In response to my recent post about the EPA’s little-known social cost of carbon (SCC) value and its importance in setting the stringency of U.S. emission reductions measures, one reader posted this comment:
… It seems to me that the social cost of carbon is whatever it is. The issue is how close EPA gets their estimate to the true value…
Perhaps, but the EPA’s current efforts at calculating the SCC – with its strong bias towards the lower end of estimations from the climate economics literature – is unlikely to arrive at that putative “true value.”
Here’s another way to calculate the SCC: We could ask ourselves, in general terms, what payment would we accept in exchange for our permission to allow greenhouse gas emissions to continue to grow, and to accept a drastically changed climate and all the social and economic damages that would come with it?
Before you answer, here’s something to consider: If we allow emissions to continue, we know that the climatic changes will be profound and the damages serious, but we don’t really know how profound and how serious.
This is what climate scientists and economists call the “problem of uncertainty.” We have a good idea of what the most likely damages will be, and even a good idea about their lower bound (best case). But the upper bound (worst case) is almost impossible to imagine, let alone quantify, with any confidence. In other words, it’s a big gamble: What would you accept in exchange for my assurance that the damages probably will be difficult but not devastating?
If your answer is some variation on “not for all the money in the world!” then for you (and for me) the SCC is infinite.
The SCC answers the question: What’s the damage done by one more ton of CO2 emitted into the atmosphere? Or, what benefit would make it worth it to you to allow the damage caused by that one additional ton? An infinite SCC tells us that future damages are so great that any additional emissions are simply unacceptable.
For anyone out there who likes to think graphically: The idea presented here is that part of the SCC curve is vertical. For a somewhat technical discussion of these issues see my critique of the now-defunct British method of calculating the SCC.
Public Goods: The economics of climate, equity and shared prosperity 
March 16, 2010 at 5:06 pm
Not exactly. The cost of the first ton, maybe the first million tons even is negligable, because the environment can deal with some amount without damage. It’s just that we are probably over that limit by a factor of two or more.
That’s another uncertainty factor, we don’t know how much is ok, if we did we could have the those using that capacity to bid on the permission to emit carbon up to that limit. The price would be very high initially, but as substitutes came in for all the uses that are no longer economic, the pressure would come done and then the price would settle at a number that is affordable for the uses that are hard to substitute for.
April 9, 2010 at 8:27 am
Exactly. But what policitally viable, practical, immediate solution? Change the culture of living space with one stroke. Break the critical mass of the subsidized private auto. Start by making urban transit fare-free.
April 9, 2010 at 8:51 am
Free transit would be one good step that should be a no-brainer. How hard should it be to sell it even to those who want to stay in their cars? If you put four drivers around you onto the train, maybe the traffic wouldn’t be so brutal.
The bigger picture involves changing what “money” is and how it works. It may not seem that viable, but the collapse of the financial system will make it necessary for survival long before the environmental effects get critical.