![]() Given the large uncertainties of our current understanding of methane, the fact that it is relatively short-lived is an additional reason to defer the use of “the social cost of methane” in federal regulatory analysis. ![]() Indeed as Marten and Newbold explain: “the relatively short lifespan of CH4 causes the temperature impact of a perturbation in 2010 to drop from its peak level by nearly an order of magnitude by 2100, while an analogous effect for a CO2 perturbation does not occur before the end of the 300 year time horizon” (p. Methane Shorter-Lived Than Carbon DioxideĪnother important difference between carbon dioxide and methane is that the latter has a shorter atmospheric life. However, to date far fewer estimates of the social costs of other greenhouse gases have been published, and many of those that are available are not directly comparable to current estimates of the SCCO2. Many estimates of the social cost of CO2 emissions (SCCO2) can be found in the climate economics literature. As a pioneering paper in the SCM literature explains: However, as bad as the SCC is, the case for using an SCM is even weaker.įirst, there is a paucity of research in this area there are far more studies looking at carbon dioxide, rather than methane. Failure to include the 7 percent calculations-despite being required by OMB guidelines-suggests that the enterprise was not a neutral scientific inquiry, but performed to justify desired federal regulations.Īll of the problems with using the SCC for federal cost/benefit analysis apply to the SCM and the “social cost” of other greenhouse gases. TABLE 2: IMPACT OF EXCLUSION OF 7 PERCENT DISCOUNT RATE FOR SCM YearĪgain, we see in the table the enormous impact that the discount rate has on the estimated SCM. The table below shows the stark contrast between a 3 percent a 7 percent rate. Armed with the code, the Heritage researchers could calculate the SCM-holding the other assumptions constant-using a 7 percent rate. The Heritage Foundation was able to obtain the code used for one of the computer models (namely, the DICE model) that generated the new SCM estimates. We can understand why: By using the (OMB-required) 7 percent rate, the SCM would fall even further. What is even more troubling is that the federal government’s analysis did not include estimates of the SCM at a 7 percent discount rate, even though this is a standard Office of Management and Budget guideline for cost/benefit analyses. ![]() (See the discussion of “ethical” discount rates in a recent survey of economists working in this area.) Whether one agrees with the approach or not, surely it is clear that policymakers are given free rein with regulations when the “benefits” of reducing methane emissions can be manipulated so drastically just by adjusting the discount rate dial. Rather, many analysts want to use “ethical” considerations to pick the discount rate, rather than market-based interest rates. As we have stressed repeatedly here at IER, the discount rate used in such analyses is not an objective fact of the world that can be measured in the same way as, say, the speed of light or the calories in a Big Mac. TABLE 1: “SOCIAL COST OF METHANE” FOR VARIOUS YEARS, DISCOUNT RATES Discount Rate:Īs the table indicates, the discount rate has an enormous impact on the estimated SCM. The following table summarizes some of the estimates of the SCM varying by changing the discount rate: This one decision can drive the entire analysis. To calculate such an estimate, analysts use the same “integrated assessment models” (IAMs), which are computer simulations over centuries to model the global climate and economy.Īmong other problems, a huge issue here is that the discount rate chosen to turn those hypothetical future damage projections into present dollar figures is critical. We at IER have tirelessly documented the problems with the “social cost of carbon” as a tool for federal policymakers, and yet the “social cost of methane” is even more dubious.Īs with the social cost of carbon (SCC), the social cost of methane (SCM) seeks to quantify the present dollar value of the string of future climate change damages accruing from an additional ton of methane. The novelty of the government’s cost/benefit assessment of the rules was their use of the “social cost of methane,” which is analogous to the more familiar “social cost of carbon” but, of course, applied to a different greenhouse gas. ![]() Earlier this month, the Institute for Energy Research (IER) submitted a formal comment on proposed federal emission standards for new and modified sources in the oil and gas sector.
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