The ‘Social Cost of Carbon’? A Hidden Tax

By Robert L. Bradley Jr. – Energy firms and academic researchers recently petitioned the White House to reconsider the “social cost of carbon” (SCC), a new input to justify new and costlier federal regulation.

Don’t feel bad if you have never heard of this term; it is new to students of regulation too. The SCC is the federal government’s official determination of the monetary “damage” done to public health and welfare by carbon dioxide emissions. Several months ago, with virtually zero public oversight, administration officials substantially increased its earlier stealthy estimate — but this time got caught.

The SCC issue goes far beyond the oil, gas, and coal industries. SCC taxes average Americans in a regulatory ramp-up that will either restrict choice, increase cost, or both. And what is bad for consumers is also bad for the struggling economy.

The White House needs to tank the nebulous concept of “social cost” on intellectual grounds, not only because it is anti-consumer and anti-economy.

The feds “social cost of carbon” is generated by a computer model with hundreds of variables related to environmental degradation. The Office of Management and Budget then takes this value to evaluate the climate change impacts of federal regulations. The recent 40 percent increase (from $21 to $35 per metric ton) was buried in an update to the Department of Energy’s energy-efficiency standards for microwave ovens.

It flunks peer review. MIT economist Robert Pindyck complained that the SCC modelers “can do little more than make up functional forms and corresponding parameter values. And that is pretty much what they have done.” Rep. James Lankford (R-OK) argues: “This is no simple rule change with little effect,” he said. “This has especially serious consequences.”

The social cost of carbon is just another arrow in the quiver of a President at war against consumer-chosen fossil-fuel energy to try to help “green” energies survive. A more undeserving target can hardly be imagined given that free-market energy–oil, gas, and coal–is the bright spot of the American economy.

The oil and natural gas industry currently supports 9.8 million American jobs and pays $200 billion in direct wages to U.S. employees. It’s expected to create another one million new positions in this country over the next decade.

Energy industry growth benefits millions of Main Street retirees. Only 3 percent of oil and natural gas companies are owned by corporate executives and board members. The vast majority is owned by public and private retirement funds. So-called Big Oil is really Little Oil for the masses.

If the energy industry is saddled with new, onerous regulations and fees, the latest example being a social cost of carbon, it will stagnate. There will be fewer new energy jobs. And the nest eggs of millions of average Americans will take a hit.

A higher SCC will also make energy production more expensive. Those new costs will likely get passed along to consumers. Everything from the electricity used to heat your home to the food you buy at the grocery store will see a price increase.

Meanwhile, the primary justification for the SCC — impending catastrophic global climate change — is itself in crisis. Data recently released by the National Oceanic and Atmospheric Administration indicates that there has been no marked increase in global temperature since November 1996 — that’s nearly 17 years ago. The Arctic Ice Cap has actually grown sixty percent over the last year, reversing fears of a great melting.

That leaves substantial science showing carbon’s vital contributions to human thriving.

President Obama has insisted his administration is dedicated to fostering “an unprecedented level of openness in government.” A major 2009 directive from his own Office of Management and Budget explicitly says that “transparency promotes accountability by providing the public with information about what the Government is doing.” Yet, the American people were completely left in the dark when this new carbon value was calculated. White House officials never explained the model behind the number. They didn’t solicit input from business groups or everyday energy consumers.

Fortunately, GOP lawmakers have started pushing back in earnest against the SCC ruse. They’ve successfully lobbied the Government Accountability Office to take an in-depth look at how the White House came up with the calculation. And in early August, the House voted to block the Environmental Protection Agency from factoring in the social cost of carbon when crafting major new energy regulations.

This is a good start. But the ultimate solution is to scrap this increase entirely — it is just too intellectually unjustified and negative for the American economy. Pushing anti-growth measures without proper public oversight is no way to run a country.

Robert L. Bradley Jr. is CEO of the Institute for Energy Research and author, most recently, of Edison to Enron: Energy Markets and Political Strategies (John Wiley & Sons).

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