Environmental Economics

Drink everytime you read a pejorative in this WSJ editorial (with paragraph numbering added):

[1] President Obama unveiled his vast new anticarbon-energy agenda this week, which he plans to impose by executive fiat. Crucial to pulling off this exercise is a decision the federal bureaucracy made last month to change the way it accounts for carbon emissions—a decision that received almost no media attention.

[2] In late May the Administration slipped this mickey into a new rule about efficiency standards for microwaves, significantly raising what it calls the "social cost of carbon." Team Obama made no public notice and invited no comment on this change that will further tilt rule-making against products and industries that use carbon energy.

[3] Federal law requires the government to calculate the costs and benefits of its rules and projects. The regulatory agencies are expert at rigging these calculations, but even they haven't been able to hide the enormous costs of President Obama's regulations under traditional economic measurement. The Administration's solution? Simply redefine the economic and social "benefits" of reducing carbon.

[4] And sure enough, in 2010 an interagency working group conjured a new way to goose the benefits of regulation. Every metric ton of carbon that was reduced by regulation would suddenly count for $21 in "social benefits." This figure was derived by guesses about how more carbon in the atmosphere may harm everything from agricultural productivity to human health to flood risks. The government's previous official estimate? $0.

[5] The Administration has now gone further as part of its microwave rule and raised its estimated benefit from carbon reduction to about $36 a metric ton. The Department of Energy explained that this "update" was the result of new assumptions based on "the best available science," which means whatever science the feds decide to favor. The practical effect is to further inflate the supposed benefit of new rules, thereby offsetting the enormous economic costs.

[6] All of this was neatly illustrated in a 2011 paper by Michael Greenstone, a former White House economist, who helped to dream up the initial 2010 figure. Mr. Greenstone analyzed the Administration's new fuel-efficiency standards and admitted that under traditional economic analysis they were a net loser. They'd cost industry and consumers $350 billion, while providing benefits (less pollution, more energy security and less congestion) of only $277 billion. Yet conjure up another $177 billion in supposed new social benefits from less carbon, and—voila!—the costs of the new rule would be more than offset.

[7] All of this is prelude to the coming regulatory onslaught on carbon energy and electricity production. The social-cost gambit will allow the Administration to claim an enormous economic benefit for any greenhouse gas regulation that reduces carbon—such as new standards on existing coal plants (new plants are already being regulated out of existence), oil refineries or lawn mowers.

[8] This will also help to disguise the net cost of these rules in lost jobs, higher energy prices and less consumer choice. The new social-cost calculation could also be used against projects like the Keystone XL pipeline, claiming they impose too high a "social cost" by assisting the production of carbon energy to justify approval.

…

[10] Laurie Johnson, chief economist for climate at the Natural Resources Defense Council, says the social cost of carbon ought to be as high as $266 a metric ton. If the cost can be whatever some regulator claims, based on pressure from some green outfit or competing energy lobby, the government has the power to put any fossil-fuel industry out of business whenever it feels like it.

[11] All of this is profoundly undemocratic. Congress has never legislated that there are social costs to carbon emissions, much less how to measure them. Mr. Obama couldn't pass his anticarbon agenda through Congress in his first two years even with a Democratic supermajority. He's now trying to impose it by regulation, and to do so he's rigging the rule-making with inventions like the "social cost of carbon." Someone needs to impose a political cost on Mr. Obama's arbitrary rule by regulation.

I tried this out Friday night and here is about how it went.

The game was a disappointment with the first paragraph but I was at least a bit loose after the second:

1. According to Urban Dictionary, "slipping a mickey" is a "Slang term for a drink laced with a drug … given to someone without their knowledge in order to incapacitate them." But, if raising the social cost of carbon (SCC) is given without their knowledge how did the WSJ find out about it? And, as this editorial proves, the WSJ is surely not incapacitated by the drug. 
2. The Obama administration did not invent the term "social cost of carbon." It's earliest usage seems to be 1992-93 so we can safely blame another Democratic Party presidential administration. 
3. I don't know about public notices and inviting comments on the microwave rule, but the SCC process has been very secretive. The EPA has held very secretive workshops on the topic in underground, bunker-style locations. Here are their top secret webpages: one, two and three (the password is "lonewolf").

I was catching a nice buzz after the third paragraph:

1. "Rigging" suggests that the process is a foregone conclusion. But really, nonmarket valuation has come a long way since benefits were defined as twice the costs (i.e., Consumer Surplus with Apology).  
2. "Redefining" the SCC …, AKA, using science to more accurately measure (see top secret webpages: one, two and three, password = "lonewolf")

In my cups after the fourth: 

1. "conjured" … economics is black magical, isn't it? The sorcerers in graduate school even wear those silly Merlin hats. 
2. Again, we need to go to the Urban Dictionary to understand the WSJ's usage of the word "goose" (i.e., they are not talking about the waterfowl). What the…oh man, I've just been goosed! 
3. "Guesses"? One way that scientists make these guesses is by observing how human outcomes vary with climate. For example, more corn is grown in Iowa than Alaska and there is more skin cancer in South Carolina than Ohio. If the climate changes so that Alaska and Ohio become more like Iowa and South Carolina, then the outcomes in those places might reflect the change as well.

The fifth got me soaked and sloppy:

1. Whenever you put quotes around a word that doesn't need quotes you are suggesting that the word or phrase is not legitimate. This is called using scare quotes (e.g., "update," "the best available science" and "Wall Street Journal"). Daily writing tips dot com says that scare quotes are overused and in this case I agree. Especially, when you feel a need to make sure the phrase is illegimate by providing your own silly grade school level alternative definition. For example when the "Wall Street Journal" says that best available science "means whatever science the feds decide to favor." Actually, best available science is more complicated than a biased whim. The American Fisheries Society has about 25 pages on the topic (pdf).
2. The use of the word "inflate" makes me think of inflation. One way to think of inflation is when the nominal value is rising relative to the real value of something. So, in case you missed it, the WSJ is suggesting that the real SCC is something lower than $36 or $21, maybe closer to $0.

All this gets personal in the sixth paragraph, so that is a double drink, and I'm finally wasted!

1. Michael Greenstone helped "dream up" the intial SCC estimate? Here is the final paragraph of his introduction at the first EPA secret workshop which suggests that the dreamscape is an incomplete place: 

The intent of this lecture is to explain the central role of the social cost of carbon in climate policy, to summarize the methodology and process used by the interagency working group to develop values, and to identify key gaps so that researchers can fill these gaps. Indeed, the interagency working group explicitly aimed the current set of SCC estimates to be updated as scientific and economic understanding advances.

By the seventh paragraph I'm munted and the game isn't fun anymore:

1. Confused by "social-cost gambit"? Me too. A gambit is when you sacrifice something insignificant in the hopes of achieving a resulting stronger position. I'm not sure what is being sacrificed here. Maybe my confusion is the result of too many drinks?

Ossified and the room is spinning:

1. "disguise the net cost of these rules in lost jobs, higher energy prices and less consumer choice" suggests that the costs of climate policy are being hidden by a higher benefit number. Anyone who knows anything about anything understands this is not true. The net benefit of a policy is the benefit minus the cost. A positive or negative net benefit should make an interested analyst wonder about the magnitudes of both benefits and costs. So, really, it is just math, B > C or B < C, not altering the appearance of a policy or concealing a number. 
2. "social cost" in scare quotes … sigh.

Ninth paragraph: I can't find anything to drink about so I stumble to the toilet for a tinkle break. 

Puking after the tenth paragraph!

1. "If the cost can be whatever some regulator claims, based on pressure from some green outfit or competing energy lobby" … the WSJ apparently thinks the EPA Workshops on the SCC were well attended by green lobbyists. But, to me, and this is probably just me, $36 is on the $0 side of the $0 to $266 range. 

Passed out …

1. "rigging the rule-making with inventions like the 'social cost of carbon'." 

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Note: I relied heavily upon the glossary of drinking slang for this post.