Putting a price on carbon distorts all economic calculations wherever the carbon price is used1.
The higher the price on carbon, the greater the distortion.
For example:
There is no question, using accepted accounting practices, that electricity generated using coal is less expensive than electricity generated using wind, but, by assigning a price of $15 per ton of CO2 emissions, the EIA has established that electricity from wind costs the same as from coal.
Now the administration has determined that the price of carbon should be $36 per ton.
Using this new price, electricity from wind will be cheaper than electricity generated by coal — a complete distortion of economic reality.
The DOE and EPA introduced this new price when establishing guidelines for microwave ovens.
This was done without public notice or hearings. It was slipped in, under the radar, until it was noticed a month or two after the ruling was announced. The EPA’s rationale was to refer to Executive Order 12866 that requires economic evaluation of regulations, including the Social Cost of Carbon (SCC) in the evaluation as the result of Executive Order 13563, issued by the current administration.
Executive Order 12866 is worth reading because it outlines some of the criteria used for establishing the price on carbon, such as damage caused by sea level rise2. Damage from sea level rise (SLR) is absurd, because even the IPCC has established that sea levels won’t rise any faster than in the recent past few hundred years.
It should be noted that the SCC is determined by computer models. These models vary in their estimates of the correct social cost, i.e., carbon prices from $12 to $129 in the year 2020.
In other words, the models don’t agree, and have, what can only be described, as huge discrepancies. There’s no reason why the EPA can’t choose $129 rather than $36 for the price of carbon.
Once again, GIGO3 is the basis for government policy on climate change.
The new higher price on carbon will allow the EPA to establish regulations on everything from power generation to the use of air-conditioning.
Suddenly, the cost of electricity from natural gas-fired power plants will increase, so that solar and wind become cheaper than electricity generated by natural gas power plants.
Regulations governing refineries will result in higher gasoline prices as they are required to install new equipment to capture CO2.
Any price on carbon can affect investment decisions and stock prices. Suddenly bad decisions become good decisions — and vice versa. A price on carbon will distort the stock market.
It’s conceivable that the EPA could establish regulations for lawn mowers, based on the fuel they use, e.g., biofuel, gasoline with oil mix, gasoline alone or electricity.
Again, it should be noted that the Waxman-Markey cap & trade legislation, rejected by Congress, envisioned regulations on lawn mowers.
Establishing a price on carbon has been the objective of extreme environmentalists for the past few decades, and is now becoming a reality under this administration.
A price on carbon distorts economic decisions. It supports the Pinocchio effect, where economic truth is turned upside down.
Note:
- People refer to it as a price on carbon, where in fact it is a price on carbon dioxide (C02). It is stated as $ per metric ton of CO2
- Technical document supporting using SCC is at http://www.whitehouse.gov/sites/default/files/omb/inforeg/social_cost_of_carbon_for_ria_2013_update.pdf
- GIGO: Garbage In Garbage Out.
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