Limits to a social cost of carbon

2014-08-02

in Economics, Politics, Science, The environment

In some ways, the idea of a social cost of carbon is fundamentally sound. Adding CO2 to the atmosphere harms people around the world in various ways which can be measured and quantified. Applying that in the form of a carbon price should allow us to better adjudicate between activities where the total benefits exceed the total costs (including climate damage). It should also help us identify where the most cost-effective options are for reducing emissions and mitigating climate change.

At the same time, there are some issues with the approach. For one, it suggests false confidence and draws attention away from the possibility of abrupt, irreversible, and catastrophic outcomes. There are climatic thresholds out there where increased concentrations lead to dramatic global changes and major impacts on human life. Adding $50 (or whatever) to the cost of an activity that adds a tonne of CO2 to the atmosphere conceals these dangers, suggesting that the harm imposed will always be incremental and manageable. Another tonne of CO2 in the atmosphere isn’t essentially equivalent to a little fine everybody pays. Rather, it represents a threatening degradation to the stable climatic regime that has accompanied the existence of human civilization. Moving from relative stability into a realm where global weather patterns are rapidly and violently shifting involves experiences that cannot be easily equated to simple monetary costs.

The social cost of carbon approach also conceals some of the costs of carbon that aren’t easily quantifiable in financial terms. It’s a lot easier to work out the additional cost of desalinating drinking water than it is to estimate the financial value we should assign to losing an ecosystem or having an important cultural site permanently immersed in the sea.

Further, using a single price suggests that the damage from every tonne of emissions is the same. This is essentially true for emissions that happen at the same time – the tonne of CO2 emissions you produce by running your gasoline lawn mower affects the climate as much as the tonne of CO2 I produce by running my gas furnace. However, climate science has convincingly demonstrated that the total harm done by carbon accumulating in the atmosphere isn’t linear across time. Warm the planet by a degree or two and human and natural systems can adapt comparatively easily. By the time you are going from 5˚C of warming to 6˚C, you will probably be experiencing catastrophic new forms of harm that nobody can really adapt to. Using a single social cost of carbon may make this idea harder to grasp, a well.

Applied properly, a social cost of carbon may be a useful tool for helping individuals, firms, and countries internalize the climate damage associated with their choices. In the big picture, however, the challenge for humanity is to control fossil fuel use and land use change such that we don’t cause catastrophic damage to the planet’s natural systems. Achieving that requires a sustained effort to abandon fossil fuels as sources of energy, while protecting carbon sinks. Insofar as a social cost of carbon helps encourage that transition, it is to be welcomed. When it contributes to the miscategorization of the problem as a whole, however, there is cause for concern.

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