Energy Policies

By using the SCC estimates and assuming that new technologies will magically appear, the EPA can justify virtually any pollution control regulation, including those that effectively mandate electric vehicles. Similarly, even though offshore wind generation costs five times more than natural gas and coal, the SCC can "prove" the benefits of offshore wind exceed its costs. For example, New York State assumes that by 2040, thousands of megawatts of "dispatchable emissions-free generators" will provide the necessary backup for unreliable offshore wind, even though no such generators currently exist.

Contrary to the economic fantasies propagated by green energy advocates, policies to eliminate fossil fuels based on the supposed benefits captured by the SCC will cripple the U.S. economy. Electricity prices will skyrocket, coupled with ill-considered plans to electrify virtually everything, and supplies will dwindle, necessitating rationing, either explicitly or through rolling blackouts, such as those experienced daily in South Africa. Rather than creating a green energy utopia, the lack of adequate and affordable electricity will cause societal decay. All of this is based on a fabricated number.

Jonathan Lesser is a senior fellow with the National Center for Energy Analytics and president of Continental Economics.

Conclusion

As we reflect on the role of the Social Cost of Carbon in shaping energy policies, it's clear that there are many complexities and uncertainties involved. Can we really predict the future three centuries from now? Are we making decisions today based on arbitrary assumptions? What do you think about this article? Share your thoughts with your friends and sign up for the Daily Briefing, which is every day at 6pm.