Biden's Climate Report Is Based on Personal Values, Not Science
Late last month, the Biden administration quietly released an update of the government’s “social cost of carbon” (SCC) estimate, a metric used to value the benefits of global warming policies, especially regulations. The update hasn’t received much attention yet, but it will be important in justifying the administration’s climate agenda in the months ahead.
That’s concerning because the new numbers have some big problems.
As background, the social cost of carbon assesses the impact on “social welfare” from emitting carbon dioxide into the atmosphere. It is used as an input in regulatory analysis to decide whether expensive global warming policies are worth their cost.
The Biden team likely issued a rapid-release update of the SCC because a more credible estimate will take time to develop, and they don’t want to slow their ambitious climate agenda during the politically opportune early days of a new administration. As such, they are reverting to previous Obama-era calculations, casting aside numbers the Trump administration used.
However, there are numerous shortcomings with the Biden team’s calculations. Some may be due to the report being rushed, but others reflect misunderstanding of economic principles, and, more simply, poor judgment.
First, numerous tables in the document released by the administration are mislabeled. The interagency working group that produced the update claims its primary estimate of the SCC is 51 dollars per ton. But the models the working group uses calculate the figure in terms of social welfare — not dollars. Thus, 51 is a measure of the amount that the current generation’s “welfare” is reduced by carbon pollution. Even assuming that number is credible (and measuring welfare is no easy task), the administration doesn’t get the units right.
This is a big deal because the numbers in the new report shouldn’t be used in cost-benefit analysis unless further adjustments are made. Cost-benefit analysis is supposed to measure impacts in dollars, not the Biden administration’s social welfare units. So any analysis that tries to compare these numbers to financial costs will be nonsensical. These problems with units extend to estimates of the social cost of methane and of nitrous oxide, which also appear in last month's report.
There are other misleading parts of the document. For example, there is extensive discussion about the correct “social discount rate” to use in cost-benefit analysis. The social discount rate describes how much less a future benefit from a policy should count relative to a present benefit. For example, many economists generally assume a life saved in 100 years is far less valuable than a life saved today — which is, of course, controversial and has implications beyond economics.
The report makes a number of dubious claims about the social discount rate, but here are just a few worth highlighting.
First, Biden’s team argues that risk-free market interest rates have declined in recent years, and that this provides a basis for using a lower social discount rate. However, claims like this reflect a misunderstanding of the discounting concept.
The decision of how much to weight future health, wellbeing, and lives saved is an ethical choice. One cannot find the correct social discount rate by opening up the Wall Street Journal and turning to the page on interest rates. Ultimately, we need some philosophical compass to guide our choice. Yes, one could choose to base an ethical decision on market criteria, but one could just as easily choose an alternative paradigm, like introspection. Nor should this issue be conflated with the rate of return on capital, which is a separate issue that is sometimes confused with social discounting.
In fact, it would be just as legitimate to pick any plausible number out of a hat (you might laugh, but some approaches do draw a discount rate from a distribution of rates based on surveys of economists). Whatever method is chosen, the choice of the social discount rate is inevitably a value judgment.
Similarly, the report tries to justify lower discount rates in the future by pointing to “Ramsey discounting,” a method named after the early 20th century mathematician Frank Ramsey. Under this approach, analysts assume a benevolent dictator — a proxy for our whole generation’s social welfare — centrally plans the economy. Economists have concocted various mathematical schemes to estimate how the dictator discounts the future.
Again, because the choice is an ethical one, there is no particular reason to believe this Ramsey discounting approach is wrong. But there’s no reason to believe it’s right, either.
The problem with the government’s report is that it presents these various approaches as somehow scientific. In fact, they conceal what is fundamentally a question about values and make it appear as though the answer can come from technical measurement.
Perhaps most concerning is that the administration is already violating its own principles of social justice. In a memo signed by President Biden on his first day in office, he identified promoting the interests of future generations as a top priority, which is a noble goal, to be sure.
But the SCC is calculated using a version of the Ramsey model. In it, the present generation functions as the dictator whose welfare is measured, while the welfare of future generations counts for basically nothing. Present citizens may display some empathy for future generations — for example, the administration’s climate policy is probably motivated by their concern for the future — but the analysis doesn’t consider the welfare of future generations in a direct way.
The new social cost of carbon report comes across like an attempt by experts to ram through a political agenda, while trying to pass off their efforts as scientific. But the public should not be fooled. What’s behind the updated numbers is the administration’s personal values, for better or worse, not science.
James Broughel is a senior research fellow with the Mercatus Center at George Mason University and author of “The Social Discount Rate: A Primer for Policymakers.”