Monday, August 24, 2009

Garbage In = Garbage Out

Another day, another "study" about the costs of climate change legislation. Don't get me wrong. I'm not one of those people who says there will be no cost for taking action on climate change - or that it will be all upside with green jobs, etc. I have always maintained that like any policy, there is a cost of action and a cost of inaction (which often does not get discussed on the climate issue). What I object to - strenuously, is the cherry-picking of scenarios run by economic models that spit out cost estimates for that scenario, not necessarily for the underlying policy which could be implemented or unfold in numerous different ways.

The American Farm Bureau Federation's recent "studies" on the cost of climate change have been guilty of just such cherry-picking of data - assuming what they believe will be the outcome of a climate bill, modeling the economic costs -- and then, and here is the problematic part, marketing that study as if it represents the whole and only way the policy would be implemented.

Today, we have another "scenario study" which was done by the oil industry, specifically sponsored by the American Petroleum Institute (API). It finds -- no surprise, that the policy will be very costly for domestic oil refiners and will actually increase the amount of foreign fuel we purchase while raising costs.

Yet - look into what the assumptions are of this study - and just like the farm bureau, you see that there are assumptions being made that do not reflect what is in the bill, but rather, a potentially worse case outcome designed to show that costs outweigh benefits.

For example, look at a quote from today's Wall Street Journal story on this new "study" sponsored by the American Petroleum Institute:

The API study is based on the current state of the industry, assuming scant use of nuclear power or new technology to reduce emissions of greenhouse gases -- a reflection of doubts over how widely such technologies can be used. The study also assumes there will be no international program allowing companies to offset their emissions by buying pollution credits.
When you limit the market options for a plan like cap-and-trade, you are limiting the market's ability to mitigate cost. So, when you assume, as this newest "study" does that nuclear plants will not come on line (even though the bill sends the largest market signal for more nuclear ever) or that there will be no international offsets/permit trading (even though the bill allows for over 1 billion tons of international offsets per year), then of course you will get a costly, yet skewed cost estimate.

I find it particularly ironic that there is now being so much faith placed in computer models of cost (based on select and skewed assumptions) from the same people who have long criticized the use of computer modeling to predict climate impacts. If computer modeling is bad, its bad -- it doesn't magically become good because someone on the other side is using it.

My answer to these skewed studies of climate legislation costs is this:

Sure, Congress could create this program in a stupid way that will be very expensive if they follow the assumptions being input by these negative cost analyses. That is EXACTLY why it is important for people with common sense to stay involved in this issue and shape it in a way that means the most market options, the most trading flexibility, the most potential revenue for farms, forests and ranches and the least cost for the overall economy.

A climate cap-and-trade bill could be the largest market maker for nuclear power, for renewable energy and for agricultural offsets generated from conservation practices and direct GHG reductions like methane capture from manure -- OR, it could be done in a way that is designed to punish industry, drive up costs and stifle the economy in a vain attempt to drive down energy use.

It seems to me that leaving the debate to those whose only concern is for the environment risks making all these hyped up cost estimates more likely to be realized than engaging in thoughtful policymaking!

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