Today’s ClimateWire reports (subscription needed) that California’s proposed climate policy — known by its bill number as AB32 — has been soundly criticized by a distinguished panel of six internationally recognized economists with expertise in carbon policies:

California intentionally skewed its analysis of the economic effects of its climate change plan, according to a review by state-commissioned economists.

All six economists found the analysis deeply flawed, and several even said the state hand-picked data to improve the economic case for reducing greenhouse gas emissions.

Wow. When policy makers and experts shape an analysis to suit a political agenda some people have been known to throw around terms like a “war on science”. Somehow I doubt that we’ll hear any concerns about a “war on economics” being waged by the state of California.;-) More seriously, what is going on here is that advocates for certain policies face temptations to present those policies in the best possible light in order to increase the chances that the proposed actions will be adopted. As we’ve argued here for a long time, such biased analyses can be found across issues and the political spectrum, even in the case of California’s carbon policy.

The fact that California’s AB32 has failed peer review does not mean that it is necessarily a bad idea, it just means that policy makers and Californians really have no idea what the effects of the proposed policy will actually be when implemented. The consensus of the peer reviewers is that the costs of the proposed policy are likely to be much higher than the state’s economic analysis suggests, and there are far more uncertainties than the analysis considers.

Disappointingly, but not surprisingly, the state of California largely brushes off the peer review comments with the following rather amazing dismissal:

Economic modeling is not an exact science, and there will always be different opinions about assumptions and how to apply the available tools. This is to be expected.

So if economic modeling is really about opinions, of which there are many, then why in the world submit any such analysis for peer review?

Below are a few excerpts from the peer review submissions, which include some very strong criticisms. The peer review report can be found here in PDF

Janet Pearce and Liwayway Adkins of the Pew Center on Climate Change write:

the analysis gives the appearance of justifying the chosen package of regulatory measures rather than evaluating it.

Matthew Kahn of UCLA writes (emphasis in original):

While I support the Governor’s broad AB32 goals, I am troubled by the economic modeling analysis that I have been asked to read. AB32 is presented as a riskless “free lunch” for Californians. These economic models predict that this regulation will offer us a “win-win” of much lower greenhouse gas emissions and increased economic growth. According to my arithmetic and the information provided in Table I-2 of the Economic Evaluation Supplement, the 33% Renewable Portfolio Standard, the Pavley Light Truck regulations, the Low Carbon Fuel Standards and the building energy efficiency programs will together mitigate 95.6 MMTCO2 (57% of the AB32 2020 mitigation goal) at a net negative cost of $132 million per year. This would be a large free lunch! I would like to believe this claim but after reading through the Economic Analysis and the five appendices there are too many
uncertainties and open microeconomic questions for me to believe this.

The net dollar cost of each of these regulations is likely to be much larger than what is reported in Table I-2 . . .

. . . AB32 is a gamble . . .

. . . I hope I am wrong about this but it appears that the model is based on “best case scenario” planning.

Robert Stavins of Harvard wites:

The California Air Resources Board (CARB) merits credit for having provided an economic analysis of its “Draft Scoping Plan” for achieving AB 32’s targets, but for the reasons I describe in this brief memo, I have come to the inescapable conclusion that the economic analysis is terribly deficient in critical ways and should not be used by the State government or the public for the purpose of assessing the likely costs of CARB’s plans. I say this with some sadness, because I was hopeful that CARB would produce sensible policy proposals analyzed with sound scientific and economic analysis.