Here's the bit of the EO on the SCC pic.twitter.com/ipanNZfaKA
— Bob Kopp (@bobkopp) March 28, 2017
There are some inner contradictions in the EO. Section 5 says use the best available science and economics. But then the recommendations exactly ignore the best available science and economics:
- Section B simply tosses the best available science (for some background go here and here). OMB Circular A-4 (dated 2003) doesn't mention climate change except as a source of uncertainty so I'm not sure how it replaces the work done by the interagency working group (EPA and DOE).
- In terms of discounting OMB Circular A-4 requires the use of a 7% discount rate with sensitivity analysis using a 3% rate. The 7% rate is not appropriate for climate change* but it is hard to argue with a 3% rate**. But even 3% is in contrast to the evidence supporting declining discount rates for long-lived projects (e.g., Arrow et al. REEP, 2014).
If you Google the subtitle of this post the first item that appears on my machine is hypocrisy at Merriam-Webster.
Notes:
*From OMB Circular A-4 (p. 33):
The 7 percent rate is an estimate of the average before-tax rate of return to private capital in the U.S. economy. It is a broad measure that reflects the returns to real estate and small business capital as well as corporate capital. It approximates the opportunity cost of capital, and it is the appropriate discount rate whenever the main effect of a regulation is to displace or alter the use of capital in the private sector.
**From OMB Circular A-4 (p. 33-34):
The alternative most often used is sometimes called the "social rate of time preference." This simply means the rate at which "society" discounts future consumption flows to their present value. If we take the rate that the average saver uses to discount future consumption as our measure of the social rate of time preference, then the real rate of return on long-term government debt may provide a fair approximation. Over the last thirty years, this rate has averaged around 3 percent in real terms on a pre-tax basis. For example, the yield on 10-year Treasury notes has averaged 8.1 percent since 1973 while the average annual rate of change in the CPI over this period has been 5.0 percent, implying a real 10-year rate of 3.1 percent.
Here is the PDF of the version of OMB Circular A-4 currently posted at https://obamawhitehouse.archives.gov/sites/default/files/omb/assets/omb/circulars/a004/a-4.pdf. A search of the OMB web page for "Circular A-4" only leads to mention of the document and not the document itself.
