Oil industry challenges government’s carbon price tag

Oil industry and business groups are asking the Obama administration to rescind its new calculation of the social costs tied to emitting carbon dioxide, amid fears the estimate will broadly be used to justify controversial proposed environmental regulations.

At issue is the government’s updated “social cost of carbon,” a once little-known metric used to evaluate the cost benefits of proposed regulations, which is poised to play a big role in forthcoming mandates governing greenhouse gas emissions from power plants. The calculation aims to put a price tag on damage from emitting a ton of greenhouse gases, including lost agricultural productivity, human health impacts and more floods.

A government working group with representatives from the Energy Department, Office of Science and Technology Policy, the Council on Environmental Quality and other agencies in May bumped up the environmental price tag to $38 per ton in 2015, up from a 2010 estimate of $23.80.

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But the group’s calculations and modeling have been inappropriately shielded from view, according to America’s Natural Gas Alliance, the American Petroleum Institute, the National Association of Manufacturers and other organizations that filed a petition on Sept. 4 asking the government to redo the analysis “through a transparent, public process.”

The new social cost of carbon estimates “are the product of an opaque process, and any pretensions to their supposed accuracy — and therefore usefulness in policymaking — are unsupportable,” the groups said.

Because the models used to generate the economic damage from emitting a ton of carbon dioxide produced widely ranging estimates — which were averaged for the final figure and forecast out over decades — they are unreliable, the groups said:

“The imprecision inherent in modeling assumptions, hypotheses and judgments are significantly magnified when impacts and costs are projected over a long time period. While certainty is not a characteristic of any modeling effort, (the Office of Management and Budget and the interagency working group) cannot push prognostications so far beyond the capabilities of current science and economic modeling that the etiolates become little more than indefensible guesses.”

According to the groups, there is a point beyond which those uncertainties become “so profound, widespread and compounded” that they render the ultimate estimate flawed and unusable.

The move dovetails with action on Capitol Hill, as the House voted in July to block the EPA from using the social cost of carbon to evaluate the merits of potential energy-related regulations, unless specifically authorized by Congress. A House subcommittee also held a hearing exploring the issue.

American Petroleum Institute President Jack Gerard said the decisions about the costs of greenhouse gas emissions belong in the hands of elected officials, not bureaucrats.

“We believe unilateral regulatory activities without the scrutiny of elected officials are not the way to proceed,” he told reporters in an unrelated conference call. “We ought to have a lot of transparency in the process because it will potentially impact every rule making that comes down the road that deals with energy.”

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Groups involved in the effort stressed the importance of subjecting the calculations to scrutiny and a robust peer review.

“This isn’t about climate science or its potential impact,” said Dan Whitten, a spokesman for America’s Natural Gas Alliance. “But we believed it was important to join allied associations in demanding a rigorous and scientific process for any regulatory actions affecting energy and climate policy. We just want to make sure they apply the right analysis to this.”

Administration officials have defended their approach. Howard Shelanski, the new director of the Office of Information and Regulatory Affairs, told lawmakers that the U.S. is not alone in making these calculations. Other countries are using much higher numbers in their analysis, and major oil companies, including ExxonMobil and Shell, also have predicted costs associated with carbon dioxide as part of their overall outlooks and investment planning.

Other signers on the Sept. 4 petition were the U.S. Chamber of Commerce, the American Chemistry Council, the National Association of Home Builders and the Portland Cement Association.

SCC Petition Final 9-4-13