[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]




 
 EXAMINING THE OBAMA ADMINISTRATION'S SOCIAL COST OF CARBON ESTIMATES

=======================================================================

                                HEARING

                               before the

                     SUBCOMMITTEE ON ENERGY POLICY,
                      HEALTH CARE AND ENTITLEMENTS

                                 of the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 18, 2013

                               __________

                           Serial No. 113-55

                               __________

Printed for the use of the Committee on Oversight and Government Reform

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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 DARRELL E. ISSA, California, Chairman
JOHN L. MICA, Florida                ELIJAH E. CUMMINGS, Maryland, 
MICHAEL R. TURNER, Ohio                  Ranking Minority Member
JOHN J. DUNCAN, JR., Tennessee       CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina   ELEANOR HOLMES NORTON, District of 
JIM JORDAN, Ohio                         Columbia
JASON CHAFFETZ, Utah                 JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan                WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma             STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
PAUL A. GOSAR, Arizona               GERALD E. CONNOLLY, Virginia
PATRICK MEEHAN, Pennsylvania         JACKIE SPEIER, California
SCOTT DesJARLAIS, Tennessee          MATTHEW A. CARTWRIGHT, 
TREY GOWDY, South Carolina               Pennsylvania
BLAKE FARENTHOLD, Texas              MARK POCAN, Wisconsin
DOC HASTINGS, Washington             TAMMY DUCKWORTH, Illinois
CYNTHIA M. LUMMIS, Wyoming           ROBIN L. KELLY, Illinois
ROB WOODALL, Georgia                 DANNY K. DAVIS, Illinois
THOMAS MASSIE, Kentucky              PETER WELCH, Vermont
DOUG COLLINS, Georgia                TONY CARDENAS, California
MARK MEADOWS, North Carolina         STEVEN A. HORSFORD, Nevada
KERRY L. BENTIVOLIO, Michigan        MICHELLE LUJAN GRISHAM, New Mexico
RON DeSANTIS, Florida

                   Lawrence J. Brady, Staff Director
                John D. Cuaderes, Deputy Staff Director
                    Stephen Castor, General Counsel
                       Linda A. Good, Chief Clerk
                 David Rapallo, Minority Staff Director

      Subcommittee on Energy Policy, Health Care and Entitlements

                   JAMES LANKFORD, Oklahoma, Chairman
PATRICK T. McHENRY, North Carolina   JACKIE SPEIER, California, Ranking 
PAUL GOSAR, Arizona                      Minority Member
JIM JORDAN, Ohio                     ELEANOR HOLMES NORTON, District of 
JASON CHAFFETZ, Utah                     Columbia
TIM WALBERG, Michigan                JIM COOPER, Tennessee
PATRICK MEEHAN, Pennsylvania         MATTHEW CARTWRIGHT, Pennsylvania
SCOTT DesJARLAIS, Tennessee          TAMMY DUCKWORTH, Illinois
BLAKE FARENTHOLD, Texas              DANNY K. DAVIS, Illinois
DOC HASTINGS, Washington             TONY CARDENAS, California
ROB WOODALL, Georgia                 STEVEN A. HORSFORD, Nevada
THOMAS MASSIE, Kentucky              MICHELLE LUJAN GRISHAM, New Mexico
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on July 18, 2013....................................     1

                               WITNESSES

The Honorable Howard Shelanski, Administrator, Office of 
  Information and Regulatory Affairs, Office of Management and 
  Budget
    Oral Statement...............................................     4
    Written Statement............................................     7

                                APPENDIX

The Honorable Jackie Speier, a Member of Congress from the State 
  of California, Opening Statement...............................    32


  EXAMINING THE OBAMA ADMINISTRATION'S SOCIAL COST OF CARBON ESTIMATES

                              ----------                              


                        Thursday, July 18, 2013

                   House of Representatives
      Subcommittee on Energy Policy, Health Care & 
                                      Entitlements,
              Committee on Oversight and Government Reform,
    Washington, D.C.
    The subcommittee met, pursuant to call, at 2:43 p.m., in 
Room 2247, Rayburn House Office Building, Hon. James Lankford 
[chairman of the subcommittee] presiding.
    Present: Representatives Lankford and Speier.
    Staff Present: Joseph A. Brazauskas, Majority Counsel; 
Sharon Casey, Majority Senior Assistant Clerk; Ryan M. 
Hambleton, Majority Professional Staff Member; Scott Schmidt, 
Majority Deputy Director of Digital Strategy; Jaron Bourke, 
Minority Director of Administration; Beverly Britton Fraser, 
Minority Counsel; Devon Hill, Minority Research Assistant; and 
Safiya Simmons, Minority Press Secretary.
    Mr. Lankford. The committee will come to order.
    I would like to begin this hearing by stating the Oversight 
Committee mission statement. We exist to secure two fundamental 
principles. First, Americans have the right to know that the 
money Washington takes from them is well spent and, second, 
Americans deserve an efficient, effective Government that works 
for them.
    Our duty on the Oversight and Government Reform Committee 
is to protect these rights. Our solemn responsibility is to 
hold Government accountable to taxpayers, because taxpayers do 
have a right to know what they get from their Government. We 
will work tirelessly in partnership with citizen watchdogs to 
deliver the facts to the American people and bring genuine 
reform to the Federal bureaucracy. This is the mission of the 
Oversight and Government Reform Committee.
    Again, I apologize for starting a little bit late. We had 
votes on the Floor, then came over as quick as we could. There 
will be other members that will join us in the moments that are 
ahead.
    A few years ago, a small group of Government employees from 
various agencies gathered for a series of meetings on the 
social cost of carbon. These agency representatives determined 
that earlier estimates on the social cost of carbon were 
incorrect. The previous estimate, done three years before, was 
wrong, apparently by 50 percent. In 2010, the Government 
believed that carbon emissions cost the Nation $22 per ton. Now 
the interagency working group believes the cost is $33 per ton.
    It takes many mathematical calculations to arrive at a 
social cost of carbon estimate, and we are not here today to 
make sure that the interagency working group knows how to do 
its math. Rather, we are here today to determine how they 
arrived at the updated social cost of carbon, if the process 
was transparent, and how this updated cost will be used.
    When the rules and the cost estimates change, typically 
agencies release data for review and comment. Federal agencies 
do not and cannot know everything. This review process provides 
an essential opportunity for them to gain synergistic wisdom of 
the Nation, especially something that will have great effect on 
the economy.
    The social cost of carbon will affect the cost of 
electricity, every home and business, the cost of our cars and 
trucks, the cost to heat our homes, the cost of food, the cost 
of every product that is manufactured and transported in 
America. This is no simple rule change with little effect; this 
has especially serious consequences for everyone on a fixed 
income and anyone with limited resources.
    While I assume some will try to deflect my questions of why 
and how this cost has changed for every American with rhetoric 
that Republicans just want dirty air and dirty water, and we 
want children to have breathing problems and global 
catastrophes, the facts could not be further from the truth. I 
want a healthy environment for everyone. But I also think 
everyone must follow the law.
    Today is a conversation with the Administration's lead 
regulator on the rulemaking process and authority possessed by 
this Administration to change the cost of every product in 
America. I do not think it is unreasonable to ask how this rule 
changed, why it changed, what is the science behind the change, 
who made the rule, and why it came out right now.
    I hope that today's hearing, and any that may follow, will 
bring into light how this Administration sets the social cost 
of carbon so that the American people and this Government can 
be partners in creating a Nation that can power itself 
effectively, efficiently in the future, and on our own 
environment.
    With that, I yield to my ranking member, Ms. Speier.
    Ms. Speier. Mr. Chairman, thank you for holding today's 
hearing, and thank you to Mr. Shelanski for being here to 
respond to questions that we may have.
    Americans are feeling the impacts of climate disruption, 
from destructive and deadly storms like Hurricane Sandy, 
floods, droughts, and some of the largest wildfires in history. 
It is almost biblical. Cleaning up after climate-driven 
disasters cost nearly $100 billion last year, one of our 
largest non-defense, discretionary budget items. That works out 
to be an average of over $1100 per taxpayer. It is clear we not 
only have a moral obligation to protect future generations from 
climate change; we must do it for sound economic reasons.
    Despite what some may say, there is sound science behind 
the impact of carbon in climate change. According to the 
National Academy of Sciences in 2011, climate change is 
occurring, is caused largely by human activities, and poses 
significant risk for a broad range of human and natural 
systems. The preponderance of the evidence points to human 
activities as the most likely cause for most of the global 
warming that has occurred over the past 50 years.
    This year, the non-partisan experts at GAO added the issue 
of climate change to their biannual high risk report. Now, this 
is truly significant. The GAO is independent, it is 
nonpartisan, and it placed climate change in its high risk 
category for us to review. The high risk report details the 
most pressing fiscal challenges facing the Federal Government.
    GAO found that climate change poses particularly 
significant financial risks to the Nation's economy, warned 
that our Government ``is not well positioned to address this 
fiscal exposure,'' and recommended a ``Government-wide 
strategic approach with strong leadership and the authority to 
manage climate change risks.''
    Laura Tyson, of the Haas School of Business at UC Berkeley 
and a former chairwoman of the Council of Economic Advisors 
under President Clinton, wrote in The New York Times in May, 
``There is much debate about what the proper social costs of 
carbon might be, but there is no debate that carbon emissions 
are seriously underpriced.''
    Today's hearing examines part of the Obama Administration's 
effort to listen to the best available science to create a 
monetary estimate of the cost of CO2 emissions and incorporate 
that scientific knowledge into a Government-wide approach to 
manage climate change risks, as the GAO recommended we do.
    Prior to 2008, reductions in CO2 emissions were not valued 
at all in the federal cost benefit analysis. The process of 
establishing a social cost for carbon was actually begun in the 
Bush Administration, after the 9th Circuit Court, in a 
challenge to a regulation, chastised the National Highway 
Traffic Safety Administration, in 2007, for assigning a social 
cost of carbon of zero dollars in setting fuel economy 
standards. The court noted that the NHTSA's failure to account 
for carbon contrasted starkly with its willingness to quantify 
equally indeterminate costs and benefits like traffic noise and 
energy security. The court declared the rulemaking arbitrary 
and capricious.
    In 2010, an interagency panel consisting of prominent 
scientists and economists from the Department of Agriculture, 
Commerce, Defense, Environmental Protection Agency, among 
others, developed the first estimate of the social cost of 
carbon. In May 2013 that figure was updated and, not 
surprisingly, the cost estimate rose. The interagency working 
group explained the reason for the increase, that is, what the 
best available science now tells us.
    In listening to the best available science, the interagency 
working group was simply complying with the law, which states, 
quoting from the Executive Order 12866 in 1993, ``Federal 
agencies shall assess both the costs and benefits of the 
intended regulation and, recognizing that some costs and 
benefits are difficult to quantify, propose or adopt a 
regulation only upon a reasoned determination that the benefits 
of the intended regulation justify its costs and base its 
decision on the best reasonably obtainable science, technology, 
economics, and other information concerning the need for and 
consequences of the intended regulation.''
    There are those who criticize the way the estimate was 
calculated. Of course, there is room for disagreement with any 
process, but for those that do, I challenge them to bring their 
own suggestions on how to improve the process. What I would not 
agree with are those critics who advocate that we make no 
estimate. That would be a colossal mistake for any of us in a 
position of responsibility to make.
    If we fail to adequately prepare for climate change, 
billions of dollars in Federal, State, and local investments in 
public infrastructure will be threatened. I am proud that 
California has been a leader in reducing CO2 emissions. In 
fact, while in the State senate, I voted for AB-32, the Global 
Warming Solutions Act of 2006, which set the 2020 greenhouse 
gas emission reduction goal. That bill was signed into law by 
Republican Governor Arnold Schwarzenegger. One State cannot do 
it alone.
    I have already exhausted my time, so I will complete my 
testimony and extend my remarks for the record.
    Mr. Lankford. That would be just fine. Any other members 
can also have seven days to submit opening statements for the 
record.
    We have one panel and one individual on the panel today. 
The Honorable Howard Shelanski is the Administrator of the 
Office of Information Regulatory Affairs, the Office of 
Management and Budget. Been there a very long time, eight days 
now, I believe, is that correct? So glad that you are here. We 
are going to get you started in a good conversation here in 
this way.
    Pursuant to committee rules, all witnesses are sworn in 
before they testify, so if you would please stand and raise 
your right hand.
    [Witness responds in the affirmative.]
    Mr. Lankford. Thank you. You may be seated.
    Let the record reflect that the witness has testified in 
the affirmative.
    The way this typically works, and you have been around 
through confirmation hearings and everything else at this 
point, but there will be a clock in front of you. Your written 
testimony that you have already given us, thank you for that, 
will go into the record, then your oral testimony will 
supplement that as well.
    You have five minutes, but we will have a conversation here 
in the time to come. You don't have to worry that much about 
the clock at this point. If you have additional comments, we 
allow you to be able to do that. So thank you, and begin now.

          STATEMENT OF THE HONORABLE HOWARD SHELANSKI

    Mr. Shelanski. Thank you very much. Chairman Lankford, 
Ranking Member Speier, and members of the subcommittee, thank 
you for the opportunity to appear before you today. I was 
recently confirmed as the Administrator of the Office of 
Information and Regulatory Affairs, known as OIRA, at the 
Office of Management and Budget, and I am honored to be serving 
in this role. I look forward to speaking with you today about 
the social cost of carbon.
    When I refer to the ``social cost of carbon,'' often called 
SCC, I mean the values used to calculate the monetary costs and 
benefits of incremental changes in the volume of carbon 
emissions in a given year. The social cost of carbon includes, 
for example, changes in net agricultural productivity and human 
health, property damage from increased flood risk, energy 
system costs, and the value of ecosystem services lost because 
of climate change.
    Executive Orders 12866 and 13563 direct agencies to use the 
best available scientific, technical, economic, and other 
information to quantify the costs and benefits of rules. 
Rigorous evaluation of costs and benefits has been a core tenet 
of the rulemaking process for decades through Republican and 
Democratic administrations. This fundamental principle of using 
the best available information underpins the Administration's 
efforts to develop and update its estimates of the social cost 
of carbon.
    In 2009, the Administration launched a process to determine 
how best to quantify the net benefits from reducing carbon 
dioxide emissions. The purpose of this process was to ensure 
that agencies were using the best available information and to 
provide consistency in economic analysis associated with the 
rulemaking process across agencies. During the previous 
Administration and at the beginning of this Administration, 
agencies used a range of social cost of carbon values when 
evaluating the costs and benefits of rules.
    To determine how best to quantify the net benefits from 
reducing carbon dioxide emissions, the Administration first 
conducted a preliminary assessment of existing literature in 
order to set interim social cost of carbon values while it 
worked on a more comprehensive analysis. Informed by public 
comments received on rules in which agencies used the interim 
values, the Administration developed and released improved SCC 
estimates in February of 2010 in conjunction with a Department 
of Energy appliance efficiency-standard rule for small electric 
motors.
    Since the release of the SCC values in February 2010, 
numerous rulemakings have used those values for the social cost 
of carbon. Agencies using the SCC values in rulemakings 
received extensive public comments, many of which focused on 
the discount rates chosen and the three peer-reviewed academic 
models used to develop the SCC estimates.
    As explained in the February 2010 Technical Support 
Document, the SCC methodology rests on three integrated climate 
change assessment models: the FUND, DICE, and PAGE models. 
These models combine climate processes, economic growth, and 
interactions between the climate and the global economy into a 
single modeling framework. These are by far the most widely 
cited models that link physical impacts to economic damages for 
the purposes of estimating the SCC. The SCC estimates rely on a 
common set of inputs to each model and equally weigh the 
outputs of the three models, as described in detail in the 2010 
technical document.
    Recognizing that the underlying climate change impact 
models would evolve and improve over time as scientific and 
economic understanding increased, the 2010 SCC documentation 
committed to regular updates, and set a goal of updating the 
SCC estimates within two years or after updated versions of the 
underlying models became available. Since the February 2010 
estimates were released, the three models that underpin the 
interagency social cost of carbon estimates have been all 
significantly updated and subsequently used in peer-reviewed 
studies.
    Many public comments urged the agencies to update the 
estimates based on the latest models. It is important to note 
that the only changes made in May 2013 to the SCC estimates 
reflect the refinements made to the underlying models by the 
people who develop and maintain those models. In other words, 
all of the changes to the social cost of carbon value were the 
result of updates to the FUND, DICE, and PAGE models that were 
made by the model developers themselves. The Federal Government 
inputs, such as the discount rate, climate sensitivity 
distribution, and socioeconomic trajectories like population 
growth used to develop the 2010 estimates remain unchanged.
    As explained in the 2013 Technical Support Document, the 
updates to FUND, DICE, and PAGE reflect, among other things, 
improvements in the way economic damages from climate change 
are modeled. The net result of these updates to the three peer-
reviewed models was to increase the SCC estimates. These net 
changes reflect many specific changes within the three models, 
some of which increased the estimates and some of which 
decreased them.
    Entities outside the Federal Government are using estimates 
that are similar to the updated SCC values. For example, these 
updated estimates are consistent with the values used by other 
governments, such as the United Kingdom and Germany. Major 
corporations, such as ExxonMobil and Shell, have also used 
similar estimates to evaluate capital investments.
    The Administration will continue to investigate ways to 
improve the social cost of carbon estimates. The current 
estimates will be used in the economic analysis of rulemakings, 
and we fully expect comments on the SCC values in the context 
of future rules. We will consider those comments to ensure that 
we use the best available information to evaluate the costs and 
benefits of our regulation.
    Thank you for your time. I would be happy to answer any 
questions.
    [Prepared statement of Mr. Shelanski follows:]
    [GRAPHIC] [TIFF OMITTED] T2716.001
    
    [GRAPHIC] [TIFF OMITTED] T2716.002
    
    [GRAPHIC] [TIFF OMITTED] T2716.003
    
    Mr. Lankford. We are not going to run the clock, we are 
going to have conversations. Is that all right with you?
    Let me just talk through a couple things. Again, as I 
mentioned to you before we were talking before the hearing 
began, several of these things obviously, with your eight days 
of long experience there in this position, you are not going to 
know. Cass Sunstein was in front of this committee as well 
before, so any problems that you have, blame completely on Cass 
as the previous OIRA director.
    But I want to talk through a couple process issues to say 
how do we determine this and where do we go from here.
    Who was the chair of the interagency working group?
    Mr. Shelanski. The interagency working group was convened 
by the Office of Management and Budget and the Council of 
Economic Advisors, with the participation of a couple of 
Executive Branch agencies and a number of Executive Office of 
the President Policy Council.
    Mr. Lankford. Right. I have a list here: the Environmental 
Protection Agency, Department of Agriculture, Department of 
Commerce, Department of Energy, Department of Transportation, 
Department of Treasury, White House Council of Economic 
Advisors, White House Council on Environmental Quality, White 
House National Economic Council, White House Office of Energy 
and Climate Change, White House Office of Management and 
Budget, and the White House of Science and Technology Policy. 
Does that sound familiar?
    Mr. Shelanski. That was the list for 2010. One of the 
offices was no longer in being by 2013, so the list is almost 
exactly the same for 2013.
    Mr. Lankford. Okay, so which one do I need to take off 
there?
    Mr. Shelanski. Office of Energy and Climate Change ceased 
to be a freestanding office and was folded into the Domestic 
Policy Council by the time of the 2013 updates.
    Mr. Lankford. So were they present in this meeting or were 
they just represented by the Council of Environmental Quality?
    Mr. Shelanski. I would have to go back and check whether 
they had their own representative.
    Mr. Lankford. Are there minutes from the meetings? Are 
there details about the nature of their conversation? Did they 
take a vote on this process? Any of that that we can get a 
chance to gather?
    Mr. Shelanski. My understanding was that this was a 
consultative sort of integrated process of ongoing discussions 
that the various offices had. What documentation there might be 
of those discussions and meetings is something I would have to 
go back to check.
    Mr. Lankford. Okay. We would like to get some documentation 
just to see the path, the reason being is obviously this shows 
up in a microwave oven rule and appears. It doesn't appear that 
it had additional comment this time. As you mentioned before, 
this is an update from the 2010, but it is a 50 percent 
increase, if I am counting that right, just on the 3 percent 
discount rate. If you are in the other rates, it is much, much 
higher.
    So it is a fairly significant increase from the 2010, which 
raises some red flags, the first of which to say if the model 
is a trustworthy model and in three years it is proved to be 
wrong by 50 percent, I am not sure we would allow that with 
CBO, to continue to keep score if we find out three years later 
their estimates were off by 50 percent. Does that make sense?
    Mr. Shelanski. Well, let me address that, because I 
certainly share your concern that one needs to make sure that 
one is dealing with models that are reliable. These models, at 
the time that they were identified and used in 2010, it was 
well understood that these were the best models available, well 
peer-reviewed, but that they were also models under development 
and that they would change. So these models are maintained by 
teams of scientists and economists, independently of the 
Government.
    And the choice in 2010 was really whether not to have a 
social cost of carbon estimate, not to have the best available 
science and economics factor into the calculation of some 
values to attach to CO2 emissions, or to deal with what was 
best available with the knowledge that as those integrated 
assessment models were fairly new, were beginning to be 
developed, that they would change and improve.
    Mr. Lankford. How were the models selected in 2010? Because 
you talk about best available. Best available chosen by who, I 
guess?
    Mr. Shelanski. Well, the interagency working group looked 
to see what models were available, and it is important to 
recognize that what these integrated assessment models do is 
something that is extremely difficult. There are models that 
talk about the effects of emissions on climate change and there 
are models that talk about economic damages under certain 
assumptions. These integrated models brought together the 
climate effects and economic effects to turn them into a 
damages number.
    So at the time that the interagency working group convened, 
virtually all of the literature that was trying to come up with 
social cost of carbon estimates or that was trying to come up 
with integrated measures of what damages might be from CO2 
emissions were using these three models; they were the most 
used and most peer-reviewed.
    Mr. Lankford. Was there a conversation about additional 
models that may be needed for the 2013? Obviously there was 
this huge shift between 2010 to 2013. Was there a conversation 
among the interagency working group to say maybe this is not as 
reliable as we had hoped, so let's go find some other models 
that are out there?
    Mr. Shelanski. I do know that the interagency working group 
is always assessing the availability of other models and 
whether or not there are other models that are truly integrated 
assessment models that have reached the level of scientific 
verification and quality through the peer review process that 
the PAGE, DICE, and FUND models have reached. What specific 
models may have been discussed or when is not something I am 
aware of at this point.
    Mr. Lankford. Right. Obviously, you are new in that. So 
what I would like to do is be able to follow up and try to get 
some of the notes of what are the models that they looked at, 
obviously who was there in the decision-making process that 
they made, any notes that they had during that process of 
making those decisions, because those will be important for us 
to see. The cost just shifted for quite a few things in America 
based on the new microwave oven rule.
    Now, if we can just step back and say with certainty this 
is really reliable, this is what the cost should be, that is 
different. But I think this is an opportunity for Americans to 
be able to look in, as well, and say before my electricity 
rates go up, before the cost of every vehicle goes up, before 
my cost of heating oil goes up, and before the cost of all 
transportation for all my food goes up, I would like to know 
where this came from and why this actually existed.
    So for us it would be very helpful to be able to bring to 
light who was in part of that process, what was their 
conversation. That builds trust when you see how did they 
debate this, what were the decisions that were made, what were 
the options they looked at, and allow us and outside groups to 
be able to look at it and say, yes, I completely agree or no, I 
don't agree.
    The difficulty is there didn't seem to be an opportunity to 
speak into this before it appeared. Do you know if a waiver was 
requester to not put this in the Federal Register on this 
particular rule ahead of time?
    Mr. Shelanski. Well, thank you, Chairman Lankford. That is 
a very important set of questions. Let me start by saying that 
the social cost of carbon is not a rule. It is a not a 
rulemaking.
    Mr. Lankford. I understand, but it will affect everything 
that I purchase in the days ahead.
    Mr. Shelanski. Well, it may or may not. The social cost of 
carbon will be an input into rulemaking processes.
    Mr. Lankford. Correct.
    Mr. Shelanski. And those rulemaking processes, any 
rulemaking in which the social cost of carbon is used as part 
of the cost-benefit analysis, will be subject to notice and 
comment, in many cases to review by OIRA, to ensure that that 
process is properly undertaken, and there will be an open 
opportunity for people to comment on all aspects of that rule.
    Mr. Lankford. Right.
    Mr. Shelanski. Including the social cost of carbon.
    Mr. Lankford. But the foundational part of it, once it is 
settled, this is the foundation, now we are arguing about did 
it reach the $100 million threshold to make this a major role, 
is this significant, is the benefit outweighed by the cost. 
Whether you are saying that to a power generation company or 
you are dealing with CAFE standards in the future for a vehicle 
or you are dealing with transporting fuel for food, all those 
things, this is the foundational piece.
    Mr. Shelanski. Well, it is an ingredient. I mean, we should 
be clear that this is one piece of the cost-benefit analysis. 
There will be lots of other things that are considered in the 
costs and benefits of any emissions or energy efficiency 
standard that would use the social cost of carbon estimate. So 
SCC will be an input. There are other inputs that could be 
extraordinarily important in the cost and benefit analysis, but 
this is an important input into those models, which is why it 
is extremely important that the public be able to comment on 
every one of those rules.
    Mr. Lankford. Right.
    Let me get a chance to honor my ranking member, Ms. Speier, 
for some time for questions as well.
    Ms. Speier. Let's go to the integrated model, which sounds 
really good. It sounds like what you did was include not just 
the social cost, but the economic cost. So if I am 
understanding you correctly, the economic damage was based on 
how much more a product would cost or the economic damage was 
what would happen if there was a Sandy storm?
    Mr. Shelanski. Thank you, Congresswoman Speier, because I 
think this gets at the heart of what social cost of carbon is 
trying to get at. If there is going to be harm to our 
environment and to our economy from carbon emissions, many 
costs will go up; the cost of food, the cost of health care, 
investment that is needed to protect against sea level rise. 
There are all manner of costs, energy costs, the need for 
increased energy usage for cooling. All manner of costs may go 
up for society. That is why it is extremely important to have 
some kind of measure of what the social costs, by which I mean 
the costs to society are, of a ton of CO2 emissions.
    So prior to the creation or the development of a social 
cost of carbon estimate, this was sort of an imponderable. In 
some cases, you referred to the 9th Circuit case where a value 
of zero was deemed arbitrary and capricious, a value would just 
be assumed away. In other cases people called for extremely 
high values to be used.
    Part of a disciplined rulemaking process is using the best 
information that is out there, the best minds, the best 
analysis, the best science that is out there to come up with a 
rigorous cost-benefit analysis. That is a limiting principle 
on, for example, ascribing endless benefits to carbon 
reduction. But it also stops us from making a big mistake of 
saying there are no costs to carbon reduction and creating real 
harm to our economy going forward from environmental damage. So 
the purpose of the social cost of carbon estimate is to get a 
measure of what that harm to our society will be, what it will 
cost us, going forward, to keep emitting CO2 into the 
atmosphere.
    Ms. Speier. But I am still not clear as to whether or not, 
in that model, you fold in the additional cost to consumers in 
terms of the products they buy or to the businesses in terms of 
the kinds of steps they have to take to reduce their emissions.
    Mr. Shelanski. Those are all things that would factor very 
directly into the cost-benefit analysis of any regulation using 
the SCC number. So you would look separately, after looking at 
the SCC, that is to say, the benefits of not emitting the CO2, 
we would require the agency or we would expect the agency to 
give information about the costs to business.
    Ms. Speier. Okay, so it is not included in the SCC.
    Mr. Shelanski. Not everything.
    Ms. Speier. All right. So let me ask you this. You 
indicated that Exxon and Shell and countries like the UK have 
come up with an SCC. What have they tabbed it at?
    Mr. Shelanski. The estimates vary. We know from things that 
have been stated publicly that Shell uses about $40 a ton for 
its internal estimates as the social cost of carbon. 
Governments like the UK and Germany use numbers very, very 
close to the 2013 range of social cost of carbon that the 
interagency working group came up with.
    Ms. Speier. Like around $38, is that what you are saying?
    Mr. Shelanski. You know, there are a range of values, 
depending on time period and discount rate, but quite 
commensurate values. I could get back to you on what their 
exact numbers are.
    Ms. Speier. So the chairman indicated the issue about 
tagging this on top of a microwave regulation, and I must tell 
you I agree with that. We are all about transparency, so why 
wouldn't this have been, even though it is not a rule, subject 
to input from the general public and maybe people that are of 
the belief that carbon has no cost to it, just so that it would 
be fully digested and evaluated?
    Mr. Shelanski. So let me answer both the general question 
about the process by which the interagency group worked and 
then talk about the microwave oven rule in which this new value 
first came to light, if you will, in a regulatory process.
    The models that underlie the social cost of carbon estimate 
are not maintained or owned or created by the Federal 
Government. In fact, they are created by independent scientists 
and economists. And what is very important about these models, 
because I think otherwise it would be very hard to use them, is 
that they are publicly available, the source code and the 
workings of these models are available on the internet. Anybody 
can go and see how the models work.
    The second thing is that these models are constantly being 
subject to peer review through the normal scientific process. 
Journals publish articles that have results and inputs 
resulting from these models. Those articles are rigorously 
reviewed and then published and subject to debate and attack. 
So these are very well-tested models that have been quite 
publicly aired and that are publicly available.
    Now, as for what the Federal Government selected as some of 
the inputs that would go into the models, things like discount 
rate, population growth and other socioeconomic variables and 
those values, those values, first of all, are discussed in 
great detail in documents made public, the 2010 Technical 
Support Document and then the 2013 Technical Support Document, 
just noting, by the way, that nothing changed in those inputs, 
those Federal Government-selected inputs, from 2010 to 2013.
    And those inputs certainly are something that anybody can 
see, can comment on, can challenge when those inputs and the 
social cost of carbon are used in a rulemaking. And I would add 
that the discount rates really are quite consistent with the 
discount rates that have been aired for quite a number of years 
through OMB guidance documents like Circular A-4, which go to 
the agencies and counsel them on discount rates and other 
inputs into their cost-benefit analysis.
    Ms. Speier. Is it true that this model changed in part from 
2010 to 2013 because of sea level rise?
    Mr. Shelanski. It is. If one goes back to the 2013 
Technical Support Document, which explains, to some degree, 
what the changes were in the models, and certainly if one goes 
to the model documentation that is freely available from the 
developers of those models and online, one of the big changes 
was a more detailed accounting for and a correction for the 
effects of sea level rise.
    Ms. Speier. And was there some dollar amount attributed to 
sea level rise as part of this social cost?
    Mr. Shelanski. I cannot answer exactly what the translation 
was from the modelers' inputs about sea level rise to a dollar 
value; that is something I would have to go back and ask about. 
But it certainly is the case that the sea level rise variable 
did lead to a higher dollar amount, just as other adjustments 
to the model, I might add, for example, certain adjustments 
related to short-term agricultural productivity and certain 
adjustments related to space heating requirements actually had 
a negative sign in the sense that they actually pushed down on 
the social cost of carbon estimate. So the inputs worked in 
different directions but led to, on the whole, a sizeable 
increase in the estimate of the social cost of carbon.
    Ms. Speier. I yield back.
    Mr. Lankford. We are going to be bold enough, since there 
are three of us talking, that we are just going to leave all 
mics on and let's just have a conversation. So we will freely 
interrupt each other and pretend that we are actually going to 
have a conversation. Is that good with you?
    Mr. Shelanski. That is fine with me, Mr. Chairman.
    Ms. Speier. We get lots more questions in that way.
    Mr. Lankford. Yes, we do. And we will be able to interact 
more on it.
    Ranking Member Speier's question about sea level rise and 
the revision on that, was that based on the models actually 
seeing actual rise in sea level or their change in their 
estimate of sea level rise?
    Mr. Shelanski. I would have to go back and see which of 
those it was. It certainly had to do with the scientific 
literature.
    Mr. Lankford. Right. I understand. I am just trying to 
figure out when you talk about sea level rise change and 
revising a number, I just want to know have they actually seen 
a rise in the sea level in the last three years, and so we have 
to update that, or is this a revised estimate of some future 
time period and when they expect to see a sea level rise and 
what that amount might be.
    I come back to, in college, one of my field experiences in 
a geology group was to actually go out and do a dig, and I am 
in central Texas, just outside of Austin, and we went down 
about three feet and I pulled up shark teeth. Now, I don't know 
when the last time sharks were in Austin, but it has probably 
not been recently, and I don't think it was in the industrial 
age.
    So movement of sea is obviously something that has 
historically happened. Now, I understand there is great debate 
on whether that is accelerated based on carbon usage or not, 
but we have had, on North America, a significant amount more 
water on top of us than what we have right now, so what I am 
trying to figure on that is are they tracking some significant 
gain in sea rise that is occurring or are there models out 
there estimating it. Does that make sense?
    Mr. Shelanski. I understand the question, Chairman 
Lankford. I am not prepared to testify on the underlying 
climate science.
    Mr. Lankford. Okay. The statement you made about Shell, as 
well, does Shell actually have a social cost of carbon estimate 
that you said is $40 a ton, is that right?
    Mr. Shelanski. I believe it is $40 a ton, yes.
    Mr. Lankford. Okay. Is their estimate of social cost of 
carbon based on regulations? What are they estimating?
    Mr. Shelanski. That is an estimate that they use internally 
when, from what I understand, when they are setting their 
investment strategy going forward.
    Mr. Lankford. That is what I am trying to figure out. Are 
they assuming this is the detriment to the environment at $40 
or are they assuming if we put out a ton of carbon, we are 
going to have $40 in regulations come down on us? I am trying 
to figure out the difference there.
    Mr. Shelanski. What I think it is, and I want to be clear I 
can't testify with certainty as to this, so I am giving you my 
best understanding as I sit here today, but I could go back and 
check further, is that this is the number they use because they 
believe it is the number that will factor into regulation going 
forward.
    Mr. Lankford. Okay, so that is a regulation number more 
than it is an assumption that the company makes if we put out a 
ton of carbon, it will have $40 worth of damage.
    Mr. Shelanski. But, to be clear, it is not an estimate of 
what they think their costs per ton will be for complying with 
regulation, it is what they believe the number will be that 
guides regulatory policy going forward. But, again, I really 
shouldn't say more on that because I need to check.
    Mr. Lankford. You brought up the discount rate issue as 
well.
    Mr. Shelanski. Yes.
    Mr. Lankford. And said it was fairly consistent. I am not a 
professional on all the discount rates, but as I pull through 
several it looks there is a 3 percent and a 7 percent number. 
The 3 percent number seems to be the one that was landed. And 
when I looked through this I didn't see the 7 percent as a 
factor that laid on it. Is there a reason why on that?
    Mr. Shelanski. Yes. So what discount rates are are 
basically, particularly when we are talking about long-term 
effects like climate change, they are measures of how much we 
value the future; how much we value future consumption, future 
investment, indeed, the quality of life and the prosperity of 
our children and grandchildren. That is what we use a discount 
rate for.
    A high discount rate, a discount rate of 7, and I will come 
back to what that is usually used for, just to be clear about 
what that would mean, it would mean that we are valuing the 
prosperity, that is to say, the consumption and well-being, of 
Americans just 60 years into the future at zero; that we 
basically would be saying we should not factor into our policy 
today any well-being of Americans just at the time that my 
grandchildren, hopefully, will be growing up.
    So what a high discount rate does is effectively devalues 
future consumption, future prosperity.
    Mr. Lankford. But in the microwave oven rule that is 
released it has a 3 and a 7 percent, just in that rule, but it 
doesn't for the social cost of carbon statement.
    Mr. Shelanski. Right. So these are two very different 
things.
    Mr. Lankford. Which is part of our confusion why they were 
released together, I guess.
    Mr. Shelanski. Well, I will come back to that in a moment.
    The social cost of carbon, we are trying to get a measure 
of what the cost to society will be over time of a ton of 
carbon emissions, and we could ask ourselves, well, what would 
the effect be on the rate of return to private investment, and 
typically 7 percent is used as a discount rate because it 
roughly approximates the rate of return to business investment; 
real estate, small business, corporate investment. We don't use 
7 percent when what we are interested in understanding are 
effects on future consumption by individuals, by consumers, by 
citizens.
    What we are trying to get at with the social cost of carbon 
is what carbon emissions will mean for the expenditures and the 
quality of life and the standard of living of every American 
going forward. So consistent with OMB guidance, we would want 
to use the 3 percent number, which OMB says what is appropriate 
for consumption effects rather than investment effects.
    Now, that said, just two things. To be sure, 7 percent was 
not used in the range of numbers given for social cost of 
carbon because of the belief that it was inappropriate to 
discount to zero intergenerational effects, effects that would 
occur one or two generations in the future. And, indeed, that 
is consistent with the OMB guidance document A-4, which states 
very clearly that when intergenerational effects are at issue, 
lower discount rates, perhaps even lower than 3 percent, should 
be used.
    And, in fact, there is an emerging body of thought amongst 
leading economists that for climate change the 3 percent number 
is too high and should be declining over time. There is a 
forthcoming article in Science magazine by a number of the 
leading economists of the past half century that make this 
argument.
    What the working group did in 2010 and again in 2013 was to 
provide a range, 2.5, 3 percent, and 5 percent. Now, that 5 
percent number is quite a high number if you look at what it 
implies for future generations, and it also happens to be a 
blend of considering the consumption effects at 3 percent, or 
can be thought of, and the investment effects at 7 percent.
    So while it is clearly the case that a separate 7 percent 
number was not listed, and we generally do, where appropriate, 
ask regulatory agencies to include that in rulemakings, for the 
purpose of this estimate, which was not a rulemaking, it was an 
input to rulemakings, the judgment was reached that 7 percent 
was not appropriate.
    Mr. Lankford. But the challenge of it is, as far as the 
input to rulemakings, I know you have said every time it is 
used there will be opportunity for reply there, but the 
challenge is that now every time it is used it has to be 
fought, rather than discussing it the first time. Americans did 
not have large-scale input on the first time it is used to say 
is this appropriate, does this line up, can we see the science, 
can we talk about it, instead of dealing with it the first time 
and coming to an agreement and revising it, as is normal, where 
there will be review and comment, there will be letters.
    I know you mentioned before that there were letters that 
encouraged you to update this now that the models had changed; 
people were writing you or contacting you and saying this needs 
to be updated. I would be interested to see those letters if 
they were on both sides and what the mechanism was for 
receiving those letters, or if they were just informally people 
were writing and saying, hey, the models changed, you ought to 
change this, or was there an open statement to say, hey, the 
models have changed, should we update this and allow review and 
comment. But the same on this. That is typical.
    If we put out a new rule, if we put out a change, if we put 
out something that is significant, people have input on it the 
first time, rather than saying here it is; every time it used, 
you are going to have to fight it now from here on out.
    Ms. Speier. And I guess to add to that question, to what 
extent is the social cost of carbon incorporated in various 
bids that are put forth or requests for proposals? I am 
presuming this is all within the Federal Government, right? 
This would be something we would ask, we would have people fold 
into their bids relative to various projects that they would be 
competing for?
    Mr. Shelanski. I don't know the extent to which the social 
cost of carbon would factor into our procurement policies or 
other kinds of bid situations. The main purpose for the 
interagency working group was so that agencies passing 
emissions and energy efficiency standards would have some kind 
of value that they could use in calculating the benefit side of 
the cost-benefit analysis.
    So if we are going to impose a regulation on business, if 
we were going to ask business to undertake certain kinds of 
costs or ask the American economy to adjust to a different 
world in which there were lower carbon emissions, what are we 
getting in return?
    So the purpose of the SCC number was really as an input 
into the regulatory process. And, Chairman Lankford, to come 
back to the transparency point, I agree with you completely.
    Mr. Lankford. It seems odd. It seems like you wouldn't put 
this in a microwave oven rule, which is a relatively small as 
SCC; you would put it into a rule dealing with power plant 
generation or something that is really large and significant to 
say, okay, we are putting a stake in, this is very significant, 
we need to debate this rule, let's put it out for comment.
    Mr. Shelanski. Well, the SCC would be used in any rule that 
would affect carbon emissions.
    Mr. Lankford. Right. I understand. But you have to admit in 
a microwave oven rule I think we are very fairly small SCC 
footprint on that one.
    Mr. Shelanski. Well, you know, nonetheless, it is very 
interesting. I might add, by the way, that the updated social 
cost of carbon value from 2013 did not drive the standard in 
that rule; that standard was justified under the 2010 numbers 
as well.
    Mr. Lankford. Right. I understand. But it is released in 
that.
    Mr. Shelanski. It is released, and what the agency did, in 
an effort to be transparent and to say, hey, we, out counseled 
by OMB, as required under the executive orders, are using the 
best technical, scientific, and economic information that is 
available. Here is some information that is available. We are 
going to want our calculations using not just the 2010 numbers, 
but the 2013 numbers as well, therefore, making it clear here 
these numbers are now out there and these are going to be used 
in rulemakings.
    And I actually think that when you think about the 
opportunity to comment on every rule that might use the social 
cost of carbon estimate, whether it is an energy efficiency 
rule or an emissions rule, that leads to more ongoing input. I 
liked your reference in your talk about the synergistic input 
that comes from people all over this Country. That can happen 
in every rulemaking procedure.
    Mr. Lankford. Right. It definitely creates more input, but 
it creates more input and more activity because you are chasing 
down 100 issues now, rather than dealing with the first one. It 
is the difference between if I have a problem with hornets in 
my backyard, trying to kill each hornet one at a time or 
actually going to the hornet's nest. If you are settling the 
issue of what is the social cost of carbon, and it is typical 
for us as a Nation to say our Government is servant of the 
people and there is interaction, that synergistic wisdom that 
we gain from the outside, that there is a sense that we want to 
have input from everyone at the very beginning.
    And if you are going to be affected by this rule, you 
should have an opportunity to comment on it, at least, and to 
be a part of this. And I know you keep saying it is not a rule, 
but it is going to be used all over the place and it will be 
consistently applied across a wide variety because, as you 
mentioned before, the SCC now is not different in each agency, 
it will be unified across all agencies and there will be a 
multitude of these battles that repeats over and over again, 
rather than dealing with it the first time, the right way.
    Mr. Shelanski. So one thing that would have happened, that 
could happen if you have one big proceeding just to focus on 
the social cost of carbon is that proceeding happens and that 
becomes locked in. It then becomes something, you know, you had 
your opportunity to comment, now we are going to use it until 
we decide to update it again.
    What is great about the fact that this is an input into 
rulemaking that people can comment on at any rulemaking in 
which they have an interest is that as new knowledge comes into 
being, as new science is published, as new models come in, 
somebody can come in and say, you know, you are using that 
social cost of carbon value from the 2013 technical support 
update; that is out of date, we have information that there is 
a better value you should use.
    And you don't have to participate in every rulemaking in 
order to do that; in any rulemaking, if in just one rulemaking 
significant information comes to the attention of the 
regulatory agency and to the Government, that will feed into 
the ongoing process that was promised in 2010 of revising the 
social cost of carbon.
    Ms. Speier. So how about in 2010, how was this kind of 
previewed? Was it attached to yet another rule?
    Mr. Shelanski. Well, it was. So there is a little bit of 
history to what happened. After concern arose about the 
disparate range or the range of values that was being used by 
different Government agencies for the social cost of carbon, 
the administration sat down and said, okay, we need a process 
for coming up with a more rigorously determined and consistent 
number.
    Ms. Speier. Okay, let's back up, then. You just said there 
was a different range of SCC used throughout the Government. So 
did SCC start during George W. Bush's administration or was 
that when it was first identified because of the court case? 
How did we first come to use SCC in rulemaking?
    Mr. Shelanski. Well, I think the concept has been around 
for a while. My understanding is that the first use by Federal 
agencies in rulemaking of SCC was in, I believe, 2008. So it 
was during the Bush Administration.
    Mr. Lankford. Was that due to a court case or due to an 
administration decision? Where did that originate? I guess part 
of her question.
    Mr. Shelanski. I do know that there was a 2007 court case. 
I have no knowledge of whether the reasons that agencies, for 
example, other than the NHTSA used social cost of carbon was 
because of that court case or because of a policy decision.
    Ms. Speier. Or does it date back to the Clinton 
Administration, when cost-benefit analysis was deemed 
appropriate with any new regulation?
    Mr. Shelanski. Well, so social cost of carbon I don't think 
you could tie back to that. It was something that was developed 
in order to make sure that as regulation aimed at emissions, 
climate change through emissions control and energy efficiency 
standards, that the requirement of rigorous cost-benefit 
analysis, where possible, would be met.
    So it certainly was some of the motivation for developing 
the number comes out of that mandate for cost-benefit analysis, 
where possible and where legally permissible. A social cost of 
carbon number specifically, I have no knowledge of whether that 
was contemplated or considered during the Clinton 
Administration.
    Ms. Speier. So in 2008 the first value of an SCC was what?
    Mr. Shelanski. There were different values used by 
different agencies. I would have to check to get back to you, 
but there was no single number.
    So when the Obama Administration decided to convene a 
process to come up with a social cost of carbon number, they 
first developed interim values that were culled from existing 
peer-reviewed academic and scientific literature, and came up 
with interim values that were put out for comment, and while 
those were put out for comment, and, by the way, agencies use 
those values and said, look, we are going to use these values 
and they were part of the comment and the rulemaking procedure, 
the Obama Administration interagency working group, the 
Administration group, continued to work on coming up with the 
2010 number.
    When they did come up with the 2010 number, they released 
it as part, I believe, of a rule related to the efficiency of 
small electric motors and received comment on the 2010 number 
as part of that rulemaking, and then subsequently, and I would 
have to double-check the exact number, I believe that 18 to 23 
rules since that time have used the social cost of carbon. 
Maybe it is 18 final and 5 proposed rules. I need to go back 
and check the exact numbers, have used the social cost of 
carbon number and have received comments on the social cost of 
carbon analysis.
    Ms. Speier. So you said 18?
    Mr. Shelanski. It is 18 to 23.
    Ms. Speier. Okay. And of how many? What is the universe we 
are talking about, thousands of rules? You are saying it has 
been used in 18 to 23 rulemakings.
    Mr. Shelanski. Rulemakings. Those were individual rules. 
Those were regulations.
    Ms. Speier. But there are thousands of rules that are made 
every day in this Country, right, by agencies?
    Mr. Shelanski. Right.
    Ms. Speier. So this is a very small, I guess what I am 
trying to understand is how large an impact has it had to date. 
It sounds like it has impacted 18 to 23 rules. Now, some of 
those rules may be very widespread in their impact.
    Mr. Lankford. Can you give some examples of some of those 
rules?
    Mr. Shelanski. I don't have the list in front of me. I am 
sorry, Chairman Lankford.
    Ms. Speier. Maybe you can make the list available to us.
    Mr. Shelanski. The list is very easy to obtain. I will go 
back and ask if it is possible to turn that over. But what I 
would say is, yes, the number of rules may be small in the 
universe of Federal rulemaking. There is no doubt that the 
social cost of carbon will be used in some very economically 
significant rules.
    Mr. Lankford. Right. And that is the concern. You start 
dealing with power generation, transportation, manufacturing, 
it gets up in a hurry, as far as increasing or decreasing 
costs, when regulation can come down and say, no, this is not 
economically significant because of the social cost of carbon, 
we decrease this so now it is under 100 million in economic 
impact. We suddenly get into a whole different debate about 
this, or to say I am aware that this will cost your company $1 
billion, but we think it will have $1.1 billion in gain in the 
social cost of carbon. Now it gets really significant.
    Mr. Shelanski. So let me address a couple of things. The 
social cost of carbon number, if used in a benefit calculation 
to offset a cost calculation, would not be able to be used to 
evade review of the rule. So let me make that clear. The 
designation of an economically significant rule focuses on the 
costs to the U.S. economy, and that rule would still be----
    Mr. Lankford. Minus benefits.
    Mr. Shelanski. No.
    Mr. Lankford. Just cost, period.
    Mr. Shelanski. When it comes whether a rule is economically 
significant, we look at whether it will cost the U.S. economy 
$100 million a year or more. So that is not a net benefit 
calculation. It is definitely, and I want to be very clear 
about this, the social cost of carbon number is not at all to 
be used to evade review by my office, by OIRA. The cost-benefit 
analysis in the Federal review process can't be evaded through 
use of some number that erodes cost. If the costs are there and 
it is economically significant, it is going to get reviewed.
    What the social cost of carbon number does do, as you 
correctly pointed out, is allow those costs to be put in the 
context of expected economic benefits to society by monetizing 
the cost to society of putting an additional ton of CO2 
emissions into the atmosphere. And one of the reasons it is so 
critical that this number be updated and that it be correct 
insofar as science and economics will allow is because we don't 
want people declaring, well, there is an unlimited benefit to 
reducing CO2 emissions and then imposing any cost whatsoever on 
society today because of the regulation. There has to be a 
meaningful analysis of what those benefits are. So the social 
cost of carbon number, while some may think it is much too low 
and others may think it is much too high, does act as a 
limiting principle on the benefits calculation.
    The other thing I might add, just to go back to the ability 
of people to come back and critique the number and to provide 
input on whether or not a revision is necessary, it is 
important to recognize that this number is not by any stretch 
of the imagination generated by a black box. The number that is 
in the 2010 document and the number that is in the 2013 
Technical Support Document comes from models that are 
available.
    Anybody who has the expertise, and the expertise is fairly 
widespread, can use these models, can use different 
assumptions, can see what those models would generate, and 
could come back and say we wish to challenge these assumptions 
that underlie the benefits calculation in this particular 
regulation and show you why you think you got it wrong. That 
will prompt a serious analysis of that regulation.
    Ms. Speier. So one of the points you make is that since it 
is now part of a rule and not part of rulemaking, it can 
change. But that can be also a thorn in businesses' side if, 
all of a sudden, this month it is $38 and next year it is $58. 
So there is no certitude to it. Is this somewhat of a fixed 
number for a period of time, or can this be changed because the 
model is available and people can make some assumptions and 
come up with a better determination?
    Mr. Shelanski. So let me give you two answers to that. One 
is what is happening out there outside of the Government, in 
the world of the scientists and the economists who work on 
this, and the other is what happens inside the Government. The 
models are always, to my understanding, being adjusted, 
reviewed, and worked on by the model developers. Now, that 
doesn't mean that every month they are releasing a new version 
of the model.
    Ms. Speier. These are Government employees?
    Mr. Shelanski. No, these are not Government employees
    Ms. Speier. Okay.
    Mr. Shelanski. Absolutely not. These are leading 
scientists, scholars, people who are in the employ of think 
tanks, research centers, universities. They are not Government 
employees. These are independently developed, peer-reviewed 
models. And they are always working on the models, from my 
understanding, and periodically they release new versions of 
the model.
    That does not mean that the Government would reconvene the 
interagency working group every single time there is a new 
version. I think that, as the 2010 Technical Support Document 
said, every two years or so it is worth taking a good look and 
seeing if a revision to the number is warranted.
    Now, I will acknowledge that it is a number that can 
change. On the other hand, there is a choice that the 
Government faces: to use the changed number that reflects the 
most up-to-date science and economics or simply to cover our 
eyes and say, well, we are going to stick with what we have 
because, well, it is what we have been using and we don't want 
to change things.
    Ms. Speier. So here is a problem, though. The cost of 
living has gone up. But because we are in sequestration, 
because we have a debt and a deficit, we have not increased the 
salaries of Federal employees; they are frozen. In fact, they 
have been reduced because they are being furloughed. So I don't 
know if we can be totally purists in dealing with the science 
of an SCC, just like if you are being a purist, the salaries of 
Federal employees should have gone up over the last three or 
four years, and they have been static or declined.
    So we have to create some certainty for the business 
community that is going to be subject to rules that come down 
the pike from various Federal agencies that will be utilizing 
the SCC in analysis, correct?
    Mr. Lankford. Could I add something? I could not agree 
more. Part of this is the certainty issue.
    Ms. Speier. About that?
    Mr. Lankford. About that part, yes, one. That is a big part 
of this, is that it is done in 2010 and then it shows up in a 
microwave rule in 2013; it has gone up by 50 percent. There 
doesn't seem to be any outside communication on it other than 
just in the future we can take this on a rule at a time. And 
while you said this was not done in a black box, I don't know 
the names of the people that were involved in this; I don't 
know the minutes of it; I don't know the conversation that 
occurred; I am not aware if they looked at other models; I 
don't know if there was a conversation to say, gosh, this model 
changed 50 percent in three years, maybe we should get a 
different model.
    So while you say it wasn't done in a black box because 
there are these studies that are over here and everyone should 
have known the studies were changing and of course we are going 
to change this as well, there wasn't comment from the outside 
and there wasn't interaction with the United States Congress, 
House or Senate side. So suddenly, while people are trying to 
prepare, think, and especially people that deal with energy, 
those folks have to think 10, 15 years ahead. You don't plan to 
do a major power plant or an export facility or any other 
refinery and think, okay, three years from now we are going to 
do X. That was 10 years ago when they started that process of 
planning that, and now to know that every three years this 
could change is a very, very difficult dynamic for them.
    Mr. Shelanski. Well, you know, I think that if there is 
evidence that the costs that are being caused by emissions are 
changing up or down over time, regulation going forward needs 
to take account of it.
    Mr. Lankford. Okay, I don't mean to interrupt you on that. 
You said that kind of thing a couple times. My fear of that is 
that you have these science-based models that are out here from 
a group of scientists that agree on this one principle. The 
principle way is there if you disagree with this rule, then go 
make your own model. If you go get your own model and get a 
group of scientists together that may disagree with this model, 
create your own model and come compete with the models that we 
have.
    So, you are basically saying to industry these are the 
models that we are going to use, these are the folks that we 
like, these are the folks that are doing a model on the social 
cost of carbon, so to States, to counties, to any kind of 
business group, whatever it may be, if you want to be in this 
and play ball, go get a group of scientists, go create your own 
social cost of carbon model, and then come compete with our 
models.
    Mr. Shelanski. So let me respond to that, because that 
would be worrisome, and it is certainly not the case. I don't 
know whether we like the people who are developing these models 
or not. What we like is the fact that these are models that are 
being developed by groups of people whose work is constantly 
peer-reviewed, that their results are constantly published; 
and, very importantly, anybody can dig in and say, you know, 
there is a problem with the science in this model, there is a 
problem with the assumptions. These are things that people have 
the opportunity to inform the Government about.
    Mr. Lankford. Right. But I would assume in peer review 
there were some people that pushed back on it as well; they 
were just, I am going to make up numbers. There were 10 people 
that peer-reviewed it; 7 of them liked it, 3 of them didn't. So 
the impression is these three over here that don't like the 
model, go create your own model and come compete for this one, 
and then they can also get 10 people to peer-review it and get 
7 people that like it and try to compete. You see what I mean? 
The reason I struggle with this is this is a very difficult 
number to get your hands on.
    So if the sea level rises a half inch 10 years from now, 
what effect does that have on Naples, Florida? If we have a 
tenth of a degree of climate change, what will that mean in 
wheat crops in Kansas? What will that mean to the sea? How much 
will the sea absorb the heat? How much will it take off the 
heat? All these are very, very difficult things where there are 
a lot of assumptions that are built into it.
    And, yes, you can get any model that anyone can look at and 
get any group of peers to be able to say, and publish in 
different documents, you know what, that is a model; I like 
part of it, I don't like part of it; write arguments, write 
journal articles, and it is out. But this gets really difficult 
to settle when it is moving all the time and it is uncertain, 
and when the models update, then suddenly it changes our SCC as 
well.
    Mr. Shelanski. Chairman Lankford, to respond to your 
question, I think all I can say is that if we don't have faith 
in the scientific process of peer review, which is very 
different from a popularity vote of 3 like it and 7 like it; it 
involves replication, it involves a much more rigorous process. 
If we don't have that, then the whole concept of using the best 
available science, economics, and technical detail is one that 
would be very difficult to implement anywhere in any kind of 
regulation.
    Mr. Lankford. I could not agree more, except in this area, 
because climate science can't be replicated the same way that 
you do with other science; it is a lot of guesstimates and 
modeling and things that you look back on the past and you dig 
cores and you examine how much carbon was in the ice. And I 
guess the process on it, but it is modeling future based on our 
best guess. So it is not a science that you can go and just 
replicate and say, okay, we did this, so we can go look at it 
and five other people can look at it the same way; they are all 
just looking at a mathematical formulation, and say I agree 
with your math. But do we agree with the assumptions?
    Ms. Speier. Except we do that all the time. I mean, pension 
plans anticipate that we are going to have 7 percent returns 
and, therefore, on that basis, that is what is going to be 
taken out of your check and that is what the employer is going 
to contribute. So we do do that.
    Mr. Lankford. No, I couldn't agree more, but that is what I 
am saying, it is not a science at that point, it is a best 
guess, because it is a forward-looking. I am not trying to 
denigrate the scientists that are in the middle of it, that is 
not what I am trying to do, but a lot of what this does is look 
back in history and then try to look forward on it. That is why 
it makes it very difficult to be able to process this, which is 
why I think it needs as much sunshine in the process as 
possible, which is why we are here today, because it appeared 
and none of us had input and we don't really know the process, 
the names of the people that processed the whys, the how, the 
minutes; it just showed up.
    Ms. Speier. So what kind of commentary have you received 
from people since it was attached to the microwave rule?
    Mr. Shelanski. I would have to go back and look and see 
what the range of comments were that came in on that particular 
microwave rule. I can tell you that since social cost of carbon 
came into being and was attached to the small electric motor 
rule in 2010 there has been significant comment on social cost 
of carbon. And one of the reasons for the 2013 update was 
commentary saying you are using a number that is too low, that 
is out of date.
    And I will tell you that a lot of the criticism of the 
social cost of carbon number is that it is too low, that it is 
underestimating the effects, that our discount rates are too 
high. And the interagency working group, the Administration is 
trying to take, to not have a number seems like a very bad 
course of action.
    Mr. Lankford. That is not the debate today, to not have a 
number.
    Mr. Shelanski. Right.
    Mr. Lankford. The debate is the number went up 50 percent 
in three years. The model was that far off. We are trying to 
figure out why and how.
    Ms. Speier. Well, and I think the other part of this 
discussion is should there be a more kind of open process by 
which there is a healthy debate or discussion about the social 
cost of carbon.
    Mr. Shelanski. So to be clear, though, about the number 
going up from 2010 to 2013, that had nothing to do with 
anything that anybody in the Government did.
    Mr. Lankford. I know, it is our model.
    Mr. Shelanski. It is the models. The inputs that the 
Government chose haven't changed.
    Mr. Lankford. Can you tell me three years from now the 
model doesn't go up another 50 percent?
    Mr. Shelanski. I can't tell you what the model is going to 
do.
    Mr. Lankford. I know. That is what I am saying. So there is 
no predictability.
    Mr. Shelanski. But predictability is certainly not the only 
value. If the model is based on good science and economics, or 
the best available science and economics, and does show another 
50 percent increase, we think it would be irresponsible not to 
factor that cost to society of carbon emissions into future 
rulemakings.
    Ms. Speier. Well, here is the dilemma, though. If you look 
at the minimum wage right now in this Country, it is painfully 
inadequate. But we have not done anything significant to 
increase it in many years, and the result is that you have to 
really have two or three jobs if you want to just survive on 
the minimum wage.
    You are saying that we have a responsibility to factor in 
the social cost of carbon, and I agree with you. But if it were 
to jump another 50 percent in three years, I think you have to 
allow policymakers to evaluate whether or not, at this 
particular point in time, we can afford to have the SCC go up.
    Mr. Shelanski. So let me address that. The SCC going up 
doesn't cost anybody a penny.
    Mr. Lankford. It is every rule that it is applied to.
    Mr. Shelanski. It is an input into rules. And those rules 
will get evaluated on their costs and benefits. And it is an 
absolute priority of the Obama Administration to make sure that 
regulation reflects a common sense balance between the needs to 
protect the health, safety, and welfare of the American people, 
and the American people yet to come, and prosperity, jobs, 
economic growth for the current generation. Those things are 
absolutely at the core of regulatory decision-making in the 
Obama Administration.
    Mr. Lankford. Can you tell me what the next administration 
will do with that?
    Mr. Shelanski. I cannot tell you what the next 
administration will do with that.
    Mr. Lankford. Neither can we. That is the problem. We are 
setting a path that this changes 50 percent with an 
uncertainty.
    Ms. Speier. Well, maybe not.
    Mr. Shelanski. But what I can tell you is that the next 
administration will have the same executive orders.
    Mr. Lankford. Or they could take it straight back, or they 
could say, no, we will go back 50 percent.
    Mr. Shelanski. They will have the same executive orders 
and, I would hope, the same obligation to do rigorous cost-
benefit analysis. The concern that we really have to take into 
account why this is different from the minimum wage is if the 
social cost of carbon is some certain number out there, and 
maybe it is much higher than what we have calculated to date or 
what the models have calculated; maybe it will turn out to go 
down as more information comes up.
    One thing is clear, though. Suppose there is a 50 percent 
jump in three years and that the best available science and 
economics says we weren't quite there the last time, we have 
more information, it is higher than we thought. To turn our 
backs on that is to say those costs, let's remember what the 
social cost of carbon is; it is a measure of the cost to 
society of emitting a ton of CO2 into the atmosphere.
    Mr. Lankford. Long-term.
    Mr. Shelanski. Long-term. What we are willing to say is, 
you know, we have some current costs and, believe me, those 
current costs need to be taken very, very seriously. I do not 
for a minute question their effect or take lightly their effect 
on current consumers, on current business, on anything. We 
would be saying we don't care what the costs are for our 
grandchildren. That would be the statement that, yes, they went 
up 50 percent.
    The best available science and economics, which, by the 
way, is good science and economics, says that it has gone up 50 
percent, but, boy, that is just another big change and that 
seems problematic, so we are going to impose those costs on 
future generations and not worry about reducing those carbon 
emissions. That would be contrary to the best information 
available to do a current cost-benefit analysis.
    Mr. Lankford. I have a little bit of an issue with that 
just for us and our economy, and let me just voice this, and 
you can see if you want to jump in on this or not. The United 
States, our carbon emissions have gone down in the last five 
years. The last seven years, I think it is, even our carbon 
emissions have gone down. We are switching over to using more 
natural gas. A lot of things have occurred and our CO2 levels 
are now down to our 2007 time. I think it is maybe even 2006 
time.
    So we have watched that occur while it is still rising in 
other parts of the world. And what happens is we continue to 
layer on and say, okay, this is occurring, this model is 
occurring, though we are bringing down our carbon emissions, 
the United States, it is still going up in other areas of the 
world, so we anticipate this is going to happen so we hit the 
American economy one more time with a penalty and it is not 
happening in other areas.
    So China continues to elevate that, continues to win 
economically, continues to put out more and more carbon is that 
is the model that is here; we continue to denigrate more and 
more. This is not a good cycle for us and it is driven based on 
a rule that, again, I would love for us to agree to know who is 
in this interagency working group and anything about their 
meetings, to be able to get their notes, the people, the votes, 
anything about it, because this black box that you say doesn't 
exist seems to be kind of a black box to us.
    Mr. Shelanski. Well, just to repeat, social cost of carbon, 
again, is not a rule.
    Mr. Lankford. I know, but it is applied to every rule. I 
get that.
    Ms. Speier. It is not applied to every rule, though.
    Mr. Lankford. But it is applied to key rules that will be 
very impactful on energy and production of food and 
transportation.
    Mr. Shelanski. And just to say a word about the global 
impacts, what we are measuring are the global costs of American 
carbon emissions. And I don't know, as I sit here today, 
whether, as we produce less, others are producing more because 
we are producing less. If we produced more, it would be more 
carbon emissions, and we are taking account of those costs. It 
is a global problem, and it seems much easier to exercise 
global leadership and to get other countries around world to 
recognize the social costs of carbon if we are doing so 
ourselves.
    Mr. Lankford. I sat down with a quick pen to try to 
determine, based on this new rule of $33, if we take the middle 
range on that, what China puts out and how that affects our 
economy. It is about $268 billion, is what I would estimate, 
based on China's production of carbon for the most recent 
numbers that I could find. And add to it this $33 a ton.
    So with that, if we were to layer that principle on it, we 
would say, okay, China, we need to hit them for $268 billion 
worth of tariff at some point to make up what they have done to 
our economy, because they seem to be punishing our economy as 
they are producing it because it is a global problem.
    If we get into that and begin to apply this rule in those 
areas, now suddenly it is like, okay, India, here we are, we 
are going to have to apply more tariffs to you because you have 
this, and it is suddenly this sudden rise. I just have some 
concerns on how it is going to be used. Obviously you don't set 
that, but those are issues that we will have to take on in the 
days ahead. But the number is extremely important to us because 
it doesn't seem to differentiate where it occurs. So if you 
have carbon produced in western Oklahoma, where you have 
relatively few people, or in Los Angeles, there is no 
difference in that, is that correct?
    Mr. Shelanski. That is correct, because carbon emissions 
travel.
    Mr. Lankford. Right. So we are in the same issue with that. 
And I don't know if that is where the Administration is headed 
towards this or what the plan is, to say, China, you produce 
too much carbon, you produce X amount, we are going to do $268 
billion worth of tariffs on you to make sure that we balance 
out what you have done to our economy. Or worldwide. It was 
right at a trillion dollars of total cost to our economy based 
on the carbon that is in the atmosphere right now produced 
worldwide. So do we find some way to be able to hit every 
country in the world to make sure that we get a trillion 
dollars worth back into our economy for the damage that they 
have done? Does that make sense?
    Again, that is not something that you are going to have to 
resolve today, but those are issues we have to look at. Those 
are policy issues, but this is a policy thing that has been set 
in this black box that we want to be able to allow some 
conversation into.
    Ms. Speier. I don't know that I would call it a black box, 
just for the record.
    Mr. Lankford. Okay. We don't know who, we don't know when, 
we don't know how often they meet, we don't know where they 
meet, we don't have notes of it.
    Mr. Shelanski. But we do know what.
    Mr. Lankford. We do know the result as it came out in the 
microwave rule.
    Ms. Speier. It is sort of like Wikipedia, you know? People 
can go in and change things that reflect reality and more 
people look at it.
    Mr. Lankford. But the interagency working group, we know 
the agencies, but do we know who attended the meetings from the 
agencies?
    Mr. Shelanski. I have no personal knowledge of that.
    Mr. Lankford. Again, we are back to we know the agencies, 
but we don't know who, we don't know how the decisions were 
made, we don't know how they addressed the science, we don't 
know if they looked at other models. We don't know and we 
weren't a part of any of the conversation, but it is going to 
affect our economy significantly.
    Mr. Shelanski. But the numbers that they used as inputs 
they selected and the models they used are ones that are fully 
available to be challenged.
    Mr. Lankford. Right.
    Ms. Speier. And peer-reviewed.
    Mr. Shelanski. And tested.
    Mr. Lankford. We get that. So we are back to the same 
thing: if you don't like it, get your own model and bring it 
and be a part of the process.
    Mr. Shelanski. Or pull apart the models that were used, 
because they are in the Internet, and explain what is wrong 
with them.
    Mr. Lankford. Do you know if they looked at other models?
    Mr. Shelanski. As I said, the interagency working group, my 
understanding is that they considered all models that could 
achieve what the interagency working group wanted to achieve, 
which was the social cost of carbon. There are lots of models 
that do much more limited things that would not have been 
relevant.
    By some measures, these models are the ones that are used 
in virtually all, well into the nineties percent of research 
that is done on social cost of carbon.
    Mr. Lankford. Do you have additional questions?
    Ms. Speier. I don't.
    But I want to just thank you for taking these rapid-fire 
questions and handling them so well, and for your 
participation.
    Mr. Chairman, I am going to have to leave.
    Mr. Lankford. I know, we want to honor your time as well.
    This is what all of your hearings will be like from here on 
out; they will all be just like this.
    Mr. Shelanski. That would be fine. Thank you.
    Mr. Lankford. So that would be great. I appreciate your 
coming. We will have some additional follow-ups. We will try to 
follow up formally with a letter that I will make sure the 
ranking member is also aware of as we send it out with just a 
list of some of the things we talked about today that you 
obviously don't have in eight days' experience to be there of 
some of the people to process interagency working group, the 
functionality of how the decision is made, and then we may even 
follow up on where the social cost of carbon rule even came up 
at all. As we discussed before, we are not aware of where it 
originated, so we can actually find out and get the history of 
it and bring it up.
    Mr. Shelanski. Thank you very much, Mr. Chairman.
    Mr. Lankford. Thank you very much.
    With that, this meeting is adjourned.
    [Where upon, at 4:00 p.m., the subcommittee was adjourned.]


                                APPENDIX

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               Material Submitted for the Hearing Record

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