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InsiderOnline Blog: May 2014

How Do You Sum the Social Cost of Carbon? How Do You Catch a Cloud and Pin It Down?

Depending on the assumptions one makes, the social cost of carbon could be negative. If you translate that sentence into regular English, it means that burning fossil fuels—supposedly the root of all global warming evil—might actually be so beneficial to humanity that we would be better off paying people to burn more fossil fuels than they would otherwise choose to burn on their own. That’s what Kevin Dayaratna and David W. Kreutzer found when they examined the Environmental Protection Agency’s Climate Framework for Uncertainty, Negotiation and Distribution (FUND) model. That’s the computer model the agency uses to justify costly regulations on emissions. Dayaratna and Kreutzer don’t advocate a policy of subsidizing carbon emissions, but merely a policy of regulators being honest about what they don’t know. Here’s the conclusion of their recent paper:

[T]he FUND model is extremely sensitive to many assumptions. Altering the discount rate to 7 percent as recommended by the OMB and employing more recent peer-reviewed ECS distributions delivers drastically lower estimates of the SCC. Furthermore, changes in the assumptions suggest large probabilities of a negative SCC. Other potential changes, such as altering the end year to something less than the model’s unrealistically distant projections of economic damages (which extend nearly 300 years into the future) as well as alterations to the model’s loss function, have the potential to change the model’s results drastically.

As a result of this sensitivity we conclude, as we did with the DICE model, that the FUND model, although an interesting academic exercise, is at least at this point completely unfit as a tool to justify trillions of dollars of economic regulations. [The Heritage Foundation, April 29]

Posted on 05/02/14 08:19 PM by Alex Adrianson

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