August 2014

An eight-month investigation conducted by the Government Accountability Office (GAO) finds no flaws in the Obama administration’s interagency process for developing social cost of carbon (SCC) estimates. Remarkably, GAO has “no recommendations” to improve the process.

GAO did not attempt to evaluate the “quality” of the administration’s SCC estimates. Even so, it’s unusual for GAO to review an agency, program, or policy and find no room for improvement.

Not that anyone should expect GAO to confront the inherent flaws of SCC analysis. As previously argued on this blog, carbon’s social cost is an unknown quantity, discernible in neither meteorological nor economic data. SCC estimates are perforce spun out of non-validated climate parameters and made-up social damage functions. Armed with such sophistry, climate campaigners can make renewable energy look like a bargain at any price and fossil fuels look unaffordable no matter how cheap.

But even taking SCC analysis at face value, the administration’s process is biased, and the evidence is right there in GAO’s report.

Before getting down to particulars, let’s recall why this topic matters. The SCC is an estimate of the dollar value of damages allegedly caused by an incremental ton of carbon dioxide (CO2) emitted in a given year. The higher the SCC estimate, the more plausible the claims of Obama administration officials and their allies that the benefits of CO2-reduction policies justify the costs.

The administration’s SCC interagency working group (IWG) has published two reports called technical support documents. SCC estimates in the 2013 TSD are roughly 50% higher than in the 2010 TSD. In just three years, CO2 reductions became 50% more valuable. Amazing!

EPA, the Department of Energy, and/or the Department of Transportation have used SCC estimates in 68 rulemakings since May 2008, according to GAO (Appendix I). Fossil fuel foes now use SCC analysis to sell everything from carbon taxes to renewable energy mandates to regional cap-and-trade programs to EPA greenhouse gas regulations.

GAO says everything is hunky-dory because the administration “used consensus-based decision making” (several agencies participated), “relied on existing academic literature and models,” and “took steps to disclose limitations and incorporate new information.” Well, of course they did. These folks are professionals; they know how to check the requisite boxes.

Nonetheless, the administration’s process is biased in four ways. In both the 2010 and 2013 TSDs, the IWG:

1. Inflated the perceived benefit of CO2 reductions to the U.S. economy by providing only higher global SCC values, not lower domestic SCC values, as required by OMB Circular A-4.
2. Inflated the estimated benefit of CO2 reductions by using only low discount rates (2.5%, 3%, 5%) to estimate the present value of future CO2-related damages, not a 7% discount rate, as also required by OMB Circular A-4.
3. Inflated the estimated benefit of CO2 reductions by including ‘worse than we thought’ climate impact projections but not ‘better than we feared’ projections.
4. Inflated the estimated benefit of CO2 reductions by uncritically accepting the IPCC’s 2007 Fourth Assessment Report (AR4) climate sensitivity estimates despite growing evidence that IPCC models are tuned ‘too hot.’

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For years, University of Colorado Prof. Roger Pielke, Jr. has been demonstrating that damages due to hurricanes are not increasing once economic data are adjusted (‘normalized’) for increases in population, wealth, and the consumer price index.

More people with more valuables at higher prices incur greater combined monetary losses when disaster strikes. There is no “greenhouse signal” in properly-adjusted hurricane loss data — no trend reflecting a potential warming-induced increase in hurricane frequency or power.

Source: R. Pielke, Jr. Normalized U.S.  Hurricane Damages: 1900-2012. The gray bar indicates estimated damages from Hurricane Sandy.

University of Amsterdam Prof. Laurens M. Bouwer reviewed 22 studies of damages from tropical storms, thunder storms, tornados, floods, hail, brushfires, and earthquakes over multiple decades in the U.S., Europe, Asia, Latin America, and Australia. He came to the same conclusion:

The studies show no trends in losses, corrected for changes (increases) in population and capital at risk, that could be attributed to anthropogenic climate change. Therefore, it can be concluded that anthropogenic climate change so far has not had a significant impact on losses from natural disasters.

If that seems counterintuitive, it’s because detection and reporting of extreme weather has increased. The improved density and spatial coverage of monitoring systems coupled with round-the-clock weather news makes extreme weather seem much more common today than it was perceived to be, say, in the 1970s.

Apparent increases in one type of extreme weather — flooding — may have an even simpler explanation: more people living in places where floods occur.

A new study by scientists at the University of Southampton Tyndall Center for Climate Change Studies finds that population growth and urban expansion account for the reported increase in damaging floods in the UK over the past 129 years. In the words of lead author Andrew Stevens, a growing population means “more properties exposed to flooding and more people to report flooding.” [click to continue…]

Guest Post by Dave Juday, commodity market analyst and principal of The Juday Group

“Government mandates like RFS, subsidies, loan guarantees, and investments have not proven any better than the market for developing new energy resources – just much more costly.  It is time to let the market sort things out.”

KiOR, once the darling of the renewable energy world, reported in a filing with the Securities and Exchange Commission (SEC), that it has a net deficit of $629.3 million and said it expects to continue incurring losses for the foreseeable future.  The details of the filing are not shocking; in March of this year KiOR released a statement that it had “substantial doubts about our ability to continue as a going concern.”

KiOR’s problems have repercussions beyond just shareholders and employees.  This isn’t just another high-tech start-up in the renewable fuels world. KiOR was considered the next great thing since sliced bread and in many ways was the cornerstone of advanced renewable fuels policy.  Following is short re-cap of the KiOR story. [click to continue…]

Prussian military theorist Carl von Clausewitz famously defined war as “the mere continuation of policy [politics] by other means.” An unstated implication of this oft-quoted maxim is that politics is a continuation of war by non-military means.

What is the optimal way to win wars, political or military? Chinese general Sun Tzu said that “supreme excellence” in the art of war “consists in breaking the enemy’s resistance without fighting.” Unsurprisingly, throughout history, political combatants often try to inculcate the belief that the future is already written, tomorrow belongs to them, hence, resistance is futile.

This psyops component of warfare explains one of the standard tropes of green rhetoric. Fossil fuels are belittled as outmoded energies destined for history’s dustbin whereas wind, solar, and biofuels — sources requiring Soviet-style production quota and other policy privileges to capture significant market share — are hailed as technologies of tomorrow.

Consider two recent examples.

In a speech to the League of Conservation Voters declaring opposition to a proposed coal export terminal, Oregon Gov. John Kitzhaber stated:

First, it is time to once and for all to say NO to coal exports from the Pacific Northwest. It is time to say Yes to national and state energy policies that will transform our economy and our communities into a future that can sustain the next generation. . . . The future for Oregon and the West Coast does not lie in 19th century energy sources.

Yesterday, the Illinois Commerce Commission hosted a stakeholder meeting on EPA’s proposed guidelines to reduce carbon dioxide (CO2) emissions from existing power plants. Rebecca Stanfield of the Natural Resources Defense Council reportedly characterized “jockeying” by coal and nuclear interests as a “sideshow.” Climatewire (paywall protected) quotes her saying:

This is about leading the energy economy of the future, not about looking in the rearview mirror at the resources that powered the past.

The real “sideshow,” however, is you-are-obsolete rhetoric, which distracts public attention from the merits of competing energy technologies and, thus, from the costs and limitations of renewable energy. Whatever their date of origin, all energy technologies undergo continual modification and innovation. What matters is their value to consumers today and the foreseeable future, not when they first deployed at commercial scale.

Besides, people who live in glass houses shouldn’t throw stones. It’s not just coal-based power that got its start in the 19th century. So did renewables, especially hydropower and wind. [click to continue…]

Climate scientists Patrick Michaels and Chip Knappenberger have a blockbuster post on the Cato Institute blog. They claim to have uncovered a “clear example of IPCC ideology trumping fact.”

As is widely known, global mean surface temperature (GMST) has not increased over the past 13-plus years, contributing to a growing divergence between global warming predictions and observations.

Figure source: John Christy and Robert McKnider

While acknowledging there are “differences” between modeled and observed temperatures for “periods as short as 10 to 15 years,” the IPCC’s 2013 Fifth Assessment Report (AR5) claims models and observations “agree” over the 62-year period from 1951 to 2012 (Summary for Policymakers, p. 15). Moreover, the IPCC has “very high confidence” the models’ long-term GMST trends are “consistent with observations” (Chapter 9, p. 769). The chart below illustrates “model response error” during two 15-year periods and the longer 62-year period.

In each panel, red hatching shows observed temperatures as compiled by the UK Hadley Center; the gray bars show GMST trend distribution from 114 climate models. IPCC AR5, Chapter 9, Box 9.2.

Panel (c) appears to depict a close match between simulations and observations. But when Michaels and Knappenberger unpack the information incorporated in the graphic, they find that 90 out of 108 models hind-cast more warming than actually occurred.

Okay, that makes IPCC’s “very high confidence” seem misplaced, but why is Michaels and Knappenberger’s column a blockbuster? Because of what they show next.  [click to continue…]

High gasoline prices are unpopular in America. For green politicians and activists, public anger over high gas prices has long been both a challenge and an opportunity.

It’s a challenge because greens advocate carbon taxes and cap-and-trade, which are designed to jack up gas prices, and biofuel mandates, which have the unintended (although not unforeseen) consequence of inflating fuel costs.

It’s an opportunity because angry people want someone to blame, predisposing many to believe green propaganda that oil companies collude to “manipulate” markets, “gouge” consumers, and amass “obscene” profits. The Federal Trade Commission’s most recent major investigation found no evidence of such skullduggery, BTW.

Since the only logic behind the anti-KXL campaign is political, we should not be surprised that greens denounce the pipeline both because it will increase gas prices — and because it will lower them!

For years green activists told us that, in addition to wrecking the climate system, the KXL will — horror of horrors — increase Midwest gasoline prices. Department of Energy analyst Carmine DiFiglio handily debunked that theory. It’s not my purpose to review the issue here. The point rather is that Tom Steyer, Bill McKibben, Sen. Ed Markey, Carl Pope, NRDC, and other prominent Keystone foes warn that the pipeline will raise gas prices — as if they consider that a very bad thing.

This week, however, Keystone opponents are abuzz about a new study warning that the KXL could be ‘worse than we thought’ because it could increase global oil supply and, thereby, lower gasoline prices. Lower prices = more consumption = more carbon dioxide (CO2) emissions.

Specifically, the authors, Peter Erikson and Michael Lazarus of the Stockholm Environment Institute, estimate that if all 830,000 barrels per day (bpd) of oil flowing through the pipeline is additional oil in the global supply, KXL would lower global oil prices by $6 per barrel (see chart below). Consumption would then increase by an additional 0.6 barrels for every barrel produced, which in turn would increase global carbon dioxide-equivalent (CO2e) emissions by 110 million metric tons per year. That’s about four times the emissions increase (27.4 tons) in the high-end scenario of the State Department’s January 2014 Final Supplemental Environmental Impact Statement (FSEIS).

Erikson and Lazarus begin and end their study by quoting President Obama’s announcement that the decisive question for him is whether the KXL would “significantly exacerbate the problem of carbon pollution.” They fault State’s FSEIS for ignoring the KXL’s potential impacts on global petroleum supply and prices. They obviously hope their study influences Obama’s decision.

It does not deserve to. The authors acknowledge having no “new insights” on how much additional oil sands extraction KXL would induce. More importantly, even if KXL did increase incremental emissions by 110 million tons annually, it would still not “significantly exacerbate” the alleged problem of carbon “pollution.”

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To persuade Americans — especially conservatives and libertarians — that a carbon tax can “work” (reduce emissions) without harming the economy, some proponents tout British Columbia’s carbon tax, enacted in May 2008. How relevant is British Columbia’s (BC) experience to environmental and tax policy debates in the U.S.? Is BC’s carbon tax a model for the U.S.?

BC’s Carbon Tax Act imposes a tax on all fossil fuels based on their carbon dioxide-equivalent (CO2e) emissions. The carbon tax started at (CAD)$10/ton CO2e in July 2008 and increased each year by $5/ton until reaching $30/ton in July 2012.

BC’s carbon tax is revenue-neutral — that is, all revenues must be used to reduce other taxes. In 2012/2013, the policy was actually revenue-negative because the tax reduced motor fuel sales more than forecast, hence raised less revenue than forecast. The carbon tax generated $1,120 million in revenues while the government decreased business and personal taxes by $1,380 million, yielding a net tax reduction of $260 million.

Writing last year in The American Conservative, my friend, R Street Institute economist Andrew Moylan described BC’s carbon tax as a success story — one that U.S. policymakers should emulate:

Early returns on the policy are quite positive. A recent study found that the province’s gross domestic product growth has outpaced the rest of Canada, while its corporate income tax rate has been reduced to among the lowest anywhere in the G8 countries. Despite concerns that it might grow government, the tax has stayed revenue neutral and enjoys broad public support. Polling of business and community leaders by the Pembina Institute found 64 percent believe the tax has been a positive move.

I find this general line of argument unpersuasive for reasons both small and large. [click to continue…]

The Clean Air Act employs a “belt and suspenders” approach to mitigating air pollution, such that regulation begets further regulation.

In late 2009, for example, EPA determined that greenhouse gas emissions from automobiles “endangered” public health and welfare. As a consequence, the agency was compelled to regulate cars and trucks under the Clean Air Act. However, the agency’s responsibilities didn’t end there! Clean Air Act §165 requires that all new, “major” stationary sources of conventional pollution to achieve “best available control technology” for all pollutants subject to regulation under the statute. As such, EPA’s greenhouse gas rules for automobiles triggered greenhouse gas rules for stationary sources.

This redundant approach to regulating perhaps makes sense for conventional pollution, of the sort that Congress had in mind when it wrote the Clean Air Act in 1970, but it’s an irresponsible course for greenhouse gases, which are ubiquitous and for which there are no market-ready control technologies.

Simply put, the agency risks biting off more than it can chew. By starting down a path of climate regulation, the agency is accruing unmet responsibilities to control GHGs. This wouldn’t be a problem if the agency had the discretion to manage its own resources, but, alas, that’s not the case, because the Clean Air Act empowers environmental special interests to sue to force the agency to meet its non-discretionary duties.

Yesterday, another domino fell, when a coalition of green groups notified EPA of their intention to sue in order to force the agency to promulgate greenhouse gas standards for the aviation sector. Clean Air Act §231(a)(2)(A) requires EPA to determine whether emissions of a given pollutant may reasonably be anticipated to endanger public health or welfare. If such a determination is made in the affirmative, the agency must adopt standards to limit those emissions.

In fact, the Obama administration doesn’t want to subject the sector to regulations; to this end, it is proceeding with international negotiations. But I don’t see how they can avoid it. If greenhouse gases from cars “endanger” public health, then how could it be possible that emissions from airplanes don’t do the same?

All of these regulations—for cars, for plans, for new stationary sources—are tiddlywinks relative to the ever-present threat that environmental groups will sue to compel a Clean Air Act National Ambient Air Quality Standard for greenhouse gases. Under §108(a), EPA must set a greenhouse gases NAAQS if

1. The agency determines that GHGs may reasonably be anticipated to endanger public health or welfare;
2. The pollutant in question is emitted by a variety of stationary and mobile sources.

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