Policy Integrity adviser Livermore says administration underestimating social cost of carbon

Amid a major lobbying effort in Washington surrounding the social cost of carbon, has the Obama administration been transparent enough with its modeling and final cost determination? How likely is a legal challenge to the administration's current rule? During today's OnPoint, Michael Livermore, a professor at the University of Virginia School of Law and a senior adviser at the Institute for Policy Integrity, explains why he believes the administration could be underestimating the social cost of carbon.


Monica Trauzzi: Hello, and welcome to OnPoint. I'm Monica Trauzzi. With me today is Michael Livermore, a professor at the University of Virginia's School of Law and senior adviser at the Institute for Policy Integrity. Mike, it's great to have you back on the show.

Michael Livermore: Pleasure to be here. Thanks.

Monica Trauzzi: Mike, major lobbying efforts happening here in Washington surrounding the social cost of carbon and the accuracy of the administration's modeling and numbers. You contend that the government estimates actually could be on the low side. This is, of course, directly opposite to what some critics are saying, and they're saying that the government has overestimated the costs, and there have been regulations implemented as a result of these bad estimates. What do you estimate the value to be at, and how did you come to that conclusion?

Michael Livermore: Well, right. That's a tough question to answer. What we really, I think, have a clear idea of is that the number that the government has, which is right now, $37 kind of central estimate, is there's reasons to believe that that number is too low. There's many damages that aren't included in that number, including many of the most important potential damages, for example, risks of political instability or risks of reductions in long-term economic growth. These are big-picture, big-ticket items, and they're not included in the current modeling that generates the current estimate.

So the reality is, when you look at everything that's in the number and everything that's out of the number, what you see is that there's more -- there's a lot that's not in there that's going to indicate potential risks, like big-picture risks. And so the number is probably an underestimate.

Now, what the actual, correct number is, is tricky to answer because you have to actually model and estimate those omitted factors.

Monica Trauzzi: But do you think that it could be a significant jump from that $37 value that we're seeing right now?

Michael Livermore: Yeah, absolutely. I think a significant jump is totally plausible. Even just treating the discount rate -- and there's obvious controversies around that -- can result in an order-of-magnitude difference, and the kinds of risks that we're talking about could be on the same order of magnitude.

Monica Trauzzi: So, like you said, the number right now is $37 per metric ton. This was a jump from the 2010 number of $24 per metric ton. Has the government been transparent enough throughout its process and in how they got from $24 to $37?

Michael Livermore: Yeah, you know, there are transparency concerns, but in reality, what the government has done here has been more transparent than anything that we see typically in the regulatory process. They had an Interagency Working Group -- now, potentially, that could've been done through an open -- like a public meeting process. It's not obvious that that would've been good, and when agencies meet, they don't need to invite the public every time the two agencies get together, right?

So what happened here was an extensive internal deliberation. And then there's been a public process of public comments and continued deliberations, and so that some part of the process happened to the administration is not inherently a bad thing; in fact, there's many benefits to doing it that way. And this has gone through the regulatory process several times, in fact, and so the idea that there's a transparency problem with the development of the social cost of carbon, I think, is highly problematic. Now, even -- and the revised estimates was really just a matter of taking new information, putting it into the existing models with the existing assumptions and updating the information. So it wasn't some kind of radical rehashing that got done recently.

Monica Trauzzi: And how significant was the step by OMB to open up the issue for public comment?

Michael Livermore: Exactly, and then on top of an already transparent process, OMB is doing another round of comments on the social cost of carbon. So it's pretty ... there's been plenty of opportunity for the public to be involved in this process.

Monica Trauzzi: So if we see a continued revision of the numbers that are being used, does that, then, create an environment of uncertainty among the business community? Because they don't really know where that number is going.

Michael Livermore: Right. Well, you know, of course we want to get the best number that we can and stick with it to the extent that the information is correct, but the reality is that, you know, the world is evolving. Scientific knowledge is evolving on the topic of climate change, and that's going to have to get reflected in the social cost of carbon. So to a certain extent, there's going to be some uncertainty going forward just because there's real uncertainty about climate damages.

Monica Trauzzi: And some companies are actually planning for well beyond what the federal government's $37 number is right now. Do you think that that's smart business, or do you think that investors and shareholders could start pushing back against efforts like that?

Michael Livermore: I think it's smart business. As I said, my view is that that estimate is probably too low and is likely to go up as the models improve and incorporate more damages. So given that, I think it's very smart for businesses to anticipate that increase, because that's the direction it's likely to go.

Monica Trauzzi: So likely led with -- there's been a lot of push-back on the government's modeling. What do you think of those efforts?

Michael Livermore: Not surprising. It's not surprising that companies that have interests in fossil fuels and individuals and other groups that want to oppose climate regulations are going to push back against the social cost of carbon. I don't think, in the end, they're going to be successful. I doubt they'll be successful. OMB, I don't think that any court challenge would ultimately be successful. What we have here is a very rigorous process that's been done based on peer-reviewed models, lots of public comment, lots of input, and it's just going to be very hard to dislodge that.

Monica Trauzzi: Why don't you think a legal challenge would be successful, and even if it's not, what could the potential impacts be on the regulations that have been put into place as a result of the social cost of carbon number?

Michael Livermore: Right. So far, we really -- we've had regulations where the social cost of carbon is been used, but not really regulations that have really relied on the social cost of carbon for their cost-benefit analyses. Now, we're likely to see those coming forward, right? So the 111 rules on new sources and the 111 rules on existing sources are likely to involve a -- heavily rely on the social cost of carbon for their economic justification.

So the rules -- if there's going to be a legal challenge where I would expect the social cost of carbon challenge to happen, the reason I don't think that's ultimately going to be successful is because of the effort that the agency has gone through to back that number up with rigorous peer-reviewed models, scientific information -- it's just going to be very hard for a court to say, "Look, agency, you didn't do a good job or a sufficiently good job," when the reality is, they basically did everything they could, both process-wise in terms of transparency, but also, just in terms of the information that they're using.

Monica Trauzzi: All right, interesting stuff. We'll end it there. Thank you for coming on the show again.

Michael Livermore: My pleasure.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

[End of Audio]



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