Over at Climate Progress, Joe Romm's excellent climate-change blog, there's a startling post about a upcoming report from the OMB which "puts its thumb on the scale against the environment". Using the logic that Americans don't value saving energy, it proposes to use a discount rate that of 25%, 35%, and in some instances as much as 50% to rate future energy savings. By such logic, anybody who'd put $1 in the bank in 1910 would be able to cover the entire federal budget this year.
The result would be to give industry a strengthened weapon to fight standards with huge claims of anticipated costs, while the anticipated benefits are greatly discounted. This puts the wide sweep of President Obama’s energy and environment policies in jeopardy...
Working quietly out of the spotlight, OMB is preparing a section of the nearly-complete automobile fuel economy and global warming pollution rule that would deeply undervalue its benefits.
What is the OMB's justification?
OMB’s recommendation is based on how economic theory indicates consumers would respond if there was a perfect free market for fuel economy. But in reality, consumers face a highly imperfect market with limited and even misleading information, little foresight on gasoline prices, and few options when it comes to fuel economy. Applying such high discount rates will simply reinforce the very market failures the clean vehicle standards are intended to address. Therefore, this is a flawed approach to assessing a critical energy savings standard and should not be included in the final rule.
What's wrong with using a high discount rate?
A high discount rate is literally saying that the future doesn't matter. In fact, actions to mitigate climate change should have a much lower discount rate than other actions. Lower risk investments have lower discount rates, and climate change avoidance is one of the lower risk investments there is. Not that it's risk-free - there's still plenty of uncertainty in the science - but climate change science has clearly passed economics in terms of the confidence it can deliver. It's not just that scientists can speak of a severe climate change scenario being "largely irreversible for 1000 years", while any economist who looks more than 100 years ahead is fooling themselves. It's also that climate change itself injects extra risk into any other investment.
Basically, by putting any discount rate at all on long term green energy investments, you're assuming one of two things:
- The economy will keep growing exponentially forever.
- It won't keep going forever, but it will go for a long time, and meanwhile, there's plenty of time to invest in green technology later.
Assumption number 1 is a physical impossibility (unless you believe that we'll use nanotechnology to rebuild the earth into a supercomputer and upload ourselves to the Matrix [1]). Assumption number 2 is just wrong; if you read Climate Progress, you realize that without a course adjustment in this decade, we're heading for some very, very rough waters (as in, FL, LA, DC, and NYC underwater before 2100, with dustbowls swallowing another half dozen states).
What can we do about it?
The Safe Climate Campaign and six other environmental organizations blasted the OMB language at the end of last week. We warned in a letter to OMB Director Peter Orszag, Transportation Secretary Ray LaHood and Lisa Jackson, director of the Environmental Protection Agency, that the addition to the otherwise popular rule would undermine the final standards governing greenhouse gas emissions and fuel economy. The rules are expected to be unveiled within days.
So, here's contact info for the agencies the letter went to [2]. I've called them all. If anybody in comments wants to set up an online petition, I think that would be a good idea too.
Peter Orszag
Organization: Office of Management and Budget
Street Address: 725 17th Street, NW
City: Washington
State: DC
Zip Code: 20503
Country: USA
Network Address: N/A
Hours of Service: 9:00 a.m. - 5:00 p.m., Monday through Friday
Telephone: (202) 395-3080
Fax: (202) 395-3504
Roy Lahood
Office of the Secretary of Transportation
U.S. Department of Transportation
1200 New Jersey Ave, SE
Washington, DC 20590
General Information Main Switchboard at: 202-366-4000
Lisa Jackson
USEPA Headquarters
Ariel Rios Building
1200 Pennsylvania Avenue, N. W.
Mail Code: 1101A
Washington, DC 20460
Office Phone - Extension Email
202-564-4700 jackson.lisa@epa.gov
Off-topic footnotes:
[1] I take that idea and it's proponents seriously, but I think there are good reasons not to believe it. Most obviously, if it were possible, some interstellar civilization would already have rebuilt the galaxy.
[2] When you type "Peter Orszag" into Google, the two searches it suggests are "Peter Orszag girlfriend" and "Peter Orszag toupee". Apparently, some people want to know if he's single and others want to look like him.