The Obama administration has been fighting climate change with a rogue wave of regulations whose legality comes from a very small base: The Social Cost of Carbon.

The purpose of the “social cost of carbon” (SCC) estimates presented here is to allow agencies to incorporate the social benefits of reducing carbon dioxide (CO2) emissions into cost-benefit analyses of regulatory actions that impact cumulative global emissions. The SCC is an estimate of the monetized damages associated with an incremental increase in carbon emissions in a given year. It is intended to include (but is not limited to) changes in net agricultural productivity, human health, property damages from increased flood risk, and the value of ecosystem services due to climate change. From the Technical Support Document: -Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis -Under Executive Order 12866

A recent Bloomberg article informs on how the SCC notion was invented, its importance and how it might change under the Trump administration.
How Climate Rules Might Fade Away; Obama used an arcane number to craft his regulations. Trump could use it to undo them. (here)

In February 2009, a month after Barack Obama took office, two academics sat across from each other in the White House mess hall. Over a club sandwich, Michael Greenstone, a White House economist, and Cass Sunstein, Obama’s top regulatory officer, decided that the executive branch needed to figure out how to estimate the economic damage from climate change. With the recession in full swing, they were rightly skeptical about the chances that Congress would pass a nationwide cap-and-trade bill. Greenstone and Sunstein knew they needed a Plan B: a way to regulate carbon emissions without going through Congress.

Over the next year, a team of economists, scientists, and lawyers from across the federal government convened to come up with a dollar amount for the economic cost of carbon emissions. Whatever value they hit upon would be used to determine the scope of regulations aimed at reducing the damage from climate change. The bigger the estimate, the more costly the rules meant to address it could be. After a year of modeling different scenarios, the team came up with a central estimate of $21 per metric ton, which is to say that by their calculations, every ton of carbon emitted into the atmosphere imposed $21 of economic cost. It has since been raised to around $40 a ton.

Trump can’t undo the SCC by fiat. There is established case law requiring the government to account for the impact of carbon, and if he just repealed it, environmentalists would almost certainly sue.

There are other ways for Trump to undercut the SCC. By tweaking some of the assumptions and calculations that are baked into its model, the Trump administration could pretty much render it irrelevant, or even skew it to the point that carbon emissions come out as a benefit instead of a cost.

The SCC models rely on a “discount rate” to state the harm from global warming in today’s dollars. The higher the discount rate, the lower the estimate of harm. That’s because the costs incurred by burning carbon lie mostly in the distant future, while the benefits (heat, electricity, etc.) are enjoyed today. A high discount rate shrinks the estimates of future costs but doesn’t affect present-day benefits. The team put together by Greenstone and Sunstein used a discount rate of 3 percent to come up with its central estimate of $21 a ton for damage inflicted by carbon. But changing that discount just slightly produces big swings in the overall cost of carbon, turning a number that’s pushing broad changes in everything from appliances to coal leasing decisions into one that would have little or no impact on policy.

According to a 2013 government update on the SCC, by applying a discount rate of 5 percent, the cost of carbon in 2020 comes out to $12 a ton; using a 2.5 percent rate, it’s $65. A 7 percent discount rate, which has been used by the EPA for other regulatory analysis, could actually lead to a negative carbon cost, which would seem to imply that carbon emissions are beneficial. “Once you start to dig into how the numbers are constructed, I cannot fathom how anyone could think it has any basis in reality,” says Daniel Simmons, vice president for policy at the American Energy Alliance and a member of the Trump transition team focusing on the Energy Department.

David Kreutzer, a senior research fellow in energy economics and climate change at Heritage and a member of Trump’s EPA transition team, laid out one of the primary arguments against the SCC. “Believe it or not, these models look out to the year 2300. That’s like effectively asking, ‘If you turn your light switch on today, how much damage will that do in 2300?’ That’s way beyond when any macroeconomic model can be trusted.”

Another issue for those who question the Obama administration’s SCC: It estimates the global costs and benefits of carbon emissions, rather than just focusing on the impact to the U.S. Critics argue that this pushes the cost of carbon much higher and that the calculation should instead be limited to the U.S.; that would lower the cost by more than 70 percent, says the CEI’s Mario Lewis.

Still, by narrowing the calculation to the U.S., Trump could certainly produce a lower cost of carbon. Asked in an e-mail whether the new administration would raise the discount rate or narrow the scope of the SCC to the U.S., one person shaping Trump energy and environmental policy replied, “What prevents us from doing both?”

Barry Cooper explains in this article published today in the Calgary Herald NDP climate policies are bearing their inevitable poisoned fruit

Contrary to what many NDP supporters, and many of my colleagues believe, businesses are more likely to respond to government policies than to set them. One of the responses to egregiously irresponsible policies is to invest elsewhere.

The Birn report did not discuss the scientific premises of anthropogenic climate warming, nor the prudence of attempting to regulate GHG emissions. What matters are the consequences of policy choices by Canadian and U.S. governments for Alberta and Saskatchewan.

Here are some pertinent facts.

The interdependence of North American economies and the familiar 10-to-one ratio between the two countries means that Canada must always adjust its policies to American realities. That ratio applies to global CO2 emissions (16 per cent for the U.S.; 1.7 per cent for Canada, of which the oilsands’ contribution is minuscule) as well as to GDP and much else. Canadian CO2 emissions are comparable to those of Texas. The big difference is how that CO2 is generated.

Coal is the largest source of American CO2, mostly from electricity generation, followed by transportation and industry. In Canada, industry — from fertilizer manufacturing to mining, smelting and pulp production — is the largest emitter, followed by transportation and then electricity generation. The main reason for this difference is that in B.C. and Laurentian Canada, hydroelectricity is the chief source of power. Prairie rivers furnish great fishing opportunities, but few electrons.

Since CO2 from American coal plants alone are double those from the entire Canadian economy, they have been the focus of U.S. policies. Replacing coal-generation with natural gas has been made easier by low natural gas prices, partly the result of innovative shale-gas exploitation.

In Canada, things are different. Because more than 80 per cent of Canadian electricity is generated by non-emitting sources, other sectors must be targeted to achieve levels of emission reductions comparable to the Americans’. The cost, however, is bound to be higher: here, cheap gas hardly matters.

This is what makes carbon taxes so attractive to Canadian governments. They can’t go after coal plants, because there are so few left, so they go after the entire economy. Alberta’s carbon tax and Ontario’s cap-and-trade policy mean that over two-thirds of Canadian emissions will be covered by next year.

Big-government Liberals, socialists and members of the green cult will rejoice that we are saving the planet. However, the costs of the new NEP — the national emissions policy — achieved by carbon-tax harmonization, will introduce more incentives for investment in places where anthropogenic climate change is not an unquestioned public policy dogma.

Because the Prairie petroleum industry competes globally for both capital and markets, parochial Canadian climate policies add to costs and induce investors abroad. And they make no difference at all to global GHG emissions.

That is one reason why energy investment in Alberta is half 2014 levels. No wonder Finance Minister Joe Ceci is sad. The consequences of his own policies are bearing their inevitably poisoned fruit.

Barry Cooper is a professor of political science at the University of Calgary.

Footnote:

Former Canadian PM Stephen Harper (from Alberta) based his climate change policy on the realities mentioned in the article.  His administration was committed to matching US energy policies on a sector by sector basis.  Since the US went after coal, so did Canada.  The US has not done anything about oil and gas, so neither should Canada.

The ruling NDP party are on thin ice because Albertans are mostly skeptical of global warming claims.  A recent Canadian survey shows the % of people whose beliefs would support what the administration is doing.  That’s right: Alberta is the dark blue province in the map.

More on survey of Canadian attitudes toward global warming:      https://rclutz.wordpress.com/2016/02/25/uncensored-canadians-view-global-warming/

More on toxic effects from Green energy policies:  https://rclutz.wordpress.com/2016/08/01/electrical-madness-in-green-ontario/

Background on Alberta oilsands:  https://rclutz.wordpress.com/2015/11/07/brer-canada-and-the-tar-baby/

In the comics, it was Archie vs. Reggie, but in the US emissions markets, it is Arnie vs. ReGGI. Arnie Schwarzenegger pushed California cap and trade, now called the Western Climate Initiative, while nine northeastern states make up the Regional Greenhouse Gas Initiative.

The media is touting the “success” of ReGGI, saying it shows how states can comply with the EPA Clean Power Plan (whose implementation was stayed by the Supreme Court but proponents are undeterred.)

Climate Progress Gives the Rosy Outlook

The Regional Greenhouse Gas Initiative, known as RGGI (pronounced: Reggie), is a carbon pricing mechanism that limits emissions and invests in efficiency and low-emission generation. Since it was implemented in 2008, RGGI states have seen a 37 percent decrease in emissions from electricity, while simultaneously decreasing consumer costs. RGGI will also function as a compliance plan for the Clean Power Plan, according to multiple industry sources — if it stays effective.

Right now, RGGI is under review — and businesses, environmental groups, regulators, universities, and private citizens are encouraging the states to double down on the program. They say extending the program to 2030 and lowering the annual limit on emissions will ensure RGGI stays successful.

ReGGI’s Peformance, Warts and All

Actually, emissions came down because of market forces, and the cap was too high to have any effect on reductions. Instead a surplus of allowances drove the price down and investors bought them in lots to hedge against higher future prices. Buried in Acadia Center’s friendly review of ReGGI:

Emissions reductions have outpaced expectations since RGGI’s launch, creating allowance oversupply. Regional CO2 emissions in 2008 were 139 million tons, while the initial cap for the nine currently participating states8 was set at 165 million tons per year from 2009 through 2014. This initial oversupply was a result of a combination of electric sector trends already discussed in this report, conservative emissions projections, and actions taken by compliance entities in anticipation of RGGI implementation.9 With emissions falling significantly below the cap in RGGI’s early years (2008 to 2013) market participants bought tens of millions of low-priced allowances each year to be banked for future use. By the end of 2013, 140 million tons of these surplus allowances had been accrued.xxii This large bank suppressed allowance prices and removed the prospect of market scarcity.

RGGI currently employs price controls to contain allowance prices within predetermined ranges. The price floor represents the minimum price at which allowances can be sold at auctions; beginning at $1.86 in 2009 and rising gradually to $2.10 in 2016. Under the oversupplied cap from 2009 through 2012, the price floor preserved the value of RGGI allowances by preventing additional declines in allowance prices or sales and ensuring that surplus allowances were withheld from the market. As a result, 176 million allowances went unsold during this period.

Benefits Miscredited to ReGGI

ReGGI is also credited with participating states having lower electricity prices and higher economic growth. But depressed oil and gas prices caused the cheap electricity. And the depressed prices of the allowances meant that economic pain has yet to be inflicted. All that is about to change.

RGGI A Faulty Model for a Successful Cap and Trade from Institute for Energy Research

The trend of rising prices is only accelerating. In September 2015, prices breached $6 per ton, and in December 2015, clearing prices rose to $7.50—more than $2 above prices last December.[6] The graph below depicts how average clearing prices have risen after the regional cap tightened substantially in 2014. It compares RGGI emissions as a percentage of the cap with the quantity weighted average of auction clearing prices through the third quarter of 2015.[7].

As clearing prices for CO2 allowances become increasingly expensive and states encounter diminishing returns from cutting carbon dioxide emissions, RGGI members will have more difficulty meeting the regional cap. In fact, for the first three quarters of 2015, RGGI states have emitted about 68 million short tons of CO2 and are quickly approaching the 2015 regional cap of 88.7 million short tons.

Since carbon-trading schemes artificially make certain technologies less economical or even uncompetitive, they create conditions that cause existing power plants to prematurely retire and saddle families and businesses with higher energy bills. An IER study found that existing sources generate electricity more affordably than new sources of the same type. Moreover, electricity from existing coal is nearly 3 times more affordable than electricity from new wind turbines and almost half as expensive as electricity from new natural gas plants. This is particularly problematic for RGGI states because their average retail electricity prices are already above the U.S. average.

Summary

ReGGI prices are too low to take credit for reducing emissions, and raising them will show up in higher energy and electricity prices, and eventually, higher prices of everything.

The whole scheme is running along, disconnected from reality, doing no good, but not yet doing much harm.  And this is the argument for expanding it and building upon its “success.”

Oh. About Arnie’s California punch bowl, is that going better? Not really.

The problem is that the permits are selling at a slower and slower rate. The surplus of allowances is becoming so large in systems run by Europe, California and Quebec — which together account for more than 90 percent of global trading — that by 2022 it could cover the emissions spewing from every car on Earth for a full year, according to estimates by the London environmental group Sandbag Climate Campaign CIC and Bloomberg New Energy Finance.

In California’s market, all 23 million allowances sold in an auction in 2014. In May 2016, 7.3 million permits found buyers, only 11 percent of what was put up for sale.

Activists wear dark shades when pronouncing future climate catastrophes, but switch for rose-colored glasses when telling others to imitate these failed market experiments.