[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]


       AN ANALYSIS OF THE OBAMA ADMINISTRATION'S SOCIAL COST OF CARBON

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

                           OVERSIGHT HEARING

                               BEFORE THE

                     COMMITTEE ON NATURAL RESOURCES
                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                        Wednesday, July 22, 2015

                               __________

                           Serial No. 114-16

                               __________

       Printed for the use of the Committee on Natural Resources
       
       
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                    COMMITTEE ON NATURAL RESOURCES

                        ROB BISHOP, UT, Chairman
            RAUL M. GRIJALVA, AZ, Ranking Democratic Member

Don Young, AK                        Grace F. Napolitano, CA
Louie Gohmert, TX                    Madeleine Z. Bordallo, GU
Doug Lamborn, CO                     Jim Costa, CA
Robert J. Wittman, VA                Gregorio Kilili Camacho Sablan, 
John Fleming, LA                         CNMI
Tom McClintock, CA                   Niki Tsongas, MA
Glenn Thompson, PA                   Pedro R. Pierluisi, PR
Cynthia M. Lummis, WY                Jared Huffman, CA
Dan Benishek, MI                     Raul Ruiz, CA
Jeff Duncan, SC                      Alan S. Lowenthal, CA
Paul A. Gosar, AZ                    Matt Cartwright, PA
Raul R. Labrador, ID                 Donald S. Beyer, Jr., VA
Doug LaMalfa, CA                     Norma J. Torres, CA
Jeff Denham, CA                      Debbie Dingell, MI
Paul Cook, CA                        Ruben Gallego, AZ
Bruce Westerman, AR                  Lois Capps, CA
Garret Graves, LA                    Jared Polis, CO
Dan Newhouse, WA                     Vacancy
Ryan K. Zinke, MT
Jody B. Hice, GA
Aumua Amata Coleman Radewagen, AS
Thomas MacArthur, NJ
Alexander X. Mooney, WV
Cresent Hardy, NV
Vacancy

                       Jason Knox, Chief of Staff
                      Lisa Pittman, Chief Counsel
                David Watkins, Democratic Staff Director
             Sarah Parker, Democratic Deputy Chief Counsel
                                 ------                                


                                CONTENTS

                              ----------                              
                                                                   Page

Hearing held on Wednesday, July 22, 2015.........................     1

Statement of Members:

    Bishop, Hon. Rob, a Representative in Congress from the State 
      of Utah....................................................     1
        Prepared statement of....................................     3
    Lowenthal, Hon. Alan S., a Representative in Congress from 
      the State of California....................................     4
        Prepared statement of....................................     5
    Lummis, Hon. Cynthia M., a Representative in Congress from 
      the State of Wyoming.......................................     6
        Prepared statement of....................................     7
    Sablan, Hon. Gregorio Kilili Camacho, a Delegate in Congress 
      from the Territory of the Northern Mariana Islands.........     7
        Prepared statement of....................................     9

Statement of Witnesses:

    Dayaratna, Kevin, Ph.D., Senior Statistician and Research 
      Programmer, Center for Data Analysis, The Heritage 
      Foundation, Washington, DC.................................    31
        Prepared statement of....................................    33
    Dorsey, Michael K., Ph.D., Interim Director, Energy and 
      Environment Program, Joint Center for Political and 
      Economic Studies, Washington, DC...........................    39
        Prepared statement of....................................    40
    Michaels, Patrick J., Ph.D., Director, Center for the Study 
      of Science, The Cato Institute, Washington, DC.............    10
        Prepared statement of....................................    11
        Questions submitted for the record.......................    30
    Segal, Scott H., Founding Partner, Policy Resolution Group, 
      Washington, DC.............................................    43
        Prepared statement of....................................    45

Additional Materials Submitted for the Record:

    List of documents submitted for the record retained in the 
      Committee's official files.................................    76
    .............................................................
                                     


 
 OVERSIGHT HEARING ON AN ANALYSIS OF THE OBAMA ADMINISTRATION'S SOCIAL 
                             COST OF CARBON

                              ----------                              


                        Wednesday, July 22, 2015

                     U.S. House of Representatives

                     Committee on Natural Resources

                             Washington, DC

                              ----------                              

    The committee met, pursuant to notice, at 10:09 a.m., in 
room 1324, Longworth House Office Building, Hon. Rob Bishop, 
[Chairman of the Committee] presiding.
    Present: Representatives Bishop, Gohmert, Fleming, 
McClintock, Lummis, Benishek, Duncan, Gosar, Labrador, Cook, 
Westerman, Newhouse, Zinke, Hice, Hardy; Sablan, Lowenthal, 
Cartwright, Beyer, Torres, Gallego, Capps, and Polis.
    The Chairman. The committee will come to order.
    The committee is meeting today to hear the testimony on an 
analysis of the Obama administration's social cost of carbon.
    Under Committee Rule 4(f), oral opening statements at the 
hearing are limited to the Chairman and the Ranking Minority 
Member, the Vice Chair or designee of the Ranking Member. This 
will also allow us to hear from our witnesses sooner and help 
Members keep their schedules.
    Therefore, I am going to ask unanimous consent that all 
other Members' opening statements be made part of the hearing 
record if they are submitted to the Clerk by 5:00 p.m. today.
    Hearing no objection, so ordered.
    I am now going to recognize myself for an opening 
statement, if I could.

STATEMENT OF THE HON. ROB BISHOP, A REPRESENTATIVE IN CONGRESS 
                     FROM THE STATE OF UTAH

    The Chairman. This is the second of a series of oversight 
hearings on policies that involve the National Environmental 
Policy Act, an act which is actually older than some of the 
Members that are up here. I wish I could say it is older than 
me, but I was not able to legally vote when it was actually 
passed, and it has not been changed since that time.
    Today's hearing is going to focus on the requirement of 
CEQ's Draft Greenhouse Gas Emissions Guidance that the social 
cost of carbon be considered in all NEPA environmental reviews.
    Three weeks ago, we invited OMB to testify, and I was 
hoping to ask them directly about this guidance and their 
participation in it, but OMB said they could not make it again. 
Since OMB is usually the one that stops most of the testimony 
from getting to us on time, perhaps they did not have enough 
time to clear their own testimony with themselves.
    An informal Interagency Working Group led by OMB and the 
Council of Economic Advisors, with a host of other Federal 
agencies, has developed specific numbers for the social cost of 
carbon using a dollar per metric ton basis. Got to love it.
    According to a GAO report though, these closed-door 
meetings were fairly collegial, and bureaucratic participants 
were allowed to contribute their input on the final product, 
but guess who was missing: the public--people, people who know, 
people who are impacted. They were totally shut out of the 
process so far.
    The Federal working group did produce a specific dollar 
amount for the cost of carbon using three different models, all 
of which require arbitrary assumptions about discount rates, 
socioeconomic predictions, and measuring changes in 
temperature; and to be doubly safe, the Interagency Working 
Group even projected the cost of carbon out to the year 2300.
    According to Dr. Christy's testimony at our last NEPA 
hearing, scientists cannot replicate what we know has already 
happened with temperature, and scientists cannot predict what 
will happen in the future with the current modeling systems. 
Meteorologists cannot even predict next week's weather pattern, 
and yet for the social cost of carbon, this Administration 
chose to rely on models to predict a whole host of factors 
beyond temperature out to the year 2300.
    Oh, wait, wait. Maybe not necessarily, because even in 
their own technical support documents, citing a National 
Academies of Science report, they acknowledge, and I want to 
quote from their own document, ``any assessment will suffer 
from uncertainty, speculation, and lack of information about: 
(1) future emissions of greenhouse gas; (2) the effects of past 
and future emissions on the climate system; (3) the impact of 
changes in climate on the physical and biological environment; 
and (4) the translation of these environmental impacts into 
economic damages.''
    ``As a result,'' the report concludes, ``any effort to 
quantify and monetize the harms associated with climate change 
will raise serious questions of science, economics, and ethics 
and should be viewed as'' provincial--``provisional.''
    Provisional, but it is also provincial, too, but 
provisional.
    It is fair to say that the whole concept of the social cost 
of carbon is highly speculative. The Interagency Working 
Group's own documents say it raises serious questions of 
science, economics, and ethics. Yet the Administration decides 
to move forward to a plan to ensure that it is used in every 
NEPA action and it does not matter that it does not work and 
they cannot prove it.
    And the fun part is, guess how the public finally found out 
about this broad-sweeping, all-encompassing assessment of the 
cost of carbon on society? We found out about it in interim 
estimates in Department of Energy regulations for vending 
machines, we found out about the final estimates in the DOE 
rule for small electric motors, and we found out about the 
updated estimates in--wait for it--a DOE rule for microwave 
ovens.
    Now, I don't have anything against vending machines or 
microwave ovens, but this is not the appropriate way that the 
most transparent administration in history should go about 
hatching a plan that assesses the cost of carbon for the next 
three centuries.
    What the Interagency Working Group did not do is develop a 
formula for the social benefits of carbon. No one can argue 
that we are not better off than our ancestors were 300 years 
ago, and can anyone really argue with a straight face what 
might happen to the world in the next 300 years?
    In summary, we have a social cost of carbon developed 
behind closed doors, with arbitrary inputs into speculative 
models over a 300-year time span, the output of which is to be 
used by a CEQ draft guidance document that is admittedly 
legally unenforceable without the legal authority to do it in 
the first place.
    One of our witnesses gave us some testimony last night. I 
would like to quote one line from it. It says, ``At last, 
today's hearing on SCC might simply be a sideshow aimed at 
undermining climate action.'' Not only is that sentence 
insulting, it is totally inaccurate.
    If there is a sideshow, it is this Administration, who 
rejects reality to enforce some kind of dogma, and what we need 
are policies from the Federal Government that actually empower 
people and address real-life problems and face our Nation's 
realities and not simply based on fantasy work.
    I expect to hear that from our witnesses today as we move 
forward.
    [The prepared statement of Chairman Bishop follows:]
   Prepared Statement of the Hon. Rob Bishop, Chairman, Committee on 
                           Natural Resources
    This is the second in a series of oversight hearings on policies 
involving the 45-year-old National Environmental Policy Act. Today's 
hearing will focus on a requirement in CEQ's Draft Greenhouse Gas 
Emissions Guidance that the social cost of carbon be considered in all 
NEPA environmental reviews. Over 3 weeks ago, we invited OMB to testify 
and I was hoping to ask them directly about this guidance, but OMB said 
they couldn't make it. Perhaps they didn't have time to clear testimony 
with OMB.
    An informal Interagency Working Group led by OMB and the Council on 
Economic Advisors, with a host of other Federal agencies, developed 
specific numbers for the social cost of carbon using a dollars per 
metric ton basis. According to a GAO report, these closed-door meetings 
were fairly collegial, and bureaucrat participants were allowed to 
contribute their input on the final product. Guess who was missing? The 
public.
    The Federal working group did produce a specific dollar amount for 
the cost of carbon, using three different models, all of which require 
arbitrary assumptions about discount rates, socioeconomic predictions, 
and measuring changes in temperature from a doubling of carbon dioxide 
concentrations in the atmosphere. To be doubly safe, the Interagency 
Working Group even projected the cost of carbon out to the year 2300.
    According to Dr. Christy's testimony at our last NEPA hearing, 
scientists cannot replicate what we know already happened with 
temperatures. Scientists cannot predict what will happen in the future 
with current modeling. Meteorologists barely can predict next week's 
weather. And yet, for the social cost of carbon, this Administration 
chose to rely on models to predict a whole host of factors beyond 
temperature out to the year 2300? Oh, wait. Maybe not. Even they, in 
their own Technical Support Document, citing a National Academies of 
Science report, acknowledge:

        ``any assessment will suffer from uncertainty, speculation, and 
        lack of information about (1) future emissions of greenhouse 
        gases, (2) the effects of past and future emissions on the 
        climate system, (3) the impact of changes in climate on the 
        physical and biological environment, and (4) the translation of 
        these environmental impacts into economic damages. As a result, 
        any effort to quantify and monetize the harms associated with 
        climate change will raise serious questions of science, 
        economics, and ethics and should be viewed as provisional.''

    It's fair to say that the whole concept of Social Cost of Carbon is 
highly speculative. The Interagency Working Group's own document says 
it raises serious questions of science, economics, and ethics. And yet, 
the Obama administration moved forward with its plan to ensure it's 
used in every NEPA action.
    Guess how the public found out about such a broad-sweeping, all-
encompassing assessment of the cost of carbon on society? We found out 
about the interim estimates in a DOE regulation for vending machines. 
We found out about the final estimates in a DOE rule for small electric 
motors. We found out about the updated estimates--wait for it--in a DOE 
rule for microwave ovens. I don't have anything against vending 
machines, small electric motors, or microwaves, but that is not the 
appropriate way the most transparent administration in history should 
go about hatching a plan to assess the cost of carbon for the next 
three centuries.
    What the Interagency Working Group did not do was develop a formula 
for the social benefits of carbon. No one can really argue we are not 
better off than our ancestors were 300 years ago. Can anybody really 
argue with a straight face what might happen in the world in another 
300 years?
    In summary, we have a social cost of carbon, developed behind 
closed doors with arbitrary inputs into speculative models over a 300-
year time span, the output of which is to be used in a CEQ draft 
guidance document that is admittedly legally unenforceable.
    We need policies from the Federal Government that empower people 
and address the real-life problems our Nation faces, not policies based 
on fantasy.
    I look forward to hearing our witnesses' views on the social cost 
of carbon--hopefully they will be more realistic.

                                 ______
                                 

    The Chairman. I recognize Mr. Lowenthal, who is sitting in 
for the Ranking Member, to give a statement for the Minority.

 STATEMENT OF THE HON. ALAN S. LOWENTHAL, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Dr. Lowenthal. All right. Thank you, Mr. Chairman, and 
thank you, witnesses, for being here.
    For years, the world's top economists have been saying that 
in not accounting for climate change, we have created a market 
failure. Let's be clear: a market failure. The market currently 
fails to account for the costs associated with greenhouse gas 
emissions and climate change.
    Polluting industries are pumping out greenhouse gases free 
of charge, but others, such as taxpayers, property owners, and 
also healthcare systems, are and will be paying for the 
resulting damage to property and human health, to name just two 
impacted sectors.
    To help correct for this market failure, the social cost of 
carbon, or what I will call SCC, puts the effects of these 
greenhouse gas emissions into a monetary context so that the 
agencies and taxpayers can understand the impacts of their 
actions on infrastructure, on health, and food security.
    The SCC, or the social cost of carbon, is derived by 
estimating the cost of the damage to society of emitting a 
single metric ton of carbon dioxide. But because most of the 
damages attributed to the marginal ton occur not in the year 
that they are emitted, but many years into the future, we must 
find a way to consider not only this generation's welfare, but 
the welfare of future generations who are going to be paying 
for the actions we take, and are also going to be paying if we 
fail to take actions today.
    For this reason, and to use a single dollar figure to 
compare different regulatory alternatives with different 
emission time profiles, the scientific literature supports 
developing discount rates that consider the long term and 
intergenerational impacts of climate change.
    In other words, with each ton of carbon emitted, we are 
deciding now between the well-being of current and the well-
being of future generations, and the social cost of carbon 
provides us with the tool to make more informed decisions on 
one of the greatest ethical questions of our time.
    The value derived from calculating the social cost of 
carbon is then incorporated into an agency's broader cost-
benefit analysis, which includes many other costs and many of 
the other benefits of a given rulemaking.
    Republican and Democratic presidents alike have required 
cost-benefit analyses to be performed on proposed regulations, 
and as new, modern methods have developed, successive 
administrations have updated their guidance to agencies on how 
to perform these analyses. In fact, the Majority has repeatedly 
supported legislation that would add cost-benefit requirements 
to agencies' rulemaking.
    However, it appears now that we are dealing with climate 
change cost, the Majority may be having a change of heart. 
Instead of having a reasonable debate on the proper costs to 
assign climate change damages, the Majority appears to be 
attacking the entire premise of the existence of climate change 
damages.
    I say that because, unfortunately, the Majority's witnesses 
here today appear not to support much of any action on climate 
change. One witness works for a lobby shop that represents the 
oil and gas industry; the other two Majority witnesses have 
ties to the climate change counter-movement, or CCCM, also 
known as the Climate Denier Campaign. Indeed, one witness has 
said in the past that he does not even believe we have a 
climate change problem.
    To make matters more difficult, the Majority did not 
provide the White House enough time to secure someone who could 
actually talk to the committee about the SCC and the 
interagency process to develop it, how it was developed.
    So it appears that we cannot have a credible discussion 
about social cost of carbon, which we were told was the focus 
of this hearing. This is too bad, because I know there are in 
this room Republican members of this committee who do want to 
do something about climate change, but sadly this hearing does 
not appear to be a productive step forward.
    Thank you, and I yield back.
    [The prepared statement of Dr. Lowenthal follows:]
 Prepared Statement of the Hon. Alan S. Lowenthal, a Representative in 
                 Congress from the State of California
    Thank you Mr. Chairman, and thank you to our witnesses for being 
here today.
    For years, the world's top economists have been saying that in not 
accounting for climate change, we have created a market failure. The 
market currently fails to account for the costs associated with 
greenhouse gas emissions and climate change. Polluting industries are 
pumping out greenhouse gases free-of-charge, but others--such as 
taxpayers, property owners, and our healthcare system--are, and will 
be, paying for the resulting damages to property and human health, to 
name just two impacted sectors.
    To help correct this market failure, the social cost of carbon 
(SCC) puts the effects of those greenhouse gas emissions into a 
monetary context so that agencies and taxpayers can understand the 
impacts of their actions on infrastructure, health, and food security.
    The SCC is derived by estimating the costs of the damages to 
society of emitting a single metric ton of carbon dioxide. But because 
most of the damages attributed to that marginal ton occur not in the 
year emitted, but many years into the future, we must find a way to 
consider not only this generation's welfare, but the welfare of future 
generations who will be paying for the actions we take--or fail to 
take--today.
    For this reason, and to use a single dollar figure to compare 
different regulatory alternatives with different emissions time-
profiles, the scientific literature supports developing discount rates 
that consider the long-term and intergenerational impacts of climate 
change.
    In other words, with each ton of carbon emitted, we are deciding 
now between the well-being of current and future generations, and the 
social cost of carbon provides us with a tool to make more informed 
decisions on one of the greatest ethical questions of our time.
    The value derived from calculating the social cost of carbon is 
then incorporated into an agency's broader cost-benefit analysis, which 
includes many other costs and benefits of a given rulemaking.
    Republican and Democratic presidents alike have required cost-
benefit analysis to be performed on proposed regulations. And as new 
modern methods have developed, successive administrations have updated 
their guidance to agencies on how to perform those analyses.
    In fact, the Majority has repeatedly supported legislation that 
would add cost-benefit analysis requirements to agency rulemakings. 
However, it appears that now, when we are dealing with climate change 
costs, the Majority may be having a change of heart, and instead of 
having a reasonable debate on the proper costs to assign climate change 
damages, the Majority appears to be attacking the entire premise of the 
existence of climate change damages.
    I say that because, unfortunately, the Majority's witnesses here 
today appear not to support much of any action on climate change. One 
witness works for a lobby shop that represents the oil and gas 
industry, and the other two Majority witnesses have ties to the climate 
change counter-movement, also known as the ``climate denier campaign.'' 
Indeed, one witness has said in the past that he doesn't even believe 
we have a climate change problem.
    To make matters more difficult, the Majority didn't provide the 
White House enough time to secure someone who could actually talk to 
the committee about the SCC and the interagency process to develop it.
    So it appears that we can't have a credible discussion about the 
social cost of carbon, which we were told was the focus of this 
hearing. And that is too bad, because I know there are Republican 
members of this committee who do want to do something about climate 
change, but sadly, this hearing doesn't appear to be a productive step 
forward.

                                 ______
                                 

    The Chairman. I now recognize the Vice Chair, Mrs. Lummis 
for her statement.

 STATEMENT OF THE HON. CYNTHIA M. LUMMIS, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF WYOMING

    Mrs. Lummis. Thank you, Mr. Chairman.
    The social cost of carbon estimates that will come out of 
this Administration's attempt to monetize costs and benefits of 
carbon emissions are going to be incorporated into project 
analyses under NEPA.
    As this committee explored in a hearing in May, this global 
warming analysis will be applied to projects in nearly every 
sector of our economy, including agriculture, energy, 
infrastructure, and manufacturing, just to name a few. Projects 
and permits may hinge on what the Administration deems to be 
their global warming cost or benefit.
    The cost-benefit analysis of proposed regulations will be 
impacted to the tune of billions of dollars under the social 
cost of carbon. Yet Administration officials concocted the 
social cost of carbon in a process lacking transparency, 
lacking peer review, and, most offensively, lacking public 
input.
    Today we will shine some light on the questionable 
assumptions that underlie the social cost of carbon, which 
seeks to predict projects' global warming costs 285 years into 
the future. In pursuing this brazen endeavor, the 
Administration has handpicked the science and even the Federal 
scientific guidance it chooses.
    The social cost of carbon risks American jobs and our 
Nation's prosperity all in the name of questionable statistical 
models. The Federal decisionmaking process should be held to a 
higher standard of integrity. The American people, who will 
ultimately bear the cost of this policy, deserve better from 
their government.
    Thank you, Mr. Chairman.
    [The prepared statement of Mrs. Lummis follows:]
 Prepared Statement of the Hon. Cynthia M. Lummis, a Representative in 
                   Congress from the State of Wyoming
    Thank you Mr. Chairman.

    The social cost of carbon is this Administration's attempt to 
monetize the costs and benefits of carbon emissions. These estimates 
will be incorporated into project analysis under the National 
Environmental Policy Act.
    As this committee explored in a May hearing, this global warming 
analysis will be applied to projects in nearly every sector of our 
economy, including energy, agriculture, infrastructure, and 
manufacturing, just to name a few. Projects and permits may hinge on 
what the Administration deems to be their global warming cost or 
benefit.
    The cost-benefit analysis of proposed regulations will be impacted 
to the tune of billions under the social cost of carbon. Yet the 
Administration concocted the social cost of carbon in a process lacking 
transparency, peer review, and public input.
    Today we will shine some light on the questionable assumptions that 
underlie the social cost of carbon, which seeks to predict projects' 
global warming costs 285 years into the future. In pursuing this brazen 
endeavor, the Administration has handpicked the science and even the 
Federal scientific guidance it chooses to follow or not follow.
    The social cost of carbon risks American jobs and our Nation's 
prosperity, all in the name of questionable statistical models. The 
Federal decisionmaking process should be held to a higher standard of 
integrity. The American people, who will ultimately bear the cost of 
this policy, deserve better from their government.

    Thank you Mr. Chairman. I yield back.

                                 ______
                                 

    The Chairman. Thank you.
    Mr. Sablan, I understand you are also speaking for the 
Minority side.

    STATEMENT OF THE HON. GREGORIO KILILI CAMACHO SABLAN, A 
DELEGATE IN CONGRESS FROM THE TERRITORY OF THE NORTHERN MARIANA 
                            ISLANDS

    Mr. Sablan. Thank you very much, Mr. Chairman, and I would 
like to welcome today's panel to this hearing.
    Flooding is one of the main threats that climate change 
poses to coastal states, including the Northern Mariana 
Islands, the district I represent. Flooding could threaten our 
freshwater lens that protects the drinking water on our 
islands. Flooding, which affects subsistence farming, has 
impacted taro patches because taro cannot be planted in 
saltwater. The archipelago's coral reefs, wetlands, and 
shoreline vegetation help protect our coast. Flooding and ocean 
acidification puts them all at risk.
    Tourism is a major part of our economy. People come from 
all over the world to bask on our shores and see our coral 
reefs. Garapan is one of the most popular tourism areas. It is 
also one of, if not the most low-lying and vulnerable area on 
the island of Saipan. American Memorial Park on Saipan is at 
risk of increasing sea level rise.
    If flooding and ocean acidification undermine such a 
prominent part of our economy, we do not have many other 
economic options in our small islands. Climate change is very 
real to my constituents and my son and me, and it is happening 
now.
    And to those who deny the science of climate change, 
including those in today's panel, then please come join me and 
I will bring you to a place that has the physical evidence of 
rising seas.
    The traditional cost-benefit analysis that accompanies many 
Federal rules necessarily leaves out some of the most important 
factors. The cost of property damage from floods, for example, 
is left out. The enormous economic impact of loss of 
agricultural productivity is also left out. The loss of our 
wetlands, our coral, and our beaches, which are so central to 
our economy and our livelihoods, are left out.
    The social cost of carbon tries to correct that. It 
incorporates many of the very real costs that we, all levels of 
government, and other communities are already paying to deal 
with the effects of climate change.
    In the case of climate change, so many of these things that 
are historically omitted from a cost-benefit analysis are the 
things that affect those at the margins first and worst. When 
agricultural productivity goes down and food prices go up, low-
income communities are hit the hardest. When jobs are lost from 
tourism, the lowest income folks often have the fewest options. 
When drinking water becomes more rare and more expensive, those 
without means suffer the most.
    And if these important impacts are omitted from cost-
benefit analyses, they do not exist in the eyes of 
decisionmakers. Bringing these impacts into the process paints 
a more complete picture for decisionmakers of the impacts of 
their decisions. It makes these impacts visible, and failing to 
do so leaves those at the margins behind.
    I want to thank Dr. Patrick Michaels for his candor on this 
subject. In a talk in June on the social cost of carbon at the 
Heritage Foundation, he said, and I quote, ``People adapt to 
their environment as long as they have enough money to do so.''
    I don't know whether Dr. Michaels thinks it is acceptable 
to rely on adaptation as a primary way of dealing with climate 
change, and in so doing, leave behind the millions that do not 
have enough money to adapt. I certainly do not.
    We need the social cost of carbon to reflect the full range 
of the true cost of climate change, the costs that are being 
borne already. Incorporating the social cost of carbon into 
decisionmaking increases the chances of an effective policy 
response. It is a small but necessary act of justice. That is 
true not just for my community, but for communities through the 
United States.
    Mr. Chairman, I yield back the balance of my time.
    [The prepared statement of Mr. Sablan follows:]
   Prepared Statement of the Hon. Gregorio Kilili Camacho Sablan, a 
Delegate in Congress from the Territory of the Northern Mariana Islands
    Thank you, Chairman and I would like to welcome today's panel to 
the hearing.

    Flooding is one of the main threats that climate change poses to 
coastal states including the Northern Mariana Islands, the district I 
represent. Flooding could threaten our freshwater lens that protects 
the drinking water on our islands. Flooding, which affects subsistence 
farming, has impacted taro patches because the taro cannot be planted 
in saltwater. The archipelago's coral reefs, wetlands and shoreline 
vegetation help protect our coasts. Flooding and ocean acidification 
puts them all at risk.
    Tourism is a major part of our economy. People come from all over 
the world to bask in our shores, and see our coral reefs. Garapan is 
one of the most popular tourism areas; it is also one of, if not the 
most low lying and vulnerable area on the island of Saipan. American 
Memorial Park on Saipan is at risk of increasing sea level rise. If 
flooding and ocean acidification undermine such a prominent part of our 
economy, we don't have many other economic options in our small 
islands. Climate change is very real to my constituents and me and it 
is happening now.
    The traditional cost-benefit analysis that accompanies many Federal 
rules necessarily leaves out some of the most important factors. The 
costs of property damage from floods, for example, is left out. The 
enormous economic impact of loss of agricultural productivity is left 
out.
    The loss of our wetlands, our coral, and our beaches, which are so 
central to our economy, are left out. The social cost of carbon tries 
to correct that. It incorporates many of the very real costs that we, 
all levels of governments, and other communities are already paying to 
deal with the effects of climate change.
    In the case of climate change, so many of these things that are 
historically omitted from a cost-benefit analysis, are the things that 
affect those at the margins first and worst. When agricultural 
productivity goes down and food prices go up, low income communities 
are hit the hardest. When jobs are lost from tourism, the lowest income 
folks often have the fewest options. When drinking water becomes more 
rare and more expensive, those without means suffer the most.
    If these important impacts are omitted from cost-benefit analyses, 
they do not exist in the eyes of decisionmakers. Bringing these impacts 
into the process paints a more complete picture for decisionmakers of 
the impacts of their decisions. It makes these impacts visible. Failing 
to do so leaves those at the margins behind.
    I want to thank Dr. Patrick Michaels for his candor on this 
subject. In a talk in June on the social cost of carbon at the Heritage 
Foundation, he said ``People adapt to their environment, as long as 
they have enough money to do so.'' I don't know whether Dr. Michaels 
thinks it is acceptable to rely on adaptation as a primary way of 
dealing with climate change, and in so doing, leave behind the millions 
that do not have enough money to adapt. I do not.
    We need the social cost of carbon to reflect the full range of the 
true costs of climate change, the costs that are being born already. 
Incorporating the social cost of carbon into decisionmaking increases 
the chances of an effective policy response. It is a small but 
necessary act of justice. That is true not just for my community, but 
for communities throughout the United States.

    I yield back the balance of my time.

                                 ______
                                 

    The Chairman. Thank you very much.
    We will now hear from our witnesses. Let's introduce the 
panel.
    We have with us Mr. Patrick Michaels, who is the Director 
of the Center for the Study of Science at The Cato Institute; 
Kevin Dayaratna--is that close?--Senior Statistician and 
Research Programmer for the Center for Data Analysis, The 
Heritage Foundation; Michael Dorsey, who is the Interim 
Director for the Energy and Environment Program at the Joint 
Center for Political and Economic Studies; and Scott Segal, who 
is the founding partner for the Policy Resolution Group.
    We will hear from each of you in that order. For those of 
you who may be new to this process, I am going to try and 
strictly hold you to the 5-minute rule. Your written testimony 
is part of the record. This is the oral testimony only. You 
will see the lights in front of you. If it is green, you are in 
great shape. If it is yellow, you only have a minute to finish, 
and when it is red, I will probably gavel you down. I apologize 
for that in advance, but we want to get to all of you in here.
    The Chair now recognizes Dr. Michaels to testify.

 STATEMENT OF PATRICK J. MICHAELS, Ph.D., DIRECTOR, CENTER FOR 
    THE STUDY OF SCIENCE, THE CATO INSTITUTE, WASHINGTON, DC

    Dr. Michaels. Mr. Chairman and standing Ranking Member 
Lowenthal, members of the committee, thank you for inviting my 
testimony on scientific problems relating to the current 
calculation of the social cost of carbon, hereafter SCC.
    I am Patrick J. Michaels, Director of the Center for the 
Study of Science of The Cato Institute. Prior to that I was 
research professor of environmental sciences at the University 
of Virginia for 30 years.
    The Administration's calculation of the SCC is in 
contravention of a large and growing body of scientific 
literature demonstrating that the sensitivity of temperature to 
human emissions of carbon dioxide is less than was previously 
thought and, more importantly, that the probability of high 
values is much lower than previously indicated.
    Sensitivity is the amount of net warming one gets for 
doubling atmospheric carbon dioxide. It also roughly 
approximates the forecast for total surface warming from carbon 
dioxide by the end of the 21st century.
    I would like the next image please.
    [Slide.]
    The Administration uses a probability distribution 
developed by Roe and Baker for warming that runs from roughly 
1.7 degrees to about 7.1 degrees, basically the length of this 
chart. Its mean sensitivity is 3 degrees, and again, the 95 
percent confidence limits are 1.72 to 7.14.
    Beginning in 2011, with the exception of two papers 
published a decade earlier by myself and MIT's Richard Lindzen, 
a growing body of scientific literature has yielded 21 new 
estimates of the sensitivity generated by 46 researchers from 
12 countries, and that is what is shown there. The mean 
sensitivity is 2.0 +C. The 5 to 95 percent confidence limits 
are 1.1 to 3.5 +C. Those who deny this are denying science.
    Our illustration graphically shows the major differences 
that have evolved between what the Administration uses and the 
new scientific reality. The higher probabilities in the Roe and 
Baker determination resulted mainly because of the extremely 
wide range of estimates for the cooling effects of sulfate 
aerosols.
    Recently these have been dramatically narrowed by 
researchers Nick Lewis and by Judith Curry of Georgia Tech, 
resulting in a vanishingly small probability of major warming.
    That would be the next image.
    [Slide.]
    You can see there, the mean warming predicted for doubling 
CO2 sensitivity is around 1.3 and the high end tails 
are very, very vanishingly small.
    As my colleague, Kevin Dayaratna will show, the newer, more 
constrained science results in a dramatic lowering of the SCC. 
As an example of the dramatic changes that are evolving in 
science, an important recent paper by Otto, et al., reports a 
mean sensitivity of 2.0 +C with a 5 to 95 percent confidence 
range of 1.2 to 3.9 +C.
    This is noteworthy because there are 15 co-authors on this 
paper who were lead authors of chapters in the latest report of 
the Intergovernmental Panel on Climate Change. This is truly a 
consensus statement that the previously published sensitivity 
was far too large. Those who deny this are denying science.
    Here is another major scientific shortcoming in the 
Administration's calculation of the SCC. Thousands of 
scientific papers written around the world demonstrate the 
direct fertilization effect of atmospheric carbon dioxide on 
agricultural output.
    A recent literature review by Dr. Craig Idso shows it 
results in a 10 to 15 percent increase in the overall yield of 
major food crops contributing to an increase in global 
agricultural output of $3.2 trillion since 1961. Properly 
including this well-documented information, as will be 
demonstrated by Dayaratna, can result in a negative social cost 
of carbon or a net external benefit from the combustion of 
carbon dioxide.
    [Slide.]
    In closing, I implore the committee to require the 
Administration--next image--to back up their calculation of the 
SCC with real reproducible science. This graphic was shown to 
this committee on May 13 by Dr. John Christy. I need say 
nothing more about it. It is a stark representation of the 
failure of the climate models that form the basis for the 
Administration's calculation of the social cost of carbon. 
Those who deny this are denying science.
    I thank you for inviting my testimony, and I note that an 
expanded version has been submitted to the committee as 
supplemental material.
    [The prepared statement of Dr. Michaels follows:]
  Prepared Statement of Patrick J. Michaels, Director, Center for the 
            Study of Science, Cato Institute, Washington, DC
    I am Patrick J. Michaels, Director of the Center for the Study of 
Science at the Cato Institute, a nonprofit, nonpartisan public policy 
research institute located here in Washington, DC, and Cato is my sole 
source of employment income. Before I begin my testimony, I would like 
to make clear that my comments are solely my own and do not represent 
any official position of the Cato Institute.
    My testimony concerns the selective science that underlies the 
Obama administration's determination of the social cost of carbon (SCC) 
and how a more inclusive and considered process would have resulted in 
a lower value for the social cost of carbon.
    Earlier this month, the Administration's Interagency Working Group 
on the Social Cost of Carbon (IWG) released a report that was a 
response to public comments of the IWG determination of the social cost 
of carbon that were solicited by the Office of Management and Budget in 
November 2013. Of the 140 unique set of comments received (including a 
set of my own from which this testimony in drawn), the IWG adopted 
none.
    Here, I address why this decision was based on a set of flimsy, 
internally inconsistent excuses and amounts to a continuation of the 
IWG's exclusion of the most relevant science--an exclusion which 
assures that low, or even negative values of the social cost of carbon 
(which would imply a net benefit of increased atmospheric carbon 
dioxide levels), do not find their way into cost/benefit analyses of 
proposed Federal actions. If, in fact, the social cost of carbon were 
near zero, it would eliminate the justification for any Federal action 
(greenhouse gas emissions regulations, ethanol mandates, miles per 
gallon standards, solar/wind subsidies, DoE efficiency regulations, 
etc.) geared toward reducing carbon dioxide emissions.
                    equilibrium climate sensitivity
    In May 2013, the Interagency Working Group produced an updated SCC 
value by incorporating revisions to the underlying three Integrated 
Assessment Models (IAMs) used by the IWG in its initial 2010 SCC 
determination. But, at that time, the IWG did not update the 
equilibrium climate sensitivity (ECS) employed in the IAMs. This was 
not done, despite there having been, since January 1, 2011, at least 14 
new studies and 20 experiments (involving more than 45 researchers) 
examining the ECS, each lowering the best estimate and tightening the 
error distribution about that estimate. Instead, the IWG wrote in its 
2013 report: ``It does not revisit other interagency modeling decisions 
(e.g., with regard to the discount rate, reference case socioeconomic 
and emission scenarios, or equilibrium climate sensitivity).''
    This decision was reaffirmed by the IWG in July 2015. But, through 
its reaffirmation, the IWG has again refused to give credence to and 
recognize the importance of what is now becoming mainstream science--
that the most likely value of the equilibrium climate sensitivity is 
lower than that used by the IWG and that the estimate is much better 
constrained. This situation has profound implications for the 
determination of the SCC and yet continues to be summarily dismissed by 
the IWG.
    The earth's equilibrium climate sensitivity is defined by the IWG 
in its 2010 report (hereafter, IWG2010) as ``the long-term increase in 
the annual global-average surface temperature from a doubling of 
atmospheric CO2 concentration relative to pre-industrial 
levels (or stabilization at a concentration of approximately 550 parts 
per million (ppm))'' and is recognized as ``a key input parameter'' for 
the integrated assessment models used to determine the social cost of 
carbon.
    The IWG2010 report has an entire section (Section III.D) dedicated 
to describing how an estimate of the equilibrium climate sensitivity 
and the scientific uncertainties surrounding its actual value are 
developed and incorporated in the IWG's analysis. The IWG2010, in fact, 
developed its own probability density function (pdf) for the ECS and 
used it in each of the three IAMs, superseding the ECS pdfs used by the 
original IAMs developers. The IWG's intent was to develop an ECS pdf 
which most closely matched the description of the ECS as given in the 
Fourth Assessment Report of the United Nation's Intergovernmental panel 
on Climate Change which was published in 2007.

    The functional form adopted by the IWG2010 was a calibrated version 
of Roe and Baker (2007) distribution. It was described in the IWG2010 
report in the following Table and Figure (from the IWG2010 report):

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 

    The calibrated Roe and Baker functional form used by the 
IWG2010 is no longer scientifically defensible; nor was it at the time 
of the publication of the IWG 2013 SCC update, nor at the time of the 
July 2015 update.

    The figure below vividly illustrates this fact, as it compares the 
best estimate and 90 percent confidence range of the earth's ECS as 
used by the IWG (calibrated Roe and Baker) against findings in the 
scientific literature published since January 1, 2011.

    Whereas the IWG ECS distribution has a median value of 3.0 +C and 
5th and 95th percentile values of 1.72 +C and 7.14 +C, respectively, 
the corresponding values averaged from the recent scientific literature 
are 2.0 +C (median), 1.1 +C (5th percentile), and 3.5 +C (95th 
percentile).

    These differences will have large and significant impacts on the 
SCC determination.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

CAPTION: The median (indicated by the small vertical line) and 90 
percent confidence range (indicated by the horizontal line with 
arrowheads) of the climate sensitivity estimate used by the Interagency 
Working Group on the Social Cost of Carbon Climate (Roe and Baker, 
2007) is indicated by the top black arrowed line. The average of the 
similar values from 20 different determinations reported in the recent 
scientific literature is given by the grey arrowed line (second line 
from the top). The sensitivity estimates from the 20 individual 
determinations of the ECS as reported in new research published after 
January 1, 2011 are indicated by the colored arrowed lines. The arrows 
indicate the 5 to 95 percent confidence bounds for each estimate along 
with the best estimate (median of each probability density function; or 
the mean of multiple estimates; colored vertical line). Ring et al. 
(2012) present four estimates of the climate sensitivity and the red 
box encompasses those estimates. Spencer and Braswell (2013) produce a 
single ECS value best-matched to ocean heat content observations and 
internal radiative forcing.

    The IWG2010 report noted that, concerning the low end of the ECS 
distribution, its determination reflected a greater degree of certainty 
that a low ECS value could be excluded than did the IPCC. From the 
IWG2010 (p. 14):

        ``Finally, we note the IPCC judgment that the equilibrium 
        climate sensitivity ``is very likely larger than 1.5 +C.'' 
        Although the calibrated Roe & Baker distribution, for which the 
        probability of equilibrium climate sensitivity being greater 
        than 1.5 +C is almost 99 percent, is not inconsistent with the 
        IPCC definition of ``very likely'' as ``greater than 90 percent 
        probability,'' it reflects a greater degree of certainty about 
        very low values of ECS than was expressed by the IPCC.''

    In other words, the IWG used its judgment that the lower bound of 
the ECS distribution was higher than the IPCC 2007 assessment 
indicated. However, the collection of the recent literature on the ECS 
shows the IWG's judgment to be in error. As can be seen in the chart 
above, the large majority of the findings on ECS in the recent 
literature indicate that the lower bound (i.e., 5th percentile) of the 
ECS distribution is lower than the IPCC 2007 assessment. And, the 
average value of the 5th percentile in the recent literature (1.1 +C) 
is 0.62 +C less than that used by the IWG--a sizable and important 
difference which will influence the SCC determination.
    In fact, the abundance of literature supporting a lower climate 
sensitivity was at least partially reflected in the new IPCC assessment 
report issued in 2013. In that report, the IPCC reported:

        Equilibrium climate sensitivity is likely in the range 1.5 +C 
        to 4.5 +C (high confidence), extremely unlikely less than 1 +C 
        (high confidence), and very unlikely greater than 6 +C (medium 
        confidence). The lower temperature limit of the assessed likely 
        range is thus less than the 2 +C in the AR4 . . .

    Clearly, the IWG's assessment of the low end of the probability 
density function that best describes the current level of scientific 
understanding of the climate sensitivity is incorrect and indefensible.
    But even more influential in the SCC determination is the upper 
bound (i.e., 95th percentile) of the ECS probability distribution.
    The IWG2010 notes (p. 14) that the calibrated Roe and Baker 
distribution better reflects the IPCC judgment that ``values 
substantially higher than 4.5 +C still cannot be excluded.'' The 
IWG2010 further notes that:

        ``Although the IPCC made no quantitative judgment, the 95th 
        percentile of the calibrated Roe & Baker distribution (7.1 +C) 
        is much closer to the mean and the median (7.2 +C) of the 95th 
        percentiles of 21 previous studies summarized by Newbold and 
        Daigneault (2009). It is also closer to the mean (7.5 +C) and 
        median (7.9 +C) of the nine truncated distributions examined by 
        the IPCC (Hegerl, et al., 2006) than are the 95th percentiles 
        of the three other calibrated distributions (5.2-6.0 +C).''

    In other words, the IWG2010 turned toward surveys of the scientific 
literature to determine its assessment of an appropriate value for the 
95th percentile of the ECS distribution. Now, more than 5 years hence, 
the scientific literature tells a completely different story.
    Instead of a 95th percentile value of 7.14 +C, as used by the 
IWG2010, a survey of the recent scientific literature suggests a value 
of 3.5 +C--more than 50 percent lower.
    And this is very significant and important difference because the 
high end of the ECS distribution has a large impact on the SCC 
determination--a fact frequently commented on by the IWG2010.

    For example, from IWG2010 (p. 26):

        ``As previously discussed, low probability, high impact events 
        are incorporated into the SCC values through explicit 
        consideration of their effects in two of the three models as 
        well as the use of a probability density function for 
        equilibrium climate sensitivity. Treating climate sensitivity 
        probabilistically results in more high temperature outcomes, 
        which in turn lead to higher projections of damages. Although 
        FUND does not include catastrophic damages (in contrast to the 
        other two models), its probabilistic treatment of the 
        equilibrium climate sensitivity parameter will directly affect 
        the non-catastrophic damages that are a function of the rate of 
        temperature change.''
    And further (p. 30):

        Uncertainty in extrapolation of damages to high temperatures: 
        The damage functions in these IAMs are typically calibrated by 
        estimating damages at moderate temperature increases (e.g., 
        DICE was calibrated at 2.5 +C) and extrapolated to far higher 
        temperatures by assuming that damages increase as some power of 
        the temperature change. Hence, estimated damages are far more 
        uncertain under more extreme climate change scenarios.

    And the entirety of Section V [sic] ``A Further Discussion of 
Catastrophic Impacts and Damage Functions'' of the IWG 2010 report 
describes ``tipping points'' and ``damage functions'' that are 
probabilities assigned to different values of global temperature 
change. Table 6 from the IWG2010 indicated the probabilities of various 
tipping points.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    The likelihood of occurrence of these low probability, high 
impact, events (``tipping points'') is greatly diminished under the new 
ECS findings. The average 95th percentile value of the new literature 
survey is only 3.5 +C indicating a very low probability of a warming 
reaching 3-5 +C by 2100 as indicated in the 3rd column of the above 
Table and thus a significantly lower probability that such tipping 
points will be reached. This new information will have a large impact 
on the final SCC determination using the IWG's methodology.

    The size of this impact has been directly investigated.

    In their Comment on the Landmark Legal Foundation Petition for 
Reconsideration of Final Rule Standards for Standby Mode and Off Mode 
Microwave Ovens, Dayaratna and Kreutzer (2013) ran the DICE model using 
the distribution of the ECS as described by Otto et al. (2013)--a paper 
published in the recent scientific literature which includes 17 
authors, 15 of which were lead authors of chapters in the recent 
Intergovernmental Panel on Climate Change's Fifth Assessment Report. 
The most likely value of the ECS reported by Otto et al. (2013) was 
described as ``2.0 +C, with a 5-95 percent confidence interval of 1.2-
3.9 +C.'' Using the Otto et al. (2013) ECS distribution in lieu of the 
distribution employed by the IWG (2013), dropped the SCC by 42 percent, 
41 percent, and 35 percent (for the 2.5%, 3.0%, 5.0% discount rates, 
accordingly). This is a significant decline.
    In subsequent research, Dayaratna and Kreutzer (2014) examined the 
performance of the FUND model, and found that it too, produced a 
greatly diminished value for the SCC when run with the Otto et al. 
distribution of the equilibrium climate sensitivity. Using the Otto et 
al. (2013) ECS distribution in lieu of the distribution employed by the 
IWG (2013), dropped the SCC produced by the FUND model to $11, $6, $0 
compared with the original $30, $17, $2 (for the 2.5%, 3.0%, 5.0% 
discount rates, accordingly). Again, this is a significant decline.
    The Dayaratna and Kreutzer (2014) results using FUND were in line 
with alternative estimates of the impact of a lower climate sensitivity 
on the FUND model SCC determination.
    Waldhoff et al. (2011) investigated the sensitivity of the FUND 
model to changes in the ECS. Waldhoff et al. (2011) found that changing 
the ECS distribution such that the mean of the distribution was lowered 
from 3.0 +C to 2.0 +C had the effect of lowering the SCC by 60 percent 
(from a 2010 SCC estimate of $8/ton of CO2 to $3/ton in 
1995). While Waldhoff et al. (2011) examined FUNDv3.5, the response of 
the current version (v3.8) of the FUND model should be similar.
    Additionally, the developer of the PAGE (Policy Analysis of 
Greenhouse Effect) model affirmed that the SCC from the PAGE model, too 
drops by 35 percent when the Otto et al. (2013) climate sensitivity 
distribution is employed (Hope, 2013).
    These studies make clear that the strong dependence of the social 
cost of carbon on the distribution of the estimates of the equilibrium 
climate sensitivity (including the median, and the upper and lower 
certainty bounds) requires that the periodic updates to the IWG SCC 
determination must include a critical examination of the scientific 
literature on the topic of the equilibrium climate sensitivity, not 
merely kowtowing to the IPCC assessment. There is no indication that 
the IWG undertook such an independent examination. But what is clear, 
is that the IWG did not alter its probability distribution of the ECS 
between its 2010, 2013, and 2015 SCC determination, despite a large and 
growing body of scientific literature that substantially alters and 
better defines the scientific understanding of the earth's ECS. It is 
unacceptable that a supposed ``updated'' social cost of carbon does not 
include updates to the science underlying a critical and key aspect of 
the SCC.
    We note that there has been one prominent scientific study in the 
recent literature which has argued, on the basis of recent observations 
of lower tropospheric mixing in the tropics, for a rather high climate 
sensitivity (Sherwood et al., 2014). This research, however, suffers 
from too narrow a focus. While noting that climate models which best 
match the apparent observed behavior of the vertical mixing 
characteristics of the tropical troposphere tend to be the models with 
high climate sensitivity estimates, the authors fail to make note that 
these same models are the ones whose projections make the worst match 
to observations of the evolution of global temperature during the past 
several decades. The figure below shows the observed global surface 
temperature history from 1951-2013 compared with the temperature 
evolution projected by the collection of models used in the new IPCC 
2013 report. We broke the climate models down into two groups--those 
which have a climate sensitivity greater than 3.0 +C (as suggested by 
Sherwood et al., 2014) and those with a climate sensitivity less than 
3.0 +C. The Figure shows that while neither model subset does a very 
good job is capturing evolution of global temperature during the past 
15-20 years (the period with the highest human carbon dioxide 
emissions), the high sensitivity models do substantially worse than the 
lower sensitivity models.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

CAPTION: Observed global average temperature evolution, 1951-2013, 
as compiled by the U.K's Hadley Center (black line), and the average 
temperature change projected by a collection of climate models used in 
the IPCC Fifth Assessment Report which have a climate sensitivity 
greater than 3.0 +C (red line) and a collection of models with climate 
sensitivities less than 3.0 +C (blue line).

    While Sherwood et al. (2014) prefer models that better match their 
observations in one variable, the same models actually do worse in the 
big picture than do models which lack the apparent accuracy in the 
processes that Sherwood et al. (2014) describe. The result can only 
mean that there must still be even bigger problems with other model 
processes which must more than counteract the effects of the processes 
described by Sherwood et al. After all, the overall model collective is 
still warming the world much faster than it actually is (see Figures 
below). In fact, for the observed global average surface temperature 
evolution for the past 30 years largely lies below the range which 
encompasses 95 percent of all climate model runs--an indication that 
the observed trend is statistically different from the trend simulated 
by climate models. And for periods approaching 40 years in length, the 
observed surface trend lies outside of (below) the range that includes 
90 percent of all climate model simulations--and indication that the 
observed surface trend is marginally inconsistent with climate model 
simulations.

                        MODELS VS. OBSERVATIONS
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


CAPTION: The annual average global surface temperature from 108 
individual CMIP5 climate model runs forced with historical (+ RCP45 
since 2006) forcings were obtained from the Climate Explorer website. 
Linear trends were computed through the global temperatures from each 
run, ending in 2014 and beginning each year from 1951 through 2005. The 
trends for each period (ranging in length from 10 to 64 years) were 
averaged across all model runs (black dots). The range containing 90 
percent (grey lines), and 95 percent (dotted black lines) of trends 
from the 108 model runs is also indicated. The observed linear trends 
for the same periods were calculated from the annual average global 
surface temperature record compiled by the U.K. Hadley Center 
(HadCRUT4) (colored dots). Observed trend values which were less than 
the 2.5th percentile of the model trend distribution were colored red, 
observed trend values which were between the 2.5th and the 5th 
percentile of the model trend distribution were colored yellow, and 
observed trend values greater than the 5th percentile of the model 
trend distribution were colored green. (Source: Michaels and 
Knappenberger, 2014)

    We note that our statistics are based upon both the warm and the 
cold departures from predicted trends. In reality, the cold departure 
is what is of most interest from a policy perspective--for if warming 
is being demonstrably overpredicted, then policies based upon models 
that are in error are a substantial regulatory over-reach. Our 
probability estimates are conservative as values at the .05 level are 
actually at the 2.5th percentile for warmth from the model ensemble.
    The divergence between observations and climate model projections 
is even worse in the earth's low-to-mid atmosphere (Figure below). As 
shown by Christy (2015), there is a gross departure of ``reality'' from 
model predictions. Christy (2015) noted that ``On average the models 
warm the global atmosphere at a rate three times that of the real 
world.''
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


CAPTION: Five-year running mean temperatures predicted by the UN's 
climate models, and observed lower atmospheric temperatures from 
weather balloons and satellites.

    These results argue strongly against the reliability of the 
Sherwood et al. (2014) conclusion and instead provide robust 
observational evidence that the climate sensitivity has been 
overestimated by both climate models, and the IWG alike.
              agricultural impacts of carbon fertilization

    Carbon dioxide is known to have a positive impact on vegetation, 
with literally thousands of studies in the scientific literature 
demonstrating that plants (including crops) grow stronger, healthier, 
and more productive under conditions of increased carbon dioxide 
concentration. A recent study (Idso, 2013) reviewed a large collection 
of such literature as it applies to the world's 45 most important food 
crops (making up 95% of the world's annual agricultural production). 
Idso (2013) summarized his findings on the increase in biomass of each 
crop that results from a 300 ppm increase in the concentration of 
carbon dioxide under which the plants were grown. This table is 
reproduced below, and shows that the typical growth increase exceeds 30 
percent in most crops, including 8 of the world's top 10 food crops 
(the increase was 24% and 14% in the other two).

    Idso (2013) found that the increase in the atmospheric 
concentration of carbon dioxide that took place during the period 1961-
2011 was responsible for increasing global agricultural output by 3.2 
trillion dollars (in 2004-2006 constant dollars). Projecting the 
increases forward based on projections of the increase in atmospheric 
carbon dioxide concentration, Idso (2013) expects carbon dioxide 
fertilization to increase the value of agricultural output by 9.8 
trillion dollars (in 2004-2006 constant dollars) during the 2012-2050 
period.
Average percentage increase in biomass of each of the world's 45 most 
        important food crops under an increase of 300 ppm of carbon 
        dioxide.
        
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
        

    This is a large positive externality, and one that is 
insufficiently modeled in the IAMs relied upon by the IWG in 
determining the SCC.
    In fact, only one of the three IAMs used by the IWG has any 
substantial impact from carbon dioxide fertilization, and the one that 
does, underestimates the effect by approximately 2-3 times.
    The FUND model has a component which calculates the impact on 
agricultural as a result of carbon dioxide emissions, which includes 
not only the impact on temperature and other climate changes, but also 
the direct impact of carbon dioxide fertilization. The other two IAMs, 
DICE and PAGE by and large do not (or only do so extremely minimally; 
DICE includes the effect to a larger degree than PAGE). Consequently, 
lacking this large and positive externality, the SCC calculated by the 
DICE and PAGE models is significantly larger than the SCC determined by 
the FUND model (for example, see Table A5, in the IWG 2013 report).
    But even the positive externality that results from carbon dioxide 
fertilization as included in the FUND model is too small when compared 
with the Idso (2013) estimates. FUND (v3.7) uses the following formula 
to determine the degree of crop production increase resulting from 
atmospheric carbon dioxide increases (taken from Anthoff and Tol, 
2013a):
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]



Column 8 in the table below shows the CO2 
fertilization parameter (&r) used in FUND for various 
regions of the world (Anthoff and Tol, 2013b). The average 
CO2 fertilization effect across the 16 regions of the world 
is 11.2 percent. While this number is neither areally weighted, nor 
weighted by the specific crops grown, it is clear that 11.2 percent is 
much lower than the average fertilization effect compiled by Idso 
(2013) for the world's top 10 food crops (35%). Further, Idso's 
fertilization impact is in response to a 300 ppm CO2 
increase, while the fertilization parameter in the FUND model is 
multiplied by ln(CO2t /275) which works out to 0.74 for a 
300 ppm CO2 increase. This multiplier further reduces the 16 
region average to 8.4 percent for the CO2 fertilization 
effect--some four times smaller than the magnitude of the fertilization 
impact identified by Idso (2013).
    Although approximately four times too small, the impact of the 
fertilization effect on the SCC calculation in the FUND model is large.
    According to Waldhoff et al. (2011), if the CO2 
fertilization effect is turned off in the FUND model (v3.5) the SCC 
increases by 75 percent from $8/tonCO2 to $14/
tonCO2 (in 1995 dollars). In another study, Ackerman and 
Munitz (2012) find the effective increase in the FUND model to be even 
larger, with CO2 fertilization producing a positive 
externality of nearly $15/tonCO2 (in 2007 dollars).
Impact of climate change on agriculture in FUND model.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


Clearly, had the Idso (2013) estimate of the CO2 
fertilization impact been used instead of the one used in FUND the 
resulting positive externality would have been much larger, and the 
resulting net SCC been much lower.

    This is just for one of the three IAMs used by the IWG. Had the 
more comprehensive CO2 fertilization impacts identified by 
Idso (2013) been incorporated in all the IAMs, the three-model average 
SCC used by the IWG would be been greatly lowered, and likely even 
become negative in some IAM/discount rate combinations.

    In its 2015 Response to Comments Social Cost of Carbon for 
Regulatory Impact Analysis Under Executive Order 12866, the IWG admits 
to the disparate ways that CO2 fertilization is included in 
the three IAMs. Nevertheless, the IWG quickly dismisses this as a 
problem in that they claim the IAMs were selected ``to reflect a 
reasonable range of modeling choices and approaches that collectively 
reflect the current literature on the estimation of damages from 
CO2 emissions.''

    This logic is blatantly flawed. Two of the IAMs do not reflect the 
``current literature'' on a key aspect relating to the direct impact of 
CO2 emissions on agricultural output, and the third only 
partially so.
    [The prepared statement of ??? appears in the appendix.]
    CO2 fertilization is a known physical effect from 
increased carbon dioxide concentrations. By including the results of 
IAMs that do not include known processes that have a significant impact 
on the end product must disqualify them from contributing to the final 
result. The inclusion of results that are known a priori to be wrong 
can only contribute to producing a less accurate answer. Results should 
only be included when they attempt to represent known processes, not 
when they leave those processes out entirely.

    The justification from the IWG (2015) that ``[h]owever, with high 
confidence the IPCC (2013) stated in its Fifth Assessment Report (AR5) 
that `[b]ased on many studies covering a wide range of regions and 
crops, negative impacts of climate change on crop yields have been more 
common than positive ones' '' is completely irrelevant as 
CO2 fertilization is an impact that is apart from ``climate 
change.'' And further, the IAMs do (explicitly in the case of FUND and 
DICE or implicitly in the case of PAGE) include damage functions 
related to the climate change impacts on agriculture. So not only is 
the IWG justification irrelevant, it is inaccurate as well. The impact 
of CO2 fertilization on agricultural output and its impact 
on lowering the SCC must be considered.

the misleading disconnect between climate change and the social cost of 
               carbon in the integrated assessment models

    It is generally acknowledged, the results from IAMs are highly 
sensitive not only to the model input parameters but also to how the 
models have been developed and what processes they try to include. One 
prominent economist, Robert Pindyck of M.I.T. recently wrote (Pindyck, 
2013) that the sensitivity of the IAMs to these factors renders them 
useless in a policymaking environment:

        Given all of the effort that has gone into developing and using 
        IAMs, have they helped us resolve the wide disagreement over 
        the size of the SCC? Is the U.S. Government estimate of $21 per 
        ton (or the updated estimate of $33 per ton) a reliable or 
        otherwise useful number? What have these IAMs (and related 
        models) told us? I will argue that the answer is very little. 
        As I discuss below, the models are so deeply flawed as to be 
        close to useless as tools for policy analysis. Worse yet, 
        precision that is simply illusory, and can be highly 
        misleading.

        [A]n IAM-based analysis suggests a level of knowledge and 
        precision that is nonexistent, and allows the modeler to obtain 
        almost any desired result because key inputs can be chosen 
        arbitrarily.

    Nevertheless, Federal agencies, such as the EPA and DoE incorporate 
the IWG determinations of the SCC into their cost/benefit analyses of 
proposed regulations--ill-advisedly so in my opinion.

    Consider the following: the social cost of carbon should reflect 
the relative impact on future society that human-induced climate change 
from greenhouse gas emissions would impose. In this way, we can decide 
how much (if at all) we are willing to pay currently to reduce the 
costs to future society. It would seem logical that we would probably 
be more willing to sacrifice more now if we knew that future society 
would be impoverished and suffer from extreme climate change than we 
would be willing to sacrifice if we knew that future society would be 
very well off and be subject to more moderate climate change. We would 
expect that the value of the social cost of carbon would reflect the 
difference between these two hypothetical future worlds--the SCC should 
be far greater in an impoverished future facing a high degree of 
climate change than an affluent future with less climate change.

    But if you thought this, you would be wrong.

    Instead, the IAMs as run by the IWG2013 (and reflected in the July 
2015 update) produce nearly the opposite result--the SCC is far lower 
in the less affluent/high climate change future than it is in the more 
affluent/low climate change future. Such a result is not only 
counterintuitive but misleading.

    I illustrate this illogical and impractical result using the DICE 
2010 model (hereafter just DICE) used by the IWG (although the PAGE and 
the FUND models generally show the same behavior). The DICE model was 
installed and run at the Heritage Foundation by Kevin Dayaratna and 
David Kreutzer using the same model set up and emissions scenarios as 
prescribed by the IWG. The projections of future temperature change 
(and sea level rise, used later in the Comment) were graciously 
provided to us by the Heritage Foundation.
    The figure below shows the projections of the future change in the 
earth's average surface temperature for the years 2000-2300 produced by 
DICE from the five emissions scenarios employed by the IWG. The 
numerical values on the right-hand side of the illustration are the 
values for the social cost of carbon associated with the temperature 
change resulting from each emissions scenario (the SCC is reported for 
the year 2020 using constant $2007 and assuming a 3% discount rate--
numbers taken directly from Table A3 of the IWG2013 report). The 
temperature change can be considered a good proxy for the magnitude of 
the overall climate change impacts.

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]



CAPTION: Future temperature changes, for the years 2000-2300, 
projected by the DICE model for each of the five emissions scenarios 
used by the IWG2013. The temperature changes are the arithmetic average 
of the 10,000 Monte Carlo runs from each scenario. The 2020 value of 
the SCC (in $2007) produced by the DICE model (assuming a 3% discount 
rate) is included on the right-hand side of the figure. (DICE data 
provided by Kevin Dayaratna and David Kreutzer of the Heritage 
Foundation).

    Notice in the figure above that the value for the SCC shows little 
(if any) correspondence to the magnitude of climate change. The MERGE 
scenario produces the greatest climate change and yet has the smallest 
SCC associated with it. The ``5th Scenario'' is a scenario that 
attempts to keep the effective concentration of atmospheric carbon 
dioxide at 550 ppm (far lower than the other scenarios) has a SCC that 
is more than 20 percent greater than the MERGE scenario. The global 
temperature change by the year 2300 in the MERGE scenario is 9 +C while 
in the ``5th Scenario'' it is only 3 +C. The highest SCC is from the 
IMAGE scenario--a scenario with a mid-range climate change. All of this 
makes absolutely no logical sense--and confuses the user.

    If the SCC bears little correspondence to the magnitude of future 
human-caused climate change, than what does it represent?
    The figure below provides some insight.

   [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
   
   
   
   CAPTION: Future global gross domestic product, for the years 2000-
2300 for each of the five emissions scenarios used by the IWG2013. The 
2020 value of the SCC (in $2007) produced by the DICE model (assuming a 
3% discount rate) is included on the right-hand side of the figure.

    When comparing the future GDP to the SCC, we see, generally, that 
the scenarios with the higher future GDP (most affluent future society) 
have the higher SCC values, while the futures with lower GDP (less 
affluent society) have, generally, lower SCC values.
    Combining the results from the two figures above thus illustrates 
the absurdities in the IWG's use of the DICE model. The scenario with 
the richest future society and a modest amount of climate change 
(IMAGE) has the highest value of the SCC associated with it, while the 
scenario with the poorest future society and the greatest degree of 
climate change (MERGE) has the lowest value of the SCC. A logical, 
thinking person would assume the opposite.
    While we only directly analyzed output data from the DICE model, by 
comparing Tables 2 and Tables 3 from the IWG2010 report, it can be 
ascertained that the FUND and the PAGE models behave in a similar 
fashion.
    This counterintuitive result occurs because the damage functions in 
the IAMs produce output in terms of a percentage decline in the GDP--
which is then translated into a dollar amount (which is divided by the 
total carbon emissions) to produce the SCC. Thus, even a small climate 
change-induced percentage decline in a high GDP future yields greater 
dollar damages (i.e., higher SCC) than a much greater climate change-
induced GDP percentage decline in a low GDP future.
    Who in their right mind would want to spend (sacrifice) more today 
to help our rich decedents deal with a lesser degree of climate change 
than would want to spend (sacrifice) today to help our relatively less-
well-off decedents deal with a greater degree of climate change? No 
one. Yet that is what the SCC would lead you to believe and that is 
what the SCC implies when it is incorporated into Federal cost/benefit 
analyses.
    In principle, the way to handle this situation is by allowing the 
discount rate to change over time. In other words, the richer we think 
people will be in the future (say the year 2100), the higher the 
discount rate we should apply to damages (measured in 2100 dollars) 
they suffer from climate change, in order to decide how much we should 
be prepared to sacrifice today on their behalf.
    Until (if ever) the current situation is properly rectified, the 
IWG's determination of the SCC is not fit for use in the Federal 
regulatory process as it is deceitful and misleading.
                             sea level rise
    The sea level rise module in the DICE model used by the IWG2013/
2015 produces future sea level rise values that far exceed mainstream 
projections and are unsupported by the best available science. The sea 
level rise projections from more than half of the scenarios (IMAGE, 
MERGE, MiniCAM) exceed even the highest end of the projected sea level 
rise by the year 2300 as reported in the Fifth Assessment Report (AR5) 
of the Intergovernmental Panel on Climate Change (see figure).
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]



CAPTION: Projections of sea level rise from the DICE model (the 
arithmetic average of the 10,000 Monte Carlo runs from each scenario ) 
for the five scenarios examined by the IWG2013 compared with the range 
of sea level rise projections for the year 2300 given in the IPCC AR5 
(see AR5 Table 13.8). (DICE data provided by Kevin Dayaratna and David 
Kreutzer of the Heritage Foundation).

    How the sea level rise module in DICE was constructed is 
inaccurately characterized by the IWG2013 (and misleads the reader). 
The IWG2013 report describes the development of the DICE sea level rise 
scenario as:

        ``The parameters of the four components of the SLR module are 
        calibrated to match consensus results from the IPCC's Fourth 
        Assessment Report (AR4).6 ''

    However, in IWG2013 footnote ``6'' the methodology is described 
this way (Nordhaus, 2010):

        ``The methodology of the modeling is to use the estimates in 
        the IPCC Fourth Assessment Report (AR4).''

    ``Using estimates'' and ``calibrating'' are two completely 
different things. Calibration implies that the sea level rise estimates 
produced by the DICE sea level module behave similarly to the IPCC sea 
level rise projections and instills a sense of confidence in the casual 
reader that the DICE projections are in accordance with IPCC 
projections. However this is not the case. Consequently, the reader is 
misled.
    In fact, the DICE estimates are much higher than the IPCC 
estimates. This is even recognized by the DICE developers. From the 
same reference as above:

        ``The RICE [DICE] model projection is in the middle of the pack 
        of alternative specifications of the different Rahmstorf 
        specifications. Table 1 shows the RICE, base Rahmstorf, and 
        average Rahmstorf. Note that in all cases, these are 
        significantly above the IPCC projections in AR4.'' [emphasis 
        added]

    That the DICE sea level rise projections are far above the 
mainstream estimated can be further evidenced by comparing them with 
the results produced by the IWG-accepted MAGICC modeling tool (in part 
developed by the EPA and available from http://www.cgd.ucar.edu/cas/
wigley/magicc/).
    Using the MESSAGE scenario as an example, the sea level rise 
estimate produced by MAGICC for the year 2300 is 1.28 meters--a value 
that is less than 40 percent of the average value of 3.32 meters 
produced by the DICE model when running the same scenario (see figure 
below).

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]




CAPTION: Projected sea level rise resulting from the MESSAGE 
scenario produced by DICE (red) and MAGICC (blue).

    The justification given for the high sea level rise projections in 
the DICE model (Nordhaus, 2010) is that they well-match the results of 
a ``semi-empirical'' methodology employed by Rahmstorf (2007) and 
Vermeer and Rahmstorf (2009).
    However, subsequent science has proven the ``semi-empirical'' 
approach to projecting future sea level rise unreliable. For example, 
Gregory et al. (2012) examined the assumption used in the ``semi-
empirical'' methods and found them to be unsubstantiated. Gregory et al 
(2012) specifically refer to the results of Rahmstorf (2007) and 
Vermeer and Rahmstorf (2009):

        The implication of our closure of the [global mean sea level 
        rise, GMSLR] budget is that a relationship between global 
        climate change and the rate of GMSLR is weak or absent in the 
        past. The lack of a strong relationship is consistent with the 
        evidence from the tide-gauge datasets, whose authors find 
        acceleration of GMSLR during the 20th century to be either 
        insignificant or small. It also calls into question the basis 
        of the semi-empirical methods for projecting GMSLR, which 
        depend on calibrating a relationship between global climate 
        change or radiative forcing and the rate of GMSLR from 
        observational data (Rahmstorf, 2007; Vermeer and Rahmstorf, 
        2009; Jevrejeva et al., 2010).

    In light of these findings, the justification for the very high sea 
level rise projections (generally exceeding those of the IPCC AR5 and 
far greater than the IWG-accepted MAGICC results) produced by the DICE 
model is called into question and can no longer be substantiated.
    Given the strong relationship between sea level rise and future 
damage built into the DICE model, there can be no doubt that the SCC 
estimates from the DICE model are higher than the best science would 
allow and consequently, should not be accepted by the IWG as a reliable 
estimate of the social cost of carbon.
    And here again, the IWG (2015) admits that these sea level rise 
estimates are an outlier on the high end, yet retains them in their 
analysis by claiming than they were interested in representing a 
``range'' of possible outcomes. But, even the IWG (2015) admits that 
the IPCC AR5 assigned ``a low confidence in projections based on such 
[semi-empirical] methods.'' It is internally inconsistent to claim the 
IPCC as an authority for limiting the range of possibilities explored 
by the IAMs (which it did in the case of equilibrium climate 
sensitivity) and then go outside the IPCC to justify including a wildly 
high estimate of sea level rise. Such inconsistencies characterize the 
IWG response to comments and weaken confidence in them.
    I did not investigate the sea level rise projections from the FUND 
or the PAGE model, but suggest that such an analysis must be carried 
out prior to extending any confidence in the values of the SCC 
resulting from those models--confidence that we demonstrate cannot be 
assigned to the DICE SCC determinations.
                  high social cost of carbon estimates
    A few papers have appeared in the recent scientific literature that 
have argued that the SCC should be considerably higher than that 
determined by the IWG. However, these papers suffer from serious flaws.
    For example, Van den Bergh and Botzen (2014) purport to make a 
``conservative'' estimate of the SCC that is nearly four times larger 
than the central estimate made by the IWG. This estimate suffers from 
the many of the issues described previously--a low discount rate, high 
climate sensitivity, and little to no positive benefits from 
agriculture. By including all sorts of imagined bad climate outcomes--
with high monetary damages--and being largely dismissive of positive 
impacts, high SCC values are readily created by the authors.
    Another recent analysis which arrived at an estimate of the social 
cost of carbon that was considerably higher than those made by the IWG 
was conducted by Moore and Diaz (2015). However, a careful examination 
shows that the assumptions made and methodologies employed therein 
produce a non-robust and ultimately unreliable result (McKitrick, 
2015). Applying a better and more thorough methodology leads to results 
which are virtually opposite to those initially reported by Moore and 
Diaz (2015)--one in which the social cost of carbon is quite low and 
perhaps even positive.
    According to McKitrick (2015), the major underlying flaw in the 
Moore and Diaz paper is the reliance on the results of Dell et al. 
(2012) in which a warming climate was linked to economic declines in 
both rich and poor countries. Using a more up-to-date dataset, 
McKitrick shows that the negative economic linkage to a warming climate 
is statistically insignificant and ``not a robust basis for a policy 
assertion.''
    Furthermore, McKitrick (2015) shows that if a the more standard 
methodology is applied, where the temperature changes are areally 
weighted rather than weighted by country-level population, the 
relationship between economic growth and temperature change reverses 
for rich countries and becomes statistically significant. According to 
McKitrick (2015), ``each degree of warming significantly increases the 
annual income growth rate in rich countries by over 2 percentage 
points,'' while in poor countries, the relationship ``is statistically 
insignificant.'' In conclusion, McKitrick (2015) finds:

        The fact that the relevant poor-country coefficients are 
        statistically insignificant implies they should not have been 
        relied upon in Moore and Diaz (2015). And since the rich 
        country coefficient corresponding to the [integrated assessment 
        model] IAM structure is positive and significant, Moore and 
        Diaz (2015) should actually have reported an acceleration of 
        economic growth in rich countries associated with rising 
        temperatures and a correspondingly reduced SCC. Also, since the 
        rich countries begin with a larger GDP it is also likely that 
        the overall global effect of warming on income growth would be 
        positive, even applying the poor country coefficient. In any 
        case the computations in Moore and Diaz (2015) are 
        uninformative since they used coefficients from DJO based on an 
        incomplete sample and a definition of temperature incompatible 
        with their IAM.

    Bottom line is that the Moore and Diaz (2015) high SCC estimates as 
well as the Dell et al. (2012) results upon which they were based, do 
not stand up under careful re-analysis. In fact, when assessed 
properly, they produce a low SCC estimate, in support of our overall 
analysis.
    Overall, these new papers provide additional evidence as to the 
non-robust nature of current SCC determinations.
                               conclusion
    The social cost of carbon as determined by the Interagency Working 
Group in their May 2013 Technical Support Document (updated in November 
2013 and July 2015) is unsupported by the robust scientific literature, 
fraught with uncertainty, illogical, and thus completely unsuitable and 
inappropriate for Federal rulemaking. Had the IWG included a better-
reasoned and more inclusive review of the current scientific 
literature, the social cost of carbon estimates would have been 
considerably reduced with a value likely approaching zero. Such a low 
social cost of carbon would obviate the arguments behind the push for 
Federal greenhouse gas regulations.
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                                 ______
                                 

  Questions Submitted for the Record by Rep. Grijalva to Dr. Patrick 
Michaels, Director, Center for the Study of Science, The Cato Institute

    Question 1. I'd like to follow up on a line of questioning from the 
hearing about The Advancement of Sound Science Coalition (TASSC). You 
were asked whether you were a ``member scientist'' or whether you 
played some other role at The Advancement of Sound Science Coalition. 
You replied that you were not active with them. Please help the 
committee better understand your role.

    a. How long were you a member?

    b. Is it true that you assisted in drafting TASSC's Five Guiding 
Scientific Principles? (https://industrydocuments.library.ucsf.edu/
docs/#id=nyml0028)

    c. Did you produce anything else for TASSC?

    d. If you were not active with them, does that mean your 
involvement was limited to lending your name to the organization's 
efforts?

    Answer. My interactions with The Advancement of Sound Science 
Coalition were, as best as I can recall, extremely limited. I recall 
that when the organization was formed, some 22 years ago, that I agreed 
to be on some type of advisory panel. I am sure that I was sent some 
proposed guidelines for ``sound science,'' and that I had some comments 
on them. That is the last memory that I have of actually working with 
them. I see no reference to TASSC in my list of outside presentations 
on my CV. If I produced anything else, I do not remember doing so, 
which would mean it would have been highly inconsequential. I was very 
inactive member (as I am with most groups of this type), and I don't 
know how long I even was a ``member,'' whatever that means. I hope you 
are correctly reading that TASSC wasn't exactly a priority of mine.

    Question 2. You were also affiliated with the European Science and 
Environmental Forum (ESEF), another group associated with denying the 
health effects of cigarette smoke. (https://
industrydocuments.library.ucsf.edu/docs/#id=rsmx0078)

    a. How long were you a member?

    b. What did you produce for ESEF?

    c. If you were not active with them, does that mean your 
involvement was limited to lending your name to the organization's 
efforts?

    Answer. My response on ESEF is similar. This was again somewhere 
around two decades ago. I believe this was a larger organization than 
TASSC in terms of number of scientists, many of whom were of 
considerable stature. I see no reference to ESEF in my list of outside 
presentations on my CV. I am unaware of what you mean by 
``membership,'' and therefore could not tell you how long I was a 
``member.'' I also think it is also unfair of you to conflate me with 
the view that smoking is not harmful, as my expertise is largely in 
climate change and its impacts. That I was not active with them means I 
felt like I did about most of these types of groups, as per above. I 
hope you are correctly reading that ESEF wasn't exactly a priority of 
mine.

    Question 3. The Cato Institute is funded by fossil fuel interests, 
among others. How do you ensure none of that funding, which could 
constitute a significant conflict of interest, goes to you?

    Answer. Cato's Center for the Study of Science is funded entirely 
from the general fund which is, in turn funded primarily by private, 
individual donors. The structure of the arrangement--not unique among 
any charitable organization, just doesn't facilitate narrow quid pro 
quo exchanges. If someone gave us a million dollars to state an opinion 
about global warming, they are also giving us money to decry sexual 
discrimination, oppose police brutality, de-escalate the drug war, 
lower taxes, fight fewer wars, etc. There's no way to untangle these. 
Our stock and trade is policy analysis and opinion--there's nothing to 
buy. To the extent we do original research is open to peer review and 
we do nothing different than other scientists in terms of openness and 
generally accepted practices and protocols. Mostly we do scientific 
analysis and publicly subject it to criticism. There's no place to 
hide, there's no data to fudge, our work is as transparent as it gets. 
Furthermore, it's absurd to suggest that government funded science is 
somehow more pure, or free of bias than ours is. Science isn't about 
dogmatically holding conclusions, but rather it's a method for 
determining the truth and we have a right to engage in the inquiry 
process irrespective of where the money comes from.

    Question 4. ``Western Fuels (Association) approached Pat Michaels 
about writing a quarterly publication designed to provide its readers 
with critical insight concerning the global climatic change and 
greenhouse effect controversy . . . Western Fuels agreed to finance 
publication and distribution of World Climate Review magazine.'' (The 
Heat is On, Ross Gelbspan, 1998). What outside fossil fuel funding, 
including WFA, have you received in the last 5 years from entities 
other than the Cato Institute? Please include the amounts, sources, and 
services rendered.

    Answer. I am listing, in order of recency, fossil fuel-related 
funding of the past 5 years. In the case of Quintana Minerals, all of 
their funding went to my (closed) consulting firm, New Hope 
Environmental Services, Inc. New Hope had several employees, and more 
substantial funding than from Quintana was from the Cato Institute, 
prior to my becoming a full-time employee (rather than a contractor) at 
Cato in September, 2012.

    As most of my time during this period was spent working with Cato, 
it is fair to say that the amount of Quintana support that I 
``received'' as per your question, was considerably less than what is 
listed below.

    --  June, 2013. Speech to California Independent Petroleum 
            Association. Fee: $3,300

    --  March, 2013. Speech to Ohio Oil and Gas Association. Fee: 
            $2,500

    --  October, 2012. Speech to North Carolina Coal Institute. Fee: 
            $1,000

    --  September, 2011-August, 2012. Quintana Minerals. General 
            research support for New Hope Environmental Services, Inc., 
            $60,000. Research on climate change.

    --  September, 2010-August, 2011. Quintana Minerals. General 
            research support for New Hope Environmental Services, Inc., 
            $95,000. Research on climate change.

                                 ______
                                 

    The Chairman. Thank you.
    We will now recognize Mr. Dayaratna to testify. You have 
the same 5 minutes.

 STATEMENT OF KEVIN DAYARATNA, Ph.D., SENIOR STATISTICIAN AND 
  RESEARCH PROGRAMMER, CENTER FOR DATA ANALYSIS, THE HERITAGE 
                   FOUNDATION, WASHINGTON, DC

    Dr. Dayaratna. Chairman Bishop, standing Ranking Member 
Lowenthal, and members of the committee, thank you for the 
opportunity to testify about the social cost of carbon.
    My name is Kevin Dayaratna. I am the Senior Statistician 
and Research Programmer at The Heritage Foundation here in 
Washington, DC. The views I express in this testimony are my 
own and should not be construed as representing any official 
position of The Heritage Foundation.
    One of the primary metrics that the Obama administration 
has used to justify their regulatory agenda on the energy 
sector of the economy is the so-called social cost of carbon, 
which is defined as the economic damages associated with a 
metric ton of carbon dioxide emissions summed across a 
particular time horizon.
    There are three primary statistical models that the 
Interagency Working Group (IWG) uses to estimate the social 
cost of carbon: the DICE model, the FUND model, and the PAGE 
model.
    Over the course of my work at The Heritage Foundation, my 
colleagues and I have used the DICE and FUND models, testing 
their sensitivity to a variety of important assumptions. Our 
work has repeatedly illustrated that while these models might 
be interesting for academic exercises, they are easily 
manipulated by user-selected assumptions.
    Now, at their core, the models are fundamentally flawed 
because they lack clear mechanisms of the damages of carbon 
dioxide emissions. Regardless, we will talk about these models 
anyway.
    As with any statistical model, these models are grounded by 
assumptions. In our work, my colleagues and I have rigorously 
examined three important assumptions, namely, the choice of a 
discount rate, the time horizon, and the specification of an 
equilibrium climate sensitivity distribution.
    So let's first talk about the discount rate. Because there 
are a host of investment opportunities, providing benefits for 
the future can be achieved in a host of ways. Discounting 
future benefits and costs to a common year is a tool economists 
use to measure the impact of a program compared to other 
possible investments.
    The EPA has run these models using 2.5 percent, 3 percent, 
and 5 percent discount rates despite the fact that the OMB 
guidance in Circular A-4 has specifically stipulated that a 7 
percent discount rate be used as well.
    At Heritage, we re-estimated these models using a 7 percent 
discount rate and noticed drastic reductions to the social cost 
of carbon. In 2020, for example, according to the FUND model, 
the social cost of carbon is estimated to be $19.33 a ton at a 
3 percent discount rate, but estimated to be negative 37 cents 
under a 7 percent discount rate.
    This negative value is actually a very interesting aspect 
about the FUND model and I will come back to it later.
    A second assumption that these models are based on is a 
specification of a time horizon. These models conveniently make 
projections 300 years into the future in order to increase the 
social cost of carbon. In our work, we have changed this time 
horizon to a significantly shorter, but still unrealistic time 
horizon of 150 years into the future. With the DICE model we 
noticed that the results plummet by 25 percent in some 
instances.
    Third, estimating the social cost of carbon requires a 
specification of what we call an equilibrium climate 
sensitivity, or ECS, distribution. ECS distributions quantify 
the earth's temperature response to a doubling of carbon 
dioxide emissions.
    The IWG used an ECS distribution that was published 8 years 
ago by Gerard Roe and Marcia Baker in the peer-reviewed journal 
Science. Since then, a number of newer ECS distributions have 
been published and they suggest lower probability of extreme 
global warming, as my colleague, Pat Michaels, has just alluded 
to.
    Using these more up-to-date ECS distributions has the 
potential to generate significantly lower estimates of the 
social cost of carbon by over 40 percent in some instances for 
both the DICE and the FUND models.
    Finally, another interesting aspect about these models is 
the fundamental question they ask. Are there actually costs 
associated with carbon dioxide emissions?
    Well, according to the FUND model the answer is no, because 
it actually allows for a negative social cost of carbon. In 
fact, under some assumptions there are actually substantial 
probabilities of a negative social cost of carbon. Under some 
assumptions, the social cost of carbon is negative two-thirds 
of the time. This would suggest that there are literally no 
costs, but rather benefits to carbon dioxide emissions, and if 
taken at face value, this would suggest that the government 
should subsidize, not tax carbon dioxide emissions.
    So what is the bottom line? As I have demonstrated, 
measurement of the social cost of carbon can be readily 
manipulated by conveniently selecting a discount rate, a time 
horizon, and climate sensitivity. It should be clear that these 
models are nowhere near reliable enough for energy policy 
rulemaking.
    And as I have illustrated in my own research, taking them 
seriously would provide significant economic harm and little 
environmental benefit.
    Thank you for your attention, and I look forward to your 
questions.
    [The prepared statement of Dr. Dayaratna follows:]
 Prepared Statement of Kevin D. Dayaratna, Ph.D., Senior Statistician 
    and Research Programmer, The Heritage Foundation, Washington, DC
    Chairman Bishop and members of the committee, thank you for the 
opportunity to testify about the social cost of carbon. My name is 
Kevin Dayaratna. I am the Senior Statistician and Research Programmer 
at The Heritage Foundation. The views I express in this testimony are 
my own and should not be construed as representing any official 
position of The Heritage Foundation.
    It seems to be a fundamental goal of the Obama administration to 
expand regulations across the energy sector of the economy. One of the 
primary metrics that the Administration has used to justify these 
regulations is the social cost of carbon (SCC), which is defined as the 
economic damages associated with a metric ton of carbon dioxide 
(CO2) emissions summed across a particular time horizon.\1\
---------------------------------------------------------------------------
    \1\ The official definition of the social cost of carbon is the 
economic damages per metric ton of CO2 emissions, and is 
discussed further in U.S. Environmental Protection Agency, ``The Social 
Cost of Carbon,'' http://www.epa.gov/climatechange/EPAactivities/
economics/scc.html (accessed September 14, 2013).
---------------------------------------------------------------------------
                               the models
    There are three primary statistical models that the Interagency 
Working Group (IWG) uses to estimate the SCC--the DICE Model, the FUND 
model, and the PAGE model.\2\ Over the course of my work at The 
Heritage Foundation, my colleagues and I have used the DICE and FUND 
models, testing their sensitivity to a variety of important 
assumptions. Our work has repeatedly illustrated that while these 
models might be interesting for academic exercises, they are far too 
sensitive to the modeler's assumptions to be legitimate tools for 
regulatory policy.\3\
---------------------------------------------------------------------------
    \2\ For the DICE model, see William D. Nordhaus, ``RICE and DICE 
Models of Economics of Climate Change,'' Yale University, November 
2006, http://www.econ.yale.edu/nordhaus/homepage/dicemodels.htm 
(accessed November 6, 2013). For the FUND model, see ``FUND--Climate 
Framework for Uncertainty, Negotiation and Distribution,'' http://
www.fund-model.org/ (accessed November 6, 2013). For the PAGE model, 
see Climate CoLab, ``PAGE,'' http://climatecolab.org/resources/-/wiki/
Main/PAGE (accessed November 6, 2013).
    \3\ Kevin D. Dayaratna and David W. Kreutzer, ``Unfounded FUND: Yet 
Another EPA Model Not Ready for the Big Game,'' Heritage Foundation 
Backgrounder No. 2897, April 29, 2014, http: // www.heritage.org / 
research / reports / 2014 / 04/ unfounded-fund-yet-another-epa-model-
not-ready-for-the-big-game; Kevin D. Dayaratna and David W. Kreutzer, 
``Loaded DICE: An EPA Model Not Ready for the Big Game,'' Heritage 
Foundation Backgrounder No. 2860, November 21, 2013, http://
www.heritage.org/research/reports/2013/11/loaded-dice-an-epa-model-not-
ready-for-the-big-game; and Kevin D. Dayaratna, and David Kreutzer, 
``Environment: Social Cost of Carbon Statistical Modeling Is Smoke and 
Mirrors,'' Natural Gas & Electricity, Vol. 30, No. 12 (2014), pp. 7-11.
---------------------------------------------------------------------------
    These models are estimated by Monte Carlo simulation. The general 
idea behind Monte Carlo simulation is that since some aspects of the 
models are random, the models are repeatedly estimated to generate a 
range of probable outcomes. As a result of fundamental principles in 
probability theory, repeated estimation for a sufficient amount of time 
reasonably characterizes the distribution.
    As with any statistical model, however, these models are grounded 
by assumptions. In our work, my colleagues and I have rigorously 
examined three important assumptions: the choice of a discount rate, a 
time horizon, and the specification of an equilibrium climate 
sensitivity distribution.
                             discount rate
    Because there are a host of investment opportunities, providing 
benefits for the future can be achieved in a host of ways. Discounting 
future benefits and costs to a common year is the tool economists use 
to measure the impact of a program compared to other possible 
investments. The discount rate should reflect the return on generally 
achievable alternative investments. The Environmental Protection Agency 
has run these models using 2.5 percent, 3 percent, and 5 percent 
discount rates despite the fact that the Office of Management and 
Budget guidance in Circular A-4 has specifically stipulated that a 7 
percent discount rate be used as well.\4\ At Heritage, we re-estimated 
these models using a 7 percent discount rate and obtained the following 
results.
---------------------------------------------------------------------------
    \4\ Office of Management and Budget, ``Circular A-4,'' White House, 
http://www.whitehouse.gov/omb/circulars_a004_a-4/ (accessed September 
14, 2013), and Paul C. ``Chip'' Knappenberger. ``An Example of the 
Abuse of the Social Cost of Carbon.'' Cato-at-Liberty. http://
www.cato.org/blog/example-abuse-social-cost-carbon (accessed September 
14, 2013).
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


    As we can see, the SCC estimates are drastically reduced under 
the use of a 7 percent discount rate. In fact, under the FUND model, 
the estimates are negative, suggesting that there are actually benefits 
to carbon dioxide emissions.
                              time horizon
    Our Founding Fathers almost surely would have had no ability to 
predict what the American economy looks like today. Similarly, we have 
no idea what the American economy will look like 300 years from now. 
Regardless, these SCC models are based on projections that are far out 
into the future. In my work at Heritage, I have changed this time 
horizon to the significantly less, albeit still unrealistic, time 
horizon of 150 years into the future, and we obtained the following 
results for the DICE model.

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


Clearly, the SCC estimates drop substantially as a result of 
changing the end year (in some cases by over 25 percent).
              equilibrium climate sensitivity distribution
    Estimating the SCC requires the specification of an equilibrium 
climate sensitivity (ECS) distribution. Scientists concur that the 
earth's temperature warms in response to carbon dioxide emissions. The 
real question, however, is how much warming would actually occur in 
response to a certain change in carbon dioxide emissions. ECS 
distributions quantify the earth's temperature response to a doubling 
of carbon dioxide emissions in terms of probabilities.

    The ECS distribution used by the IWG is based on a paper published 
in the journal Science 8 years ago by Gerard Roe and Marcia Baker. 
Since then, a variety of newer and more up-to-date distributions have 
been suggested in the peer-reviewed literature. Many of these 
distributions, in fact, suggest lower probabilities of extreme global 
warming in response to carbon dioxide emissions.\5\
---------------------------------------------------------------------------
    \5\ Gerard H. Roe and Marcia B. Baker, ``Why Is Climate Sensitivity 
So Unpredictable?'' Science, Vol. 318, No. 5850 (October 26, 2007), pp. 
629-632; Nicholas Lewis, ``An Objective Bayesian Improved Approach for 
Applying Optimal Fingerprint Techniques to Estimate Climate 
Sensitivity,'' Journal of Climate, Vol. 26, No. 19 (October 2013), pp. 
7414-7429; and Alexander Otto et al., ``Energy Budget Constraints on 
Climate Response,'' Nature Geoscience, Vol. 6, No. 6 (June 2013), pp. 
415-416.

    Using the more up-to-date ECS distributions (Otto et al. (2013) and 
Lewis (2013)), we notice drastically lower probabilities of extreme 
global warming. At Heritage, we re-estimated the SCC having used these 
---------------------------------------------------------------------------
more up-to-date ECS distributions and obtained the following results.

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

Again, we notice drastically lower estimates of the SCC using 
these more up-to-date ECS distributions. These results are not 
surprising--the IWG's estimates of the SCC were based on outdated 
assumptions that overstated the probabilities of extreme global 
warming, which artificially inflated their estimates of the SCC.
                               negativity
    When people talk about the social cost of carbon, they tend to 
think of damages. Not all of these models, however, suggest that there 
are always damages associated with carbon dioxide emissions. The FUND 
model, in fact, allows for the SCC to be negative based on feedback 
mechanisms due to carbon dioxide emissions. In our work at Heritage, we 
actually calculated the probability of a negative SCC under a variety 
of assumptions.

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

Interestingly, under a reasonable set of assumptions, the SCC 
is overwhelmingly likely to be negative, which would suggest the 
government should, in fact, subsidize (not limit) carbon dioxide 
emissions. I do not use these results to suggest that the government 
should actually subsidize carbon dioxide emissions, but rather to 
illustrate the extreme sensitivity of these models to reasonable 
changes to assumptions.
                         economic consequences
    Our results clearly illustrate that the models used to estimate the 
SCC are far too sensitive to reasonable changes in assumptions to be 
useful tools for policymaking. Even if we were to actually take these 
models seriously and implement the associated regulations, the results 
would be very costly. Our research at Heritage has shown that by 2030, 
we would suffer a peak employment shortfall of over 1,000,000 lost jobs 
and over 500,000 manufacturing jobs with a negligible impact (less than 
two-tenths of a degree Celsius) on global temperatures.\6\
---------------------------------------------------------------------------
    \6\ Kevin D. Dayaratna, Nicolas D. Loris, and David W. Kreutzer, 
``The Obama Administration's Climate Agenda: Will Hit Manufacturing 
Hard,'' Heritage Foundation Backgrounder No. 2990, November 13, 2014, 
http://www.heritage.org/research/reports/2014/11/the-obama-
administrations-climate-agenda-underestimated-costs-and-exaggerated-
benefits; Kevin D. Dayaratna, Nicolas D. Loris, and David W. Kreutzer, 
``The Obama Administration's Climate Agenda: Underestimated Costs and 
Exaggerated Benefits,'' Heritage Foundation Backgrounder No. 2975, 
November 13, 2014, http://www.heritage.org/research/reports/2014/11/
the-obama-administrations-climate-agenda-underestimated-costs-and-
exaggerated-benefits; Nicholas D. Loris, Kevin Dayaratna, and David W. 
Kreutzer, ``EPA Power Plant Regulations: A Backdoor Energy Tax,'' 
Heritage Foundation Backgrounder No. 2863, December 5, 2013, http://
www.heritage.org / research /reports /2013/12 /epa-power-plant-
regulations-a-backdoor-energy-tax; David W. Kreutzer, Nicholas D. 
Loris, and Kevin Dayaratna, ``Cost of a Climate Policy: The Economic 
Impact of Obama's Climate Action Plan,'' Heritage Foundation Issue 
Brief No. 3978, June 27, 2013, http://www.heritage.org/research/
reports/2013/06/climate-policy-economic-impact-and-cost-of-obama-s-
climate-action-plan; David W. Kreutzer and Kevin Dayaratna, ``Boxer-
Sanders Carbon Tax: Economic Impact,'' Heritage Foundation Issue Brief 
No. 3905, April 11, 2013, http://www.heritage.org/research/reports/
2013/04/boxer-sanders-carbon-tax-economic-impact; and Patrick J. 
Michaels and Paul C. ``Chip'' Knappenberger, ``Current Wisdom: We 
Calculate, You Decide: A Handy-Dandy Carbon Tax Temperature-Savings 
Calculator,'' Cato Institute, July 23, 2013, http://www.cato.org/blog/
current-wisdom-we-calculate-you-decide-handy-dandy-carbon-tax-
temperaturesavings-calculator (accessed September 11, 2014).
---------------------------------------------------------------------------
                               conclusion
    The SCC is based on statistical models that are extremely sensitive 
to various assumptions incorporated within the models. The following 
tables summarize this sensitivity for the year 2020.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

Moreover, the damage functions that the estimates are based on 
are essentially arbitrary with limited empirical justification. Even if 
one were to take their results seriously, their use would result in 
significant economic damages with little benefit to reducing global 
temperatures. As a result, these models, although they may be 
interesting academic exercises, are far too unreliable for use in 
energy policy rulemaking.

                               *********

    The Heritage Foundation is a public policy, research, and 
educational organization recognized as exempt under section 501(c)(3) 
of the Internal Revenue Code. It is privately supported and receives no 
funds from any government at any level, nor does it perform any 
government or other contract work.
    The Heritage Foundation is the most broadly supported think tank in 
the United States. During 2013, it had nearly 600,000 individual, 
foundation, and corporate supporters representing every state in the 
U.S. Its 2013 income came from the following sources:

                Individuals           80%
                Foundations           17%
                Corporations           3%

    The top five corporate givers provided The Heritage Foundation with 
2% of its 2013 income. The Heritage Foundation's books are audited 
annually by the national accounting firm of McGladrey, LLP.
    Members of The Heritage Foundation staff testify as individuals 
discussing their own independent research. The views expressed are 
their own and do not reflect an institutional position for The Heritage 
Foundation or its board of trustees.

                                 ______
                                 

    The Chairman. Thank you. I appreciate so far you have kept 
the 5-minute rule right there. You have been spot on.
    Mr. Dorsey, you are recognized for 5 minutes.

STATEMENT OF MICHAEL K. DORSEY, Ph.D., INTERIM DIRECTOR, ENERGY 
    AND ENVIRONMENT PROGRAM, JOINT CENTER FOR POLITICAL AND 
                ECONOMIC STUDIES, WASHINGTON, DC

    Dr. Dorsey. Thank you, Mr. Chairman. As well, thank you 
standing Ranking Member Lowenthal and members of the committee. 
It is a pleasure to be here with you this morning.
    I am Dr. Michael Dorsey, and I am Director of Energy and 
Environment Programs at the Joint Center for Political and 
Economic Studies, which is a nonprofit, nonpartisan public 
policy think tank here in DC.
    I want to make it clear before I start, to some of the 
colleagues here on the panel, that my comments are solely my 
own and do not represent policies of the Joint Center.
    That said, allow me to begin by just giving some background 
on the SCC. As you know, since Ronald Reagan, we have decided 
that significant rules issued by the Federal Government be 
accompanied through intra-governmental review by cost-benefit 
analysis. So really the SCC is nothing particularly new.
    As you know also, the current administration, following on 
the previous one before it, has imposed the requirement to 
assess climate regulation through the lens of a range of 
figures that we collectively refer to as the social cost of 
carbon, or the SCC.
    The SCC estimates the benefit to be achieved, as many of 
you have already said, expressed in monetary values, by 
avoiding damages caused by each additional metric ton of carbon 
dioxide.
    Essentially the SCC relies, as we know, on a discount rate 
greater than zero for the social cost of carbon. Choosing a 
discount rate is, indeed, I think a political exercise, but it 
is also a process, and I would concur that that process has to 
have a degree of transparency around it. By adding more 
transparency to that process, we improve efforts to calculate 
the SCC.
    I think when we think about accuracy though, we have to 
think about making accurate submissions of those who are 
involved in setting the process, such that what does 
transparency really mean. It means that any transparent SCC 
process must include the full disclosures of the financial 
interests of all those who are involved in trying to configure 
the SCC.
    The full disclosure of financial interests of those 
involved with the SCC calculations must emphasize I would say 
the conflicts of interest of all parties. This especially must 
apply to those parties that have interest in the fossil fuel 
sector, inasmuch as parties from that sector may have a strong 
incentive to devalue the SCC or inflate the discount rate used, 
in part, to calculate it.
    The Interagency Working Group, or the IWG's values for the 
social cost of carbon as they stand indicate that the discount 
rate used by the IWG may, indeed, be too high. Now, the equity 
weighting of global damages were not conducted. The IWG does 
justify including a significantly higher discount rate of up to 
5 percent.
    I would also add that the IWG should also provide a 
rationale for excluding significantly lower discount rates.
    The Working Group also should equity weigh the expected 
damages of climate change. Currently the Integrated Assessment 
Models that are underneath the SCC that the colleague to my 
right has talked about assumed the relative impacts of the 
dollar damages not varying regionally, but we know that the 
impact of one dollar of damages varies widely from region to 
region, and particularly within the country and between 
countries.
    In addition, climate damages should be weighed by relative 
per capita income in the region where they occur. This would 
also justify a much higher range of values for the SCC.
    I would add that the SCC should also be concerned with the 
disproportionate impacts that a dollar of damages will have on 
different regions in the country, as well as around the world. 
One of the things that we looked at at the Joint Center a 
couple of years back was the way in which the response to 
climate change was very uneven across the country, and we find 
places like Mr. Sablan pointed out where people are already 
suffering the early effects of this ongoing problem.
    So we need an SCC that really focuses upon the 
disproportioned impacts of climate change around the country.
    I would also say that members of this committee have an 
obligation to step up and to make sure that they are taking 
reasonably robust actions to ensure that we are drastically 
reducing carbon pollution in a timely manner proportionate with 
the unfolding climate crisis. That actually requires that we 
have a particularly high SCC and actually a relatively low 
discount rate.
    I think it is that orientation that we need to be focused 
on, because setting an accurate social cost of carbon that is 
based and rooted in transparency around critical disclosures 
is, I think, critical, and it is a critical step to achieving 
reductions in carbon emissions that we need to see in the 
future.
    Thank you.
    [The prepared statement of Dr. Dorsey follows:]
 Prepared Statement of Dr. Michael K. Dorsey, Interim Director of the 
Energy and Environment Program, Joint Center for Political and Economic 
                        Studies, Washington, DC
    I am Dr. Michael K. Dorsey, Interim Director of the Energy and 
Environment Program at the Joint Center for Political & Economic 
Studies (hereafter, the Joint Center), a nonprofit, non-partisan public 
policy research institute located here in Washington, DC. Before I 
begin my testimony, I would like to make clear that my comments are 
solely my own and do not represent any official position of the Joint 
Center.
                            what is the scc
    Since Ronald Reagan, we have decided that significant rules issued 
by the Federal Government be accompanied through intra-governmental 
review by a cost-benefit analysis.
    As you know, the Obama administration, like the Bush administration 
before it, has imposed a requirement to assess climate regulation 
through the lens of a range of figures collectively known as the 
``social cost of carbon'' or SCC.
    The SCC estimates the benefit to be achieved, expressed in monetary 
value, by avoiding the damage caused by each additional metric ton of 
carbon dioxide (CO2) put into the atmosphere.\1\
---------------------------------------------------------------------------
    \1\ Bell, R.G. and D. Callan. 2011. More than Meets the Eye--The 
Social Cost of Carbon in U.S. Climate Policy, in Plain English. WRI.
---------------------------------------------------------------------------
    Accordingly, the U.S. Court of Appeals for the Ninth Circuit ruled 
that executive branch agencies must include the climate benefits of a 
significant regulatory action in Federal benefit-cost analyses (BCA) to 
comply with Executive Order 12,866.
    In response, an Interagency Working Group on the Social Cost of 
Carbon was formed in 2010 to develop a consistent and accurate estimate 
of the social cost of carbon (SCC) using models drawn from scholarly 
and expert literature.\2\ The SCC is the global cost to all future 
generations from one additional unit of carbon pollution in a given 
time period; forest fires, drought, and disease are just some of the 
costly consequences of climate change that are ideally included within 
it.\3\
---------------------------------------------------------------------------
    \2\ Masur, J. S., & Posner, E. A. (2011). Climate regulation and 
the limits of cost-benefit analysis. Cal. L. Rev., 99, 1557.
    \3\ Howard, P. 2014. Omitted Damages: What's Missing from the 
Social Costs of Carbon.
---------------------------------------------------------------------------
    Yet we need to keep improving the SCC estimate to ensure it 
reflects the latest science and economics. Doing so maintains an 
accurate SCC.
    The SCC relies, as we know, on a discount rate greater than zero 
for the social cost of carbon. When we use such a discount rate we are 
making a value judgment--a moral judgment--that our society in this 
period of time is more valuable than future societies--than that of our 
children and their children. In other words we are saying: that our 
generation's burning of fossil fuels is possibly more valuable than a 
safe and livable planet.
    So choosing a discount rate is a moral and political exercise, not 
only a dispassionate, academic one. It is also a process.
    While legally there is no need for increased transparency in the 
process to set the SCC, we should ensure a transparent process for 
updating and using this critical number going forward that especially 
involves citizens (and their designated representatives) that we know 
will be disproportionately harmed by the unfolding climate crisis.\4\
---------------------------------------------------------------------------
    \4\ Cleetus, R. 2013. ``The Social Cost of Carbon: Setting the 
Record Straight Ahead of Today's House Hearing.''
---------------------------------------------------------------------------
    Further on any transparent SCC process must include the full 
disclosure of the financial interests of all of those who are involved 
in configuring the SCC. The full disclosure of the financial interests 
of those involved with SCC must emphasize the conflicts of interest of 
all parties. This especially must apply to any parties that have 
interests in the fossil fuel sector--inasmuch as parties from that 
sector may have a strong incentive to devalue the SCC (or inflate the 
discount rate used in part to calculate it).
    Alas, today's House hearing on the SCC might simply be a sideshow 
aimed at undermining climate action, not likely to focus on issues of 
substance. Relying on those that downplay the extent of the unfolding 
climate crisis or seeking ``opinions'' from fossil fuel backed, 
industry economists is dangerous for the country--given that such 
interested parties can have financial and other conflicts with setting 
an accurate SCC.
                  why does the scc need to be accurate
    The Interagency Working Group's (IWG) values for the Social Cost of 
Carbon (SCC), as they stand, indicate that the discount rates used by 
the IWG may be too high, and that equity weighting of global damages 
was not conducted.
    The IWG does give a justification for including a significantly 
higher-end discount rate of 5 percent (descriptive analysis of 
``possibility that climate damages are positively correlated with 
market returns'').\5\ The IWG should also provide a rationale for 
excluding significantly lower discount rates.
---------------------------------------------------------------------------
    \5\ See: IWG 2010.
---------------------------------------------------------------------------
    In fact, two members of the IWG--the Environmental Protection 
Agency (EPA) and Office of Management and Budget (OMB)--suggest that 
lower discount rates (between .5 and 3%) should be used in their own 
guidelines. The EPA suggests a use of lower discount rates in 
situations where there is ``long-run uncertainty in economic growth and 
interest rates, intergenerational considerations, and the risk of high 
impact climate damages (which could reduce or reverse economic 
growth).'' \6\ OMB notes that although ``most people demonstrate time 
preference [r] in their own consumption behavior, it may not be 
appropriate for society to demonstrate a similar preference when 
deciding between the well-being of current and future generations.'' 
\7\ These scenarios perfectly describe the scenario for rulemaking 
around carbon dioxide emissions and climate impacts; the lower discount 
rates, if modeled would, justify a much higher range of values for the 
SCC.
---------------------------------------------------------------------------
    \6\ See: EPA 2008.
    \7\ See: OMB 2003.
---------------------------------------------------------------------------
    The IWG must equity-weigh the expected damages of climate change, 
which means that their models assume that the relative impacts of a 
dollar of damages do not vary regionally--or that this type of judgment 
is an inappropriate one to make. Since the IWG used a global social 
cost of carbon dioxide, which was not mandatory under rulemaking, as 
they were concerned about the global impacts of emissions. It then 
follows that they should be concerned about the disproportionate 
impacts that a dollar of damages might have on different regions of the 
globe and in the country. Climate damages should be weighed by relative 
per-capita income in the region where they occur. This would also 
justify a much higher range of values for the SCC. Further on, this 
could also allow those that bear more responsibility for the generating 
carbon pollution, share a large burden in abating it--and ultimately 
avoid catastrophic climate change and the associated political, social, 
economic and ecological crises associated with it.
    Beyond the work on the SCC, we need to develop an Interagency 
Working Group on the Social Cost of Methane, analogous to the 
Interagency Working Group on the Social Cost of Carbon. Methane 
pollution is becoming a greater and greater problem for the United 
States as we expand our natural gas production. As scientists say we 
are nearing more and more climate tipping points, methane is also 
hugely important because although it is shorter lived in the 
atmosphere, its radiative forcing is much higher than carbon dioxide 
over any relevant time frame. Promulgating a Social Cost of Methane 
will allow the Administration to be more proactive in rulemaking and 
allow us to better mitigate the impacts of methane emissions on our 
Nation and the world.
                who's harmed if the scc is not accurate
    There is a highly academic discussion underway on the ``right'' 
discount rate to use in calculating the social cost of carbon. Discount 
rates are based on the assumption that a dollar in the future is worth 
less than a dollar today, assuming the global economy and prosperity 
grow. The SCC report provides estimates discounted at 2.5 percent, 3 
percent, and 5 percent. The choice of discount rate matters greatly 
because the impacts and costs of our carbon emissions will be borne 
primarily by future generations. The concept of discounting makes some 
sense when applied to individuals, not across generations.\8\
---------------------------------------------------------------------------
    \8\ Cleetus, R. 2013. ``The Social Cost of Carbon: Setting the 
Record Straight Ahead of Today's House Hearing.''
---------------------------------------------------------------------------
    Unlike conventional pollutants, CO2 persists in the 
atmosphere for 200 years or more. If we use a high discount rate for 
the SCC calculations, future costs could be minimized to the point of 
being ignored. And as a result, the benefits of actions to reduce 
emissions will also be greatly discounted. The math of compounding 
discount rates means that, for example with a rate of 7 percent, beyond 
the next two decades even a fairly significant cost would look small, 
and by the latter half of the century would approach zero. That is 
neither sensible from an economic point of view or an ethical point of 
view.\9\
---------------------------------------------------------------------------
    \9\ Cleetus, R. 2013. ``The Social Cost of Carbon: Setting the 
Record Straight Ahead of Today's House Hearing.''
---------------------------------------------------------------------------
    In fact, there is a growing consensus among economists that the 
best approach would be to use a declining discount rate to better 
reflect inter-generational considerations.
    There is a general consensus that future integrated assessment 
models (IAM) research must focus on hot spots. The ``hot spot'' regions 
are those that are geographically predisposed to climate change (for 
example, low lying nations and island nations), and those nations as 
well as communities in the United States with insufficient ability to 
adapt (for example, the poorest amongst us in the United States).\10\
---------------------------------------------------------------------------
    \10\ Howard, P. 2014. Omitted Damages: What's Missing from the 
Social Costs of Carbon.
---------------------------------------------------------------------------
    In the United States, the number of ``hot spots'' is growing and 
perhaps too numerous to elaborate. Examples include, but are by no 
means limited to Alaska, the southern Gulf Coast states and the West--
who are suffering from sea level rise, exceptionally strong hurricane 
events and sustained carbon pollution exacerbated droughts, 
respectively.
    A small example of the possible magnitude of these relocation costs 
are Alaskan native villages. In the case of relocating three Alaskan 
villages (Kivalina, Shishmaref, & Newtok), the cost is estimated by the 
U.S. Army Corps of Engineers to be between $275 million and $455 
million.\11\
---------------------------------------------------------------------------
    \11\ Lynn, K., & Donoghue, E. 2011. Tribal Climate Profile: 
Relocation of Alaska Native Communities. Tribal Climate Change Project 
at the University of Oregon. Retrieved from http://
tribalclimate.uoregon.edu/files/2010/11/AlaskaRelocation_04-13-11.pdf.
---------------------------------------------------------------------------
    In the United States, morbidity and mortality can be directly 
influenced by climate in six ways: (1) high and low temperature (that 
is, heat and cold stress), (2) vector-borne infectious disease, (3) 
non-vector-borne infectious disease (including, zoonotic and waterborne 
diseases, (4) air quality, (5) floods and storms, and (6) inter-sector 
effects of agriculture and water quality.\12\
---------------------------------------------------------------------------
    \12\ National Institute of Environmental Health Sciences. (2010). A 
human health perspective on climate change: A report outlining the 
research needs on the human health effects of climate change. In A 
Human Health Perspective On Climate Change: A Report Outlining the 
Research Needs on the Human Health Effects of Climate Change. 
Environmental Health Perspectives (EHP); National Institute of 
Environmental Health Sciences.
---------------------------------------------------------------------------
    In a 2012 study we conducted at the Joint Center, we found that 
marginalized communities of color in six southern and western states 
(Arizona, Arkansas, Louisiana, Oklahoma, New Mexico and Texas) face a 
``perfect storm'' of poor health, socioeconomic barriers and climate-
related challenges, and many are being left out of government climate 
change and disaster planning activities.\13\
---------------------------------------------------------------------------
    \13\ JCPES and THI. 2012. Climate Change, Environmental Challenges 
and Vulnerable Communities: Assessing Legacies of the Past, Building 
Opportunities for the Future.
---------------------------------------------------------------------------
    Accordingly, in the face of such knowledge, since the SCC IWG 
should be concerned about the disproportionate impacts that a dollar of 
damages will have on different regions of the country--and world.
    Our children and their children deserve to live in a world free 
from the extremely negative social, political, economic and ecological 
impacts of unchecked climate change. Our generation and the members of 
this committee have an obligation to step up to make sure we're taking 
reasonably robust actions to ensure that we're drastically reducing 
carbon pollution in a timely manner proportionate with the unfolding 
climate crisis. Setting an accurate social cost of carbon is one 
critical step to achieve this end. I would urge the members of the 
committee to keep this in mind.

                                 ______
                                 

    The Chairman. Thank you. I appreciate that.
    We will now hear from Mr. Segal.

     STATEMENT OF SCOTT H. SEGAL, FOUNDING PARTNER, POLICY 
                RESOLUTION GROUP, WASHINGTON, DC

    Mr. Segal. Chairman Bishop, Mr. Lowenthal, members of the 
committee, based on 25 years of practice of law and public 
policy in the environmental field, it is my pleasure to offer 
some thoughts on the Administration's use of the social cost of 
carbon.
    In short, the use of social cost is currently not an 
appropriate basis for setting policy and misleads the public 
regarding the true cost of government action.
    First, social cost is used to make expensive rules appear 
cost beneficial, when they are not. The methodology was used to 
make vehicle efficiency standards that had a net cost of $50 
billion appear to have a benefit of $100 billion, and the EPA's 
power plant rules relied on social cost for as much as 65 
percent of their alleged net benefits.
    As the President's climate action plan comes further into 
focus, more and more regulations claiming to reduce carbon 
emissions will use social cost to appear cost beneficial when 
the truth might be otherwise. It has already been cited in 114 
proposed or final rules across six Federal agencies.
    When actual environmental benefits fail to satisfy a 
skeptical audience, social costs should not be used as some 
type of Hamburger Helper to make the dish look more inviting 
than it really is.
    Some might say, ``Well, what is the harm in overestimating 
benefits? '' The Supreme Court reminded us earlier this month 
that too much wasteful expenditure devoted to one problem may 
well mean considerably fewer resources available to deal 
effectively with other perhaps more serious problems. Failing 
to recognize this reasoned the Court was irrational and 
inappropriate.
    Even EPA's Air Administrator recently told Congress when 
asked if a rule can actually claim a particularized benefit 
related to reducing climate change. She said, ``You can't 
predict the climate that way,'' and of course, she is right. 
Stopping a particular project or adopting a particular rule 
does not yield a benefit down to the ton. EPA does not think 
so, but this is precisely what the social cost purports to do.
    As a matter of law, social cost faces numerous legal, 
procedural, and other shortcomings associated with its 
development, derivation, and application--enough problems to 
clearly warrant the immediate discontinuation of the use of 
social cost values in the regulatory context.
    Also, the potential use of social cost by the CEQ as a 
basis for agencies to reject or condition project approval is 
troubling. Seemingly it is inconsistent with Supreme Court 
precedent that requires NEPA, National Environmental Policy 
Act, conditions to have a real causal relationship to the 
actual action under review.
    One basis for this conclusion is the uncertainty that 
swirls around the models used to determine social cost. This 
uncertainty falls short of the complete analytic defense and 
rational connection between factual inputs, modeling 
assumptions, and conclusions that have long been required by 
Federal courts as part of administrative law.
    MIT Professor Robert Pindyck said, by contrast, the models 
the Administration has used have, ``crucial flaws that make 
them close to useless as tools for policy analysis. They are 
completely ad hoc with no theoretical or empirical 
foundation.''
    The choice of models was never subject to public comment or 
review. Some have contended that social cost is not a rule. So 
why worry about procedural niceties like the Administrative 
Procedure Act.
    But APA itself says that rules encompass the ``approval and 
prescription of valuations, costs and accounting.'' And it is a 
good idea that the APA does. What is at stake in the carbon 
context is substantial. The EPA clean power plant alone may 
place electrical liability at risk, causing blackouts that can 
cost millions a minute while endangering human health; energy 
price increases; shut our businesses; deter hiring; cause 
layoffs; increase the price of essential goods and services; 
and increase the cost of living for all Americans, including 
for people living on fixed incomes, like senior citizens and 
the poor, who are hardest hit by rate hikes.
    If OMB does possess the legal authority to use social cost, 
which is a very open point, under APA it would still have to 
comply with the full range of procedural requirements, 
including advanced public notice, a full and robust opportunity 
for comment, and a description of the legal basis and purpose 
of the mechanism.
    The Interagency Working Group seems to concede this point 
in its recent brief response to comments, when they indicated 
they would bound the matter over for a potentially lengthy 
National Academy of Sciences review based on the need for 
``independent expert advice.'' But they would keep the old 
concept of social cost in place in the meantime.
    Ladies and gentlemen, that is not how the administrative 
process is supposed to work. You do not keep the bad process in 
place while you are waiting for the better one.
    The Administration also reiterated its commitment to 
calculate global benefits to carbon reductions even when no 
consideration is given to global dis-benefits associated with 
perpetuating energy poverty. The Intergovernmental Group says 
it prefers this because by adopting a global estimate we can 
signal our leadership, but there is no evidence that our 
leadership will be copied by other countries who, in fact, are 
our economic competitors.
    Well, thank you for the opportunity to testify. I look 
forward to working with the committee further as it completes 
its important oversight tasks.

    [The prepared statement of Mr. Segal follows:]
    Prepared Statement of Scott H. Segal, Founding Partner, Policy 
               Resolution Group, Bracewell & Giuliani LLP

    Chairman Bishop, Ranking Member Grijalva, and members of the 
committee, my name is Scott Segal and I am a partner in the Policy 
Resolution Group of the law firm Bracewell and Giuliani where I have 
practiced energy, environmental and natural resource law for over 25 
years. I also direct the Electric Reliability Coordinating Council,\1\ 
a group of energy companies working on common-sense environmental 
policy, including approaches to climate change, but the comments I 
present today are my own. It is an honor to be here today to address 
the issue of the use of the social cost of carbon (SCC) in rulemaking 
and other administrative actions. In short, the methodology promoted by 
the Administration is not an appropriate basis for setting policy and 
misleads the public regarding the true costs of government action.
---------------------------------------------------------------------------
    \1\ ERCC filed comments regarding SCC Technical Support Documents 
pursuant to the notice at 78 Fed. Reg. 70,586 (Nov. 26, 2013). The 
comments are available at regulations.gov as FR Doc #2014-01605, dated 
Feb. 26, 2014.
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                        why the scc is misguided

    Any part of the regulated community with passing interest in carbon 
policy and attendant regulatory development needs to be concerned with 
the development and use of SCC. Because a higher value for SCC can be 
used directly to justify broader reaching and more expensive 
regulations, or to deny permits, the SCC itself must be subject to 
close scrutiny. Let me give you some real world examples:

     A Department of Transportation (DOT) vehicle efficiency 
            standard would impose a cost of $350 billion on 
            manufacturers and would return conventional benefits of 
            $278 billion, meaning costs outweigh benefits by more than 
            $50 billion. But when DOT factored in SCC, suddenly the 
            regulation benefits exceeded cost by $100 billion; \2\
---------------------------------------------------------------------------
    \2\ Mark Drajem, Obama Quietly Raises `Carbon Price' as Costs to 
Climate Increase, BLOOMBERG (June 12, 2013, 2:52 PM), http://
www.bloomberg.com/news/2013-06-12/tougher-regulationsseen-from-obama-
change-in-carbon-cost.html; Jay G. Stirling, How to Deal with Hornets: 
The Administrative Procedure Act and the Social Cost of Carbon, 100 
Iowa Law Rev. (2015) at 855-56.
---------------------------------------------------------------------------
     When the U.S. Environmental Protection Agency (EPA) 
            proposed its carbon emissions guidelines for existing power 
            plants, it estimated net benefits of $26 to $46 billion by 
            as soon as 2020--with some 40 to 65 percent of these 
            alleged net benefits deriving directly from SCC.\3\
---------------------------------------------------------------------------
    \3\ Carbon Pollution Emission Guidelines for Existing Stationary 
Sources: Electric Utility Generating Units, 79 Fed. Reg. 34,830, 34,840 
tbl.1 (June 18, 2014) (to be codified at 40 C.F.R. pt. 60); Stirling at 
856.

    And as the President's Climate Action Plan comes further into 
focus, more and more regulations claiming to reduce carbon emissions as 
a primary or secondary benefit will use SCC to appear cost-beneficial 
when the truth might be otherwise. When actual environmental benefits 
fail to satisfy a skeptical audience, SCC should not be used as 
Hamburger Helper to make the dish look larger than it really is.
    But that's the real problem. When rulemakings and other government 
actions impose real costs, and when benefits analysis can be 
manipulated to yield almost any number, the result is a serious 
misallocation of limited societal resources. The U.S. Supreme Court has 
recently put the EPA on notice that it expects an honest assessment of 
cost and benefit. In Michigan v. EPA, the Court said that, ``One would 
not say that it is even rational, never mind `appropriate,' to impose 
billions of dollars in economic costs in return for a few dollars in 
health or environmental benefits.'' The Court explains why:

        ``Consideration of cost reflects the understanding that 
        reasonable regulation ordinarily requires paying attention to 
        the advantages and the disadvantages of agency decisions. It 
        also reflects the reality that `too much wasteful expenditure 
        devoted to one problem may well mean considerably fewer 
        resources available to deal effectively with other (perhaps 
        more serious) problems.' (quoting Justice Breyer in a previous 
        decision).'' \4\
---------------------------------------------------------------------------
    \4\ Michigan v. EPA, 576 U. S. ____ (2015), slip op. at 7.

    The SCC as it stands now is an admittedly one-sided assessment 
under which the mere allusion to carbon reductions can confer large 
benefits, even if the proposed action will have no effect on global 
warming and related environmental endpoints. The fact that particular 
rules cannot predictably result in reduction of climate-change 
endpoints in a linear fashion was recently demonstrated in an exchange 
between a Member of the House of Representatives and the EPA Acting 
---------------------------------------------------------------------------
Assistant Administrator for Air Janet McCabe:

        ``Mr. Pompeo. You have gone from 26 to 30 indicators on your 
        Web site about how you measure impact of what you-all call 
        climate change today. So I want to ask you a series of yes or 
        no questions about this set of regulations, these carbon 
        regulations [on power plants], and what you think they will do 
        to the indicators that EPA uses. So, yes or no, will this set 
        of rules, when fully implemented, reduce sea surface 
        temperatures.

        Ms. McCabe. I can't answer that. I don't know.

        Mr. Pompeo. Will this reduce ocean acidity?

        Ms. McCabe. It will contribute to reducing ocean acidity.

        Mr. Pompeo. Do you have the data to support that, and can you 
        tell how much and when we will see reduced ocean acidity as a 
        result of these regulations?

        Ms. McCabe. You can't predict the climate this way.

        Mr. Pompeo. I will take that as you have no idea.'' \5\
---------------------------------------------------------------------------
    \5\ Transcript of Hearing on EPA's Proposed Carbon Dioxide 
Regulations for Power Plants, House Committee on Energy and Commerce, 
Subcommittee on Energy and Power (June 19, 2014), at 88, available at 
http://democrats.energycommerce.house.gov/sites/default/files/documents 
/ Preliminary-Transcript- EP- EPA -Carbon-Dioxide-Regulations-Power-
Plants-2014-6-19.pdf.

    Ms. McCabe is of course correct. You cannot look at a particular 
rulemaking or administrative action and determine what effect it will 
have on any particular climate impact. As she says, ``You can't predict 
the climate this way.'' Yet, that is precisely what the SCC would 
purport to do, utilizing hand-picked inputs into hand-picked integrated 
assessment models (IAMs).
   scc is inappropriate as a basis for rulemaking and administrative 
                                 action
    Our colleagues at the Utility Air Regulatory Group (UARG) offered a 
succinct discussion of the legal shortcomings that manifest from 
reliance on the SCC methodology as currently developed, pointing to 
``numerous legal, procedural, and other shortcomings associated with 
the development, derivation, and application of the SCC'' sufficient to 
``warrant the immediate discontinuation of the use of SCC values in the 
regulatory context.'' They continue:

        ``OMB has not identified any legal authority for this 
        proceeding, and lacks statutory authority to promulgate rules 
        that would bind the USG to use its SCC estimates in regulatory 
        analyses and agency proceedings. Adoption of the SCC values 
        would be arbitrary, capricious, and contrary to law because 
        such action would be unauthorized by statute and because the 
        TSD is substantively flawed. Because there are no statutory 
        principles to guide OMB's exercise of discretion, this action 
        also raises serious constitutional concerns under the non-
        delegation and separation of powers doctrines. In effect, OMB 
        is purporting to exercise nonexistent legislative authority in 
        prescribing policy to be followed by other agencies regarding 
        consideration of the SCC in regulatory analyses and 
        decisions.'' \6\
---------------------------------------------------------------------------
    \6\ UARG Comments on Social Cost of Carbon Technical Support 
Document and Updates, 78 Fed. Reg. 70,586 (Nov. 26, 2013), Docket ID 
No. OMB-2013-0007, at 3. See, e.g., Coal. for Common Sense in Gov't 
Procurement v. Sec'y of Veterans Affairs, 464 F.3d 1306, 1317 (Fed. 
Cir. 2006) (``The definition of a substantive rule is broad and 
includes action that is legislative in nature, is primarily concerned 
with policy considerations for the future rather than the evaluation of 
past conduct, and looks not to the evidentiary facts but to 
policymaking conclusions to be drawn from the facts.'') (internal 
quotations omitted).

    Others before the committee today can review in greater detail the 
numerous flaws within models, including underlying sensitivity 
assumptions. Curious choices abound regarding discount rates 
inconsistent with growth-rate assumptions and the use of international 
benefits to reducing carbon when international costs are regarded as 
too speculative. But in short, there are simply too many uncertainties 
in both the models themselves and in their application to neat and tidy 
SCC numbers ready to be plugged in to any regulatory impact analysis.
    Sometimes, it appears as though the Intergovernmental Working Group 
(IWG) tasked with developing the SCC is satisfied to simply state that 
we live in an uncertain world, and therefore our rulemaking process 
should expect no better. But we do expect better. And it is long-
settled administrative law that the Federal Government cannot waive a 
wand and call magic numbers into existence to justify its activities. 
The Federal appeals courts have explained why:

        ``[The agency] must provide a complete analytic defense of its 
        model [and] respond to each objection with a reasoned 
        presentation. The technical complexity of the analysis does not 
        relieve the agency of the burden to consider all relevant 
        factors . . . There must be a rational connection between the 
        factual inputs, modeling assumptions, modeling results and 
        conclusions drawn from these results.'' \7\
---------------------------------------------------------------------------
    \7\ Sierra Club v. Costle, 657 F.2d 298, 333 (D.C. Cir. 1981) 
(internal quotations omitted).

    As one indication that this minimum threshold is not met by the SCC 
process, consider the fact that the IWG ``simply asserts without any 
documentation or other justification that the FUND, PAGE, and DICE 
models now stand as the most comprehensive and reliable efforts to 
measure the economic damages from climate change. No evidence is 
offered to support that judgment.'' \8\
---------------------------------------------------------------------------
    \8\ Frank Ackerman & Elizabeth A. Stanton, ``The social cost of 
carbon,'' 53 Real World Economics Review 129 (2010), at 135.
---------------------------------------------------------------------------
    Further, noted MIT economist Robert Pindyck, despite his general 
support for the SCC conceptual framework, observed that IAMs ``have 
crucial flaws that make them close to useless as tools for policy 
analysis . . . [; they] are completely ad hoc, with no theoretical or 
empirical foundation. . . . IAM-based analyses of climate policy create 
a perception of knowledge and precision, but that perception is 
illusory and misleading.'' \9\
---------------------------------------------------------------------------
    \9\ Robert S. Pindyck, Climate Change Policy: What do the Models 
Tell Us?, National Bureau of Economic Research Working Paper 19244 
(abstract) (2013), available at http://www.nber.org/papers/W19244.
---------------------------------------------------------------------------
    The stakes in the current context are simply too high to proceed 
without an adequate framework. If OMB wishes to proceed as indicated in 
its most recent response to comments, then it must stop, propose an 
open and transparent basis under the strictures of the Administrative 
Procedure Act (APA) and invite comments on the legal basis for SCC and 
its use as a factor in justifying regulations.
             violations of the administrative procedure act
    OMB has on several occasions reminded the Congress that SCC is not 
a rule or regulation, but merely an ``ingredient'' that is used in a 
broader cost-benefit context.\10\ But the APA defines a ``rule'' as 
including any ``agency statement of general or particular applicability 
and future effect designed to implement, interpret, or prescribe law or 
policy,'' encompassing ``the approval or prescription of . . . 
valuations, costs, or accounting.'' \11\ Contrary to OMB's 
conceptualization, the courts have held that the APA definition 
includes ``virtually every statement an agency may make.'' \12\ If OMB 
does possess the legal authority to establish an SCC--an open point--
under APA it would still have to comply with the full range of 
procedural requirements, including advance public notice, a full and 
robust opportunity for comment, and a description of the legal basis 
and purpose of the SCC mechanism. Any process short of these safeguard 
would be regarded, in the famous words of the statute, as ``arbitrary, 
capricious, an abuse of discretion, or otherwise not in accordance with 
law.'' \13\
---------------------------------------------------------------------------
    \10\ See, e.g., Examining the Obama Administration's Social Cost of 
Carbon Estimates, Hearing before the Subcomm. on Energy Policy, Health 
Care and Entitlements, Comm. on Oversight and Government Reform, U.S. 
House of Representatives (July 18, 2013), at 12 (hereinafter 
``Shelanksi testimony'').
    \11\ 5 U.S.C. Sec. 551(4).
    \12\ Avoyelles Sportsmen's League, Inc. v. Marsh, 715 F.2d 897, 908 
(5th Cir. 1983).
    \13\ 5 U.S.C. Sec. 706(2)(A).
---------------------------------------------------------------------------
    One cannot consider the development and use of SCC as anything 
other than a substantive rule. After all, OMB claims that SCC is 
``extremely important . . . measure of what harm to our society will 
be'' in determining regulatory priorities.\14\ Once final, the entire 
Federal Government is to use SCC in determining and calibrating 
regulatory standards that impose real burden on the regulated 
community, and beyond that, on the American public at large.
---------------------------------------------------------------------------
    \14\ Shelanski testimony at 12.
---------------------------------------------------------------------------
    The case study of the EPA is particularly telling, in light of the 
disproportionate impact the Agency has had in the development of SCC 
and the operation of the IWG.\15\ The costs to the American public of 
EPA carbon regulation will indeed be large in the context of the Clean 
Power Plan (CPP) currently under consideration. The Electric 
Reliability Coordinating Council reviewed the literature on the 
proposal and found the following:
---------------------------------------------------------------------------
    \15\ While the use of SCC first appeared in relatively obscure U.S. 
Department of Energy proposed efficiency standards--small engines, 
coin-operated beverage machines and then microwave ovens--these 
regulations may merely have been a front to obscure the true 
beneficiary of the methodology, EPA, an agency committed to far more 
extensive and expensive rules. The Government Accountability Office 
(GAO) found in July 2014 that ``experts'' from the Council of Economic 
Advisors that had been detailed to the IWG were from EPA, and by the 
time the methodology was changed and expanded, had even returned to the 
Agency but still maintained seats on the IWG. With respect to each of 
the IAM models, it was EPA that made the presentations on how the 
models worked, and it was EPA that supervised the running of those 
models to generate the SCC numbers. GAO, Regulatory Impact Analysis: 
Development of Social Cost of Carbon Estimates, GAO-14-663 (July 2014), 
at pp. 10-15.

     The CPP puts the reliability of the U.S. electricity 
            supply at risk. In fact, a growing chorus of independent 
            experts have expressed their concern for the future of 
            America's affordable, dependable electricity supply were 
---------------------------------------------------------------------------
            the CPP to take effect.

     Blackouts cause incalculable economic damage. For example, 
            the direct costs to high technology manufacturing in the 
            San Francisco Bay Area alone during the California 
            blackouts alone ran as high as $1 million a minute due to 
            lost production, and the relatively brief Northeast 
            blackout of 2003 cost business about $13 billion in lost 
            productivity.

     The CPP will impose tremendous costs on the U.S. economy 
            and the American people. Higher energy prices will produce 
            a ripple effect throughout the U.S. economy that will 
            shutter businesses, deter hiring, cause layoffs, increase 
            the price of essential goods and services, and increase the 
            cost-of-living for all Americans. People living on fixed 
            incomes, like senior citizens and the poor, will be hardest 
            hit by rate hikes.\16\
---------------------------------------------------------------------------
    \16\ ERCC Comments on EPA's Proposed Clean Power Plan (June 2014), 
ID No. EPA-HQ-OAR-2013-0602, available at https: // www.cibo.org / wp-
content / uploads / 2014 / 07 / ERCC-Comments-on-111d.pdf.

    In this case, the OMB would be attempting to ``prescribe law or 
policy'' by specifying particular ``valuations, costs or accounting'' 
under alleged executive authority, without authorization by Congress, 
and without following the full and open APA procedures required by law 
and designed to subject the SCC to rigorous quality assurance. Meeting 
these APA standards is required before action is taken, not after the 
numbers are generated time and time again. To date, OMB has cherry-
picked the administrative process by selecting models, generating 
estimates, and applying them--all before seeking any comment.
                       openness and transparency
    President Obama famously instructed heads of executive departments 
and agencies that:

        ``My administration is committed to creating an unprecedented 
        level of openness in Government . . . Transparency promotes 
        accountability and provides information for citizens about what 
        their Government is doing. Information maintained by the 
        Federal Government is a national asset.'' \17\
---------------------------------------------------------------------------
    \17\ President Barack Obama, Transparency and Open Government, 
Memorandum for the Heads of Executive Departments and Agencies, 
available at https://www.whitehouse.gov/the_press_office/
TransparencyandOpenGovernment.

    OMB Director Peter Orszag offered further definition as to how 
---------------------------------------------------------------------------
these principles would be implemented:

        ``The three principles of transparency, participation, and 
        collaboration form the cornerstone of an open government. 
        Transparency promotes accountability by providing the public 
        with information about what the Government is doing. 
        Participation allows members of the public to contribute ideas 
        and expertise so that their government can make policies with 
        the benefit of information that is widely dispersed in society. 
        Collaboration improves the effectiveness of Government by 
        encouraging partnerships and cooperation within the Federal 
        Government, across levels of government, and between the 
        Government and private institutions.'' \18\
---------------------------------------------------------------------------
    \18\ Peter R. Orszag, Dir., OMB, Memorandum for the Heads of 
Executive Departments and Agencies, Open Government Directive (Dec. 8, 
2009), available at http://www.whitehouse.gov/open/documents/open-
government-directive.

    The development of SCC by the IWG has not lived up to the 
Administration's explicit commitment. The Federal Government has never 
discussed openly the fundamental questions regarding the purpose, 
development, derivations, and bases for applying the SCC in the 
rulemaking context. These would be the essential elements of 
transparency and openness as it applies to SCC. Instead, the 
Administration has only narrowly sought comment on the November update 
to the May 2013 TSD, an 11-page document modifying the February 2010 
document. The choice of models, and their operation, has not undergone 
peer review, let alone public comment.
                      recent response to comments
    While the IWG has now offered brief response to sophisticated 
comments challenging the veracity of the SCC development process, the 
July 2 Response to Comments (RTC) document still forms an inadequate 
basis for utilizing the SCC in the rulemaking or administrative 
process.
    First, IWG admits that despite the comments filed, it still plans 
``to seek independent expert advice on technical opportunities to 
improve the SCC estimates, including many of the approaches suggested 
by commenters . . .'' This independent assessment will come from a 
tasking of the National Academies of Sciences, Engineering, and 
Medicine, or NAS, to ``examine the technical merits and challenges'' 
present in the effort to improve SCC. But IWG candidly admits that the 
NAS ``review will take some time'' during which time ``IWG continues to 
recommend the use of the current SCC estimates in regulatory impact 
analysis . . .'' The only actual revisions to the SCC are described by 
IWG as constituting ``a minor technical revision.'' \19\ This gets the 
comment process precisely backwards. Until the NAS has completed its 
work, the SCC remains too imprecise for use in the policymaking context 
and should not be utilized. As the IWG reminds readers throughout the 
RTC, direct costs and benefits to proposed rules and actions may 
continue to be measured outside of the elaborate artifice of SCC; there 
is no need to subject the American taxpayer to the results of SCC-
driven policy when NAS review is still underway.
---------------------------------------------------------------------------
    \19\ IWG, Response to Comments (RTC):Social Cost of Carbon for 
Regulatory Impact Analysis Under Executive Order 12866 (July 2015) at 
5, available at https://www.whitehouse.gov/sites/default/files/omb/
inforeg/scc-response-to-comments-final-july-2015.pdf.
---------------------------------------------------------------------------
    Second, the RTC demonstrates continual conflating of policy 
outcomes under the guise of SCC economic objectivity. For example, IWG 
states that it has chosen not even to consider the typical 7 percent 
discount rate that is consistent with IWG's own economic growth 
projections because it believes ``special ethical considerations'' may 
obtain in the context of climate change policy development.\20\ Whether 
such special considerations are appropriate is clearly not a matter of 
economics, but of policy consideration that of necessity must be left 
to the U.S. Congress.
---------------------------------------------------------------------------
    \20\ RTC at 21.
---------------------------------------------------------------------------
    Third, on the matter of consideration of global benefits to carbon 
reductions--even when no consideration is given to global ``dis-
benefits'' associated with perpetuating energy poverty \21\--IWG 
indicates that its preference is based in part on the notion that, ``By 
adopting a global estimate of the SCC, the U.S. Government can signal 
its leadership in this effort.'' \22\ Again, this is a policy 
assessment better left to Congress--the importance of leadership--and 
not an objective economic assessment. Indeed, unilateral carbon policy 
may not only fail to manifest in a copying effect overseas, it may do 
the opposite resulting in ``leakage'' of energy-intensive industries to 
less energy-efficient economies, resulting in greater carbon emissions 
worldwide! \23\
---------------------------------------------------------------------------
    \21\ For more on energy poverty, see e.g., Rep. David McKinley, 
``Powering Africa by Investing in Coal,'' The Hill, Aug. 8, 2014 
(citing WH ``Next Generation'' summit, McKinley observes, ``Poverty-
stricken countries need access to all forms of energy, not just the 
forms approved by the Obama administration or the World Bank . . . 
Without energy, it's impossible to educate children and give them a 
brighter future. Without energy it is impossible to grow businesses and 
encourage entrepreneurship.''), at http://thehill.com/blogs/congress-
blog/energy-environment/214604-powering-africa-by-investing-in-coal.
    \22\ RTC at 31.
    \23\ For a fuller explanation of the leakage effect, see ERCC 
Comments Submitted to EPA on the New Source Performance Standards for 
Power Plant Carbon Emissions (June 25, 2012), at http: // www. 
electricreliability.org / ercc -comments-submitted- epa -new-source-
performance-standards-power-plant-carbon-emissions (citing Maguire 
Energy Institute report and other studies demonstrating that, ``Carbon 
leakage means that the domestic climate mitigation policy is less 
effective and more costly in containing emission levels, a legitimate 
concern for policymakers.'').

    Thank you for this opportunity to testify. I look forward to 
working with the committee further as it completes its important 
---------------------------------------------------------------------------
oversight tasks.

                                 ______
                                 

    The Chairman. Thank you.
    I want to thank the witnesses for their testimony, 
reminding Members that we now will enter the question phase 
with 5-minute time limits on the questions as well.
    As usual, I am going to defer until the other committee 
members have had a chance to ask questions first. So we will 
start with Mrs. Lummis.
    Do you have questions?
    Mrs. Lummis. Yes, thank you, Mr. Chairman.
    I would like to just begin by saying that I believe climate 
change is real, and I like to watch programs like ``Nova'' 
which is on Public Television, and I recall a program that 
talked about the climate changes that were going on 300 years 
ago.
    So let's go back to 1715. Let's think about the fact that 
the Delaware River was always frozen in the winter. It was 
always cooler than it is now because when Washington crossed 
the Delaware, they were dodging ice chunks to get across the 
river to get to fight the Hessians that were camped on the 
other side.
    There were years in Europe when summer never came, and it 
is documented. Hence, I really do believe in climate change.
    But my question is this for Dr. Dayaratna. Is it reasonable 
to use 285 years' time line projecting into the future, given 
what we know and do not know about climate change that was 
going on in the past? Is that an appropriate time line to guide 
regulators?
    Dr. Dayaratna. Thank you for your question.
    I do not think it is an appropriate time line because it is 
difficult to envision what things would look like that far into 
the future, just like our Founding Fathers would have no idea 
what the American economy would look like today. So that is 
exactly why, when I reran these models in my work, I actually 
re-estimated them using a shorter time horizon.
    And my colleague, Pat Michaels, can also chime in on that.
    Dr. Michaels. Yes, could you put up the last image I 
showed? That one right there.
    [Slide.]
    Congresswoman Lummis, this is a graphic that shows the 
profound failure of the climate models that are at the basis 
for the social cost of carbon calculations. It is done by Roy 
Spencer and John Christy. It was presented in front of this 
committee. It is the free atmosphere temperature in the dots 
and the squares taken from weather balloons and satellites, and 
the red is the average of the United Nations climate models 
that are capable of measuring free atmospheric temperature.
    This graph speaks for itself. If you think we are supposed 
to be able to do 285 years, the fact of the matter is, we 
cannot do 20.
    Mrs. Lummis. Now, Mr. Segal, given those responses, I want 
to shift and ask this question. Can you explain how this social 
cost of carbon rule is impacting the cost-benefit analysis of 
major rules and regulations, like vehicle efficiency standards 
and the EPA's proposed carbon regulations?
    And I further want to ask you: do you believe that the 
automobile, the internal combustion engines that we use today 
in some vehicles, will be the same 285 years from now?
    Mr. Segal. Well, I will answer the last one first. It might 
be a little beyond my pay grade, but my supposition is no. I 
think that automobility and also the way we generate 
electricity are going to be profoundly different as time 
marches on.
    I also think that those technologies which we will deploy 
to adapt to the effects of climate change, including flooding, 
ocean acidity, you know, all of the 30 endpoints that the EPA 
describes as the accepted endpoints for climate change damage, 
adaptation is also going to occur that does not take into 
account in a straight linear progression like these models are.
    But as far as the question goes to process and procedure is 
concerned, we are dealing with a situation of radical 
uncertainty. I mean, you have seen--not only is the nature of 
your question illustrative of that, but also the presentations 
that have just been made.
    The choice of the very models that went into this was never 
subject to notice and comment, was never subject to any type of 
an analytical framework, and even when the Interagency Working 
Group asked for comment, they assiduously avoided comment on 
the question of are the fundamental assumptions appropriate and 
do they have legal authority to utilize social cost as a 
mechanism to call balls and strikes.
    And what is the result? On two separate fronts, the 
Environmental Protection Agency utilizes social cost and also 
utilizes something called co-benefits, which I know you are 
very familiar with, claiming benefits on the health side to 
augment the benefits case for rules.
    Mrs. Lummis. Thank you, Mr. Chairman. My time is up.
    The Chairman. Thank you.
    Mr. Lowenthal.
    Dr. Lowenthal. Thank you.
    I just want to check just to understand where I am and ask 
each member of the panel yes or no. Do you believe there should 
be any social cost of carbon value that agencies should 
incorporate into their cost-benefit analysis?
    Do you believe that we should be coming up with some cost, 
social cost of carbon value? Yes or no?
    Dr. Michaels. Yes.
    Dr. Dayaratna. No.
    Dr. Dorsey. Yes.
    Mr. Segal. I'm a lawyer. I can't do yes or no. After an----
    Dr. Lowenthal. Yes or no?
    Mr. Segal. After administrative process that's sufficient, 
yes.
    Dr. Lowenthal. OK.
    Mr. Segal. Right now, no.
    Dr. Lowenthal. So you believe it, yes. You are just 
saying----
    Mr. Segal. Yes.
    Dr. Lowenthal. So you believe that it is not. So I believe 
that three of you have said yes there is some social cost, we 
should be having a social cost. So we are really arguing now 
about a model, not whether we should be reducing.
    Do you also agree we should be reducing greenhouse gas 
emissions in order to lessen the impact on climate?
    Dr. Michaels. Are we going down the platform?
    Dr. Lowenthal. Yes.
    Dr. Michaels. Not necessarily. There are some----
    Dr. Lowenthal. Not necessarily. Thank you. That is it. Next 
person.
    Should be we lessening, should we be reducing greenhouse 
gas emissions in order to lessen the impact on climate? Yes or 
no.
    Dr. Dayaratna. The short answer is no.
    Dr. Lowenthal. No, and this is--and the first answer was 
what, maybe?
    Dr. Michaels. It was not necessarily.
    Dr. Lowenthal. Not necessarily.
    Dr. Michaels. Negative can be a benefit.
    Dr. Lowenthal. So you are saying it is a benefit also.
    Dr. Michaels. It can be.
    Dr. Dorsey. Absolutely.
    Dr. Lowenthal. Absolutely.
    Mr. Segal. Sure, I will go along. Yes.
    Dr. Lowenthal. So we should be reducing it. We are only 
talking about now, the formulas that we use, not that it exists 
at all.
    So I want to ask how you came up with these kinds of 
things. Dr. Michaels, your sensitivity estimates that you have 
given us which you say reflect this new scientific reality, I 
just want to say that in the past you also have had a number of 
other predictions. You predicted that the Toyota Prius would 
never be profitable because clean energy could not be cost 
effective at scale. It is now the third best selling car.
    You attacked the mainstream scientific position on the 
depletion of the stratospheric ozone layer, and now we 
understand that the mainstream position was right.
    On climate change, you wrote in 2013, it is a pretty good 
bet that we are going to go nearly a quarter of a century 
without warming, and now we know that 2014 was the hottest year 
on record by many indicators.
    So with that kind of background, I am just trying to 
understand who you are. You're a member scientist of the 
Advancement of Sound Science Coalition, which is an 
organization that was created and funded by the tobacco 
industry to fight anti-tobacco legislation.
    Now you work for Cato, which is a documented climate denier 
funding, and you are asking us to trust you on that.
    Were you a member scientist or did you play a role in the 
Advancement of Sound Science Coalition?
    Dr. Michaels. That was very long ago.
    Dr. Lowenthal. Were you?
    Dr. Michaels. If I played a role, it was certainly minimal.
    Dr. Lowenthal. Were you a member?
    Dr. Michaels. I have to address----
    Dr. Lowenthal. Were you a member?
    Dr. Michaels. Yes, I was. I was----
    Dr. Lowenthal. Thank you.
    Dr. Michaels [continuing]. Not active. May I answer your 
question, your assertion about no warming for 25 years and then 
you said, well, 2015 is a very warm year so you have to be 
wrong about that?
    Dr. Lowenthal. 2013.
    Dr. Michaels. 2013, 2015, whatever. The fact of the matter 
is----
    Dr. Lowenthal. You say in 2013 it is going to be a quarter 
of a century without warming, and we now know that 2014 was the 
hottest.
    Dr. Michaels. Yes, but that did not induce a significant 
warming trend. The problem is that there are so many background 
years where there is no warming that even if we resumed the 
warming rate that occurred from 1976 through 1998 of .17 +C per 
decade----
    Dr. Lowenthal. Thank you. I do----
    Dr. Michaels [continuing]. We would have to go 25 years to 
get to a significant warming trend.
    Dr. Lowenthal. I have one. Mr. Dayaratna, you work for an 
organization that not only takes fossil fuel funding, it takes 
funding from the two organizations--Donors Trust and Donors 
Capital Fund, which are the largest funders of climate denial 
efforts.
    Does this money ever end up in your pocket?
    Dr. Dayaratna. Congressman, I do not interact with any of 
the donors whatsoever, and in fact, on the last page of my 
testimony----
    The Chairman. I appreciate your willingness and desire to 
answer the question. Time has elapsed.
    Dr. Dayaratna. OK.
    The Chairman. I understand it is somewhat unfair to ask you 
those questions when you have 2 seconds left, but tough.
    So as we continue our expulsion of greenhouse gas with more 
questions from the committee, Mr. Gohmert.
    Mr. Gohmert. Thank you, Mr. Chairman.
    Thank you to the witnesses for being here, and I will try 
to speak softly so I put out less carbon dioxide.
    I am reading an article from yesterday, and it was in 
numerous publications, but it is saying that the Arctic ice cap 
has not, contrary to the predictions of climate alarmists, 
completely disappeared. In fact, it has been growing rapidly, 
increasing by almost a third just in 2013 and more since. It 
would suggest that the sea ice is more resilient perhaps. If 
you get one more year of cooler temperatures, we would almost 
wind the clock back a few years on this gradual decline that 
has been happening over the decades.
    And that was what Rachel Tilling was telling the BBC, but 
the Arctic ice has, indeed, chewed up a bit and it goes on to 
talk about its thickness and its size. Does anybody have an 
answer for what is causing the increased ice in the Arctic?
    Dr. Michaels. That is something called natural variability. 
If I could expand upon your question with a piece of 
information the committee may find interesting, a scientist by 
the name of McDonald at UCLA has done extensive work on Eurasia 
and has discovered that the high Arctic in the Eurasian area 
was about 7 +C warmer, that is 13 +F warmer, on and off for 
3,000 years after the end of this Ice Age.
    That means for 3,000 years the Arctic Ocean was likely to 
be ice free at the end of summer. That was the norm, not the 
exception.
    I would offer you the observation that the polar bear 
survived and there is much corroborating evidence that shows 
evidence for the ice-free Arctic Ocean for 3,000 years.
    Thank you.
    Mr. Gohmert. And I do appreciate information, Dr.--tell me 
how to pronounce your name?
    Dr. Dayaratna. Dayaratna.
    Mr. Gohmert. Dayaratna. Thank you.
    Because this was something that I had been thinking about 
not from a scientific standpoint, but from the standpoint that 
I am in now, and that is representing 700,000-plus people in 
east Texas. But talking especially to my seniors, they tell me 
that there is a tremendous social cost in not being able to 
warm yourself in your home in wintertime, there is a tremendous 
social cost in not being able to cool yourself in east Texas in 
the summertime, that there is a tremendous social cost in not 
being able to heat their food to the point that it kills 
bacteria, and that there is a tremendous social cost in not 
having advanced emergency rooms and operating rooms to take 
care of them when they have a problem.
    So I appreciate you taking that social cost into 
consideration because, especially my seniors, but I think 
everybody in Texas appreciates what we are able to do and 
improve not just our standard of living, but our ability to 
live, and that should be factored in.
    Dr. Michaels, I was reading here that the warming of the 
late 20th century as well as the cessation of warming that 
occurred since 1998 fall well within the range of natural 
climate variability. That seems to be an ongoing issue.
    If I understand right from history, which was my major in 
college, at the time of Eric the Red and others sailing, 
actually things appear to have been warmer in Greenland than 
they are today, more ability to farm.
    Does anybody care to comment on that?
    Dr. Michaels. It was not called Greenland because it was 
red.
    Mr. Gohmert. Pardon?
    Dr. Michaels. It was not called Greenland because it was 
red.
    Mr. Gohmert. Well, were they able to farm?
    Dr. Michaels. Yes, they were, and then when the cooling 
occurred with the initiation of the Little Ice Age, it chased 
the European settlers off of Greenland.
    Mr. Gohmert. Well, they obviously were not taking accurate 
temperatures back then, but from what data we have, was it 
warmer back in those days----
    Dr. Michaels. Yes, yes.
    Mr. Gohmert [continuing]. Than it is today?
    Dr. Michaels. And it was also apparently as warm if not 
warmer in the 1940s, 1930s to 1940s and into the 1950s in 
Greenland.
    Mr. Gohmert. Yes.
    Dr. Michaels. A lot of people do not know that.
    Mr. Gohmert. Well, apparently there were a lot of carbon 
emissions from those sailing vessels that came across the 
Atlantic.
    I yield back.
    The Chairman. Thank you.
    I assume I am going down the road with you.
    OK. Mr. Cartwright.
    Mr. Cartwright. Thank you, Mr. Chairman.
    I would like to thank the Chairman and the Ranking Member 
for holding this essential hearing today. I do understand 
people come at this from different viewpoints, but it is a 
relief finally to see Congress debating at least a partial 
solution to address climate change, even if some folks continue 
somehow to deny its existence.
    I thank the Vice Chairman, Mrs. Lummis, for saying out loud 
that climate change is real. I thank all of our witnesses, 
except apparently Dr. Dayaratna, for agreeing that there should 
be a value assigned to the social cost of climate change.
    The social cost of carbon is going to be one tool in our 
arsenal to mitigate the effects of climate change. The idea is 
pretty simple. We need to account for the negative or positive 
carbon-related effects that a project or a regulation may have.
    Understanding the environmental impact of a project or a 
regulation is the essence of the idea of NEPA. It allows us 
better to understand and value a proposed project or a 
regulation based on its true impact to society, a goal we 
really all ought to share.
    One comment was made earlier in this hearing, that the 
value that the Administration has selected for the SCC is not 
based on peer-reviewed information. I would like to correct 
that. The SCC was estimated using three integrated assessment 
models called FUND, DICE and PAGE, each of which are widely 
cited in the peer-reviewed literature and which are used by the 
Intergovernmental Panel on Climate Change.
    There was also a criticism that there was a lack of public 
input in this process. Look, the first SCC estimates were 
released in February of 2010. Dozens of opportunities existed 
for public comment about the SCC directly and about rules that 
incorporated the SCC. So I did not want to let those falsehoods 
go unrebutted.
    Dr. Dayaratna, you began your testimony with something that 
has been intoned by many witnesses from The Heritage 
Foundation, ``The views I express are my own and do not 
necessarily represent those of The Heritage Foundation.''
    Let me ask you a couple of questions, Mr. Dayaratna.
    Dr. Dayaratna. Go ahead.
    Mr. Cartwright. You are an employee of The Heritage 
Foundation, are you not?
    Dr. Dayaratna. Correct.
    Mr. Cartwright. They pay you for working there; is that 
right?
    Dr. Dayaratna. Correct.
    Mr. Cartwright. Are you on working hours right now?
    Dr. Dayaratna. I mean, I do not see how that is relevant 
right now.
    Mr. Cartwright. Do they know you are here?
    Dr. Dayaratna. Yes, they do know I am here.
    Mr. Cartwright. If you do not want me to tell anybody----
    Dr. Dayaratna. Yes, they do know I am here, yes.
    Mr. Cartwright [continuing]. Your secret is safe with me.
    [Laughter.]
    Dr. Dayaratna. Yes.
    Mr. Cartwright. I could not help noticing you submitted 
written testimony as well; is that right?
    Dr. Dayaratna. Yes.
    Mr. Cartwright. And that appears to be on Heritage 
Foundation stationery.
    Dr. Dayaratna. Yes, it is right here.
    Mr. Cartwright. Are you allowed to use company stationery?
    Dr. Dayaratna. Yes. I mean, to be quite honest, if a 
professor from the university comes here and testifies, they 
may submit their testimony on the university letterhead.
    Mr. Cartwright. Thank you. We do expect----
    Dr. Dayaratna. That does not mean that they are testifying 
on----
    Mr. Cartwright [continuing]. You to be quite honest, Dr. 
Dayaratna.
    Dr. Dayaratna [continuing]. Behalf of the university.
    Mr. Cartwright. What I did notice when I went on the 
official Web site of The Heritage Foundation, is it says in 
black and white, ``Climate policy is used too often as a 
vehicle to advance special interests and politically-driven 
agendas that centralize more power in Washington.''
    That is the official view, and it appears to be that they 
are against climate change regulations and examinations of this 
sort, and I suppose that gels very nicely with your view that 
we should not be appointing a particular figure for the social 
cost of carbon in distinction with all of the other witnesses 
here today.
    Are you telling us that your views and your opinions, that 
coincide nicely with the official views of The Heritage 
Foundation, do so as a coincidence?
    Dr. Dayaratna. Again, as I was referring to earlier, if a 
professor from a university comes here and they testify, they 
may submit their testimony on university letterhead. That does 
not mean whatsoever that they are representing the views of the 
university.
    And my views, again, as in my written testimony and as I 
said today, do not represent those of The Heritage Foundation.
    Mr. Cartwright. All of us who believe that climate change 
is happening, I think all of us understand that the longer we 
wait to address climate change, the more money we will have to 
spend on adaptation relative to climate change, and that is why 
I have introduced the bipartisan and heavily Republican 
supported bill, the PREPARE Act, that requires all branches of 
the Federal Government affirmatively to prepare and plan for 
climate change into the future.
    With that I yield back, Mr. Chairman.
    The Chairman. Mr. Fleming.
    Dr. Fleming. Thank you, Mr. Chairman.
    I would like to specifically question Dr. Michaels and Dr. 
Dayaratna. I am a physician by training. What we do is we 
evaluate things based on evidence, what we call evidence-based 
science. That is why modern medicine is so far advanced just 
since the 1940s, and so that is key here.
    Now from the data, what I see is that there is a zero 
percent accuracy in prediction of global warming, which by the 
way, experts tell me that if you cannot predict it, you do not 
understand it.
    So we have a zero percent prediction of global warming. But 
we have 100 percent accuracy when it comes to economic damage 
of global warming policies in terms of shutting down coal-fired 
plants, the effect on the economy, on jobs, and on electricity 
rates. So we are not really doing very well in dealing with 
these policies.
    But it is also interesting that whenever we get into these 
discussions, and I must apologize to you for my colleagues who 
would rather focus on who you work for rather than what the 
actual science is. I think that is very telling, rather than 
really let us talk about the science, and that is what is so 
important.
    Dr. Dayaratna. Thank you, Congressman.
    Dr. Fleming. Also, I am going to give you a chance in just 
a moment to respond any way you want, but the other thing is 
since when did truth in science develop out of consensus? I 
don't get that.
    We don't get doctors together in a room and say we don't 
know the answers to these questions, but we will just take a 
vote and we will decide that that is the truth and that is how 
we are going to treat disease. I have never seen that happen, 
but that is exactly what is happening with this global warming 
policy effort.
    So I would like for both of you to respond to that.
    Dr. Michaels. I will give you a brief story which will tell 
you that it is worse than you even think it is. Every 5 years, 
the U.S. Global Change Research Program is supposed to produce 
a document assessing the effect of global climate change on the 
United States, and to do this, they use computer models. The 
first of these documents came out in the year 2000, and I 
reviewed it, and I discovered that both of the models that they 
used resulted in forecasts that were worse than a table of 
random numbers. They actually supplied negative information.
    So I wrote to the person who was the head of the USGCRP's 
effort to produce this report. His name is Thomas Carl, and he 
wrote back to me and he said, ``Yes, you are right. In fact, we 
have run it for more multiple periods. What you found is 
correct.''
    And they went forward with the report. That is like a 
physician prescribing a drug that he knows is either not going 
to work or is going to harm the patient.
    Dr. Fleming. Yes.
    Dr. Michaels. Thank you.
    Dr. Fleming. Yes, sir.
    Dr. Dayaratna. OK. So thank you for your question, 
Congressman.
    I am trained as a statistician, not a climate scientist. So 
in terms of the peer review, my colleague, Pat Michaels, is 
probably more apt to answer questions like that.
    Dr. Fleming. Sure.
    Dr. Dayaratna. But as I described in my testimony, I 
rigorously use the social cost of carbon models in my work with 
my colleagues, and we noticed that they are basically nothing 
but garbage in and garbage out. You can essentially manipulate 
these models to achieve any estimate of social cost of carbon 
that you would like, basically.
    Dr. Fleming. Right.
    Dr. Dayaratna. You can achieve a negative social cost of 
carbon. You can achieve a positive social cost of carbon, and 
you can achieve a wide range of estimates through the Monte 
Carlo simulations.
    Dr. Fleming. Right. So to give you a comparison, if we were 
to send a rocket, say, and try to land on the moon and we go 
through all of the mathematics and computer analysis, but we 
begin with incorrect assumptions, it is probably not likely we 
will make it to the moon, correct?
    Dr. Dayaratna. Oh, no, absolutely not.
    Dr. Fleming. So you have to start with known information or 
at least information that the probability is very high to be 
correct. But as you point out, we make all sorts of assumptions 
in these computer models. We put them in, and then we spit them 
out on the other end and we say the computer somehow knows the 
truth.
    Dr. Dayaratna. Absolutely.
    Dr. Fleming. But the computer does not know anything that 
we have not told it; is that correct?
    Dr. Dayaratna. Yes, that is correct. I mean, in these 
papers they have been cited in the peer-review literature, but 
I mean, just because they are in the peer-review literature, we 
need to rigorously check these models and look at them. As I 
mentioned, they are nowhere near reliable enough to be used for 
policymaking. Interesting academic exercises, though.
    Dr. Fleming. Just quickly, I get the impression that 
politics is leading science rather than science leading policy. 
What is your opinion on that?
    Dr. Dayaratna. That may be true. I think my colleague, Pat, 
might be able to answer that question.
    The Chairman. Saying it is true is good enough. You've got 
that. You are over time.
    Mr. Beyer.
    Mr. Beyer. Thank you, Mr. Chairman.
    And thank all of you for coming and talking with us.
    Dr. Dayaratna, you cited three criticisms of the social 
cost of carbon models, and one of them was the use of the 
discount rate.
    Dr. Dayaratna. Yes.
    Mr. Beyer. And argued why not 7 percent.
    Dr. Dayaratna. Yes.
    Mr. Beyer. In fact, if you move it to 10 percent or 12 
percent, you can get a really negative cost.
    Dr. Dayaratna. Yes, probably.
    Mr. Beyer. I am not trained as a statistician but rather as 
an economist, and so the discount rate is used to determine the 
present value of some future value, and pretty clearly the 
discount rate should be the time value of money, which should 
be the real interest rate, which should be the compound rate of 
interest less inflation.
    So how do we ever get to 7 percent when right now we have 
an interest rate of zero, which may rise to a half or a quarter 
percent or 1 percent in the years to come? How do you, even 
looking at stock market or economic growth over the last 
hundred years, ever get to a 7 percent when you take the 
compound growth rate minus the rate of inflation?
    Dr. Dayaratna. Well, I am just simply----
    Mr. Beyer. We are trying here so hard to get to 4 percent, 
less the 1 percent inflation rate, which would give us 2\1/2\, 
3 percent.
    Dr. Dayaratna. Thank you for your question, Congressman.
    I am not even recommending this type of discount rate be 
used. I am not suggesting that the 7 percent rate be the most 
appropriate rate. I just ran 7 percent simply because OMB 
Circular A-4, which I have right here, stipulated that 3 and 7 
percent discount rates be used as part of this type of cost-
benefit analysis.
    Mr. Beyer. Doesn't 2\1/2\ or 2 make much more sense?
    Dr. Dayaratna. The IWG could use whatever rate they want, 
but 3 and 7 percent must be used as part of this cost-benefit 
analysis, according to OMB Circular A-4.
    Mr. Beyer. Having been in business for 41 years, I would 
love to have a 7 percent compound growth rate.
    Dr. Michaels, every day, every day there is a new article 
in the scientific journal, respected, because I get them all in 
the incoming month, about the observable effects today, not 
what the IPCC has generated will happen 5, or 20, or 30 years 
from now, not a set of models of what the EC is.
    I was pleased to see the one that Judge Gohmert mentioned 
about Arctic ice increasing. It was one of the few outliers, 
the only outlier I have seen in a year, and if you read the 
entire article yesterday in the Post and the New York Times, it 
actually talked about lots of increased melting but for this 
winter period in the Arctic.
    Look, it is Antarctic ice, 2014, hottest year, the animal 
migrations, tropical disease spread, sea level rise in the 
eastern United States and in the Pacific Ocean, deforestation 
by insects, et cetera, et cetera, et cetera.
    So if we do not use the social cost of carbon, how do we 
quantify this tragedy of the comments where every little 
business or every consumer can use carbon and it does not have 
any impact, but in the large thing we are destroying the 
planet?
    Dr. Michaels. Well, Congressman Beyer, thank you for being 
the gentleman from Virginia that you are.
    One thing that you did miss is that the earth has two 
hemispheres, and in the southern hemisphere the Antarctic ice 
has expanded as high as it has ever been measured. We do not 
know why that is, by the way, and it is very puzzling to 
climate scientists.
    But other measures of human welfare and health argue that 
the macro effects of climate are at least minimal. We live in a 
world where life expectancy has doubled since 1900 in the 
industrialized world. Per capita wealth, constant dollars is 11 
times what it was.
    Now, if life expectancy doubles for 200 million people, 
that is the equivalent of saving 100 million lives. So it is 
very hard, when you look at the gross figures as opposed to 
this scare story or that scare story, to deduce a net negative 
effect.
    And I will leave you one which will seem so 
counterintuitive, but you are an economist and you will say, 
``Oh, yes, I get that.'' In 2004, Bob Davis and I published a 
paper down at UVA in which we found that the more heat waves 
there are in urban areas, the fewer people die from heat-
related causes. So as it gets hotter, people clearly adapt in 
their life style.
    There is one place in the United States where more people 
are dying from heat-related causes, and that would be our 
coldest city, which is Seattle.
    Mr. Beyer. You should write a book called ``Freakenomics.''
    Quickly, Dr. Dorsey, why not a social benefit of carbon?
    Dr. Dorsey. Why not?
    Mr. Beyer. Yes. Why don't we also include that as we look 
at the social cost, to Dr. Michael's point about doubling life 
span and others?
    Dr. Dorsey. Well, I think implied in the social cost is 
social benefit to some degree. I mean, we do not include it 
because that is the way it is framed, but the reality is that 
we have to look out into the future about these damages.
    Mr. Beyer. Thank you, Mr. Chairman.
    The Chairman. Thank you. Thank you for the tone of your 
questions.
    Mr. McClintock.
    Mr. McClintock. The obvious question that arises as we talk 
about climate change and global warming is exactly how long has 
the planet's climate been changing. Any thoughts on that?
    Dr. Michaels. Ever since we became a planet with an 
atmosphere in rotation with an uneven surface.
    Mr. McClintock. I believe that predates the invention of 
the SUV, does it not?
    Dr. Michaels. Yes. Climate is one of those variables that 
the nature of climate is changing.
    Mr. McClintock. How long has the planet been warming on and 
off?
    Dr. Michaels. The planet has been warming on and off for 
that same period of time, probably about 3 billion years.
    Mr. McClintock. Well, I mean just in the recent epoch, just 
in the Holocene.
    Dr. Michaels. There was a warming period at the end of the 
Ice Age. Again, the Arctic ice was gone for much of the three 
millennium period, then it cooled down----
    Mr. McClintock. My understanding that I gleaned as a grade-
schooler on our field trip to the Museum of Natural History was 
the planet has been warming on and off since the last Ice Age.
    Dr. Michaels. Or within the Ice Age. May I dispel a myth 
here? You will like this answer.
    It was warm at the end of the last Ice Age, like I said. It 
looks like it was 6 or 7 +C warmer in High Eurasia. The Arctic 
Ocean was ice free at the end of summer. But at end of the 
penultimate Ice Age, the one before this one, it was really, 
really warm. We did not know how warm it was for a 6,000-year 
period until a glaciologist by the name of Dorthe Dahl-Jensen 
and her team drilled to the bottom of the Greenland ice. They 
drilled beyond the 6,000-year warm period, and by looking at 
the isotopes in the ice and some other aspects of the ice, they 
could deduce how warm it was.
    It was between 4 and 8 +C warmer for 6,000 years over 
Greenland for that period. Now, it was thought maybe before 
that it might have been 2 or 3 degrees warmer in the summer.
    Let me just put that figure in perspective. That 6 degrees 
times 6,000 years, 36,000 degree-years of warmth beating down 
on the Greenland ice cap, it lost 12 percent of its ice. Human 
beings could only do at best 5 degrees for 500 years. That is 
2,500 degree-years of heat load. Nature did 36,000 and the 
place survived.
    That is the end of the Apocalypse. Thank you very much.
    Mr. McClintock. And in the recorded history we know that 
during the medieval warm period they were growing wine grapes 
in Northern Britain, and Iceland had a thriving agricultural 
economy for some 500 years.
    We also know toward the end of the Little Ice Age, also 
within recorded history, that exorcisms were being performed on 
glaciers and people being burned as witches because they were 
causing this terrible period of cold.
    I cannot help but see certain parallels between those days 
and these. My friends on the other side of the aisle remind me 
of something Ogden Nash once wrote. He said, ``The ass was born 
in March. The rains came in November. Such a flood as this,'' 
he said, ``I scarcely can remember.''
    Let me go on. Has there been an analysis of how much damage 
is already being done to the economy because of all of the 
regulations and fees that are being imposed in the name of 
saving the planet from global warming that has been going on 
since the last Ice Age?
    Dr. Michaels. It is a Sisyphean task, but we are working on 
it in our laboratory.
    Mr. McClintock. Well, if the planet continues to warm, 
isn't plentiful and inexpensive energy a good thing, not a bad 
thing?
    Dr. Michaels. Yes. Kevin, why don't you answer that?
    Dr. Dayaratna. Yes, Congressman. I have actually researched 
this and looked at the economic impact of actually instituting 
the proposed regulations associated with the SCC by instituting 
an appropriate carbon tax in conjunction with what the SCC is 
estimated to be, starting at $37, and we see pretty significant 
impacts to the economy.
    By 2030, there would be over 1 million lost jobs, 500,000 
which would be manufacturing jobs, and a marked increase in 
unemployment and a decline in personal income. So the country 
would be much worse off actually as a result of these 
regulations or taxes.
    Mr. McClintock. Well, let me ask you this. Can we not 
reasonably expect that the planet is going to continue to warm 
and cool as it has for billions of years, whether or not we 
deliberately impoverish our economy?
    Dr. Michaels. Yes, and there will be an additional 
increment probably of greenhouse warming in the 21st century.
    Mr. McClintock. Let me make one other--oh, I am out of 
time.
    The Chairman. Yes, but thank you for telling me there was a 
time when it would have been easier for me to get a tan. I 
appreciate that.
    Mrs. Capps.
    Mrs. Capps. Thank you, Mr. Chairman, for this amazing 
hearing and all of you for your testimonies.
    I am going to start with the premise that is abundantly 
clear to me, which is that the earth's climate is changing and 
human activity is influencing these changes, and I believe we 
need to stop debating this reality and start working on 
solutions.
    Second, the fact which was very well stated by Mr. Sablan 
from personal experience, that the changing climate is already 
negatively impacting our economy, our environment and human 
health, and these impacts will only grow worse over time.
    These changes include sea level rise, destruction of our 
agricultural systems and food security, increased rates of 
asthma which we see in southern California, more extreme storms 
and droughts, among many others. These changes will not impact 
all people or places in the same ways. So while precisely 
predicting future outcomes, costs, and benefits associated with 
climate change is difficult, scientists and economists can 
provide good estimates of some of these impacts, and these are 
what are used to calculate social cost of carbon, which is 
essentially a policymaking tool, not perfect, but useful, and 
hopefully will improve over time.
    Mr. Dorsey, certain assumptions are important for any 
scientific endeavor, including the development of models such 
as the one used to calculate the social cost of carbon. In this 
case the assumptions used for SCC are quite conservative, are 
they not?
    If all the known impacts of climate change were added in, 
would we not likely see the cost estimate increase?
    Dr. Dorsey. I think that is absolutely the case, 
Congresswoman Capps. The reality is, like I said, some in the 
fossil fuel sector have an incentive to basically augment the 
discount rate as Dr. Dayaratna was proposing and essentially 
reduce the actual cost.
    Mrs. Capps. Right.
    Dr. Dorsey. The real huge cost, and many of which we are 
not actually accounting for, there is a great number of omitted 
costs that are not actually taken into account in this 
valuation. It is, indeed, as you say, a tool.
    Mrs. Capps. Well, let me turn to another topic which our 
colleagues across the aisle have joined with the fossil fuel 
industry in claiming the social cost of carbon will be used to 
open the door to limitless new regulations.
    But, Mr. Dorsey, is it not true that the social cost of 
carbon actually serves as a limitation tool to ensure that the 
benefits of reducing carbon emissions are properly accounted 
for?
    Dr. Dorsey. Absolutely. I would challenge this idea that 
there are adverse effects on the economy. The reality is that 
when we get carbon pollution out of the atmosphere not only 
does it help to abate unfolding climate crisis and climate 
change. It also addresses things like you just pointed out in 
terms of pollution, asthma, and so forth, and a great number of 
health concerns.
    I think really to put it in a nutshell, there are no jobs 
on a dead planet, and so we have really got to think about what 
are going to be the steps to move us to quickly reducing carbon 
pollution in the atmosphere that benefit not just the economy, 
but society, the polity, as well as the environment.
    Mrs. Capps. Right. And by setting a consistent value for 
the cost of carbon, which many companies are already doing on 
their own, doesn't the social cost of carbon actually provide 
some long overdue certainty for the private sector?
    Dr. Dorsey. Absolutely. A great number of companies in your 
district as well as in many other Members' in this committee 
districts are proposing actually quite more stringent steps in 
reducing emissions, their own company emissions, and because 
the reality is that doing so is good for their bottom line.
    Mrs. Capps. You have already said a little about this, but 
we have heard so much from the Majority that the discount rate 
used for these calculations should be set much higher at 7 
percent. Would you like to comment?
    Do you agree? Wouldn't setting the discount rate so high 
essentially say we place minimum value on the quality of life 
for future generations?
    Dr. Dorsey. A very high discount rate would indeed do that. 
I mean, there is an argument that it should be negative and 
thus driving up the social cost of carbon, and such a high rate 
would actually accelerate the efforts to take carbon pollution 
out of the atmosphere.
    Mrs. Capps. I yield back, Mr. Chairman.
    Dr. Dorsey. Thank you.
    Mrs. Capps. Thank you.
    The Chairman. Thank you.
    Mr. Duncan.
    Mr. Duncan. Thank you, Mr. Chairman.
    I agree with Mrs. Lummis. I do not disagree with climate 
change. I do disagree and I am not a believer in man-made 
climate change. I think the climate has been changing, as we 
have heard testimony earlier, since the beginning of time.
    I will say this. Trey Gowdy from South Carolina, my 
colleague, says that there is a stubborn thing about facts, and 
that is that they are facts. So let's talk about some facts.
    Let's talk about that the earth has been a lot warmer than 
it is today in the history of man. In the period known as the 
Medieval Period and during the Middle Ages, it goes by both 
names, but somewhere 900 to 1300, somewhere in that period of 
time the earth was a lot warmer than it is today.
    In fact, the facts show that grapes were at a higher 
latitude, and that means the earth was warmer during that 
period, showed abundant crops. In fact, man did so well that we 
saw this renaissance, for lack of another term, where 
cathedrals were built and there was art, and man did not have 
to struggle to survive as much as they do when it is colder.
    In fact, the earth was warm. They had abundant food. They 
were able to do a lot of things. In fact, the facts show that a 
lot of Greenland was ice free. So the Nords settled on that 
area and they fished. Those are the facts that can be proven.
    I believe that my qualifier when I think about climate 
change is the human standard of living. Are human beings better 
off by using fossil fuels or not? And I would say that they 
are.
    Let's talk about some facts. The facts are better than 
predictions. In the 1970s and into the 1980s, we saw a lot of 
folks predicting the earth would be cooler. We are entering 
into a little Ice Age.
    In fact, in 1975, Nature magazine said this, ``a recent 
flurry of papers has provided further evidence for the belief 
that the earth is cooling. There now seems little doubt that 
changes over the past few years are more than a minor 
statistical fluctuation.''
    James Hansen at NASA in 1986 predicted that temperature 
changes of .5 to 1 degree higher in the 1990s and 2 to 4 
degrees higher in the first decade of the 21st century. That is 
a NASA scientist who is pointed to as a climatologist.
    Accordingly, actual data shows that he was way, way wrong. 
So you take that data from Mr. Hansen, and Mr. Bill McKibben, 
who is a leading climatologist for global warming or what is 
called now climate change, he predicted then using Mr. Hansen's 
prediction, and he stated confidently that the world ``will 
burn up, to put it bluntly.'' That was Mr. Bill McKibben.
    We have seen nothing of the fact. All these predictions of 
global cooling have been wrong. All the predictions of global 
warming and what we would see in the 21st century were wrong. 
But I will tell you this. Fossil fuels have dramatically 
improved the lives of human beings. Man does better when it is 
warmer.
    I go back to the Medieval Period and the Middle Ages. When 
it was warm, man did well. When it got colder, which it did 
after what is known as the Medieval warming period, it got 
colder and we had Bubonic Plague. Man does not do well when it 
is cooler. They do better when it is warmer.
    Fossil fuel has increased our abilities. In fact, because 
of fossil fuels, we are now seeing China and India use more 
fossil fuels and we are seeing the standard of living go up. We 
are seeing personal percentage of GDP go up. We are seeing life 
expectancy in China and India go up. People live longer. They 
are living better lives because of fossil fuels. So I think 
that ought to be the standard.
    So in the 1970s, earth was going to be cooler. In the 1980s 
and 1990s we saw it was going to be warmer. Now it is just 
called climate change. I know this. I had a premature son. He 
was able to go into an incubator. He was kept alive based on 
that.
    There are parts of the world that do not have access to 
ready, reliable, affordable fossil fuels to generate 
electricity. Because of that failure to have electricity, they 
cannot have incubators or generators to do C-sections. Children 
die. The infant mortality rate in areas that do not have access 
to cheap, reliable, predictable electricity provided by fossil 
fuels have very low life expectancies. Fossil fuels work.
    That is the social cost and the moral cost of not having 
cheap, reliable fossil fuels.
    With that I yield back.
    The Chairman. Thank you.
    Mrs. Torres.
    Mrs. Torres. Dr. Dorsey, is the social cost of carbon a 
brand new concept?
    Dr. Dorsey. Absolutely not, no.
    Mrs. Torres. Thank you.
    Before the social cost of carbon, how would the government 
value economic damages in the regulatory context, like damage 
from flooding, increased health care costs, or the economic 
damage to the agricultural sector?
    Dr. Dorsey. Well, as I said at the outset in my testimony, 
the typical method was to use benefit-cost, and cost-benefit 
analysis to do so, to attempt to do so.
    Mrs. Torres. And if we threw away the social cost of carbon 
and stopped putting those costs on the blocks, would the cost 
of those damages magically go away?
    Dr. Dorsey. No, absolutely not. They would still be there. 
If we opted not to value the cost of carbon----
    Mrs. Torres. So there is no magic eraser and a board that 
we can just make all of this reality go away?
    Dr. Dorsey. Absolutely not, no.
    Mrs. Torres. So are we already paying for these costs?
    Dr. Dorsey. Well, absolutely. I mean, you take, for 
example, in Alaska where a great number of communities are 
already in the process of relocating. The low end of some of 
those community relocation estimates put them in the two 
hundreds of millions of dollars, sort of the middle range, half 
a billion dollars to relocate communities that are suffering 
the effects of essentially rising sea level on the North Slope 
of Alaska.
    We pay a great number of costs in terms of the health 
effects from carbon pollution. We do, indeed, pay these costs 
whether or not we decide to make the calculation or not.
    Mrs. Torres. I live about 60 miles from the beach. I am 
looking forward to having beachfront property in the near 
future. So if we are already paying for these costs, all we are 
doing with the social cost of carbon is really acknowledging 
the existence of these costs, correct?
    Dr. Dorsey. Right. It is a framework for acknowledging 
those costs.
    Mrs. Torres. It is a framework that we ought to be 
utilizing as our population continues to grow and we continue 
to expand, whether it is through development or just population 
growth, preparation for that, correct?
    Dr. Dorsey. That is right.
    Mrs. Torres. Is there anything else you would like to add 
to that?
    Dr. Dorsey. Well, I guess I would add since the 
conversation has moved this way a little bit, that I just re-
emphasize the point that this is not a new sort of approach. It 
is one that is rooted in the peer review literature, and more 
importantly, it is not a static measure. It is one that we can 
re-evaluate and come back to and adjust going forward as we 
learn more about the severity of the unfolding climate crisis.
    And my colleague and I believe that the discount rate that 
is being used is somewhat high and it needs to be lower to 
reflect a much larger social cost of carbon.
    Mrs. Torres. So what you are saying is that these policies 
are really not written in concrete. We can go back and revisit, 
should climate change in the opposite direction.
    Dr. Dorsey. Well, absolutely, but the tendency is not that 
it is going to go in the opposite direction. It is likely to 
get worse really with that issue, and we can adjust as it gets 
worse as well.
    Mrs. Torres. Right. What do you have to say to first 
responders? Their job is a bit more challenging as they prepare 
to respond to catastrophes that happen because of climate 
change.
    Dr. Dorsey. Not being a medical doctor, I think that, 
indeed, I would concur that the challenge is difficult. They 
certainly need more and more resources. We know in a great 
number of places, particularly take the tri-state area--
Connecticut, New York and New Jersey--in the aftermath of 
Hurricane Sandy. Tremendous additional resources could have 
been used in that area.
    We know the same thing in the Gulf after Hurricane Katrina. 
We are looking at the 10th anniversary of that. So I would say 
that we need to provide more resources to first responders 
certainly.
    Mrs. Torres. Thank you for your testimony.
    I yield back.
    The Chairman. Thank you.
    Mr. Gosar.
    Dr. Gosar. Yes, Mr. Chairman.
    Before I go into my testimony, I would like to have the 
Iran deal placed into the record in regards to trying to take 
away coal from the United States but it is good enough to sell 
to Iran for their uses.
    The Chairman. Without objection.
    Dr. Gosar. Thank you.
    First of all, I am extremely disappointed that the Office 
of Management and Budget declined to testify today. I am not 
surprised though, as apparently the Administration is just 
making this stuff up as they go.
    The flawed estimates and the worthless models that are of 
today's topic were developed behind closed doors and are so 
indefensible that it makes sense why the Obama administration 
will not want to send a single person to answer on those 
questions.
    Just as the President has used the Department of Justice, 
the IRS, and the Department of Homeland Security as a political 
weapon, he now has expanded his arsenal to include a new tool 
for the EPA and his regulatory henchmen.
    The far-reaching application of this new climate change 
model is so broad and inaccurate that there is no telling how 
many jobs will be lost as the President seeks to further his 
far left political agenda by any and all means necessary.
    The so-called social cost of carbon will result in the 
death of the conventional cost-benefit analysis utilized for 
the proposed regulations. It will be replaced with a system 
that employs flawed calculations that are not based on real 
science and which cannot be accurately reproduced in the real 
world.
    If we allow this to move forward, regulatory agencies will 
be able to cook the books to whatever manner they dream of.
    Now, Mr. Segal, it is great to see you. Because this 
Administration continues to be so secretive about the new 
climate change models, 10 U.S. Senators sent a letter yesterday 
demanding the EPA provide all documents and communications 
relating to the SCC.
    Now, as you know, the Administration refuses to comply with 
requests from Members of Congress about this new model and has 
done so for some time now. In your opinion, why the secrecy?
    And why didn't one of the President's minions show up today 
to answer questions about the application of this new climate 
change model?
    Mr. Segal. Well, first of all, with respect to the letter 
that was sent the other day from the Senate, it raised some 
very, very important points and some of which I think you have 
heard on review here. It said that the Administration has only 
provided general information. They have outright ignored 
requests for documents. They have not even discussed who the 
actual participants were in the Interagency Working Group. You 
would think that would not be deliberative. You could say he 
was actually in the room. That does not seem too bad.
    Also if you look at the GAO, the Government Accountability 
Office's report on the development of this process, they spent 
an inordinate amount of time talking about how the agency which 
charges us the most for carbon regulations, the U.S. 
Environmental Protection Agency, actually played a 
disproportionate role in the Interagency Working Group process. 
Yet that was not what Howard Shelanski at OIRA testified to 
last time he was before Congress.
    So I do think it is a shame that a member of the 
Administration cannot be here to testify on these matters.
    Second, I really do not see the Administration as being 
particularly transparent. Look, President Obama himself and his 
then-head of the OMB, Peter Orszag, said we were going to be 
the most transparent administration ever. That has not been the 
case here.
    In fact, the very way this document has been rolled out, 
vending machines, small engines--and by the way, when they talk 
about small motors, they are talking about motors that are 
smaller than household blenders, all right?--and microwave 
ovens, this is where we get our indication of the changes that 
were made.
    If they wanted to have an open and robust discussion, then 
the owner of a major utility, for example, in Arizona ought not 
to have to be looking to see what the coin-operated vending 
machine folks are getting in their rules. It is obviously an 
opportunity to hide the ball.
    Last item, I have heard some Members of Congress say, and I 
heard my colleague Dr. Dorsey say, that he thinks it ought to 
be a negative discount rate because it ought to drive policy 
outcome. I heard two Congressmen indicate it is a policymaking 
tool. Ladies and gentlemen, if it is a policymaking tool, it 
needs authorization by the policymaking body, the U.S. 
Congress. We must be able to point to where in legislation this 
is authorized, and then we must have full and robust notice and 
comment rulemaking, starting with the choice and the 
administrative record about the various records. We've got to 
have it all.
    Dr. Gosar. I believe the Antideficiency Act is very 
specific about that. It must be defined specifically in statute 
and policy, and then let's define the budget to go with that 
before the agency or the President can spend it.
    So I thank you very, very much for your testimony.
    I yield back.
    The Chairman. Thank you.
    Mr. Westerman.
    Mr. Westerman. Thank you, Mr. Chairman.
    In the narrow topic of today's hearing of SCC, we could and 
have talked about many other peripheral issues related to the 
social cost of carbon, such as the science, the models behind 
the calculations, the impact of man on greenhouse gas emissions 
and things like 300-year economic investment horizons.
    In thinking about this in this narrow scope, I thought of a 
quote by a guy who is recognized as a pretty smart guy in 
today's terms, Steve Jobs. He said that you cannot connect the 
dots looking forward. You can only connect them looking 
backwards. So you have to trust that the dots will somehow 
connect in your future. You have to trust in something, your 
gut, destiny, life, karma, whatever. This approach has never 
let me down and has made all of the difference in my life.
    So if we think about the social cost of carbon, we know 
that manmade carbon emissions can be traced back to the 
Industrial Revolution, and as carbon emissions increased, real 
wages increased, meaning that they rose faster than inflation. 
Agricultural production increased, meaning food supply and 
quality increased. Populations increased. Life expectancy 
increased, and quality of life improved. Technology and health 
care improved.
    At the same time, poverty rates decreased. Mortality rates 
decreased, and social barriers were removed. So until the EPA 
figures out how to permit and regulate acts of God, then there 
is not really anything we can do about autogenic greenhouse 
gases.
    And in the narrow window of the social cost of manmade 
carbon, please help me look back and in the words of Mr. Jobs 
connect the dots. So I've got just a series of questions here. 
The first one is: can the increase in manmade carbon be 
correlated with the advent of the Industrial Revolution and 
advancements since then? Just go down the panel.
    Dr. Michaels. Yes.
    Dr. Dayaratna. Yes.
    Dr. Dorsey. Yes.
    Mr. Segal. Of course.
    Mr. Westerman. Pretty obvious, pretty common sense. We can 
look back on history and see that.
    OK. So also to follow up with that, can multiple indicators 
of quality of life and social benefits be connected to the 
Industrial Revolution and advancements since then?
    Dr. Michaels. Yes.
    Dr. Dayaratna. Yes.
    Dr. Dorsey. Yes.
    Mr. Segal. Yes.
    Mr. Westerman. Again pretty self-explanatory.
    I took a logic class in college, and they said, if this, 
then this. So if the Industrial Revolution correlates with 
increased carbon emissions and the Industrial Revolution also 
correlates with increased social benefits, is it fair to say 
that as carbon emissions have increased, the social benefits to 
society have increased?
    Dr. Michaels. I believe I said that earlier.
    Dr. Dayaratna. Yes.
    Dr. Dorsey. Not exactly.
    Mr. Westerman. Could you explain that more?
    Dr. Dorsey. Well, I mean it does not necessarily follow. 
Technology is not a static thing, and you certainly must be 
aware of this based on the questioning here.
    So it just so happens that we have found some technologies 
that have been around actually a while that do not need us to 
rely on fossil fuels and do not need us to rely on increasing 
emissions, and so there is an opportunity we have to deploy 
those technologies. Those are technologies in the renewable 
space in terms of wind energy, in terms of solar energy, and 
they----
    Mr. Westerman. Many of those technologies we were using 
before the Industrial Revolution, such as biomass and wind.
    Dr. Dorsey. Well, on the wind side we certainly were using 
them, indeed, and actually the evolution of wind, it comes 
before the Industrial Revolution and has picked up in a certain 
way where now we have the ability to do not just terrestrial 
wind but a tremendous amount of power generation from offshore 
wind.
    Mr. Westerman. So we have developed technologies to better 
harness the renewables in the future.
    Dr. Dorsey. Indeed, and so we can cut our reliance on 
fossil fuel.
    Mr. Westerman. Mr. Segal?
    Mr. Segal. Well, what Dr. Dorsey just pointed out proves 
why the social cost of carbon is completely bankrupt, because 
the social cost of carbon looks at a 300-year time frame and 
determines that we will have continued linear recapitulation of 
the harms of climate change.
    But as he has just discussed, technology is verdant. 
Technology alters over time, and so our ability to adapt either 
by adapting to the endpoints or by bringing new technology 
onboard is important.
    The underlying message of your questions though is 
undeniably correct, and what I would suggest is there is an 
excellent report entitled, ``The Social Costs of Carbon? No, 
the Social Benefits of Carbon,'' that comprehensively attempts 
to identify the social benefits of carbon. It was submitted for 
the record for the social cost of carbon documentation of the 
Interagency Working Group, and they, of course, did not respond 
to it in their response to comments.
    I might suggest if the Chairman is game or if you would 
like that it might be submitted to the record. It seems like it 
would be useful.
    Mr. Westerman. Mr. Chairman, I would like to submit that to 
the record.
    The Chairman. No objection. Done, and so are you.
    Mr. Newhouse.
    Mr. Newhouse. Thank you, Mr. Chairman.
    I appreciate your indulgence and allowing us to expend a 
little bit of CO2.
    I appreciate the panel being here, and the line of 
questioning on both sides has been very interesting. You know, 
I am a farmer by trade and always felt that we considered 
ourselves, the agriculture industry, being the original 
conservationists and we understand fully the need to wisely 
utilize the resources that are available to us and protect them 
into the future.
    But certainly to do that the best, most efficient way, you 
have to have information, and good information, and so that is 
why the subject of today's hearing is so interesting.
    Just a couple of questions in the short time I have. First 
of all, for Mr. Segal, in your testimony you have given several 
examples of how the SCC can be used to skew cost-benefit 
analyses of Federal regulations even though the courts have 
ruled that a Federal agency must provide a complete analytical 
defense of its model and respond to each objection with a 
reasoned presentation.
    You also state that one cannot consider the development and 
use of SCC as anything other than a substantive rule.
    So then does the social cost of carbon on its own 
constitute a rule under the Administrative Procedure Act?
    And if so, could not all Federal regulations utilizing SCC 
be open to judicial review and then, in turn, be overturned by 
courts?
    Mr. Segal. Well, every step of that analysis, of course, I 
agree with. The bottom line is people tend to think of rules as 
impacting the direct endpoint of behavior, but the 
Administrative Procedure Act is smarter than that, and it says 
that changes in accounting principles, for example, that 
reflect on the ability of the Federal Government to choose 
outcomes, to reject a project, to implement a new rule are 
themselves rules and must be treated with the full complement 
of notice and comment rulemaking. That is something we have not 
had.
    Every argument in favor of the social cost of carbon has 
proven the point of why they want this methodology to be used 
as a rule, as a mechanism to affect rights and responsibilities 
of people in the regulated community.
    Take the discount rate. I love this. Give me a low enough 
discount rate or a negative one and give me a long enough time 
period, and I will justify the Federal Government expending 
money on anything you can imagine.
    Independence Avenue is busy. I have trouble getting across 
it because I'm not so fast. If I wanted to build a bridge over 
Independence Avenue and they told me it would cost $10 billion, 
if I have a low enough discount rate and a long enough period 
of time to add up the traffic safety deaths that would be 
avoided by it, you will build that bridge.
    And if you are mandated to do so by the approval of permits 
through the Council on Environmental Quality's oversight of the 
NEPA process or by Federal regulation, this tool can be used to 
be an incredible waster of money.
    And why? Because the Interagency Working Group says we have 
ethical considerations which force us to use very, very low 
rates and very, very long time frames because we want to be 
leaders.
    But that is what Congress is about. You make those choices. 
That is not for a group of bureaucrats, when they will not even 
tell you who is on the list at the IWG, to make those 
decisions.
    That is usurpation of power. It is contrary to our 
Constitution.
    Mr. Newhouse. Well, the issue of time is certainly one of 
the more serious challenges that we face in important 
infrastructure projects.
    Mr. Segal. Right.
    Mr. Newhouse. We are seeing that in my own state of 
Washington as we try to develop an energy future for the modern 
times.
    So in pursuing permits and licenses and approval from the 
Federal Government, delays in the NEPA process I think are 
impeding both renewable and energy projects such as oil and 
natural gas, coal, as well as pipelines, rail expansions, 
terminals for exporting and importing, highways, bridges, even 
if it is over Independence Avenue.
    So could you or any of the others discuss how incorporating 
the SCC does and will impact the current and future domestic 
energy development?
    We just have a very short time.
    Mr. Segal. I will give 1 second on that. You need permits 
to build infrastructure. You need infrastructure to realize the 
benefits of our new energy revolution, and incorporating SCC 
into that process stifles the ability to predictably get 
permits to advance energy infrastructure.
    Mr. Newhouse. Anybody else?
    Dr. Dayaratna. The use of the SCC in rulemaking, and if you 
actually implement it in terms of regulations or taxes, will 
actually increase electricity costs.
    Mr. Newhouse. Thank you, Mr. Chairman. My time is up.
    The Chairman. Mr. Hice.
    Dr. Hice. Thank you, Mr. Chairman.
    Very interesting. I appreciate each of you being here 
today. The questioning has been very, very helpful in your 
answers.
    Dr. Michaels, let me just begin real quickly with you. I am 
assuming it is correct for us to say that carbon dioxide can 
have positive impact on vegetation and crops.
    Dr. Michaels. Absolutely.
    Dr. Hice. OK. With that, can you elaborate somewhat on how 
the positive externalities such as this are insufficiently 
modeled in the integrated assessment models?
    Dr. Michaels. It is very clear that only one of them even 
considers the fertilization effect of carbon dioxide. The other 
two do not very well. Kevin would probably give a better answer 
on that.
    Dr. Hice. OK.
    Dr. Dayaratna. Yes, the FUND model out of the three models 
is the only one that actually considers the fertilization 
impacts and the potential benefits of carbon dioxide emissions, 
which is why it allows for a negative social cost of carbon.
    And as I alluded to in my testimony, under some 
circumstances the social cost of carbon can actually be 
substantially negative depending on the equilibrium climate 
sensitivity distribution and the choice of the discount rate.
    You will actually notice the probability of the social cost 
of carbon being negative, close to 70 percent. So, yes, that is 
the short answer to your question.
    Dr. Hice. OK. So what is the outcome of not including some 
of this in the SCC?
    Dr. Dayaratna. What is the outcome of not including the 
benefits?
    Dr. Hice. Right, in the models and so forth. If it is not 
included, what is the outcome? What are we going to get?
    Dr. Dayaratna. The SCC becomes inflated.
    Dr. Michaels. May I offer another piece of information that 
may not be right in your head? We now have 20 years' worth of 
satellite data that measures the greenness of the earth, called 
the normalized vegetation index, and the greening of the plant 
as a whole, not just the increased agricultural production, is 
stunning. And where it is greening the most are the areas of 
the planet that were given up as ecological hell holes, the 
Sahelian region south of Africa, the semi-desert region of 
Western India, Southwestern Desert, Australia. These places are 
greening up dramatically.
    That is not considered one lick in any one of these models; 
am I not correct?
    Dr. Dayaratna. I do not know. I just do know that there are 
potential benefits of CO2 fertilization included in 
the FUND model. Beyond that I am not completely sure.
    Dr. Hice. OK. Well, keep your mike on. Let me go back to 
the Circular A-4.
    Dr. Dayaratna. OK.
    Dr. Hice. There were some questions on this a while ago, 
and of course, the discount rates of 3 and 7 percent were 
supposed to be used, and it says, as I understand it, that if 
others are appropriate, that they can be used in addition to 
the 3 and the 7 percent.
    So was there a violation? Just explain.
    Dr. Dayaratna. I do not believe that Circular A-4 was 
properly adhered to in the computation of the social cost of 
carbon.
    Dr. Hice. All right. So there is a difference between it 
being properly adhered to and violating.
    Dr. Dayaratna. No, I think Circular A-4 was violated.
    Dr. Hice. OK.
    Dr. Dayaratna. It specifically says in here that 3 and 7 
percent should be used as discount rates.
    Dr. Hice. Right.
    Dr. Dayaratna. In addition to whatever else they want to 
use.
    Dr. Hice. Right. So it is pretty clear.
    Dr. Dayaratna. Yes.
    Dr. Hice. Mr. Segal, did you want to respond?
    Mr. Segal. Yes, I just wanted to say one thing. If you 
wonder why they chose--and this is awesome. Go to the response 
to comments, and the IWG says the reason they chose the lower 
number is because of, ``certain ethical considerations.''
    The ethical considerations they are talking about is that 
future generations should be treated with more speciality. I 
think we would agree that that might be an important social 
policy, but here is the point. This is supposed to be an 
economic assessment.
    Dr. Hice. Right.
    Mr. Segal. Dispassionate economic assessment. If we are 
going to do ethical considerations and base public policy on 
that, that is for this chamber to decide, to authorize, and 
then to have notice and comment, not for the agency, not even 
the agency to make it up out of whole cloth.
    Dr. Hice. While you are going, just keep elaborating. 
Didn't this put some of the agencies in a difficult position? I 
mean we've got what was put out for them to follow is violated, 
and now in place of 3 and 7, we've got 2\1/2\, 3 percent, 
whatever.
    Mr. Segal. Right.
    Dr. Hice. This puts agencies though in an ethical and 
difficult situation.
    Mr. Segal. Particularly agencies that might have the job of 
authorizing the construction of infrastructure of the sort Mr. 
Newhouse was talking about or other projects. Those agencies 
are put in a terrible bind.
    Dr. Hice. Ten seconds. Do you have something else?
    Dr. Dayaratna. Yes, I was just going to add if you look at 
the section in Circular A-4, intergenerational discounting, the 
last paragraph it specifically says, ``If your rule will have 
important intergenerational benefits or costs, you might 
consider a further sensitivity analysis using a lower but 
positive discount rate in addition to calculating net benefits 
using discount rates of 3 and 7 percent.''
    Dr. Hice. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. All right. Before I ask the last set of 
questions, I want to thank you for spending 2 hours of your 
time with us. I know it has been fascinating for you.
    Mr. Lowenthal, do you have a motion to add something to the 
record.
    Dr. Lowenthal. Yes, I have some unanimous consents. First I 
would like to ask unanimous consent to insert five articles, 
three of them peer reviewed from Science that refute the graph 
that Mr. Michaels first put up.
    I also ask unanimous consent to enter into the record the 
most recent scientific articles on the mythical pause in global 
warming. There are two articles here from the most recent 
Scientific American Journal that says there is no pause in 
global warming.
    And I also want to ask unanimous consent to insert three 
more peer-reviewed articles to refute Mr. Michaels' assertion 
that CO2 will only have a positive effect on crop 
yield and the agricultural sector.
    The Chairman. Without objection, so ordered.
    I would also like to ask unanimous consent to have four 
papers that were co-authored by Mr. Dayaratna----
    Dr. Dayaratna. Excuse me?
    The Chairman. No, I am just putting your stuff into the 
record.
    Dr. Dayaratna. Oh, those papers, yes.
    The Chairman. Without objection that is ordered as well.
    Dr. Dayaratna. Thank you.
    The Chairman. Let me ask as we conclude this a couple of 
questions just for the two of you.
    Actually I feel like with some of the questions you have 
been peppered with today, I should ask the first two witnesses 
on the left as I am looking at you if you are now or have ever 
been a member of the Communist Party.
    Dr. Dayaratna. Excuse me?
    The Chairman. Nothing. Never mind. That was sarcasm. 
Obviously no one got it.
    I have one question for Mr. Michaels. Mr. Segal talked 
about the ethical consideration concept that was in there. In 
your testimony you made a point that the social cost of carbon 
should reflect relative impact, i.e., as I read that, that we 
would be willing to pay more today if we knew that a future 
society would be impoverished and suffer from extreme climate 
change than we would be willing to sacrifice if we knew that a 
future society would be well off and subject to more moderate 
change.
    Mr. Michaels, is that what the Administration's social cost 
of carbon does?
    Dr. Michaels. No. It goes the other way around, 
unfortunately.
    The Chairman. Give me 1 minute and explain why.
    Dr. Michaels. What it does is it takes money from nations 
that are wealthy, large amounts of money, and charges them much 
for very little effect when, in fact, it is the poor nations of 
the world that are affected mainly by climate change. We are 
spending the money the exact wrong way.
    The Chairman. Perfect. You did that in 20 seconds.
    So what we have clearly heard today is, and we have gone 
far afield talking about climate change because we are really 
talking about this proposed rule on a social cost of carbon. 
But what we clearly heard today is the models are iffy. They 
can be changed dramatically depending on what kind of criteria 
you use and the assumptions that you use.
    In essence, what we have is a process that is being 
proposed for the government to select winners and losers in the 
future based on political considerations, which is why in my 
humble opinion it makes this a really dumb rule, but that is 
not unusual with a lot of the rules that we have been hearing 
lately.
    I have one last question for Mr. Segal if you would please, 
and you have reported to a couple of people here, so I just 
want to re-emphasize that you believe that this rule violates 
the Administrative Procedure Act, and I appreciate that.
    Is there any statutory authority for OMB of which you know, 
because I know of none, that would purport to act on this 
social cost of carbon?
    Is there a statute that allows them to do that?
    Mr. Segal. See, if they followed the strictures of the 
Administrative Procedure Act, the first thing they would have 
to do, Mr. Chairman, is explain what is the legal basis for the 
rule and what is the purpose of the rule, and these are two 
things that are controversial and can be utilized in the 
context of judicial review later.
    They have never explained the legal basis because there is 
none.
    The Chairman. All right. Last question.
    Mr. Segal. Yes.
    The Chairman. I have a question whether there is a legal 
ability to do this, and also, is there a legal ability to 
statutorily enforce this, which I do not think they claim they 
have that in the process?
    But that is the other question. I wanted to re-emphasize 
this one last time. Is this therefore a potential 
constitutional issue?
    Mr. Segal. Well, I believe it is a usurpation of what are 
political questions wrapped up in the guise of economic 
assessment and then carried off by the executive branch.
    Now, we have seen this in similar contexts before. So I 
believe that is the heart of the constitutional issue.
    There is one other constitutional issue, too. You have a 
right if you are in the regulated community to know what of 
your behaviors will cause what particular result, and since 
there is radical uncertainty regarding these models, you cannot 
know that. That raises other constitutional concerns.
    The Chairman. Which makes this simply a political exercise, 
not necessarily an exercise in policy.
    Mr. Segal. Correct.
    The Chairman. And there is no amount of procedure that can 
cure the lack of statutory authority.
    Mr. Segal. Right. You can do all the notice and comments 
you want, but if you lose the argument that you do not have 
legal authorization to proceed, procedure will not rescue you.
    The Chairman. Thank you. And that ought to be a concern of 
Congress as part of the discussion.
    I thank the witnesses for your testimony and for the 
Members who have been here asking those questions.
    And for the four of you, Members may have additional 
questions, and we will ask you to respond to those in writing. 
Under Committee Rule 4(h), the hearing record will be open for 
10 business days for those responses.
    If there is no further business by members of the committee 
and since I am the only one here and I have no further 
business, without objection the committee stands adjourned 
with, once again, gratitude for you being here.

    [Whereupon, at 12:05 p.m., the committee was adjourned.]

[LIST OF DOCUMENTS SUBMITTED FOR THE RECORD RETAINED IN THE COMMITTEE'S 
                            OFFICIAL FILES]

           Items submitted for the Record by Chairman Bishop

Heritage Foundation report titled ``The Obama Administration's 
Climate Agenda Will Hit Manufacturing Hard: A State-by-State 
Analysis''; http://www.heritage.org/research/reports/2015/02/
the-obama-administrations-climate-agenda-will-hit-
manufacturing-hard -a-state-by-state-analysis

Heritage Foundation report titled ``Loaded DICE: An EPA Model 
Not Ready for the Big Game''; http: // www.heritage.org / 
research/reports / 2013 / 11 / loaded-dice-an-epa-model-not-
ready-for-the-big-game?ac=1

Heritage Foundation report titled ``Unfounded FUND: Yet Another 
EPA Model Not Ready for the Big Game''; http: // 
www.heritage.org / research / reports / 2014 / 04 / unfounded-
fund-yet-another-epa-model-not-ready-for-the-big-game?ac=1

Heritage Foundation report titled ``The Obama Administration's 
Climate Agenda: Underestimated Costs and Exaggerated 
Benefits''; http: // www. heritage.org / research / reports / 
2014 / 11 / the- obama-administrations-climate-agenda-
underestimated-costs-and-exaggerated-benefits

       Items submitted for the Record by Ranking Member Lowenthal

Food and Energy Security article titled ``How seasonal 
temperature or water inputs affect the relative response of C3 
crops to elevated [CO2]: a global analysis of open 
top chamber and free air CO2 enrichment studies''; 
http://onlinelibrary.wiley.com/doi/10.1002/fes3.44/pdf

Science article titled ``Food for Thought: Lower-Than-Expected 
Crop Yield Stimulation with Rising CO2 
Concentrations''; http://www.sciencemag.org/content/312/5782/
1918.abstract

Nature article titled ``Increasing CO2 threatens 
human nutrition''; http: // www.nature.com / nature / journal / 
v510 / n7503 / full / nature 13179.html

Scientific American article titled ``No Pause in Global 
Warming'' http: // www. scientificamerican. com / article / no-
pause-in-global-warming/

Think Progress article titled ``Faux Pause: Ocean Warming, Sea 
Level Rise And Polar Ice Melt Speed Up, Surface Warming To 
Follow''; http://thinkprogress.org/climate/2013/09/25/2562441/
faux-pause-ocean-warming-speed-up/

Science article titled ``The Effect of Diurnal Correction on 
Satellite-Derived Lower Tropospheric Temperature''; http://
www.sciencemag.org/content/309/5740/1548.abstract

Science article titled ``Amplification of Surface Temperature 
Trends and Variability in the Tropical Atmosphere''; http://
www.sciencemag.org/content/309/5740/1551.abstract

Science article titled ``The Reproducibility of Observational 
Estimates of Surface and Atmospheric Temperature Change''; 
http://www.sciencemag.org/content/334/6060/1232.abstract

Fact sheet for ``Human and natural influences on the changing 
thermal structure of the atmosphere''; (saved electronically as 
PDF)

Santer et al. Catch Christy Exaggerating; http://
www.skepticalscience.com/santer-catch-christy-exaggerating.html

Satellite measurements of warming in the troposphere; https: // 
www. skepticalscience. com / satellite-measurements-warming-
troposphere.htm

        Report submitted for the Record by Congressman Westerman

A report prepared for the American Coalition for Clean Coal 
Electricity by Management Information Services titled ``The 
Social Costs of Carbon? No, the Social Benefits of Carbon''

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