Response to Dr Zycher at Our Energy Policy

Thursday, November 7, 2013

Recently, Dr. Benjamin Zycher wrote a piece for Our Energy Policy, detailing reasons why he believes that the US government's Social Cost of Carbon (SCC) is not advisable or useful for policy analysis. He argues that US CO2 emissions are a small piece of total global emissions, that the SCC violates OMB guidelines, and that the government is not an impartial or disinterested actor. For these reasons, he advocates for congressional approval in using the SCC and any regulation of greenhouse gases. CEPL director Marilyn Brown and CEPL student Matt Cox, along with former CEPL co-director Paul Baer, respond with this comment.

Dr. Zycher does not deny that climate change is occurring, that humans are principally responsible and that it is bad for the planet. Yet he recommends unilateral inaction by the U.S. He is correct that US emissions are only about 1/6 of total emissions right now, but it is worth noting that the U.S. is responsible for roughly 27% of the CO2 in the atmosphere that are currently impacting the climate. And the logic of his first argument – that the marginal reduction of pollution effectively “rounds to zero” – ignores the basic fact that it is the cumulative impact of many small actions that leads to significant change. On his logic, we might as well all dump our sewage in the ocean, because the marginal impact of our not doing so is effectively zero.

Dr. Zycher is correct that OMB guidelines for CBA suggest using domestic costs and benefits, but they do not legally require it, and indeed A-4 suggests taking international benefits into account and reporting them separately. It is important to realize however that those guidelines are based on precedents in which the benefits of pollution reductions are primarily domestic, and the international component is small and separable. In this case the majority of benefits are international, and for many reasons it is difficult to cleanly separate the domestic component. More importantly, however, as economic theory clearly shows, if all countries only take into account the domestic benefits of reducing global GHG pollution, the global damages will be far above the “optimal” level including for the United States. We do indeed need other countries not to “free ride,” but we cannot expect them to if we justify our own free-riding!

The discussion of discount rates seems ill-founded.  OMB’s A-4 allows the use of a 3% discount rate for long-term analyses. Various OMB circulars recommend the use of multiple discount rates to determine sensitivities of conclusions to the time value of money. Seeing how 3% is the central discount rate used in the SCC, Dr. Zycher’s criticism of the EPA analysis does not hold much water. Numerous ethics issues entangle the choice of discount rates; some economists even justify zero or negative discount rates in dealing with climate change.

There seems to be a little bait-and-switch, or even outright hypocrisy, taking place at the end of Dr. Zycher’s essay. A large part of his criticism is built on the authority of government rules, then he argues that the government bureaucracy is illegitimate and its analyses can’t be “objective” because it is an interest group. He also may be wrong about EPA needing congressional approval for major rules – in fact, the Supreme Court ordered EPA to do the endangerment finding, which once concluded, provides the legal basis for taking action under the Clean Air Act. In any case, upcoming legal decisions will sort out this question.

The tragedy of the commons shows us the difficulty of motivating collective action, when shared resources are being depleted, despite widespread recognition that the outcome is harmful to society.  Perhaps Dr. Zycher would support a global UN authority created to internalize the negative impact of CO2 emissions?

– Marilyn Brown, Matt Cox, Georgia Tech, and Paul Baer, Union of Concerned Scientists