    [House Hearing, 115 Congress]
    [From the U.S. Government Publishing Office]

                          AT WHAT COST? EXAMINING THE
                             SOCIAL COST OF CARBON

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

                                 JOINT HEARING

                                   BEFORE THE

                         SUBCOMMITTEE ON ENVIRONMENT &
                           SUBCOMMITTEE ON OVERSIGHT

                  COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY
                            HOUSE OF REPRESENTATIVES

                         ONE HUNDRED FIFTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                               FEBRUARY 28, 2017

                                   __________

                               Serial No. 115-05

                                   __________

     Printed for the use of the Committee on Science, Space, and Technology

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

           Available via the World Wide Web: http://science.house.gov

                                       ______

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                  COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY

                       HON. LAMAR S. SMITH, Texas, Chair
    FRANK D. LUCAS, Oklahoma             EDDIE BERNICE JOHNSON, Texas
    DANA ROHRABACHER, California         ZOE LOFGREN, California
    MO BROOKS, Alabama                   DANIEL LIPINSKI, Illinois
    RANDY HULTGREN, Illinois             SUZANNE BONAMICI, Oregon
    BILL POSEY, Florida                  ALAN GRAYSON, Florida
    THOMAS MASSIE, Kentucky              AMI BERA, California
    JIM BRIDENSTINE, Oklahoma            ELIZABETH H. ESTY, Connecticut
    RANDY K. WEBER, Texas                MARC A. VEASEY, Texas
    STEPHEN KNIGHT, California           DONALD S. BEYER, JR., Virginia
    BRIAN BABIN, Texas                   JACKY ROSEN, Nevada
    BARBARA COMSTOCK, Virginia           JERRY MCNERNEY, California
    GARY PALMER, Alabama                 ED PERLMUTTER, Colorado
    BARRY LOUDERMILK, Georgia            PAUL TONKO, New York
    RALPH LEE ABRAHAM, Louisiana         BILL FOSTER, Illinois
    DRAIN LaHOOD, Illinois               MARK TAKANO, California
    DANIEL WEBSTER, Florida              COLLEEN HANABUSA, Hawaii
    JIM BANKS, Indiana                   CHARLIE CRIST, Florida
    ANDY BIGGS, Arizona
    ROGER W. MARSHALL, Kansas
    NEAL P. DUNN, Florida
    CLAY HIGGINS, Louisiana
                                     ------

                          Subcommittee on Environment

                        HON. ANDY BIGGS, Arizona, Chair
    DANA ROHRABACHER, California         SUZANNE BONAMICI, Oregon, Ranking
    BILL POSEY, Florida                      Member
    MO BROOKS, Alabama                   COLLEEN HANABUSA, Hawaii
    DANIEL WEBSTER, Florida              CHARLIE CRIST, Florida
    BRIAN BABIN, Texas                   EDDIE BERNICE JOHNSON, Texas
    GARY PALMER, Alabama
    BARRY LOUDERMILK, Georgia
    JIM BANKS, Indiana
    CLAY HIGGINS, Louisiana
    LAMAR S. SMITH, Texas
                                     ------

                           Subcommittee on Oversight

                       HON. DRAIN LaHOOD, Illinois, Chair
    BILL POSEY, Florida                  DONALD S. BEYER, Jr., Virginia,
    THOMAS MASSIE, Kentucky                  Ranking Member
    GARY PALMER, Alabama                 JERRY MCNERNEY, California
    ROGER W. MARSHALL, Kansas            ED PERLMUTTER, Colorado
    CLAY HIGGINS, Louisiana              EDDIE BERNICE JOHNSON, Texas
    LAMAR S. SMITH, Texas

                                C O N T E N T S

                               February 28, 2017

                                                                       Page
    Witness List.....................................................     2

    Hearing Charter..................................................     3

                               Opening Statements

    Statement by Representative Andy Biggs, Chairman, Subcommittee on
      Environment, Committee on Science, Space, and Technology, U.S.
      House of Representatives.......................................     4
        Written Statement............................................     6

    Statement by Representative Suzanne Bonamic, Ranking Member,
      Subcommittee on Environment, Committee on Science, Space, and
      Technology, U.S. House of Representatives......................     8
        Written Statement............................................    10

    Statement by Representative Darin LaHood, Chairman, Subcommittee
      on Oversight, Committee on Science, Space, and Technology, U.S.
      House of Representatives.......................................    12
        Written Statement............................................    14

    Statement by Representative Donald S. Beyer, Jr., Ranking Member,
      Subcommittee on Oversight, Committee on Science, Space, and
      Technology, U.S. House of Representatives......................    16
        Written Statement............................................    18

    Statement by Representative Lamar S. Smith, Chairman, Committee
      on Science, Space, and Technology, U.S. House of
      Representatives................................................    20
        Written Statement............................................    22

                                   Witnesses:

    Dr. Ted Gayer, PhD, Vice President and Director of Economic
      Studies and Joseph A. Pechman Senior Fellow at Brookings
      Institution
        Oral Statement...............................................    24
        Written Statement............................................    27

    Dr. Kevin Dayaratna, PhD, Senior Statistician and Research
      Programmer, Center for Data Analysis, Institute for Economic
      Freedom and Opportunity at The Heritage Foundation
        Oral Statement...............................................    34
        Written Statement............................................    36

    Dr. Michael Greenstone, PhD, Milton Friedman Professor in
      Economics, the College, and the Harris School; Director of the
      interdisciplinary Energy Policy Institute at the University of
      Chicago and the Energy & Environment Lab at the University of
      Chicago Urban Labs
        Oral Statement...............................................    50
        Written Statement............................................    52

    Dr. Patrick Michaels, PhD, Director, Center for the Study of
      Science, Cato Institute; contributing author to United Nations
      Intergovernmental Panel on Climate Change (Nobel Peace Prize
      2007)
        Oral Statement...............................................    60
        Written Statement............................................    62

    Discussion.......................................................    98

                 Appendix I: Answers to Post-Hearing Questions

    Dr. Kevin Dayaratna, PhD, Senior Statistician and Research
      Programmer, Center for Data Analysis, Institute for Economic
      Freedom and Opportunity at The Heritage Foundation.............   124

    Dr. Michael Greenstone, PhD, Milton Friedman Professor in
      Economics, the College, and the Harris School; Director of the
      interdisciplinary Energy Policy Institute at the University of
      Chicago and the Energy & Environment Lab at the University of
      Chicago Urban Labs.............................................   127

                Appendix II: Additional Material for the Record

    Statement submitted by Representative Eddie Bernice Johnson,
      Ranking Member, Committee on Science, Space, and Technology,
      U.S. House of Representatives..................................   134

    Document submitted by Representative Darin LaHood, Chairman,
      Subcommittee on Oversight, Committee on Science, Space, and
      Technology, U.S. House of Representatives......................   136

                          AT WHAT COST? EXAMINING THE
                             SOCIAL COST OF CARBON

                                  ----------

                           TUESDAY, FEBRUARY 28, 2017

                      House of Representatives,
                        Subcommittee on Environment and
                             Subcommittee on Oversight,
                   Committee on Science, Space, and Technology,
                                                       Washington, D.C.

        The Subcommittees met, pursuant to call, at 10:07 a.m., in
    Room 2318, Rayburn House Office Building, Hon. Andy Biggs
    [Chairman of the Subcommittee on Environment] presiding.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Biggs. Good morning. The Subcommittees on
    Environment and Oversight will come to order.
        Without objection, the Chair is authorized to declare
    recesses of the Subcommittee at any time.
        Welcome to today's hearing entitled ``At What Cost?
    Examining the Social Cost of Carbon.'' I recognize myself for
    five minutes for an opening statement.
        Welcome to today's joint subcommittee hearing entitled ``At
    What Cost? Examining the Social Cost of Carbon.'' Today, we
    will examine the previous Administration's determination of the
    social cost of carbon, or SCC, and explore why the calculated
    value is flawed.
        Energy is the bedrock of our society, and yet the SCC
    estimate of the previous Administration has killed jobs,
    limited innovation, and resulted in higher energy costs for
    American families, all in exchange for benefits that are
    negligible at best and nonexistent at worst.
        The Obama Administration's Interagency Working Group, which
    ultimately established an enormously high SCC of $37 per ton of
    CO2 emitted into the atmosphere, relied on an
    outdated economic model and failed to take into account the
    White House's own Office of Management and Budget, or OMB,
    guidelines for cost-benefit analysis. Quite simply, the working
    group used numbers that got them the results they wanted in
    order to advance some of the most expensive and expansive
    regulations ever written. In pushing forward this political
    agenda, the working group acted irresponsibly. It also allowed
    the previous Administration to implement stringent and costly
    regulations without a scientific basis.
        As we will learn today, the SCC working group ignored two
    major OMB recommendations for federal agency rulemaking. First,
    it failed to use a seven percent discount rate, and instead
    relied on rates of 2.5 percent, three percent, and five
    percent. and, second, it ignored the guideline to report cost-
    benefit analysis from a domestic perspective. If nothing else
    is taken away from what will be a very technical hearing, I
    hope it will be these two very basic flaws.
        The low long-term discount rate established by the previous
    Administration fundamentally disregards the notion that the
    American economy is resilient and can respond to potential
    future threats with technological development and innovation.
    As to the flaw of the previous Administration's decision to
    focus on CO2 emissions from a global perspective,
    this approach leaves the United States footing the bill for
    costly regulations that are based on benefits conferred to
    other countries. It is simply not right for Americans to be
    bearing the brunt of costs when the majority of benefits will
    be conferred away from home.
        By ignoring OMB guidelines, the current SCC models leave
    critical components out of the discussion. If the OMB
    guidelines would have been followed, the social cost of carbon
    would have been significantly lower.
        The previous Administration disregarded scientific
    integrity by overestimating climate change resulting from
    greenhouse gas emissions. In order to push an expensive
    regulatory agenda, the Administration inflated the SCC to
    justify costly regulations in response to the allegedly
    terrible damage CO2 emissions will cause in the
    future.
        The SCC is nothing but a one-sided manipulation of
    parameters to fit the policy-driven agendas of the previous
    Administration. These alarmist tactics need to stop. Today's
    hearing is intended to uncover the real truth and deception
    behind the SCC.
        America's strength emanates from our resilience and
    flexibility. Attempts to justify government regulations over
    industry innovations hinders growth and development. I look
    forward to working with the Trump Administration to renew faith
    in American ingenuity and technological development.
        [The prepared statement of Chairman Biggs follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Biggs. I now recognize the Ranking member of the
    Subcommittee on Environment, Ms. Bonamici, for an opening
    statement.
        Ms. Bonamici. Thank you very much, Mr. Chairman, and thank
    you to our witnesses for being here today.
        The social cost of carbon is a metric used to value the
    damage caused by emitting 1 ton of carbon dioxide into the
    atmosphere in a year. It provides a consistent value for all
    federal agencies to use for their cost-benefit analysis on
    regulatory efforts that reduce carbon dioxide emissions.
        There are some people who criticize this metric, but the
    Government Accountability Office and independent peer review by
    the National Academy of Sciences have validated it many times.
    Additionally, federal courts have upheld that the methodology
    used to develop the social cost of carbon is based on robust
    science and sound economic analysis. It is critical that
    updates to the social cost of carbon metric are based on the
    best available science and updated economic analysis based on
    peer-reviewed literature.
        The Government Accountability Office has found that the
    methodology used to develop the social cost of carbon was based
    on peer-reviewed academic literature and took steps to
    incorporate new information as it became available. This
    process also provided ample opportunity for public comment on
    both the social cost of carbon and the regulations that use the
    metric in their cost-benefit analysis.
        Some people suggest that regulations to reduce the
    emissions of carbon dioxide and other pollutants are
    unnecessary because climate change does not exist or human
    activity does not contribute to it, but simply ignoring a fact
    does not make it less true. The climate is warming, and we need
    to work now to limit the consequences for future generations.
    Our children and grandchildren should not inherit an
    environment that degrades their health and harms their future
    economy.
        Economic growth and reducing carbon pollution are not in
    conflict with one another. Clean energy development allows us
    to continue powering our communities in ways that avoid long-
    term negative consequences on future generations. It also gives
    us the opportunity to bring new living-wage jobs into
    communities. In fact, the American Wind Energy Association
    found that the wind energy sector accounts for 3,000 jobs
    throughout my home State of Oregon alone. In addition to
    boosting Oregon's economy, wind energy generation avoided more
    than 1 million tons of statewide carbon dioxide emissions in
    2015, and many of the wind energy jobs are in rural areas where
    jobs are needed.
        The social cost of carbon is not a product of a single
    President, a single scientific study, or a single legal action.
    It is rooted in overwhelming scientific consensus on climate
    change, an effort spanning 30 years from both the executive and
    judicial branches of the Federal Government. These factors,
    coupled with a transparent development process and strong
    economic analysis, form the basis of this metric that has been
    used in at least 79 federal regulations, including fuel economy
    standards for vehicles, energy efficiency measures for home
    appliances, and regulations such as the Clean Power Plan. This
    metric was not invented to serve a political agenda but in fact
    was developed to meet a legal mandate to justify, in simple
    terms of dollars and cents, how the Federal Government's
    actions will affect Americans today and our children and
    grandchildren tomorrow.
        I look forward to hearing how we may best continue to use
    the social cost of carbon in support of policies that protect
    our environment.
        With that, I would like to again thank the witnesses for
    being here today, and I yield back the balance of my time.
        [The prepared statement of Ms. Bonamici follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Biggs. Thank you, Ms. Bonamici.
        I now recognize the Chairman of the Subcommittee on
    Oversight, Mr. LaHood, for his opening statement.
        Mr. LaHood. Thank you, Chairman Biggs, and happy to be part
    of this hearing today with you, today's hearing titled ``At
    What Cost? Examining the Social Cost of Carbon,'' and happy to
    have the witnesses here today as we examine the previous
    Administration's social cost of carbon and the shortfalls in
    application of this flawed process.
        There is significant evidence that the previous
    Administration manipulated the social cost of carbon
    calculation to reflect significant benefits to enacting what
    were ultimately job-killing regulations and policies across a
    wide spectrum of issues. The social cost of carbon is a flawed
    tool used by the Obama Administration to justify a green agenda
    when, in reality, the prior Administration was seeking to
    offset its costly regulations with far-reaching implications
    that burden our industries and nation.
        Unsurprisingly, the previous Administration ignored
    specific guidelines set forth by the Office of Management and
    Budget, OMB, and used the social cost of carbon as a vehicle to
    tout the economic benefits of the new environmental
    regulations. This is troubling and to me is not being honest
    with the taxpayers.
        Critics take issue primarily with two aspects of the social
    cost of carbon methodology, specifically, the discount rate
    used and the domestic versus global benefits claimed. Both
    issues I look forward to discussing in more detail with our
    panel of esteemed witnesses today.
        I, too, take issue with the methodology but also the lack
    of transparency with the use and development of the social cost
    of carbon. Three statistical integrated assessment economic
    models were used to develop the social cost of carbon: the
    FUND, the DICE, and the PAGE. Experts have concluded these
    three models are flawed and possess too many uncertainties to
    be the foundation of the benefit analysis of environmental
    regulations. If one were to change the assumptions these models
    are based on, the result will drastically differ, demonstrating
    malleability in the social cost of carbon calculation.
        Because of these realities, last year, I was pleased to be
    an original cosponsor of H.R. 5668, the Transparency and
    Honesty in Energy Regulation Act, or THERA, introduced by my
    friend and colleague Evan Jenkins of West Virginia. This
    legislation is aimed at prohibiting the Department of Energy
    and the Environmental Protection Agency from considering the
    social cost of carbon as part of any cost-benefit analysis
    unless specifically authorized by law. If signed into law, the
    DOE and the EPA would no longer rely on manipulated and
    fabricated economic benefits to justify or support new job-
    killing environmental regulations. I look forward to working
    with Congressman Jenkins again on this issue this Congress.
        It appears that the social cost of carbon is nothing but a
    political tool lacking scientific integrity and transparency
    conceived and utilized by an Administration pushing a green
    agenda to the detriment of the American taxpayers. Perhaps a
    better measurement of the social cost of carbon is not the net
    damages that result from a one-metric-ton increase in carbon
    dioxide emissions in a given year but the damage inflicted on
    domestic industries, including manufacturers in my district
    like Caterpillar, by the environmental regulations justified by
    this flawed calculation.
        I would like to thank our witnesses for being here today to
    discuss this important matter. In addition, I look forward
    working with the Trump Administration to reverse the damage
    caused by the Obama Administration as it relates to this issue.
        With that, I yield back to the Chair.
        [The prepared statement of Mr. LaHood follows:]

     [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Biggs. Thank you, Mr. LaHood.
        I now recognize the Ranking Member of the Subcommittee on
    Oversight, Mr. Beyer, for his opening statement.
        Mr. Beyer. Thank you, Mr. Chairman, and thank you, all the
    witnesses, for being here.
        You know, the social cost of carbon is a complex metric
    which our witness Dr. Greenstone has described as the most
    important number you've never heard of. Assessing and
    addressing the impact of climate change on current and future
    generations is critical. It seems already that in just the
    first few minutes of this hearing we see a dramatic difference
    between the short-term emphasis on job creation, which is
    important, and a long-term emphasis on protecting our planet.
        The social cost of carbon permits the government to help
    quantify the future economic damages as a result of carbon
    pollution that contributes to climate change and global
    warming. This metric didn't materialize out of thin and dirty
    air. It took a federal judge to mandate its use during the Bush
    Administration based on a law passed when Ronald Reagan was
    President.
        In 2009, the Obama Administration convened an interagency
    effort to formalize a consistent value for it. This was not a
    political tool. This was an attempt to protect our environment.
        We'll hear today that this development process was
    transparent, it was open to public comment, it's been validated
    over the years, and, much like our climate, it's not static and
    it changes over time in response to updated inputs. And
    although its use has been challenged in the courts recently,
    the courts have upheld the methodology used to obtain this
    estimate as proper based on real science and appropriate
    economic models.
        As a Minnesota administrative law judge determined last
    April, the preponderance of evidence supports the fact that
    federal social cost of carbon is reasonable and the best
    available measure to determine the environmental cost of
    CO2. I'm pretty certain we won't hear any of that
    today from the majority members and their witnesses. Instead,
    we'll hear the same arguments made against climate regulations
    that we've heard before. And sadly, those anti-science
    arguments both ignore the abundant scientific evidence that
    shows that climate change exists, that fossil fuel production
    is its main contributor, and will also admonish virtually any
    responsible regulatory mechanism to help protect our nation's
    citizens from the environmental, economic, and public health
    harm that results from climate change's global impacts.
        These individuals will argue already that social cost of
    carbon is outdated, inaccurate, and not a proper regulatory
    mechanism for addressing climate change. We've heard these
    arguments before. In fact, in 1982 the tobacco company R.J.
    Reynolds produced internal talking points about the social cost
    of smoking when Congressman Henry Waxman was holding hearings
    regarding the harm to the public's health from cigarette
    smoking. At the time, Representative Waxman said the annual
    smoking-related cost in lost productivity was $25.8 billion and
    $13.6 billion in annual medical costs. R.J. Reynolds said,
    quote, that ``attempts to establish a dollar value of so-called
    cost of smoking are ill-founded and unreliable,'' end quote.
        More than one decade later, in 1994, the tobacco company
    Philip Morris was producing glossy brochures to combat the
    growing evidence revolving around the harm of cigarette
    smoking. One was titled, quote, ``Debunking the Social Cost of
    Smoking,'' and an internal memo from Philip Morris said simply,
    ``Philip Morris does not believe that smoking has been shown to
    pose any social cost on society.''
        So we're going to hear similar arguments today on the
    social cost of carbon emissions from fossil fuels, their impact
    on climate change. These arguments resonate loudly with the new
    Trump Administration, but they contradict the economic analysis
    and scientific evidence that supports the use of social cost of
    carbon.
        In a much-publicized recent memo, Dr.--or Thomas Pyle, the
    head of Trump's Department of Energy transition team, stated,
    quote, ``If the social cost of carbon were subjected to the
    latest science, it would certainly be much lower than what the
    Obama Administration has been using,'' end quote. And he
    suggested ending the use of it in federal rulemaking. The memo
    went on to describe plans to withdraw from the Paris Climate
    Agreement, eliminate the Clean Power Plan, increase federal oil
    and natural gas leasing, lift the moratorium on coal leasing--
    in other words, more and more and more fossil fuels at greater
    cost to the environment.
        Mr. Chairman, climate change is real. Scientific evidence
    across the world, we think we are the only country in the world
    that doesn't--that has any internal disagreement about climate
    change. And as members of the Science Committee, we should be
    leading the fight to protect our nation against its impacts,
    and I hope my colleagues will be persuaded by the weight of
    evidence. The evidence becomes ever clearer with every passing
    day. And we will work together to promote policies that protect
    our future generations.
        Mr. Chair, I yield back.
        [The prepared statement of Mr. Beyer follows:]

     [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Biggs. Thank you, Mr. Beyer.
        I now recognize the Chairman of the Full Committee, Mr.
    Smith, for his opening statement. Chairman Smith.
        Chairman Smith. Thank you, Chairman Biggs. And
    congratulations on becoming the Chairman of the Environment
    Subcommittee. I look forward to helping you restrain the EPA's
    out-of-control regulatory agenda.
        The EPA, along with other federal agencies, often bases
    their regulations on models and science not familiar to most
    Americans. Americans are led to believe that the EPA's
    regulations are based on the best science available.
    Unfortunately, this committee has discovered that that is not
    the case.
        The EPA's track record does not inspire trust. For example,
    the EPA routinely relies on nondisclosed scientific studies to
    justify its regulations, but how can Americans believe an
    agency that isn't being open and honest?
        Another little-known component of environmental regulations
    is the social cost of carbon. The EPA attempts to put a price
    on a ton of carbon emitted into the atmosphere. This term is in
    many of the EPA's regulations. However, like many of the
    Agency's determinations, it is often based on a one-sided
    political agenda.
        Many factors contribute to the value of the social cost of
    carbon. While multiple models are used to determine a value for
    carbon, the ones frequently used in regulations assume only a
    worst-case scenario for climate change impacts. Similar to
    climate models, which predict worst-case scenarios and are
    repeatedly proved wrong, the social cost of carbon used by
    federal agencies is also flawed.
        The federal government should not include faulty
    calculations to justify costly regulations. Examples would be
    the Clean Power Plan and standards used by the Department of
    Energy. Instead, it should eliminate the use of the social cost
    of carbon until a credible value can be calculated.
        Rushing to use unreliable calculations, such as the social
    cost of carbon, to justify a regulation is irresponsible and
    misleading. For instance, the EPA's Clean Power Plan would cost
    billions of dollars every year in return for a minimal benefit
    on the environment. In fact, the regulation would reduce global
    temperatures by only 0.03 degrees Celsius and limit sea level
    rise by only the width of three sheets of paper.
        One of the many components used to justify this rule is the
    social cost of carbon. This flawed value desperately attempts
    to justify the Agency's alarmist reasoning for support of the
    Clean Power Plan and other climate regulations. Agencies should
    rely on sound science, not flawed data. The fact that different
    models for the social cost of carbon exist and all have
    different values is a testament to how uncertain the science
    behind the value really is. For example, the social cost of
    carbon ranges from negative values to $37 per ton, which is the
    estimate used by government agencies under the Obama
    Administration. Before the EPA includes this value in
    rulemakings, the Agency should reassess how it is determined.
        Americans deserve credible science, not regulations based
    on data that is suspect and calculated to justify the EPA's
    climate agenda. Sound science and actual data should lead the
    way, not politically calculated social costs.
        Thank you, Mr. Chairman. I'll yield back.
        [The prepared statement of Chairman Smith follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Biggs. Thank you, Chairman Smith.
        Let me introduce our witnesses. Our first witness today is
    Dr. Ted Gayer, Vice President and Director of Economic Studies
    and Joseph A. Pechman Senior Fellow at the Brookings Institute.
    Dr. Gayer received his bachelor's degree in mathematics and
    economics from Emory, and his master's degree and Ph.D. in
    economics from Duke University.
        Our next witness is Dr. Kevin Dayaratna, Senior
    Statistician and Research Programmer at the Heritage
    Foundation's Institute for Economic Freedom and Opportunities
    Center for Data Analysis. Dr. Dayaratna received his bachelor's
    degree in applied mathematics and mathematical physics from the
    University of California at Berkeley, his master's degrees in
    mathematical statistics and business management from the
    University of Maryland, and his Ph.D. in mathematical
    statistics from the University of Maryland.
        Our third witness today is Dr. Michael Greenstone, Milton
    Friedman Professor in Economics, the College, and the Harris
    School; Director of the Interdisciplinary Energy Policy
    Institute at the University of Chicago; and Director of the
    Energy and Environment Lab at University of Chicago Urban Labs.
    Dr. Greenstone received his bachelor's degree in economics at
    Swarthmore College and his Ph.D. in economics from Princeton.
        Our final witness today will be Dr. Patrick Michaels,
    Director of the Center for the Study of Science at the Cato
    Institute and contributing author to United Nations'
    Intergovernmental Panel on Climate Change, which was awarded
    the Nobel Peace Prize. Dr. Michaels received his bachelor's and
    master's degrees in biological sciences and plant ecology from
    the University of Chicago and his Ph.D. in ecological
    climatology from the University of Wisconsin at Madison.
        I now recognize Dr. Gayer for five minutes to present his
    testimony.

                    TESTIMONY OF DR. TED GAYER, PHD,

            VICE PRESIDENT AND DIRECTOR OF ECONOMIC STUDIES

                  AND JOSEPH A. PECHMAN SENIOR FELLOW

                        AT BROOKINGS INSTITUTION

        Dr. Gayer. Chairs Biggs, LaHood, and Smith; and Ranking
    Members Bonamici and Beyer; and members of the subcommittees, I
    appreciate the opportunity to appear here today to discuss the
    social cost of carbon.
        The social cost of carbon is a dollar estimate of the
    damages caused by a 1-ton increase in greenhouse gas emissions
    in a given year. It is a conceptually valid and important
    consideration when devising policies and treaties to address
    climate change, yet estimating the value of the social cost of
    carbon is an enormously complex and uncertain exercise.
        In 2009, the Obama Administration established an
    Interagency Working Group to develop a range of estimates for
    the social cost of carbon subsequently used by agencies to
    evaluate federal regulations. My focus is on the specific
    question of whether the social cost of carbon should account
    for the global or the domestic harm of a ton of greenhouse gas.
        In a world in which the United States and all the other
    major emitters of greenhouse gases adopted a coordinated set of
    policies to address climate change, then a global measure would
    be appropriate since greenhouse gases contribute to damages
    around the world no matter where they occur.
        But we don't live in such a world. Instead, in the United
    States we have opted for a suite of regulatory policies ranging
    from subsidizing lower carbon energy sources; mandating energy
    efficiency levels in buildings, vehicles, and household
    appliances; requiring transportation fuels to contain minimum
    volumes of different renewable fuels, and restricting emissions
    from electric utilities.
        Given the diversity of regulations directed at climate
    change, it is useful and important for the agencies to
    coordinate on a single measure of climate benefits. But the
    question is whether they should report and consider the
    benefits to U.S. citizens or to the world. The Interagency
    Working Group opted for a global measure.
        I believe the exclusive focus on a global measure runs
    counter to standard benefit cost practice in which only the
    benefits within the political jurisdiction bearing the cost of
    the policy are considers. It also seems at odds with the
    express intent of longstanding Executive orders and of
    authorizing statutes. For example, the main regulatory guidance
    document that has been in place for 20 years is Executive Order
    12866, which makes clear that the appropriate reference point
    for analyzing federal regulatory policy--policies is the U.S.
    citizenry, not the world.
        Similarly, when enacting the Clean Air Act, Congress stated
    that its purpose was to, quote, ``protect and enhance the
    quality of the nation's air resources so as to promote the
    public health and welfare and productive capacity of its
    population,'' end quote, which again suggests a focus on
    domestic benefits.
        The global measure is 4 to 14 times greater than the
    estimated domestic measure, which is significant. For example,
    for its proposed regulations for existing power plants, the EPA
    estimated climate benefits amounting to $30 billion in 2030.
    However, the estimated domestic climate benefits would have
    only amounted to $2 to $7 billion, which is less than EPA's
    estimated compliance cost for the rule.
        I believe that adopting a global measure for the benefits
    of a domestic policy would be justified if U.S. actions led to
    complete reciprocity from other countries. The question is
    whether efforts by the United States to regulate greenhouse
    gases might spur reciprocity by other countries to do so as
    well, generating domestic benefits that are 4 to 14 times as
    great as the direct domestic benefits to the U.S.-only policy.
    This is doubtful since the agency regulations taken under
    existing U.S. laws such as the Clean Air Act are not tantamount
    to treaty commitments that can establish a formal basis for
    other countries matching the efforts undertaken domestically.
        By using the global social cost of carbon, the agencies are
    claiming that their rules provide benefits that in fact largely
    accrue to foreign citizens. Of course, many Americans are
    altruistic and care about the welfare of people beyond our
    borders, but foreign aid decisions should be made openly and
    not hidden in an obscure metric used in domestic rulemaking.
        A global measure of the social cost of carbon is
    appropriate if the intent is to use it to support the
    development of a global system of reducing greenhouse gases,
    such as through a worldwide carbon tax. I favor a carbon tax
    for the United States that replaces regulations and relies on
    border tax adjustments to incentivize other major emitters to
    follow suit. But absent such an approach, for domestic agencies
    considering domestic regulations in which the costs are
    incurred domestically, a global measure deviates from standard
    practice and requires more scrutiny and justification than it
    has received to date. At the very least, agencies should report
    the expected domestic benefits and only separately and
    transparently report the expected foreign benefits of their
    actions informed by concrete evidence of reciprocity expected
    from other countries.
        Thank you.
        [The prepared statement of Dr. Gayer follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Biggs. Thank you, Dr. Gayer.
        I now recognize Dr. Dayaratna for five minutes to present
    his testimony.

                 TESTIMONY OF DR. KEVIN DAYARATNA, PHD,

              SENIOR STATISTICIAN AND RESEARCH PROGRAMMER,

                       CENTER FOR DATA ANALYSIS,

                     INSTITUTE FOR ECONOMIC FREEDOM

               AND OPPORTUNITY AT THE HERITAGE FOUNDATION

        Dr. Dayaratna. Chairman Biggs, Ranking Member Bonamici, and
    other Members of the Subcommittees, thank you for the
    opportunity to testify about the social cost of carbon.
        My name is Kevin Dayaratna. I'm 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.
        One of the primary metrics that the previous Administration
    had used to justify agenda regarding energy policy--justify
    regulatory--its regulatory agenda regarding energy policy is
    the 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 Obama
    Administration's Interagency Working Group had used to estimate
    the SCC, the DC. model, the FUND model, and the PAGE model. My
    colleagues and I have used the DC. and FUND models, testing
    their sensitivity to a variety of important assumptions. Our
    work, published both at Heritage, as well as in the peer-
    reviewed literature, as repeatedly illustrated that while these
    models might be interesting for academic exercises, they can be
    readily manipulated by regulators and bureaucrats.
        In particular, as with any statistical model, they are
    dependent on various assumptions. I'd like to discuss three
    assumptions regularly manipulated to achieve predetermined
    outcomes: the choice of a discount rate, a time horizon, and
    the specification of an equilibrium climate sensitivity
    distribution.
        The first easily manipulated assumption is the discount
    rate. In this type of cost-benefit analysis, the discount rate
    should reflect the rate of return on generally achievable
    alternative investments. The IWG had run these models using
    2.5, 3, and five percent discount rates despite the fact that
    OMB guidance in circular A-4 had specifically stipulated that a
    seven percent discount rate be used as well.
        At Heritage, we re-estimated these models using a seven
    percent discount rate and noticed drastic reductions to the
    SCC. In 2020, for example, according to our recent analysis of
    the DC. model published in the peer-reviewed journal Climate
    Change Economics, under a three percent discount rate, the SCC
    is estimated to cost $37.79 per ton, while under a seven
    percent discount rate, it is estimated to be $5.87, an 84
    percent reduction. The higher estimates previously found by the
    IWG can enable policymakers to justify unnecessary regulations
    and taxes on the economy.
        The second easily manipulated assumption is the
    specification of a time horizon. It is close to impossible to
    forecast what the economy will look like decades into the
    future. Foolishly, these models attempt to make projections not
    decades but rather three centuries into the future. In my work
    at Heritage, I have changed the time horizon to a significantly
    shorter but still unrealistic time horizon of 150 years into
    the future. With the DC. model, we find that these results
    plummet by 25 percent in some instances.
        The third readily manipulated variable is the model's
    equilibrium climate sensitivity, or ECS, distribution,
    quantifying the Earth's temperature response to a doubling of
    carbon dioxide concentration. My colleague Dr. Pat Michaels
    will go into this in more detail, but the IWG used an ECS
    distribution that was published ten years ago in the journal
    Science. Since then, a number of newer ECS distributions have
    been published suggesting lower probabilities of extreme global
    warming.
        Using the more up-to-date ECS distributions generate
    significantly lower estimates of the SCC. In our peer-reviewed
    work, we found that, as a result of updating the ECS
    distributions, the results drop by as much as 197 percent under
    some circumstances. Inflated estimates of climate sensitivity
    drive up the SCC, which can become manifested in unnecessary
    regulations.
        Finally, the unexplored issue here is are there any
    benefits associated with carbon dioxide emissions? The answer
    is surprisingly yes. The FUND model actually allows for
    negative SCC, meaning a positive outcome. In fact, under some
    assumptions, there are actual substantial probabilities of
    negative SCC, meaning increased CO2 fertilization,
    leading to increased agriculture and forestry yields.
        Moreover, if one were to take the IWG's interpretation of
    these models seriously and implement the associated
    regulations, there would be significant damage to the economy.
    In particular, our analysis finds that by 2035 the country
    would experience an average employment shortfall of 400,000
    lost jobs, a marked increase in electricity prices, and an
    aggregate $2.5 trillion loss in GDP.
        Our analysis using the model for the assessment of
    greenhouse gas-induced climate change has found that these
    devastating impacts would be accompanied by insignificant
    changes and less than 2/10 of a degree Celsius in temperature
    mitigation and less than 2 centimeters of sea level rise
    reduction.
        In conclusion, the SCC is a broken tool for regulatory
    policy and taking it seriously would provide significant harm
    and little environmental benefit.
        Thank you for your attention, and I look forward to your
    questions.
        [The prepared statement of Mr. Dayaratna follows:]

     [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Biggs. Thank you, Dr. Dayaratna.
        I now recognize Dr. Greenstone for five minutes to present
    his testimony.

               TESTIMONY OF DR. MICHAEL GREENSTONE, PHD,

                MILTON FRIEDMAN PROFESSOR IN ECONOMICS,

                  THE COLLEGE, AND THE HARRIS SCHOOL;

                   DIRECTOR OF THE INTERDISCIPLINARY

          ENERGY POLICY INSTITUTE AT THE UNIVERSITY OF CHICAGO

                    AND THE ENERGY & ENVIRONMENT LAB

                AT THE UNIVERSITY OF CHICAGO URBAN LABS

        Dr. Greenstone. Thank you, Chairmen Biggs and LaHood,
    Ranking Members Bonamici and Beyer, and Members of the
    Subcommittees, for inviting me to speak today.
        My name is Michael Greenstone, and I'm the Milton Friedman
    Professor in Economics and Director of the Energy Policy
    Institute at the University of Chicago.
        The social cost of carbon is a monetized value of the
    damages from the release of an additional ton of
    CO2. This means that it can be used to determine the
    benefits of regulations that reduce CO2 emissions.
    Indeed, these benefits can then be compared to the costs that
    regulations impose to determine whether the regulation is
    beneficial or not.
        In 2009, while working in the Obama Administration, Cass
    Sunstein and I convened and co-led an Interagency Working Group
    to determine a government-wide value for the social cost of
    carbon. Ultimately, the Interagency Working Group determined a
    central estimate of $21 per metric ton. That estimate has since
    been revised to reflect scientific advances and is now about
    $36.
        The approach has been judged valid. Last August, the
    Federal Court of Appeals rejected a legal challenge to the
    metric. Further, the General Accounting Office has said that
    the working group's processes and methods reflected key
    principles that ensured its credibility: It used consensus-
    based decision-making, relied largely on existing academic
    literature and models; and disclosed limitations and
    incorporated new information by considering public comments and
    revising the estimates as updated research became available.
        Indeed, the social cost of carbon's credibility is
    underscored by the fact that it has been adopted by the
    governments of California, Illinois, Minnesota, Maine, New
    York, and Washington State, not to mention Canada and Mexico.
        Before concluding my testimony today, I would like to
    address two frequent critiques of the social cost of carbon.
    One such critique is that the real discount rates used--2.5, 3,
    and 5 percent--are too low. Why is a discount rate so
    important? If we choose a discount rate that is too low, then
    we're going to pay too much for mitigation efforts today. If
    instead we choose one that's too high, then we will impose
    higher climate damages on our children and grandchildren than
    we intend.
        Economic theory tells us that we'll be best off if the
    discount rate is equal to the market interest rate from
    investments that match the structure of payoffs that climate
    mitigation provides. If we thought climate damages were likely
    to be imposed consistently and predictably over time, then it
    would be appropriate to set a discount rate equal to something
    like the average return for the stock market. That's about 5.3
    percent over the last 50 years.
        But, on the other hand, if we think climate damages could
    be unpredictable and that tail risk points towards major
    losses, then markets, markets themselves, tell us to use a
    lower discount rate. Consider the case of gold. Its average
    return is only about three percent, yet people hold it as an
    investment. Why is that? The reason is that it pays off
    dramatically during infrequent episodes of economic distress.
    For example, during the Great Recession, gold outperformed the
    stock market by 67 percent.
        When one considers the possibility of large temperature
    changes for given increases in emissions, great sea level rise
    in relatively short periods of time, the possibility of
    physical tipping points or human responses to these changes
    that include mass migration, then the case for using a low
    discount rate to determine the social cost of carbon appears
    strong.
        In addition to this conceptual reason to prefer low
    discount rates, the decline in global interest rates, so
    another market-based reason, since the mid-1980s provides
    another reason. The three percent real discount rate that has
    been a cornerstone of regulatory analysis since 2003 draws its
    justification from the fact that it was roughly equal to the
    real rate of return on long-term government debt at that time.
        However, the world has changed. Rates are now much lower
    and indeed the comparable rate is now probably below two
    percent. Put another way, capital markets are trying to tell us
    to use discount rates that are lower than those currently being
    used to determine the social cost of carbon.
        A second criticism of the social cost of carbon is that it
    reflects global costs from emissions, but the United States
    should only be concerned with domestic damages. However, this
    criticism misses an important point that the goal of policy is
    to maximize net benefits to Americans and that recognizing
    foreign damages is likely to increase net benefits.
        Why is this the case? It's because each ton of CO2
    emitted outside the United States inflicts damages on us. Thus,
    we benefit when China, India, the European Union, and others
    reduce their emissions. It absolutely strains credibility to
    assume that these countries' emissions cuts would be as large
    as if we reverted to a social cost of carbon based only on
    domestic damages.
        In many respects, the Paris Climate Agreement, where nearly
    200 countries agreed to take action on carbon emissions, is a
    validation of the importance of treating climate change is a
    global problem.
        To summarize, society needs to balance the cost to our
    economy of mitigating climate change with the coming climate
    damages. Wishing that we did not face this tradeoff will not
    make it go away. Ultimately, we will be better off if a social
    cost of carbon based on sound science, economics, and law,
    continues to serve as a lynchpin of regulatory policy. Thank
    you.
        [The prepared statement of Mr. Greenstone follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Biggs. Thank you, Dr. Greenstone.
        I'll now recognize Dr. Michaels for five minutes to present
    his testimony.

           TESTIMONY OF DR. PATRICK MICHAELS, PHD, DIRECTOR,

            CENTER FOR THE STUDY OF SCIENCE, CATO INSTITUTE;

                 CONTRIBUTING AUTHOR TO UNITED NATIONS

               INTERGOVERNMENTAL PANEL ON CLIMATE CHANGE

                        (NOBEL PEACE PRIZE 2007)

        Dr. Michaels. May we have the first image? Thank you.
        [Slide.]
        Dr. Michaels. Mr. Chairman, Ranking Members, Members of the
    Subcommittees, thank you for inviting my testimony on
    scientific problems relating to the current calculation of the
    social cost of carbon or SCC. I am Patrick J. Michaels,
    Director of the Center for the Study of Science at the Cato
    Institute. Prior to that, I was a Research Professor of
    Environmental Sciences at University of Virginia for 30 years.
        A year-and-a-half ago I testified to the Committee on
    Natural Resources that the Obama Administration's calculations
    of the SCC were in contravention of a large and growing body of
    scientific literature--next image----
        [Slide.]
        --demonstrating that the sensitivity of temperature to
    human emission of carbon dioxide is not nearly as large as was
    previously thought. And more important, the chance of a high-
    end warming has greatly diminished. Since then, the evidence
    has grown stronger.
        Climate sensitivity is the amount of net warming one gets
    for doubling atmospheric carbon dioxide. It also roughly
    approximates the forecast for surface warming for the 21st
    century. The Obama Administration used a sensitivity
    specification by Roe and Baker, which is the top line there,
    that had a mean sensitivity of 3.0 degrees C and a 5 to 95
    percent confidence limit of 1.7 to 7.14 degrees C, a very large
    number.
        Beginning in 2011, all this work down here, a growing body
    of the scientific literature has yielded 32 new estimates of
    the sensitivity generated by more than 50 researchers from
    around the world with a mean sensitivity of 2 degrees C and a 5
    to 95 percent confidence limit of 1.1 to 3.5 degrees C.
        The large distributions of warming--next image--
        [Slide.]
        --used in Roe and Baker resulted in large part because of
    extremely wide range of estimates of the cooling effects of
    sulfate aerosols, another human emission. These were
    dramatically narrowed by researchers Nick Lewis and Judith
    Curry of Georgia Tech, which greatly reduced the sensitivity,
    as you can see here, and the spread around that sensitivity.
        As my colleague Kevin Dayaratna has shown, the newer more
    reality-based estimates result in a dramatic lowering of the
    SCC. Next image.
        [Slide.]
        Let's now have a look at how well those climate models that
    were used to calculate the previous Administration's SCC are
    doing. This illustration is a further update of an analysis
    initially presented in the testimony of John Christy in 2015
    with data that ended in 2014. The uptick in observed warming at
    the end of the record is an apparent improvement between the
    models and reality. But it is not. Instead, it is the 2015/2016
    El Nino.
        Next image.
        [Slide.]
        And that spread is likely to widen again in recent years,
    as you can see from surface temperatures here that they have
    dropped back down very close to their previous El Nino value.
        [Slide.]
        Next is a chart of predicted trends and tropical
    temperatures measured vertically. This is where the largest
    integrated warming on Earth is forecast to occur. The green
    line on the left is reality, which is--generally shows two to
    three times less warming than has been predicted. At the top of
    the active weather zone around here, the forecast is
    approximately seven times less than--or seven times more than
    is what is being observed. To deny this reality is to deny
    science.
        It is the vertical temperature distribution that largely
    determines daily weather. If this is forecast incorrectly, then
    any subsidiary forecast of surface weather regimes are of
    little to no value. To deny that is to deny science.
        There is another systematic error on the previous
    calculations of the SCC. We live on a planet that is becoming
    greener because of the direct--next image----
        [Slide.]
        --physiological effects of increasing carbon dioxide on
    plant photosynthesis. A massive survey of the scientific
    literature by Dr. Craig Idso shows this caused a $3.2 trillion
    increment in agricultural output from 1961 through 2011. My
    colleague Mr. Dayaratna has shown that a more realistic
    sensitivity in carbon dioxide fertilization can result in a
    negative SCC or a net external benefit from the production of
    carbon dioxide.
        In closing, I provide you this image of the greening of our
    luke-warming home planet, as taken by NASA satellites. Where
    there are dots, the changes are statistically significant. Note
    that the greatest increases, the ones in pink, are in the
    margins of the world's deserts and the tropical rainforest,
    places we all feared for. To acknowledge this is to affirm
    reality.
        Thank you very much for inviting my testimony.
        [The prepared statement of Mr. Michaels follows:]

      [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman Biggs. Thank you. I thank each of the witnesses
    for their testimony today. The Chair recognizes himself for
    five minutes.
        Dr. Gayer, because the Interagency Working Group ignored
    Office of Management and Budget guidelines and used a global
    perspective in determining the SCC, agencies issue regulations
    with substantial domestic cost based on benefits to non-
    Americans. In what way does this global perspective method of
    calculating the SCC potentially mislead the public?
        Dr. Gayer. So I'll answer in two parts. First, the--it's--
    the models that are discussed here today are global models, so
    it's inordinately difficult for them to come up with domestic
    estimates, but the interagency review--interagency process did
    kind of benchmark it to 4 to 14 times differential. So the
    domestic benefits are 1/4 to 1/14 what the global benefits are
    based on the models that they used.
        And just to clarify, based on comment earlier, I think the
    approach should be taken, if it is going to use a global
    measure, it is not a zero-one, right? You could use a domestic
    measure, you can use a full global measure. Michael referred to
    straining credibility to assume that there's no global
    benefits. I think it strains credibility to suggest that
    there's going to be full global benefits, meaning if we act,
    the rest of the world will act instantaneously as well.
        So to the extent that that doesn't happen and we're using a
    domestic measure, we're overestimating the benefits. And the
    example I gave with the Clean Power Plan on the climate benefit
    side, it's enough to tip the scales that the costs outweigh the
    benefits.
        Chairman Biggs. And, Dr. Gayer, just to follow up, do
    agencies have a duty to inform the American public of the
    domestic benefits in a cost-benefit analysis for federal
    regulations?
        Dr. Gayer. Yes. And those are the OMB guidelines. As I
    suggested at the end, I think I'd be less kind of worked up
    over it if they did both, but they should lead with the
    domestic measure.
        Chairman Biggs. Dr. Dayaratna, what are your biggest
    concerns about using the SCC in policymaking?
        Dr. Dayaratna. Thank you for the question, Congressman.
        So there are a variety of issues with these SCCs, with
    these IAMs associated with these SCCs. The most fundamental
    issue is that they are extremely sensitive to very, very
    reasonable changes in assumptions. As I was referring to, the
    time--using the time horizon to 300 years, if you shift that to
    150 years, which is still unrealistic, you get a drastically
    different estimate of the SCC.
        The discount rate, if you use a seven percent discount
    rate, as mandated by the OMB, under the FUND model you will get
    a negative social cost of carbon. And the policy implication
    there would be that we shouldn't be taxing carbon dioxide
    emissions but subsidizing it.
        Then lastly, with the equilibrium climate sensitivity
    distributions, there--the ECS distribution used has--was
    published ten years ago, and it's not even based on empirical
    research. More up-to-date ECS distributions also will result in
    a substantially lower and even potentially negative SCC
    depending on the model that you use.
        So with these results all over the map, I do not understand
    how policymakers can garner any meaningful advice for
    regulatory policy.
        Chairman Biggs. So just for the laymen who are here, what
    does the negative value of the SCC kind of connote? I mean,
    what are we really saying there when we say negative value?
        Dr. Dayaratna. Basically, in a nutshell, in general when
    people think of SCC they talk about economic damages associated
    with carbon dioxide emissions. When those damages are negative,
    that implies that the SCC actually provides benefits. And the
    result of that is, you know, mostly increased photosynthesis,
    agriculture, and so forth. But that would suggest that
    increased CO2 is actually good for the planet.
        Chairman Biggs. Thank you. Dr. Michaels, in 2015 the
    Interagency Working Group released a report to the public
    comments on the determination of the social cost of carbon. You
    were one of the commenters. What is the significance of having
    a comment period in the process of developing an SCC? And did
    the interagency group adopt any of these comments?
        Dr. Michaels. No, they did not, and many of the comments
    were well-reasoned based upon recent peer-reviewed literature
    reinforcing the notion that the sensitivity of temperature that
    was used in the models was too high. Nature is trying to tell
    us something. If you look at that satellite image that I showed
    earlier, you can see that the observed warming in the lower
    atmosphere is about half of what was predicted. If you look in
    the tropics, you can see that the observed warming in the
    vertical in the tropics is about half, actually maybe even a
    little bit less than what was predicted. All these things point
    to a consistent story. About twice as much warming was
    predicted as is going to occur.
        Now, the U.N.'s mean sensitivity is 3.2 degrees Celsius.
    Why don't we settle this out at 1.6, and everybody can go home
    because we're going to meet the 2 degree guideline with
    business as usual, declare victory, and let's go on.
        Chairman Biggs. So when the report refused to adopt any of
    the comments, what does that say to the validity of the report
    and its objectivity?
        Dr. Michaels. I would say that they were wedded to a point
    of view, and I understand. I live in Washington. I understand
    the pressures in this town. If anyone gave an official answer
    that this was not a problem, I hate to say we probably wouldn't
    be chatting here so amiably because nobody would care.
        Chairman Biggs. Thank you, Dr. Michaels.
        I recognize Ranking Member Bonamici for questions.
        Ms. Bonamici. Thank you, Mr. Chairman.
        Dr. Greenstone, it's been suggested that the Interagency
    Working Group operated under some sort of veil of secrecy while
    developing the social cost of carbon. The GAO, in a 2014
    report, found that many of the social cost of carbon estimates
    were developed with input from the public. Now, you and Cass
    Sunstein convened and led this Interagency Working Group. So
    did the Interagency Working Group hear concerns that were
    raised by the other witnesses today, and how were those
    considered in the process? And can you also talk about the role
    that public comment played in the development of the social
    cost of carbon?
        Dr. Greenstone. Yes. Thank you, Congresswoman, for letting
    me talk about that. So it's probably worth going back in time a
    little bit. The process--the social cost of carbon was
    developed in a very methodical way. The--we convened and led
    this group that met many times and it drew expertise from
    agencies across the Administration. We then first put out--the
    first put-out was an interim number that was put out for public
    comment. Then, the final number of $21 was released in 2010.
    That has been attached to, I think, approximately 80 different
    rules. Public comment was received on that through that
    process. And then the Administration later I think in 2013 just
    put it out for public comment by itself.
        So there was tremendous effort to engage the public. There
    was tremendous effort to draw expertise from all corners of
    government, and it was a highly technical exercise that led to
    what we perceive to be and I believe to be describing the
    frontier of science.
        Now, it is possible that some of my fellow witnesses feel
    spurned, and I think that's why we often use peer-reviewed
    literatures to determine what's true and what's not true. And I
    think just because their ideas were not judged to be on the
    frontier does not mean that the whole process was flawed.
        Ms. Bonamici. Thank you. And, Dr. Greenstone, just because
    a comment is made and received but not included does not mean
    it was not considered, correct?
        Dr. Greenstone. Indeed.
        Ms. Bonamici. So, Dr. Greenstone, Dr. Dayaratna said that
    if the social cost of carbon was implemented, the country would
    suffer--I believe it was--he said disastrous economic
    consequences, including a loss of jobs and income and an
    increase in electricity prices. I'd like you to address what
    would happen if indeed the Trump Administration has been
    promoting energy policies without regard to what the policies
    may do to the environment. So will you explain what would
    happen if we were to roll back regulations designed to reduce
    greenhouse gas emissions, if there's an economic price to pay
    for undermining the science supporting the social cost of
    carbon and environmental regulations? And also, how would other
    countries like China or India respond if the United States
    retreats from or even appears to be retreating from its
    obligations to address greenhouse gas emissions?
        Dr. Greenstone. Yes. So I think Dr. Dayaratna is making a
    very important point, which is that regulations have costs, so
    we should all agree on that and we should--we can move on.
        On the flipside of that is that regulations to reduce
    carbon emissions have benefits, and there's--it's a tradeoff,
    like many things in economics. There's no free lunch. And, you
    know, if we were to roll back regulations on climate emissions
    or carbon emissions, what we would--the world would face and
    certainly the United States would face higher temperatures; it
    would face sea level rise. It would face a variety of risks
    that would impose costs on us, our children, and our
    grandchildren.
        And let me just also return--you also asked, Congresswoman,
    about how it would be perceived globally if we reverted to a
    domestic social cost of carbon, and I think that's an important
    question because it's not--what--a narrative here about using
    the domestic damages only I think misses that this is an
    international problem. And in particular when--as I said in my
    testimony, when China or India or the EU reduces emissions, it
    gives great benefits to the citizens of the United States. And
    to not account for that leverage puts us at risk of higher
    costs.
        And so I think the case for reverting to a domestic-only
    damage is essentially asking the rest of the world to ramp up
    their measures.
        Ms. Bonamici. And finally, I know the recent National
    Academy of Sciences report ``Valuing Climate Damages: Updating
    Estimation of the Social Cost of Carbon'' provides some
    recommendations to the Interagency Working Group on how to
    improve the methodology. Do the recommendations for an updated
    estimation undermine the current working group values of the
    social cost of carbon or would using the Academy's
    recommendation methodology invalidate existing regulations----
        Dr. Greenstone. No, the----
        Ms. Bonamici. --that use the----
        Dr. Greenstone. Thank you for that question. I think rather
    than have people cherry-pick particular features, which seems
    to be what's happening today, that they dislike or that they
    know can change the social cost of carbon, a methodical and
    scientific approach would be to follow the National Academy of
    Sciences' recommendations. And indeed, in the Interagency
    Working Group, we suggested that, as science advanced, the
    numbers should be updated periodically. And the National
    Academy of Sciences' report gives a terrific blueprint that
    would allow for updating.
        And, you know, it is true things have advanced since 2009
    and 2010. Our understanding about the impacts of climate
    change, for instance, on human mortality have greatly advanced.
    And I expected a--following NAS's blueprint would allow for a
    refresh.
        Ms. Bonamici. Thank you. My time is expired. I yield back.
    Thank you, Mr. Chairman.
        Chairman Biggs. Thank you.
        Dr. Michaels, you wish to respond?
        Dr. Michaels. Yes, I think it's time to actually take a
    good, clear look at the effect of policies with regard to the
    Paris agreement. The EPA uses a model called the Model for the
    Assessment of Greenhouse Gas-Induced Climate Change. And if
    you're following, the acronym for that model is MAGIC. It is
    the standard tool that is used. And you can put in emissions
    scenarios, climate sensitivity, and come out with a temperature
    saving as a result of any given policy.
        So let's assume a sensitivity that is probably too high, 3
    degrees Celsius, and let's reduce United States' emissions to
    zero right now through the year 2100. The amount of warming
    that would be prevented would be between 1/10 and 2/10 of a
    degree Celsius.
        Now, let's talk about China and India candidly rather than
    merely using adjectives and adverbs. The Chinese emission
    commitments at the Paris agreement are nothing but business as
    usual. It has long been recognized as their economy matures
    that their emissions will stabilize around 2030, and that is
    precisely what they said they would do.
        The Indian commitment is less than nothing. As economies
    mature, the amount of CO2 you emit per unit GDP
    declines. It's called an increase--or a decrease in emissions
    intensity. They vowed in Paris to decrease their emissions
    intensity less, underline less, than the business-as-usual
    scenario for the country of India.
        So really what we do doesn't mean anything to these other
    countries because they're not doing anything. Thank you.
        Chairman Biggs. I recognize the Chairman of the Oversight
    Committee, LaHood, for his five minutes of questions.
        Mr. LaHood. Thank you, Mr. Chairman. I want to thank all
    the witnesses for being here today and your valuable testimony.
        Dr. Gayer, I wanted to ask you, you know, as we try to
    better understand what Congress and the Trump Administration
    can do to make agency rulemaking based on more accurate cost-
    and-benefit information, I do have concerns--I'm not sure
    whether you're familiar--last year, the Seventh Circuit Court
    of Appeals, the federal jurisdiction, ruled in a unanimous
    decision basically against the petitioners, which was an
    organization by the name of Zero Zone, which is an air-
    conditioning/heating unit that sued the Department of Energy
    based on the rulemaking process. And that unanimous decision,
    their conclusion--and I'm summarizing here--but the DOE
    conducted a cost-benefit analysis that is within the statutory
    authority and is supported by substantial evidence. Its
    methodology and conclusions were not arbitrary or capricious.
        And I guess do you have concerns that the court did not
    criticize this process in this court case?
        Dr. Gayer. Thank you for the question.
        I feel like I'm in a funny position in many ways. If you
    lock me and Michael Greenstone in a room, I'm not sure that
    we'd come up with a very different policy outcome. But I think
    the process of getting there matters, and I think the
    regulatory process that was used did involve a lot of
    assumptions and complexities that I would say lean into
    arbitrary considerations.
        That's not to say I think that the social cost of carbon,
    this true number out there is negative; I don't. And as I
    alluded to in my testimony, I do think we should act. I just
    don't think we should act through kind of the mechanisms of
    existing statutes through regulations that take a very
    piecemeal approach and to my mind sort of put a veneer of
    scientific legitimacy on something that I think is highly,
    highly uncertain. So that's a longwinded way of me getting at
    your question, so I apologize.
        Yes, I'm concerned when the courts disagree with me to some
    degree. I don't know what--you know, in the kind of motivation
    of your question, we are existing in a world where all the
    action on climate is happening under existing statutes and
    therefore do--and going through the agencies. And so to the
    extent that there's too much focus on global, not domestic, I
    do think it's addressable from Office of Information and
    Regulatory Affairs and guidance given to the agencies about how
    they should conduct this.
        And I don't want to speak for other people on the panel,
    but I think there is, you know, a lot of discretion in the
    choices that were made in how we come up with these numbers. I
    don't think it was kind of rigged or deception or manipulated.
    I just think that people disagree. And I think with the new
    Administration and new OMB and OIRA Director, they can come to
    a different determination of how much to weigh global versus
    domestic, as well as issues like discount rates and others,
    which is a highly difficult, complex, in many ways ethical
    question.
        Mr. LaHood. Well, thank you for that.
        And just as a follow-up, I think in your opening testimony
    you went through kind of, you described it as a suite of
    regulatory policies that we put in place domestically that, you
    know, have worked fairly well with reducing some of those
    environmental concerns that people talked about.
        In terms of a public policy position here in Congress on
    what we should do, beyond what you said with working in the
    Administration, any recommendations for us here in terms of
    legislation and what we should look at to address this problem?
        Dr. Gayer. Well, I think I--you know, I have an
    iconoclastic view perhaps on this. I first approached this
    problem because I thought a lot of these regulations--not
    because I didn't think climate change was a problem but I
    thought these regulations were much too costly way to go about
    doing it. And in the analysis that they were using to justify
    it, I thought they were in some sense making decisions I
    disagreed with to make them look better than they are.
        I testified actually at the House a few years ago. A lot of
    these regulations are justified not on environmental grounds
    but because they purport to save consumers money because the
    underlying thesis there is that consumers are kind of
    irrational in their consumption decisions, so therefore, you
    know, the regulator has to come and make the decision for them,
    which is to my mind kind of a dangerous assumption and
    shouldn't be used to justify rules.
        I have the kind of minority opinion on what should be done,
    but I think it should go through Congress. I, as I said before,
    favor kind of a trade for a carbon tax on one side that's
    revenue-neutral, meaning affording a tax cut and also lighter
    regulations so that we're not going to the regulatory approach,
    as we currently have been.
        Mr. LaHood. Thank you. Those are all my questions.
        Chairman Biggs. Thank you.
        I recognize Mr. Beyer for five minutes.
        Mr. Beyer. Yes, Thank you, Mr. Chairman, very much.
        Thank you all very much for being here. It's fun to have
    three economists and mathematicians, which we don't often get
    and a bona fide Ph.D. climatologist. And I want to thank all of
    you for recognizing that climate change is in fact real. You
    may have different notions of is it as fast as it was, but this
    is a great leap forward for the Committee and for America.
        And I'm particularly pleased that Dr. Greenstone is the
    Milton Friedman Professor of Economics, which should make all
    of my Republican friends very comfortable and happy. And I
    thank Dr. Gayer for the quote that says that ``The social cost
    of carbon is a conceptually valid and important consideration
    when devising policies and treaties to address climate
    change.''
        Dr. Greenstone, the two things that have come up again and
    again--in fact, our Chairman's opening statement was, number
    one, this whole notion of the appropriate discount rate. And
    you said--you quoted the appropriate discount rate comes down
    to a judgment about whether climate change involves a
    substantial risk of being disruptive. Now, the OMB has a
    circular that says we should use seven percent. Why the
    decision to ignore the seven percent. Can you tell us simply
    again why we would choose a number like three percent rather
    than a 7?
        Dr. Greenstone. Yes, thank you for your question, Mr.
    Congressman.
        So the discount rate is, as Dr. Gayer mentioned, it's a
    very tough issue. With respect to climate change or with
    respect to any public investment, what one would like to do is
    to use a discount rate where--that reflects an interest rate
    from the market where the payoffs from that investment are
    similar to the payoffs from climate mitigation.
        And if you think--when you start to think about what
    climate change might offer, and a lot of it is unknown--as you
    put it, it could be very disruptive--that would tend to push
    people to lower discount rates and lower interest rates. And as
    I said in my testimony, the example of gold is really a good
    one in the sense that people are willing to hold gold. It has a
    very low mean rate of return of about three percent, but the
    reason they're willing to hold it is because it pays off when
    times are bad. And so if we end up with a bad state of the
    world with respect to climate, I think that would push us to
    having--wish we'd used the low discount rate.
        It's also worth noting that we're having a somewhat
    artificial discussion about the 3 and seven percent. Those were
    set in 2003 when global capital markets looked extraordinarily
    different than they do today. If we were to instead use what
    global capital markets are trying to tell us now, the three
    percent number would very likely be below two percent. That is
    that's the return on a long--on a long-term government bond.
    That is a real return. The real return is probably less than
    two percent to be honest. And there--the seven percent number
    would also be much lower as well.
        So, ultimately, we chose to go with 3 and five percent to
    reflect the character of the climate problem.
        Mr. Beyer. Okay. Great. Thanks.
        The second half of that is that there are apparently--
    according to the majority memo--longstanding OMB guidance to
    only consider the domestic cost-benefits. And Dr. Gayer I think
    went on pretty eloquently about, you know, we're considering
    what's happening around the world, but they're not necessarily
    affecting their policies. How would you justify the notion of
    using a global measure of the impacts?
        Dr. Greenstone. Yes. So actually--so let's establish that
    I'm not a lawyer, and how nice it was to hear that there was--
    people were interested in having economists in the room. So
    that was a surprise. But my understanding of OMB circular A-4,
    which is what we're talking about, is that it leaves open the
    option to look at global effects, and that was the path that we
    drove on. Now, I'm not the legal expert.
        The second thing that I want to come back to, and I thought
    it was very interesting. I saw some light or--between mine and
    Dr. Gayer's testimony there, which is that I think to do an
    analysis where--of the benefits of carbon regulations that
    ignore the leverage from emissions reductions inside the United
    States, and that leverage comes in the form of emissions
    reductions in other countries I think is an extraordinarily
    incomplete analysis. And using the global number is one way and
    I think a valid way to reflect that leverage.
        Mr. Beyer. Thank you. Thank you very much.
        Dr. Michaels, congratulations on your Nobel Prize.
        Dr. Michaels. I didn't say that. That went to the group.
        Mr. Beyer. Okay. Well, still.
        Dr. Michaels. People there, certainly not to the worker
    bees.
        Mr. Beyer. You know, so it was the group that came up with
    the two percent target I think----
        Dr. Michaels. Two degree target.
        Mr. Beyer. Two degree target, two degree target.
        Dr. Michaels. That was----
        Mr. Beyer. Now you're thinking that we're going to be more
    like 1.6. Will you be part of the IPCC going forward? And will
    they come to a 1.6----
        Dr. Michaels. The----
        Mr. Beyer. --consensus in the next couple of years?
        Dr. Michaels. The numbers that I have always given in my
    decades of testifying in both the House and the Senate are all
    within the range of the IPCC consensus so there's nothing new
    here.
        Mr. Beyer. Okay. Great. Thank you very much.
        Mr. Chairman, I yield back.
        Dr. Greenstone. Can I just add one----
        Chairman Biggs. Thank you.
        Dr. Greenstone. I believe the IPCC----
        Chairman Biggs. Dr. Greenstone, please.
        Dr. Greenstone. --is from 1.5 to 4 or is it 1.5 to----
        Dr. Michaels. Yes, I believe 1.6 is in there.
        Dr. Greenstone. I think you're right at the bottom of the
    range, yes, but I think the IPCC's consensus is actually--
    you're right at the bottom of that range.
        Chairman Biggs. Thank you. I recognize----
        Dr. Greenstone. Just making sure we're all on the same
    page.
        Chairman Biggs. I recognize Chairman Smith.
        Chairman Smith. Thank you, Mr. Chairman.
        Dr. Dayaratna, let me address my first question to you, and
    it is this: Do you feel that the social cost of carbon is based
    upon legitimate science or is it based upon arbitrary figures
    and subjective reasoning?
        Dr. Dayaratna. That's a very interesting question, so thank
    you, Congressman. In terms of the science, so as, you know, Pat
    and I both alluded to, the ECS--the equilibrium climate
    sensitivity distribution that is implemented in these models by
    the IWG has--was published ten years ago in the journal
    Science. That is a whole decade ago, and it is not even
    empirically estimated. It was calibrated to a priori
    assumptions that the IWG wanted to use regarding climate
    change.
        Now, if you look at the more recent distributions, you will
    notice significantly lower probabilities of extreme global
    warming. So what ended up happening was that using this
    outdated distribution, there was an overstated probability of
    extreme global warming, and that gets manifested in higher
    estimates of the SCC. So basically, the SCC estimates were
    essentially beefed up.
        Chairman Smith. Okay. Thank you.
        And, Dr. Michaels, are there benefits to carbon emissions?
    And if so, should they be factored into the social cost?
        Dr. Michaels. Well, if you're going to factor costs, you
    should factor benefits, and the increment just from direct
    carbon dioxide fertilization for agricultural production is
    about $3 trillion from 1961 through 2011. But more importantly,
    the satellite data shows a remarkable greening of the planet
    Earth, and the illustration that I showed earlier is remarkably
    reassuring because the massive greenings, the largest greenings
    are occurring in the margins of the great desert. The Sahelian
    region in Africa that you and I were taught in school this is
    desertifying and it will never come back. The tropical
    rainforest, the lungs of the Earth, have the largest increase
    in greening on the planet, all brought to you by carbon
    dioxide. So, yes, you should factor those things in I would
    think. Thank you.
        Chairman Smith. Okay. Thank you, Dr. Michaels, for that.
        One other question. What are some important climate change
    factors that are not accounted for in the social cost?
        Dr. Michaels. Oh, God. How many hours do I have to answer
    that?
        Chairman Smith. How about a minute-and-a-half but----
        Dr. Michaels. Okay.
        Chairman Smith. Okay.
        Dr. Michaels. One of the problems is that we spend
    tremendous amounts of taxpayer money on climate models--
        Chairman Smith. Okay.
        Dr. Michaels. --and very, very--models for what happens
    when you increase carbon dioxide and very, very little money on
    what's called natural climate variability. We know there are
    these great oscillations in the Atlantic and the Pacific that
    drive, modulate hurricanes, modulate storm tracks, modulate
    weather. Those things are not simulated in these climate
    models, and we need to understand that variability and subtract
    that out.
        I'll close in one second here. The warming of the late 20th
    century, which began in 1976 and either ended in 1998 or
    continued--attenuated after 1998 depending upon what we
    believe--is the same magnitude as the warming of the early 20th
    century that occurred between 1910 and 20--and 1945. That
    warming could not have been caused by carbon dioxide.
        Chairman Smith. Right.
        Dr. Michaels. It means that natural variability is as large
    as the largest human signal, and yet we only model the human
    signal. What's wrong with this picture, Congressman?
        Chairman Smith. Yes. Yes. That last point, the last couple
    points you seldom see covered in the media, but I think they're
    great points to make.
        Final question is should we be using the social cost at
    all?
        Dr. Michaels. We should use the social cost of carbon if
    it's accurately calculated, and I think there's a lot of debate
    about what we're supposed--what----
        Chairman Smith. Yes.
        Dr. Michaels. --what it comprises----
        Chairman Smith. Okay.
        Dr. Michaels. --and what the natural variability component
    of it is and all this good stuff. We're just not there. It's
    not ready for prime time, Congressman.
        Chairman Smith. Okay. Thank you, Dr. Michaels.
        I yield back, Mr. Chairman.
        Chairman Biggs. Thank you, Mr. Chairman.
        I recognize Chairman LaHood.
        Mr. LaHood. Mr. Chairman, I would just like--I forgot to
    submit a document for the record from the American Road and
    Transportation Builders Association regarding our hearing
    today. I would ask to submit it for the record.
        Chairman Biggs. Without objection.
        [The information appears in Appendix II]
        Chairman Biggs. The Chair recognizes Mr. McNerney.
        Mr. McNerney. Well, thank you, Mr. Chairman. Thank you for
    holding the hearing. I thank the witnesses this morning.
        Dr. Gayer, I'm very pleased to hear that you support a
    carbon tax. I think that's the way to go. I'm going to be
    proposing a carbon tax and benefit package a little bit later,
    and I hope to get your support on that. Can we follow through
    with that?
        Dr. Gayer. I'd be delighted to, yes.
        Mr. McNerney. Very good.
        About the domestic versus international impacts, do you
    believe that the physical impacts of climate change on other
    nations don't have an impact on our domestic economy or
    security?
        Dr. Gayer. No, I don't believe that, but what I believe is
    that the actions that we've taken thus far won't lead to
    reductions matched throughout the entire world. And there are
    many policies that we have outside of environmental or climate
    that we--that if other countries did the same thing--and you
    can think about foreign aid or any number of policies, the
    world would be a better place and we'd benefit perhaps from it,
    but we don't take those benefits into account. The regulations
    where----
        Mr. McNerney. So if we drop out of the Clean Power Plan and
    the Paris agreements, then that's not going to have an impact
    on China or India or the other countries that are big emitters?
        Dr. Gayer. I don't think the Clean Power Plan--well, I
    don't know that the Clean Power Plan would have an effect. If
    there's an international agreement and a treaty that is
    binding, then certainly we should consider the global benefits.
    Absent that, an EPA regulation I don't think will actually lead
    to realize the effects throughout the world and certainly not
    100 percent throughout the world.
        Mr. McNerney. So you think--you do think that climate
    change is a problem?
        Dr. Gayer. Sure. Yes. Yes.
        Mr. McNerney. And that the United States should have a
    leadership role in this issue?
        Dr. Gayer. Yes.
        Mr. McNerney. Thank you.
        Dr. Greenstone, what impact will eliminating the SCC have
    on current and future environmental protections designed to
    reduce greenhouse gas emissions? How is that going to affect us
    if we eliminate that measure?
        Dr. Greenstone. Thank you for the question. I think it will
    increase emissions. Of course it would naturally increase
    emissions in the United States, and that would increase the
    rate of climate change and global warming. What I think--the
    point I've been trying to make that I just want to underscore
    is I think it would also increase emissions in other countries,
    and so there would be a multiplier effect. And I think it's a
    mistake to conclude that the Paris agreement did not reflect
    U.S. leadership and did not reflect that the United States had
    adopted a robust climate policy. So--you know, let me also add
    there's I think again surprising agreement on this panel, at
    least among two of us, that there is climate change. Climate
    change is real. And there seems to be a little disagreement on
    the tactics.
        You know, our other two witnesses here I think are much
    more focused on cherry-picking particular features of it, and I
    think I couldn't agree with them more that updating the
    assumptions that underlie the social cost of carbon based on
    the advances in science in the last 7 or eight years is an
    important thing to do. And indeed, thankfully, the National
    Academy of Sciences has put out a very clear report on how to
    go about doing that.
        Mr. McNerney. Thank you. Now, some of the critics have
    implied that the SCC is created by the Obama Administration and
    pushed by environmentalists, but it's my understanding that the
    Reagan Administration first demanded the Federal Government to
    do a cost-benefit analysis, and the federal courts required the
    George W. Bush Administration to monetize these benefits. Is
    there any other way to do that than using the social cost of
    carbon?
        Dr. Greenstone. No. The--really what the courts were
    requiring that a social cost of carbon be developed. And I
    think when one thinks back to 2009, what was striking is that
    even though a ton of CO2, wherever it's emitted in
    the U.S. economy has the same impact, you had a complete
    discordant approach. The department--some departments were
    treating it as if there were zero costs associated with it,
    which is, just to be clear, effectively implying that climate
    change has no negative impacts.
        Mr. McNerney. Right.
        Dr. Greenstone. And others were effectively treating it as
    if it were infinity costs. And so I think landing at the
    approach and the number that we ended--tried to instill some
    discipline and coherence across--policy across the government.
        Mr. McNerney. And so what's the context of how this came
    about, how this measure came about?
        Dr. Greenstone. Yes. No, it was--sorry. The Court had
    required it, and the President had ordered that a number be
    developed and that--as I mentioned earlier, that used expertise
    from all branches of government.
        Mr. McNerney. And this was done in a transparent fashion?
        Dr. Greenstone. It was done in a transparent fashion.
    There's been endless opportunities for public comments. It's
    been at least 80 rules. In addition, it was put out for public
    comment on its own.
        Mr. McNerney. Is there some kind of consensus on what
    parameters to use for this model?
        Dr. Greenstone. Yes. There was great debate about it, and
    what--actually what--a rule that I tried to impose when we were
    leading the process was that we should not be making science--
    we are, after all, faceless bureaucrats sitting in a room--but
    instead that our job was to summarize the frontier of science.
    And I feel that we were quite faithful to that goal.
        Mr. McNerney. Thank you. Thank you, Mr. Chairman. I yield
    back.
        Chairman Biggs. Thank you. Dr. Michaels, you looked like
    you might want to respond to the assertion of cherry-picking.
        Dr. Michaels. I would like to--oh, sorry. I would like to
    respond to the assertion that without the social cost of carbon
    that our emissions would go up. That's what I call maybe herd
    reasoning, and I'd like to show you how well herd reasoning
    works with regard to emissions.
        This, which I just happen to be carrying in my backpack, is
    a shale oil rock. Ten years ago if I said that there were
    hundreds of years of oil--shale gas rather, which produces half
    the emissions of carbon dioxide when combusted for power
    production under our feet, polite company--and we would get it
    by exploding rocks, polite company would have laughed me out of
    every Washington cocktail hour. But that's the way people work.
        Regulation is not required to create efficiency. Markets
    are required to create efficiency. This is cheaper than its
    competitors, and emissions will continue to go down as long as
    our economy is free for the simple reason that the future
    belongs to the efficient.
        Mr. McNerney. Industry can be relied on to clean itself up.
    That's basically what you're saying.
        Dr. Michaels. No, the market can be relied upon to clean up
    industry.
        Mr. McNerney. Mr. Greenstone----
        Chairman Biggs. I'm sorry. The gentleman's time is expired.
        Mr. McNerney. I'm sorry.
        Chairman Biggs. The Chair recognizes Mr. Posey.
        Mr. Posey. Thank you, Mr. Chairman.
        As policymakers, I think it's important that we all know
    what we don't know, and therefore, our attempts to predict the
    future impact of regulations are always speculative and subject
    to error.
        And that being said, it's also true that some predictions
    are more speculative and uncertain than others. The time
    between the implementation of a regulation and the onset of any
    potential benefits is a great example of a factor that makes
    some forecasts more reliable and others less so. Clearly, the
    longer the period of time is between the implementation of a
    rule and the realization of its benefits, the less reliable the
    analysis of the predicted benefits can be due to the increased
    likelihood of intervention from unforeseen sources.
        My first question is for Dr. Dayaratna. With what I've said
    in mind, can you give me an idea of the time horizon used in
    calculating the social cost of carbon? How far into the future
    are we looking at when we talk about this cost?
        Dr. Dayaratna. The time horizon for computing the social
    cost of carbon by the IWG is 300 years into the future. And
    it's interesting that you ask that question, Congressman.
    Firstly, it's difficult to forecast what the economy will look
    like, you know, even a couple decades into the future, let
    alone centuries.
        Now, Dr. Michaels had a slide about the temperature
    projections that John Christy talked about juxtaposing the
    IPCC's forecast versus satellite and weather balloon data. And
    I just find it astounding that people would want to use these
    models to try to make forecasts 300 years into the future when
    they can't even predict 20.
        Mr. Posey. Yes, we have trouble getting the weather
    predicted a day ahead of time----
        Dr. Dayaratna. Oh, absolutely.
        Mr. Posey. --oftentimes. So, wow, you're telling me we're
    basing our regulatory decisions on assumptions about what the
    world will be like in 300 years. In some ways that's kind of
    like our Founding Fathers trying to predict and regulate the
    internet.
        Dr. Dayaratna. Yes. I gave a talk, you know, a couple weeks
    ago on this topic. You know, John Adams once said America will
    one day become the greatest empire in the world, and he was
    right, but yet he'd have no idea what people are doing today
    using microphones, smartphones, tablets, and so forth.
    Similarly, we have no idea what things are going to look like
    that far into the future. And I quite frankly find it's--these
    models are quite foolish in actually trying to make those types
    of forecasts.
        Mr. Posey. Okay. Can you describe for us how the social
    cost of carbon estimates change when you use a more reasonable
    horizon?
        Dr. Dayaratna. So as I was referring to in my testimony,
    they change as--by--a reasonable figure is around 25 percent.
    That figure varies but on average around I think around 25
    percent or so, perhaps more.
        Mr. Posey. And given what you just said, do you think it's
    advisable to continue using the current social cost of carbon
    estimates in rulemaking proceedings?
        Dr. Dayaratna. Absolutely not. I think these models--you
    know, they're interesting for academic exercises but they need
    to be revised to be suitable for regulatory policy.
        Mr. Posey. Do you think in the future the agencies can and
    should be more forthcoming about the highly speculative nature
    and variable quality of social cost of carbon estimates?
        Dr. Dayaratna. I tend to think so, yes. To be quite honest,
    like the sheer fact that they are using an ECS distribution
    that was--that is ten years old and not even based on empirical
    research is one thing that is, you know, just not in detail
    talked about in the IWG's analysis. They did respond to this in
    the public comments; I will say that. But, yes, there are so
    many other things out there that they should be more
    forthcoming about.
        And, you know, there was a question that came up earlier
    about the use of a seven percent discount rate and why it was
    not used. Quite frankly, here's the reason why I think it
    wasn't used. Even using the outdated Roe Baker distribution,
    you still get a negative estimate of the SCC under a seven
    percent discount rate. That's why it wasn't used.
        Mr. Posey. Okay. There's been a lot of discussion about
    climate change. Can anyone on the panel give me a date certain,
    even a year certain that there was absolutely no climate change
    on this planet since the forming of it?
        Dr. Dayaratna. I believe that the climate has been changing
    since the planet was first formed.
        Mr. Posey. Any others?
        Dr. Greenstone. Mr. Congressman, are you talking about--
    just so we're on the same page, are you talking about climate
    changing or climate changing due to the release of
    CO2? Because I can't quite tell from your question.
        Mr. Posey. I thought I was fairly clear.
        Dr. Greenstone. Okay. Well, then----
        Mr. Posey. Can you give me any date certain----
        Dr. Greenstone. The climate has certainly----
        Mr. Posey. --in the history of the Earth that the climate
    has not changed?
        Dr. Greenstone. Since the release of CO2, it has
    been changing more rapidly.
        Dr. Michaels. That's not true.
        Mr. Posey. You know, that's speculative, and I didn't ask
    you to describe a clock. I asked you if you knew what time it
    was.
        Yes, sir, at the end.
        Dr. Michaels. I think the climate was quite stable about
    one year before the Big Bang.
        Mr. Posey. Okay. Dr. Dayaratna.
        Dr. Dayaratna. Yes, there was actually a paper published in
    the Journal of the American Statistical Association last year
    that looked at tree ring analysis in Tornetrask, Sweden, and
    they found interestingly using their Bayesian modeling that in
    1750 the temperatures there it may have been just as warm if
    not warmer than they were today in 1750 before, you know, all
    the things that we--people tend to complain about today.
        Chairman Biggs. Thank you.
        Mr. Posey. Do you have any idea what----
        Chairman Biggs. The gentleman's time is expired.
        Mr. Posey. Any idea what the temperature was pre the last
    Ice Age when the dinosaurs were roaming the Earth?
        Dr. Dayaratna. Pat actually might have an answer to that.
        Dr. Michaels. The answer--that's a very good question and
    I'm glad you asked that. I don't think we have to go pre the
    last Ice Age. Let's go not to the most recent interglacial but
    to the penultimate one, the one between what some people call
    the Illinois glaciation and the Wisconsin glaciation. At the
    end of the current Ice Age, temperatures got quite a bit warmer
    than they are now, the beginning of the current interglacial.
    The beginning of the penultimate one, they were much warmer
    than they were in our interglacial.
        In Greenland, temperatures in summer averaged around 6
    degrees Celsius higher than now for 6,000 years. And guess
    what? The vast majority of the ice on Greenland survived, a
    heat load that human beings could not put on Greenland if they
    tried. And then somebody found a skeleton of a bear from 5,000
    years before that, and it turns out the DNA sequence was that
    of a polar bear.
        Chairman Biggs. Thank you. The gentleman's time is expired.
        Dr. Michaels. Thank you very much.
        Mr. Posey. Thank you.
        Chairman Biggs. The Chair recognizes my friend from
    Florida, Mr. Crist.
        Mr. Crist. Thank you very much. Good morning.
        I was wondering--Dr. Michaels, good morning. How are you?
        Dr. Michaels. I'm good.
        Mr. Crist. Do you believe that climate change is real?
        Dr. Michaels. Of course.
        Mr. Crist. Fabulous.
        Dr. Michaels. I also believe the sun will rise tomorrow.
        Mr. Crist. That's breathtaking.
        Dr. Michaels. I know. It's mindboggling.
        Mr. Crist. Do you--what would you estimate is the cause of
    the climate change you believe in?
        Dr. Michaels. There are natural causes and there is a human
    component. You have to understand, the warming of the second--
    the second warming in the 20th century is accompanied by a
    cooling of the lower stratosphere. Now, if you change the
    greenhouse effect, because you change the upwelling flux of
    infrared radiation, you will warm the lower layers of the
    atmosphere but you will cool the stratosphere. That's what Karl
    Popper would call a difficult test of a theory. And indeed, the
    lower stratosphere cools concurrent with the warming of the
    troposphere, our neck of the woods. That's a greenhouse
    signature.
        But here's the cool part, Congressman Crist. In 1997, 1998,
    everybody knows that something happened to warming unless you
    really jimmy the records and it either slowed down or stopped.
        Mr. Crist. Attenuated you said.
        Dr. Michaels. Attenuated is a good word because you can
    attenuate----
        Mr. Crist. Sure.
        Dr. Michaels. --a lot or you can attenuate a little. But
    the stratospheric cooling also stopped. Now, if you want me to
    explain that, I'm going to tell you the three most important
    words in life.
        Mr. Crist. My question is simple. What causes climate
    change in your estimation?
        Dr. Michaels. Lots of things.
        Mr. Crist. What's the primary cause?
        Dr. Michaels. The fact that we live on a fluid
    discontinuous earth with long-period oscillations. I mean, the
    biggest climate change that you and I know of is an ice age
    oscillation, and I don't think CO2 is going to be
    capable of doing that, and those occurred, you know, without
    human influence. Again, I say the warming of the late 20th
    century has a greenhouse component because of the stratospheric
    cooling. By did the stratosphere stop cooling when the surface
    warming either stopped or attenuated? You know what the answer
    why that happened is?
        Mr. Crist. May I ask another member a question?
        Dr. Michaels. No one knows is the answer.
        Mr. Crist. Dr. Greenstone, what do you think causes climate
    change, please?
        Dr. Greenstone. I think what we're here to talk about today
    is the climate change is caused from the release of
    CO2----
        Mr. Crist. Yes, sir.
        Dr. Greenstone. --of which I think that's a settled issue
    scientifically. And I can't help but note the contrast here
    between the concerns of the development of the SCC was an
    opaque process, which is the claims here. Let me just say the
    character of the conversation that occurred in those many, many
    meetings was really quite sober. It was rigorous. It was very
    scientifically based. And we--at no point did anyone talk about
    a skeleton of a polar bear as a way to make an argument.
        And my own view is that there's a great path forward, and I
    think there's agreement in the room that there should be a
    development that the social cost of carbon should be refreshed
    to reflect the scientific advances that have occurred since
    2009 and 2010. And literally, the National Academy of Sciences
    has outlined a terrific way forward that would also be
    rigorous, scientifically based, and sober, and I think there's
    a great opportunity for the Trump Administration to do that.
        Mr. Crist. Thank you. I'm from the Sunshine State, and I'm
    very proud of that. But having said that, we use less solar
    energy than New Jersey. And New Jersey's a great place, but
    it's the Garden State and we're the Sunshine State. And so the
    point I'm trying to make is if we're going to address climate
    change and probably the primary cause, which is CO2,
    carbon, then wouldn't it be better for us to try to get more of
    our energy from solar, from sun or wind in order to mitigate
    the cause?
        Dr. Greenstone. I think there's a great case for energy
    markets being in a very unlevel playing field. In particular,
    the fossil fuels, which involve the release of CO2,
    when we go to the gas pump and when we pay our electricity
    bill, we don't pay for the climate damages that are associated
    with using them. And if we were to level the playing field so
    that all sources of energy could compete on equal grounds, it
    would naturally be the case that there would be a greater
    reliance on, as you suggested, renewables, probably on nuclear
    as well, and other low-carbon energy sources.
        Mr. Crist. Thank you, Doctor.
        Thank you, Mr. Chairman.
        Chairman Biggs. Thank you.
        The Chair recognizes Mr. Rohrabacher from California.
        Mr. Rohrabacher. Thank you very much. And let me just note
    that I--one of my colleagues suggested that there is a
    consensus among scientists that global warming is being caused
    by CO2 emissions, and let me just note that a
    consensus may mean 75 percent, it may mean 60 percent, it may
    mean ten percent and the others don't know for sure. But a
    consensus is not how you determine whether or not something is
    scientifically viable. You have to really look to see whether
    or not it makes sense what people are saying and whether or
    not, for example, attempts to receive government contracts for
    research were in some way influencing someone to target their
    outcome of their research because what I have heard in the last
    few years is that droughts are caused by global warming and the
    CO2 level and then now it's floods are caused by
    CO2 level and more tornados. I mean, how many times
    have we heard that the tornados and the hurricanes are more
    frequent, but they're not. You know, come to find out they are
    not more frequent. And all of this coming back to CO2
    and whether or not it is something that we should be concerned
    about at the level of CO2.
        You know, I drove across the country last year and I saw
    all these hothouses, and covered-up places, and they were
    growing all sorts of vegetables. And I went and stopped at
    several of them and guess what they were pumping into the
    hothouses? CO2. Now, why? Because it makes the
    plants grow better and that means there's more food.
        Now, let me ask you this. If we have less CO2 in
    the air, does that mean that the plants, and I think we saw
    something there, that the plants will not grow as robustly if
    we have less CO2 in the air? Whoever wants to go
    into that.
        Dr. Dayaratna. That is actually one of the aspects about
    the FUND model compared to the other models that is actually
    incorporated, the feedback from CO2 into plants and
    agriculture from CO2 fertilization. So the other
    models, the DC. and PAGE model the IWG used, do not account for
    this type of feedback.
        Mr. Rohrabacher. So that's a great benefit if we have trees
    that are growing stronger and more trees, more edible plants
    growing stronger, but that benefit was not calculated into the
    cost-benefit of other studies?
        Dr. Dayaratna. That benefit was incorporated in the FUND
    model analysis. Out of the three models used by the IWG, the
    FUND model actually incorporated that benefit. And, you know,
    Pat can talk more about this, but there are other benefits in
    there that could potentially be modeled that, you know, the
    FUND model doesn't take into account such as, say, aquatic
    life----
        Mr. Rohrabacher. Okay.
        Dr. Dayaratna. --you know, detailed aspects about
    vegetation, detailed aspects about agriculture, and so forth
    that the economy could benefit from.
        Mr. Rohrabacher. Well, let me just put it this way. It's
    clearer that in the past there were higher levels of CO2
    and great plant life throughout the planet, and we know that
    and that's very easily discovered in any research. But now, our
    CO2 level is looked at as if it's going to be
    harmful, and let me just say that I don't think that there is a
    consensus at a high level of percentage, and I think we need to
    make sure that before we jump into international agreements
    that it's not just whether it's global benefit or whether it's
    local benefit. We just have to see whether there's any validity
    to this concept in the first place so----
        Dr. Michaels. Congressman, can I offer an observation?
        Mr. Rohrabacher. Please do.
        Dr. Michaels. I understand that it is thought to be
    socially responsible to pay for the costs of emission of carbon
    dioxide, and I also would argue that the fossil fuel-driven
    societies since 1900 in the developed world have increased
    their lifespan by 100 percent and their per capita wealth 11-
    fold. Are we to not also take into account that massive
    benefit? We should all be dead given our ages in this room if
    this were 1900, but it is that society that allows us to live.
        Chairman Biggs. Thank you.
        Mr. Rohrabacher. That's a very good point and I'm glad I'm
    not dead. There you go.
        Chairman Biggs. The gentleman's time is expired. Thank you.
        The Chair recognizes Mr. Marshall from Kansas.
        Mr. Marshall. Thank you, Mr. Chairman. I wish my colleague
    from Florida was still here. I was going to share with him that
    we have more sunny days in Kansas than there. Oh, you are still
    here, Governor. So we have more sunny days in Kansas than
    Florida, so we look forward to continuing the diversity of
    energy from Kansas. So thanks for sharing that. I want to
    acknowledge a good friend of mine, John Francis, who's in the
    audience, flew all the way in from Great Bend, America, to hear
    our President speak.
        Dr. Gayer, the first question's for you. You mentioned that
    you would be in favor of a carbon tax being implemented. If we
    implemented a carbon tax, do you think we could also do away
    with some of the regulations governing all these carbon
    producers and just let us pay a tax and be done with it if we
    can measure it in some way?
        Dr. Gayer. Yes. So certainly in many ways that's kind of
    the thrust of my critique of what's going on in the regulatory
    sphere. The--and I'm a--Michael Greenstone mentioned leveling
    the playing field. And so for me the carbon tax is a way to
    level the playing field, and the regulatory interventions that
    we've had are a very, very flawed approach to trying to do
    that. And in my view, the modeling and the global versus
    domestic are sort of justifications for what I think is a
    flawed approach.
        So, you know, the ultimate trade is a carbon tax in
    exchange for a tax reduction for more harmful taxes and less
    regulation and just stick to the pricing.
        Mr. Marshall. Anybody else want to weigh in on that? Dr.
    Greenstone, please.
        Dr. Greenstone. Yes, I think there's a great opportunity
    for applying a carbon tax at an appropriate level and using--
    the revenues could be used in a variety of ways. It could be
    refunded. They could be used to reduce other taxes. And I think
    they would provide a great opportunity as well for--as a--they
    could be an excellent substitute for a lot of the regulations
    that are in place. So there's agreement here.
        Dr. Michaels. And with regard to the revenue neutrality, I
    would offer my comment in the form of a question. Do you really
    expect $3 trillion to walk down K Street unmolested?
        Mr. Marshall. Okay. I don't know what to say to that. I
    hope the question wasn't for me.
        This social carbon tax is a perfect example of government
    making the simple complicated. I don't think we'll ever agree.
    It's a social number; it's a political number. That's what it
    seems to me and I'm very new to this game.
        I guess what I'm more concerned about is, as I watched the
    Olympics in China and so on and so forth, it would seem to me
    that whatever measure you use that some of our biggest
    competitors are producing more of this carbon. And I'm just
    curious in the big scheme of things in today's world how much
    carbon is America producing in relationship to China or India,
    regardless of the social cost we can argue? But what percentage
    are we now responsible for?
        Dr. Greenstone. I think this is a rough number. I think
    historically--I think right now China is producing about 50
    percent more per year than we are. I think we are the second-
    largest emitter, larger than the EU, larger than India. I think
    starting from the Industrial Revolution--someone else might
    know here--but I'm going to guess that I think we're
    responsible for about maybe a quarter of all emissions.
        Mr. Marshall. Okay.
        Dr. Michaels. Yes, but we are becoming more efficient. Our
    emissions intensity, which is the amount of CO2
    produced per unit GDP has dropped more rapidly than pretty much
    everywhere, and that didn't happen because of regulations. It
    happened because of markets. So if you want efficiency, you
    would prefer economic----
        Mr. Marshall. And I want to move on. So I grew up in a
    small town between two refineries, oil refineries. So proud
    that our air in Kansas is cleaner today than it was when I was
    growing up and the waters are cleaner. I want to keep moving in
    that direction. Back to my point: manufacturing. I'm trying to
    figure out why manufacturing jobs have left Kansas, and one of
    them is the cost of energy. Does anybody have any solutions?
    How do we encourage China, India, other countries to take leads
    in this responsibility? Does anybody have any solutions? Do we
    tax them or--I don't want to--does anybody have any solutions
    on how we encourage them to get into this game?
        Dr. Greenstone. I think Dr. Gayer outlined one effective
    tool, which would be to have a carbon tax and then have some
    border tariff--border tax adjustment so that if people tried to
    import--so let's say steel that had carbon embedded in it or
    carbon was used to produce it, they would face the same carbon
    tax that domestic producers would face.
        Mr. Marshall. But you would adjust that per country or how
    would you figure out--so Europe's doing good, Germany's doing
    good, but China's not.
        Dr. Greenstone. Yes, so you'd have to--there would be some
    complexity, I think, but it's imminently doable.
        Chairman Biggs. Thank you. The Chair recognizes Mr. Higgins
    from Louisiana.
        Mr. Higgins. Thank you, Mr. Chairman.
        We're here to discuss the real cost of carbon as it's
    imposed upon the American people. And it's interesting to note
    that in discussing the social cost of carbon I've heard terms
    like ``overwhelming consensus of scientific opinion'' and
    ``real science'' and yet the measurement standards use a 300-
    year window to determine actual taxation and cost placed upon
    the American people. And it's interesting to consider that
    we're very fortunate that we're not bound by the science of 300
    years ago when we would be discussing egocentricity, alchemy,
    spontaneous generation of life, and the hollow Earth. And yet
    scientists tend to speak as if their scientific calculations
    are absolute and unchallengable. To me, the real overwhelming
    consensus is that the social cost of carbon is a cost measured
    not by 300-year windows of manipulated science but the
    contemporary and very real cost of American jobs and American
    treasure.
        So I ask Dr. Dayaratna, you mentioned there are updated
    equilibrium climate sensitivity distributions. These ECS
    distributions quantify the Earth's projected temperature
    response to a doubling of carbon dioxide concentrations. As you
    note, these recent ECS distributions appear to reflect a lower
    chance of extreme global warming in response to increased
    carbon dioxide concentrations. Can you explain or can you give
    us some insight or are you aware of why the previous
    Administration, through their Interagency Working Group failed
    to update the SCC or any other social cost of greenhouse gas
    estimates to reflect these more up-to-date ECS distributions?
    If it was not a political decision, then please explain, what
    was it?
        Dr. Dayaratna. So the Roe Baker distribution that was
    published in 2007 is calibrated to a priori assumptions that
    the IWG wanted to make regarding global warming based on, you
    know, a compiled research discussed by the IPCC. The thing is
    that--again, that distribution is calibrated. It is not an
    empirical distribution. The percentiles were fitted based to
    assumptions that the working group wanted to make. Subsequent
    ECS distributions are actually empirically estimated, so they
    are much more worth considering.
        Now, the question regarding why were these new
    distributions not included, I think, quite frankly, the reason
    is that they lower the estimate of the SCC substantially even
    if you don't use a seven percent discount rate, even if you use
    the assumptions that the IWG wanted to make regarding 2.5, 3,
    and five percent. You can still get a negative SCC using more
    up-to-date distributions because the fat tail of the Roe Baker
    distribution has essentially gone on a diet with the newer more
    up-to-date ECS distributions, signifying the lower probability
    of global warming.
        Mr. Higgins. Dr. Michaels, do you have something to add?
        Dr. Michaels. I think Kevin is right.
        Dr. Dayaratna. Your mike's not on.
        Chairman Biggs. Please press your mike. Thank you.
        Dr. Michaels. It was not a lower probability of global
    warming. It's a lower probability of high-end global warming--
    --
        Dr. Dayaratna. High-end global--yes.
        Dr. Michaels. --which is--and that is correct.
        Mr. Higgins. And with the increase of carbon emissions
    measured globally, would it not be a reasonable consideration
    that greenhouse gas effect would in fact assist the economies
    of the earth regarding agricultural production?
        Dr. Michaels. Well, the effect of carbon dioxide--the
    direct effect on plants is well-documented, and the image that
    I showed at the end of my presentation, which is a very recent
    image, documents the actual greening of much of the Earth, not
    just the agricultural component of the Earth. And it's very
    reassuring to see that the largest greenings--and they are
    very, very large--tends to take place in the margins of the
    deserts south of the Sahara and in the northern parts of the
    tropical rainforest where we were very concerned.
        Mr. Higgins. Dr. Greenstone, I believe----
        Dr. Greenstone. Yes.
        Mr. Higgins. --Mr. Chairman, he has something to add
    although I'm out of time.
        Chairman Biggs. Your time is expired. Sorry.
        The Chair recognizes Mr. Babin.
        Mr. Babin. Yes, sir. Thank you, Mr. Chairman.
        Fascinating testimony. I want to thank everyone for being
    here, these witnesses.
        I represent the 36th District in Texas, which contains the
    highest concentration of chemical plants and oil refineries of
    any one district in the entire country. So when the federal
    government issues carbon regulations based on questionable data
    and methods, this is of great concern to me because they have a
    direct and significant impact on my constituents.
        And, Dr. Dayaratna, putting things in a perspective from
    the Industrial Revolution, what association do you see between
    carbon dioxide emissions and the health of our economy? And
    along with what some of you folks have already said, obviously
    it's going to be a drag but I'd like to hear you elaborate a
    little bit more on that.
        Dr. Dayaratna. Okay. Well, no, that's a very good question,
    Congressman. So here's the thing. And a lot of people take for
    granted that energy is a fundamental building block of
    civilization. So whether it's, you know, powering this room,
    lighting up our homes, powering our cars and so forth, we all
    depend on energy.
        So when we think about, you know, this whole concept of
    SCC, the whole goal is to reduce carbon dioxide emissions, and
    what we end up doing is moving away from the least expensive
    and most efficient forms of electricity to more expensive and
    less efficient forms.
        So--and the bottom line is economically what we'll notice
    is that when we go to these so-called lower carbon-emitting,
    you know, forms of energy, what we would notice is a dramatic
    change to the economy in the long run. You--you know, a carbon
    tax, as I was talking about in my testimony, would--in
    conjunction with the SCC would result in around 400,000 lost
    jobs on average by 2035, 13 to 20 percent increase in
    electricity prices, a $2.5 trillion loss in GDP.
        Now, on the other hand--and I've also researched this
    question--if we were to take advantage of the vast shale oil
    and gas we have in this country, we'd actually see the exact
    opposite, in fact, even more so in the other direction. We
    would see a $3.7 trillion increase in GDP, personal income
    would skyrocket----
        Mr. Babin. Absolutely.
        Dr. Dayaratna. --and, yes, all sorts of things that would
    benefit the economy.
        Mr. Babin. Absolutely. Thank you so very much for that
    testimony. And, Dr. Michaels, it's interesting to hear you put
    a historic and prehistoric context into all this.
        Dr. Michaels. I've lived that long.
        Mr. Babin. Well, as a student of history, I've read some of
    the Norse settlements coming from Norway over to Iceland and
    onto Greenland, and they had settlements there I think from the
    year 1000 and had trade and routine ships calling on them from
    Europe for a couple of 300 years. And they were in the process
    of raising livestock, had hay crops, and then strangely, it had
    been over 150 years when a ship called on them in the 1500s and
    none of that community was left. And by that time the climate
    had cooled off considerably. The hay crops were no longer
    there. The folks had disappeared.
        So I don't think there was a huge amount of industrialism,
    carbon dioxide being released into the earth from humans during
    those centuries, so if you can kind of address that as well,
    along with some of the other----
        Dr. Michaels. Well, the nature of climate is to change.
        Mr. Babin. Right.
        Dr. Michaels. It is because we are not a uniform earth. We
    do not have a circular orbit. The sun varies and the infrared
    absorption of the atmosphere varies, sometimes with human
    activities. It's--what do they say? It's complicated,
    Congressman. And the problem is in the illustration that I
    showed, comparing the satellite and weather balloon
    observations to the average of the United Nations' 107 computer
    models shows that it's so complicated that we haven't gotten
    close to getting it right and why would you base a policy upon
    something that is so blatantly wrong?
        Mr. Babin. Thank you so very much. And the American people
    deserve to know the truth here and have sound scientific data,
    and that's what this hearing's all about. I want to thank
    everybody again for being here, and I'll yield back, Mr.
    Chairman. Thank you.
        Chairman Biggs. Thank you. The Chair recognizes Mr. Weber
    from Texas.
        Mr. Weber. Thank you, Mr. Chairman. I have a question for
    each of you all. There seemed to be some discussion about
    whether climate change was real and what that meant and the
    definition, so here's my question for each of you individually,
    and we'll start with you, Dr. Gayer. Would you agree that
    climate change is caused by temperature fluctuation?
        Dr. Gayer. Yes.
        Mr. Weber. Dr. Dayaratna?
        Dr. Dayaratna. Dayaratna.
        Mr. Weber. Thank you.
        Dr. Dayaratna. The question is would I agree that climate
    change is caused by----
        Mr. Weber. Is caused by temperature fluctuation?
        Dr. Dayaratna. Yes.
        Mr. Weber. How about you, Dr. Greenstone?
        Dr. Greenstone. It's a function of temperature variation.
    It's also a function of CO2 emissions.
        Mr. Weber. Temperature variation is a good one, too. I
    didn't mention CO2. I'll come back to you. Dr.
    Michaels, would you agree climate change is caused by
    temperature fluctuation?
        Dr. Michaels. It is the contrast--oh, sorry. It is the
    contrast in temperature between the surface and the upper
    atmosphere that derives--drives most of the precipitation
    mechanisms on Earth, so the answer would be if that changes,
    yes.
        Mr. Weber. Okay. I'll take that as a yes.
        Dr. Gayer, would you agree that temperatures fluctuate when
    seasons change?
        Dr. Gayer. Yes.
        Mr. Weber. Doctor?
        Dr. Dayaratna. Yes.
        Mr. Weber. Dr. Greenstone?
        Dr. Greenstone. Yes. I also think they fluctuate----
        Mr. Weber. Dr. Michaels?
        Dr. Greenstone. --from CO2 emissions.
        Dr. Michaels. Me four.
        Mr. Weber. Okay. Dr. Gayer, back to you. Would you
    believe--would you agree that temperatures fluctuate in
    historical, global, cyclical fashion? In other words, we have
    historical evidence that temperatures changed up or down
    historically.
        Dr. Gayer. Yes, I don't know cyclical necessarily but yes--
    --
        Mr. Weber. Well, okay.
        Dr. Gayer. --it's gone up, it's gone down.
        Mr. Weber. I'll give you that. How about--
        Dr. Dayaratna. Yes.
        Mr. Weber. --you, Doctor?
        Dr. Dayaratna. Yes.
        Mr. Weber. Dr. Greenstone, would you agree with that?
        Dr. Greenstone. Yes. I also think that it varies----
        Mr. Weber. It's just a yes or no.
        Dr. Greenstone. --because of CO2 emissions----
        Mr. Weber. Dr. Michaels?
        Dr. Michaels. I will use the weasel word quasi-cyclical.
        Mr. Weber. Got you. Okay. Now, would you agree also,
    Doctors, that the temperatures actually fluctuate more when
    seasons change? Obviously, they go up drastically in Texas to
    100, 110 in the desert area sometimes or they go way down
    below, so when it changes from fall to winter, for example,
    temperatures fluctuate wildly. Would you agree with that, Dr.
    Gayer?
        Dr. Gayer. I'm confused by the question because I thought
    that was the previous question.
        Mr. Weber. Would you agree that temperatures fluctuate more
    when seasons change than they just do from week to week, for
    example?
        Dr. Gayer. Yes.
        Mr. Weber. Okay. Dr. Dayaratna?
        Dr. Dayaratna. Yes.
        Mr. Weber. Okay. Dr. Greenstone, minus the COT component--
    CO2?
        Dr. Greenstone. I think CO2's important in terms
    of temperature. I also think seasons are important in terms of
    temperature.
        Mr. Weber. Dr. Michaels, would you agree they fluctuate
    more wildly when seasons change?
        Dr. Michaels. Yes, sir.
        Mr. Weber. Great. So we know that the temperatures
    fluctuate when seasons change. Now, we're talking about a
    carbon tax. And so if you go back to where we're going to
    charge carbon tax for people on industry or countries, let's
    say, that have industry, are we going to take into account when
    their seasons change because now they're using more electricity
    when it's hot or more electricity when it's cold? Do you take
    that into account at all in the proposed carbon tax?
        Dr. Gayer. I'm not----
        Mr. Weber. Do they get a credit when----
        Dr. Gayer. No, the----
        Mr. Weber. --they have a mild season.
        Dr. Gayer. The goal of the carbon tax is to include a price
    into the energy decision. So certainly when they use more
    energy, the tax will go higher and the----
        Mr. Weber. Okay. So they could put----
        Dr. Gayer. If you're tying it to like tax reduction
    somewhere else, the revenue would go higher then.
        Mr. Weber. They do get a credit when it's mild. I got you.
    Okay. Now, what happens when those countries have a tremendous
    catastrophe, whether it's a huge hurricane or a huge cyclone,
    tsunami, or you name it, and they are really hard hit and they
    have to have more energy production to rebuild their country,
    do they then get a tax credit to be able to go back and rebuild
    their country or do we punish them more because now they're
    using more energy to rebuild?
        Dr. Greenstone. Can I ask a clarifying----
        Mr. Weber. No, I'm asking him first, Dr. Gayer.
        Dr. Gayer. I don't--I didn't--I don't understand the tax--
    --they level--you level--the tax increases the price of energy,
    yes.
        Mr. Weber. So no matter what happens in a country, if they
    have a huge catastrophe and they have to use a lot of energy to
    rebuild their country, they don't get a break? They're just
    going to pay more carbon tax at that point?
        Dr. Gayer. Yes, that's the nature of a tax.
        Mr. Weber. Doctor, do you agree with that?
        Dr. Dayaratna. That--I've never put together a carbon tax
    proposal myself----
        Mr. Weber. I'm just----
        Dr. Dayaratna. --but in principle, the--yes, that seems to
    be what----
        Mr. Weber. That's what's going to happen.
        Dr. Dayaratna. --we would want to do, yes.
        Mr. Weber. Dr. Greenstone, do you agree that's going to
    happen, they use more energy, more carbon to rebuild their
    country and they're going to get taxed on it?
        Dr. Greenstone. I just want to clarify if we're talking
    about a hurricane disaster that's due to CO2
    accumulation in the atmosphere or just one that has----
        Mr. Weber. I'm talking about the tax once they have a
    disaster. Do you know where I'm going, Dr. Michaels? Can you
    see what I'm asking here?
        Dr. Michaels. Yes. I believe that you are drawing the
    analogy to what happened to this House when it passed cap-and-
    trade in 2009.
        Mr. Weber. Well, that was a catastrophe all right but----
        Dr. Michaels. Correct.
        Mr. Weber. So here's the point I'm making. Now, suppose an
    industry comes along and they develop a process of capturing
    CO2 and putting it underground. Do we revoke the
    carbon tax?
        Dr. Gayer. No, you credit it. That's the--that----
        Mr. Weber. Credit it?
        Dr. Gayer. That's--and that's one of the nice incentives of
    having a tax because it incentivizes those kind of
    technological improvements.
        Mr. Weber. Okay.
        Dr. Greenstone. In fact, it would be terrific. It would
    provide a market incentive----
        Mr. Weber. Okay.
        Dr. Greenstone. --to engage for people to find ways to
    reduce----
        Mr. Weber. Okay.
        Dr. Greenstone. --CO2 in the atmosphere.
        Mr. Weber. Okay. Well, let me just----
        Dr. Gayer. And be more resilient going forward.
        Mr. Weber. --add for the record, Mr. Chairman, and I'm done
    that in my district we have the largest carbon capture storage
    unit, Air Products in--over in Jefferson County in the country.
    So just interesting food for thought where we're headed with
    this idea.
        Mr. Chairman, I yield back.
        Chairman Biggs. Thanks. I thank the witnesses for their
    valuable testimony and the members for their questions. The
    record will remain open for two weeks for additional comments
    and written questions from members. This hearing is adjourned.
        [Whereupon, at 12:03 p.m., the Subcommittees were
    adjourned.]

                                   Appendix I

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                       Answers to Post-Hearing Questions

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                                  Appendix II

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                       Additional Material for the Record

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