Wind Debate Totally Ignores Climate Change and Environmental Benefits

Posted on January 29, 2013 by Bill Wolfe

Costs of Climate Change & Environmental Benefits of Wind Are Set at Zero

Social Costs of Carbon and Pollution Are Excluded From Cost Benefit Analysis Tests

Senator Gordon (D-Passaic/Bergen) Chairs Legislative Oversight Committee hearing on delays in implementation of of shore wind

Yesterday, the Senate Legislative Oversight Committee held an important hearing on the Christie Administration’s failure to implement legislation to develop off shore wind (see  NJ Spotlight, where the headline of the story answers itself: Is New Jersey Missing Its Offshore-Wind Opportunity? – Legislative committee wants to know why offshore wind is dead in the water

Aside from the worthy effort to conduct oversight to probe and hold the Christie Administration accountable for their policy  and performance – something the Legislature rarely does and needs to do much more of – the hearing offered a rare and revealing glimpse into the real factors that drive decisions in Trenton.

I want to focus on key economic issues that have gotten little detailed substantive attention.

Chairman Gordon asked a key question – which went unanswered – about the methodology for conducting “cost benefit analysis” and demonstrating “net benefits”. Gordon took exception to how environmental benefits and the social costs of carbon are considered by BPU and went on to suggest that perhaps legislation should better define those benefits and cost benefit analysis methodology, to restrict the discretion of BPU.

The New Jersey Offshore Wind Economic Development Act requires that a cost benefit analysis show “net benefits”.

This is hard to believe, but, according to the BPU consultant who reviews wind, the costs of climate change and the environmental benefits of wind are – by definition – both set at zero.

The BPU consultant’s defined those benefits as zero by limiting the analysis to “market prices”. The BPU consultant explicitly rejected the applicant’s use of social costs of carbon. Instead, the BPU consultant claimed that “The calculation of environmental benefits should be tied directly to market prices.” 

That is a fatally flawed approach that lacks credibility.

By definition, market prices do NOT reflect the social, environmental, and public health costs of fossil power sources. Those costs are significant and are described by economists as “externalities”, i.e they are “external” to or not considered in market prices and transactions. Here is how the consultant did that:

Environmental Benefits 

Environmental benefits were not demonstrated because they are based on an estimation of the social benefits of displacing CO2, SO2, and NOx emissions from fossil-fuel generation, rather than a market price. To calculate social benefits, Applicant relies upon sources that estimate the health impacts of SO2 and NOx emissions, and attempts to calculate a social cost on a $/ton basis for these emissions. For the social cost of CO2, Applicant relies on an inter-agency federal government report that estimates the monetized damages associated with an incremental increase in carbon emissions in a given year. The report acknowledges the many uncertainties involved in determining these costs.

The calculation of environmental benefits should be tied directly to market prices because offshore wind is just one alternative way to cut emissions and its “benefit” occurs if, and only if, it is less expensive than the other alternative ways.

That limitation to tie the analysis to actual market prices excludes consideration of the costs of climate change and the benefits of wind. That approach lacks technical credibility (and is an example of ideological “market fundamentalism” which says that prices can never be wrong) and explicitly contradicts federal policy on cost benefit analysis methodology – see:  Social Cost of Carbon for Regulatory Impact Analysis ­ Under Executive Order 12866

Executive Summary 

Under Executive Order 12866, agencies are required, to the extent permitted by law, “to assess both the costs and the benefits of the intended regulation and, recognizing that some costs and benefits are difficult to quantify, propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs.” The purpose of the “social cost of carbon” (SCC) estimates presented here is to allow agencies to incorporate the social benefits of reducing carbon dioxide (CO2) emissions into cost-benefit analyses of regulatory actions that have small, or “marginal,” impacts on cumulative global emissions. The estimates are presented with an acknowledgement of the many uncertainties involved and with a clear understanding that they should be updated over time to reflect increasing knowledge of the science and economics of climate impacts. 

The SCC is an estimate of the monetized damages associated with an incremental increase in carbon emissions in a given year. It is intended to include (but is not limited to) changes in net agricultural productivity, human health, property damages from increased flood risk, and the value of ecosystem services due to climate change. 

There is a growing body of scientific and economic research and literature on the social costs of carbon (SCC).

In 2013, it is simply not credible – or acceptable – to ignore SCC in regulatory policy.

SCC is already being considered by other state every regulators and in federal policy and the cost benefit analyses conducted under the requirements of Executive Order 12866, adopted 20 years ago in 1993 by President Clinton.

The federal government estimates the social costs of carbon (2007 dollars) to range from $5 – $65 per ton of carbon. Other credible estimates are far higher, the New York Times reported on a study showing more than 12 times higher (see: The social cost of carbon in U.S. regulatory impact analyses: an introduction and critique

The EU implements a shadow pricing carbon scheme reflecting the SCC

Failure by BPU to even consider shadow prices that reflect social, environmental and public health costs of carbon and other benefits of wind is absurd and must be changed.

Senator Gordon should follow through with his thoughts expressed during the hearing and sponsor legislation to require consideration of the social costs of carbon in all BPU and DEP regulatory analyses , policies, and decisions.

Right now, Governor Christie’s Executive Order #2, which requires cost benefit analysis to justify new regulations, also does NOT consider SCC or environmental benefits, so this is a widespread policy failure in the Administration that warrants legislative intervention and policy making.

Better yet – proposed carbon tax legislation.

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