This piece originally appeared as “NY attorney general is the ‘Energizer Bunny’ of Exxon deceit” in The Hill.

When last we observed New York Attorney General Eric Schneiderman’s pursuit of ExxonMobil, he was arguing that the firm had misled investors about the risks of anthropogenic climate change. According to Schneiderman, climate change is real (true); its adverse effects already are visible and serious (false); they are going to get worse (deeply problematic); the world will turn away from fossil fuels (uh, no); and, therefore, ExxonMobil knowingly is overestimating the value of its fossil-fuel reserves (false).

Schneiderman’s argument actually is worse than just summarized: He argued that ExxonMobil failed to apply a future “proxy cost” of greenhouse gases (GHG) as part of its estimation of the value of its reserves; but under clear regulations from the Securities and Exchange Commission, the value of reserves must be estimated using average oil prices for the previous year.

But never mind that. Schneiderman now argues that Exxon, in its planning analyses, has used two different figures for the future cost of climate regulations: a public figure of $60 per ton of GHG for projects in the advanced economies, but only $40 per ton in its internal analyses.

New York Attorney General Eric Schneiderman speaks at a news conference with other U.S. State Attorney’s General to announce a state-based effort to combat climate change in the Manhattan borough of New York City, March 29, 2016. REUTERS/Mike Segar

Notice that $40 per ton is very close to the Obama administration estimate of the “social cost of carbon,” an estimate deeply dubious due to such analytic tricks as the use of an artificially low discount rate. The use of an appropriate discount rate reduces the social cost of carbon to approximately zero.

Schneiderman apparently has made much of a comment in an email sent by an ExxonMobil “corporate greenhouse gas manager” that the $60 figure is “more realistic”; but the basis for that assertion remains entirely obscure. Any bureaucrat, whether in the private sector or the government, has powerful incentives to endorse assumptions that increase, rather than reduce, his own importance and budget.

But, for the rest of us, a certain skepticism is in order. Would Schneiderman have been quite as eager to use the “corporate greenhouse gas manager’s” view of realism had he endorsed the $40 figure? The question answers itself.

Whatever the social cost of carbon proves to be over time, the real reality is that governments are proving unwilling to assume a high figure in terms of their own policy formulation. Even at the level of multilateral negotiations, actual cuts in GHG emissions are difficult to achieve: The Paris Agreement (from which President Trump announced a U.S. exit on June 1) incorporates virtually no actual reductions in emissions, and the agreement incorporates no enforcement mechanism in any event.

Without an enforceable agreement, incentives on the part of individual nations to cut GHG emissions are weaker still, in that such actions inexorably increase energy costs and thus reduce economic competitiveness.

Thus, Schneiderman’s implicit argument that the $60 figure represents future “truth” and that the internal use of the $40 figure “misleads investors,” is preposterous; the higher figure with virtual certainty is the more misleading.

In a larger context, Schneiderman is pretending not to understand that this issue of the future policy “cost” of GHG emissions is irrelevant in the context of investor behavior. Does Schneiderman believe that investors, as a class, are stupid? The GHG “cost” assumptions applied in planning exercises, whether public or internal, are largely irrelevant because there is no reason that marginal investors cannot see beyond them.

Suppose that ExxonMobil assumed a future GHG policy cost of $1000 per ton; would the market believe that? That question too answers itself. That is why ExxonMobil’s choices among a high figure, a low figure, a single figure, or multiple ones in different contexts are irrelevant.

There is the further matter that ExxonMobil, like other private entities with large capital investments, is a long-lived entity with powerful incentives to protect its credibility. Schneiderman has not explained how the firm derives benefits for itself and its shareholders over the longer term by publishing false or multiple estimates of hypothetical future GHG costs, even if one assumes for discussion purposes that some investors are fooled for a time.

Even in the extreme case in which ExxonMobil “knows” what future GHG policies will be — stop laughing — and has been lying about it blatantly, it would not be long before market participants understood that reality. Because those observers’ beliefs about future GHG policies would vary, there would be a statistical distribution of such beliefs.

Since, in this conceptual experiment, market participants would know that ExxonMobil might be lying, the effect would be to shift the entire distribution of beliefs about ExxonMobil’s value to the left, so that the market in effect would hedge against the likelihood or certainty of being misled.

Future GHG policies and their costs are far less obvious than Schneiderman pretends. The obvious reality is that Schneiderman would like to be the governor of New York; thus, he has decided to attack a firm that is not popular politically. That is not the way law enforcement is supposed to work in a constitutional republic governed by the rule of law.

Instead of picking an unpopular target and then trying to find a way to convict it of something, prosecutors are supposed to wait until evidence emerges of an actual crime, after which time, sufficient evidence to demonstrate probable cause must be marshalled against a specific suspect, who then is afforded a legal presumption of innocence until convicted in a court of law governed by the rules of due process.

That is how freedom is preserved. Down Schneiderman’s path lies a land called totalitarianism.