Guest Post by Willis Eschenbach
A few months ago [2012] in the New York Times Green Blog they talked about “monetizing” the “social cost” of carbon. The article said:
In 2010, 12 government agencies working in conjunction with economists, lawyers and scientists, agreed to work out what they considered a coherent standard for establishing the social cost of carbon. The idea was that, in calculating the costs and benefits of pending policies and regulations, the Department of Transportation could not assume that a ton of emitted carbon dioxide imposed a $2 cost on society while the Environmental Protection Agency plugged 10 times that amount into its equations.
How does one “monetize” something, and what is a “social cost” when it is in its native habitat?
First, the easy one. A “social cost” is generally some estimated or inferred cost to society from something, in particular a cost that is not reflected in the price of the item itself. For example, alcohol has a social cost in the form of a variety of societal problems. That cost is not included in the raw ex-factory price of alcoholic beverages.
Next, to “monetize” a social cost means 1) to attach some monetary value to that social cost, and then 2) to attach that monetary value to the retail cost of the product in the form of an increased price. In the case of alcohol, that is usually done through government taxes. Sometimes, the revenue from these taxes is dedicated to ameliorating that social cost. In the case of alcohol, that might be in the form of alcohol dependence programs or clinics. Other times the income goes into the general fund.
This is generally not a problem as long as there is widespread agreement about the existence of the social costs. In the case of carbon emissions, however, no such agreement exists. There is no evidence of current costs or damages, only models of possible imagined future damages. Accordingly, even among those who agree that there is a social cost to carbon emissions, there is wide disagreement about the size of those costs.
However, despite the differences, and despite the lack of evidence of any demonstrable costs, the attempt to “monetize” the imagined future damages from carbon emissions continue apace. As you might imagine, I object to the whole process. Oddly, they didn’t listen to me, and the article in the NY Times say that they have settled on a value of $21 per tonne of carbon. The article said one government agency was using $2 a ton and another was using ten times that, or $20 a ton. So I guess they took the average of the two and used that average of $21 per ton for all government calculations … but again I digress.
Over-riding everything in this question is the unthinking, un-acknowledged destruction from jacking up energy prices. This always hits the poor hardest, as I have discussed elsewhere. Energy taxes, including carbon taxes and “monetizations” are the most regressive tax of all. But I digress … I was discussing monetization of carbon.
Let me recapitulate my two main objections to carbon monetization. The first is that for many issues, including carbon, there is no agreed upon way to establish the monetary values. In the case of CO2 there are questions about the very existence of such costs, much less their value. As the NYT article points out, there is great disagreement over the $21 figure even among those who agree that there is some social cost to CO2. Since there is no actual evidence of any actual costs, this is all merely claims and counterclaims, even between adherents. There is no objective way to settle the disagreements.
My second objection is that while people are often in a hurry to monetize the social costs of something, they rarely take the necessary other step. They rarely are in a hurry to monetize the social benefits of something. But if you do one, you have to do the other. After all, this is why it’s called a “cost/benefit” analysis …
I have even had someone seriously argue that there is no need to monetize the social benefits, because they were already included in the market price. After all, he argued, the reason we buy something is because of the perceived benefits. So they are already included in the price.
I find this argument singularly unconvincing. Some benefits are already included in the price, and some aren’t. Since a single counter-example will serve to disprove the general theorem, let me take a social benefit of CO2 as an example. This is the known effect of atmospheric CO2 levels on plants, which is that they increase their production with increasing atmospheric CO2. Obviously, nobody goes out and buys gasoline for their car in order to help the plants, so it is not included in the market price. However, increased plant growth is an undoubted social benefit, a huge one that affects the whole world. Therefore, it is an un-accounted for social benefit, one which does not get included in the price.
Accordingly, let’s take a look at monetizing this un-accounted social benefit. Curiously, the value of increased plant production is both easier and less contentious to calculate than are the claimed social costs of CO2. Why?
Well, it’s because the claimed costs of CO2 are future, imaginary costs that cannot be measured, where the increased plant production is both real and measurable. But I digress.
The folks over at CO2 Science have looked at the experimentally measured increase in plant biomass due to a 300 ppmv increase in atmospheric CO2. The figures are here, in Table 2. The changes are different for each plant, ranging from about 30% to 60%. So let’s be conservative and use the bottom end, an average 30% increase from a 300 ppmv increase. CO2 levels have gone up about 115 ppmv since pre-industrial times. This means that there has been on the order of a 10% increase in the annual production due to CO2.
Now, how much is this 10% increase in global plant production worth? Well, the marvelous FAO database called FAOSTAT puts the value of the annual plant production at ten trillion dollars annually, so lets assume a third of that, say $3.3 trillion dollars. Is $3.3 correct? There you have the problem with monetization … no way to know. But assuming that a 10% increase from some smaller value is due to increased CO2, that puts the annual value of this one single solitary social benefit of CO2 at over $300 billion dollars.
How does that compare to the proposed $21 per tonne social cost? Well, at present we’re emitting about 9.5 gigatonnes of carbon annually. That would mean that the total monetized social cost would be $21 times that number of tonnes emitted, which gives us about $200 billion dollars per year.
So here’s the balance—we have a verified, measurable social benefit to the planet of $300 billion annually, and an unverified, unmeasurable estimated social cost of $200 billion annually. Which leaves me with just one burning question …
When do I get my check for the social benefits I’m providing? The US has provided somewhere around a third of the CO2 responsible for that social benefit, that’s $100 billion per year in benefits … three hundred million Americans, that’s about $333 per American per year …
w.
PS—What’s that I hear you saying? You think I calculated the benefits wrong?
Well, certainly, perhaps I did. After all, it was just a rough cut. But all that does is bring us back to my first objection to “monetizing” CO2 … it’s very hard to get agreement on the actual values.
PPS—Note that I’ve only considered one single social benefit, the increase in plant production. Since their claimed costs relate to claimed future temperature rises, how about the benefit of increased ice-free days at the northern ports if temperatures do rise? And the longer growing seasons if temperatures increase? How much are they worth worldwide? They likely have included the extra costs from air-conditioning to fight the fabled future heat, but have they included the reduction in winter heating? I could go on, but I’m sure you get the point. The whole thing is an exercise in fantasy, shifting sands with no clear answers.
Discover more from Watts Up With That?
Subscribe to get the latest posts sent to your email.
Bravo!
Check this out…
OK, so you are saying the benefit goes to the farmers, so the government who has to pay for global warming has to somehow take this money from the farmers to consider this as a benefit. This implies that to count this as a benefit the farmers’ profit needs to be taxed in some way. Is that what you want? Or perhaps the farmers who make out good can directly subsidize those that weren’t so lucky due to the shifting climate zones by pooling their profits. That would work too.
Quick submit our invoice to the UN, $100 billion now,bill for other benefits to follow, payable by all non emitter who have growing plants.
Wait, UN practices, bill the UN for $300 Billion and promise the $200billion back when the imagined harm is proven.
I was thinking more of the costs to society, of this UN grab for power using CO2 emissions as a cover, when I read the title.
Willis
Elsewhere there have been various attempts by economists to demonstrate that AGW adaptation is cheaper than prevention.
This line is taken by luminaries such as Lomberg and Moncton. IMHO, they have failed miserably because they demonstrate a complete inability to address threshold AGW issues, non-linear AGW issues, or to provide a time frame for their ‘demonstrations’. RIRO.
The post above also avoids these three critical issues in any discussion of benefits and disbenefits of CO2 emissions.
That apart, I take issue with a common meme of BAU boosters, that action on carbon dioxide is ‘unfair’ to the poor. This approach conflates two issues (AGW and poverty) in a way that appears to be designed to undermine motivation to carry out desirable action on either. There is a handy rule-of-thumb test about whether the issue is being addressed in a comprehensive and therefore credible fashion. It involves addressing the following issue: ‘What are the impacts on the poor of BAU fossil industries?’
This enables BAU boosters to assume uncritically that failure to act on carbon dioxide is somehow not unfair on the poor whereas acting on it is unfair to the poor. Cute. This assumption is never made explicit and it is never discussed. It is palpable nonsense. The reality is that whatever system of distribution of the benefits and disbenefits of carbon dioxide, the poor will end up copping the short end of the stick.
The issue is poverty. The issue is AGW.
The logical sequitor is action against both the maldistribution of wealth and resources, and reining in the growth of CO2 emissions.
It is the evident aim of BAU boosters to change neither.
You are absolutely right. Coming up with an accurate cost-benefit analysis would be a nightmare because the alarmists would freekout about having to admit there are some benefits to increasing CO2 levels.
Another excellent Willis article. The rise in CO2 has been harmless, and beneficial. More is better, and there is no downside.
@Climate Ace:
Given that there is no verifiable, testable, falsifiable AGW signal in the temperature record, it seems silly to waste money on a “what if” scenario, no?
Willis,
Welcome to my bandwagon. The following is excerpted from a comment I made here a couple of years ago.
It seems increasingly likely that the primary contribution that the AGW community will have made to society after the scientific debate over AGW is concluded will be in the field of economic education. Classical economics teaches (see Pigou,Stigler) that socially optimal resource allocation and use occurs only when the price of the resource is equal to the total (including social) marginal cost of the resource. If we assume, as we have for the last few decades, that a net negative social externality exists as a consequence of converting C into CO2, then social optimality can be achieved most efficiently by charging a fee on top of the fuel price in order to raise the price to a point where both the private and social marginal costs are borne by the user and hence reflected in the quantity of fuel demanded. I believe that the AGW community has done an excellent job of increasing public awareness of this fundamental economic principle, and, with the development of Cap and Trade schemes, have devised a politically palliatable strategy for implementing such a program.
Any members of the AGW community that are motivated primarily by collectivist or Malthusian political beliefs are not however, likely to enjoy much pride-in-accomplishment from this if it turns out that CAGW is nonsense. Symmetry exists in economics. If we assume that the negative component of social cost inherent in the oxidation of carbon is eventually found to be trivial, then the positive effects documented would predominate, and the net externality inherent in the burning of carbon would be positive. Users of fossil fuel would, in the absence of intervention, be paying more than the total marginal social cost of that fuel, causing them to burn less than the socially optimal amount. Optimality could best be achieved by subsidizing the consumption of fossil fuel. The cost of the subsidy, in order to equate the price of agricultural commodities with their actual total marginal cost, thus achieving socially optimality, would have to be collected in the form of a fee from all people who eat. Since we in the U.S.A. produce about three times the amount of CO2 than we consume in the form of food, this would result in substantial income coming into this country which would accrue to GDP and relieve balance trade worries. The developing world would also benefit as the increased CO2 production induced by the subsidy, would push up agricultural productivity worldwide.
The increase in the price of food that results from the “food tax”would decrease the quantity of food demanded worldwide, which, along with the increase in agricultural productivity would create and expand agricultural surplus’s which are the foundation of all the economic development that has ever occurred anywhere.
I am looking forward to that sunny day when the science really is settled, and we can replace talk of “Cap and Trade” with an economically efficient and socially responsible “Burn and Earn” program. We can then begin the task of beating the eyesores we refer to as windmills into ’68 Pontiac GTO’s, and melting the famine-promoting solar panels down and re-casting them into 100 inch flat screen 3d TVs.
This enables BAU boosters to assume uncritically that failure to act on carbon dioxide is somehow not unfair on the poor whereas acting on it is unfair to the poor. Cute. This assumption is never made explicit and it is never discussed. It is palpable nonsense.
If it is ‘palpable nonsense’, then there must be some measurable cost of increased CO2 emissions to the poor , roughly equal to the costs of CO2 taxes. As Willis points out it isn’t the cost of food, the other main cost to the poor, which increased CO2 significantly reduces the cost of..
Pray tell us what it is?
Or was this just a rhetorical exercise intended only to obfuscate?
I could take issue with the rest of what you say, but like Willis, It concerns me that the poor are disproportionatedly harmed by CO2 taxes. And your logic of we AGWers care about the poor and that’s what matters (even though we hurt them), but climate sceptics don’t care about the poor (even though they want to help them), is the same ‘I’m a good person so I must be right’ rationalization, I’ve seen a 1,000 times from AGWers.
Jim D says:
January 11, 2013 at 7:46 pm
OK, so you are saying the benefit goes to the farmers
>>>>>>>>>>>>>>>>>
Maybe I should bat for the other team? As a public service I mean. Provide some commentary worthy of provoking an actual discussion of benefit to the forum in general. The trolls hardly show up in the science threads at all anymore, they look like complete fools in short order when they do. So now they show up in a thread about economics and they can’t get that right either. Poor Jim D is under the impression that 10% more farm production means 10% more revenue for the farmer. He missed that part about supply and demand and how the increased production actually reduces prices and since input costs remain about the same, a bumper crop produces very little extra net revenue and may actually produce less net revenue. But I digress, I was talking about hitting for the other team and perhaps showing the Jim D’s of the world how to be a proper troll.
How does one “monetize” something, and what is a “social cost” when it is in its native habitat?
How big is the federal deficit?
Climate Ace says:
January 11, 2013 at 7:51 pm
“There is a handy rule-of-thumb test about whether the issue is being addressed in a comprehensive and therefore credible fashion. It involves addressing the following issue: ‘What are the impacts on the poor of BAU fossil industries?’”
It seems that a “poor”, underdeveloped China has already addressed your question by building a new fossil fuel electricity generating plant every 5-7 days, on average. Where the rubber has met the road, China’s [and India’s] answer is BAU on steroids. As for me, I’m envious.
Btw, there is no fossil fuel “AGW’ demonstrable.
Willis,
I don’t think you can claim a 10% productivity increase on the basis of the numbers you presented because you haven’t established that there is a linear relationship. For example, if CO2 concentrations were 10,000X you would obviously not expect land to produce wheat at 400,000 bushels to the acre. Sure that’s a ridiculous comparison, but I think you should be able to see my point? The net benefit of CO2 increases to plant growth is probably logarithmic, I’d suggest that your estimate is rather high. An increase of perhaps 5% or even lower seems more in line with reality.
OK, I’ve re-booted, I’m back in standard mode. Feel a bit icky, will finish this comment and go take 11 showers.
Jim D, were you paying attention? Climate Ace? Could you guys ratchet back on the talking points provided to you and actually do some original thinking and commentary? Give the rest of us something thought provoking enough to make us sit back and think a bit instead of just mocking you because it is so easy to do?
mods ~ my tongue in cheek comment went to the hidey hole. Gawd, what word was it this time?
[Reply: Sorry, no can find. Sometimes comments disappear for no known reason. — mod.]
I have to assume that BAU means “Business As Usual.” Am I wrong?
Um, the average of 20 + 2 = 22 is calculated by dividing 22 by 2 which = 11, not 21.
Not everything can be measured with dollar signs.
Climate Ace says:
January 11, 2013 at 7:51 pm
Speaking in general, the effect of fossil fuels on the poor has been hugely, fantastically beneficial. Without fossil fuels, all of us would be crushingly poor. So “the impacts on the poor of BAU fossil industries” is that it has made you personally wealthy rather than dirt-poor as you would be without fossil fuels.
w.
The first controversy the IPCC ever fell into was over this issue of defining the social cost. I will be posting an essay on this fascinating but forgotten controversy over the ‘value of a statistical life’ when I revive from a sun sand and surf induced stupor next week. For now I recommend engagement with one Richard Tol. He is on the other side but I have seen him active at Climate ect., and he was most helpful in my research.
[Reply: Sorry, no can find. Sometimes comments disappear for no known reason. — mod.]
>>>>>>>>>>>>>>>>>
Strangely, it has now appeared again. Sorry to trouble you.
JT says:
January 11, 2013 at 8:52 pm
Yeah, I know, that was just my poor attempt at humor regarding the whole thing, that they picked the big number.
w.
Davidmhoffer says jan 11,2013 8:38 pm
” An increase of perhaps 5% or even lower seems more in line with reality.”
An impressive study of the effect of a doubling of CO2 was done by Kimball before the subject became politicized (making real science a difficult proposition). His projection is that a doubling of CO2 would increase agricultural productivity by 33%. This is anything but trivial.
Abstract and link below
Carbon Dioxide and Agricultural Yield: An Assemblage and Analysis of 430 Prior Observations
B. A. Kimball
Abstract
The probable effect of the increasing global atmospheric CO2 concentration on agricultural yields was evaluated. More than 430 observations of the yield of 37 species grown with CO2 enrichment were extracted from more than 70 reports published during the past 64 years. Most of the studies were performed in greenhouses or growth chambers. Open fields might respond less than greenhouses or growth chambers to increased CO2 because nutrient levels in general world-wide agriculture are lower than those in the indoor studies, or open fields might respond more because light levels are generally higher outside. The data also were dominated by high value crops, but results should be applicable to the three-fourths of the world agriculture represented by the C3 crops and possibly to the remaining C4 crops as well. Keeping these limitations of the data in mind, the analysis showed that yields probably will increase by 33% (with a 99.9% confidence interval from 24 to 43%) with a doubling of atmospheric CO2 concentration.
https://www.soils.org/publications/aj/abstracts/75/5/AJ0750050779?access=0&view=pdf
The imagined damage to the poor some how trumps the real damage of inflated food prices, fuel poverty and denial of reliable affordable electricity to Africa.
Thats addressed to Climate Ace, good troll tag, thats you get one fact in hundred correct, hence the ace on climatism?
Maybe you can produce the empirical evidence of causation? CO2= Temps rising?
30 years, billions spent, come on Ace show me what you got.
Some people have no clue.
Climate Scientists Suggest Geoengineering Approach With Engineered Nanoparticles
“There may be better ways to engineer the planet’s climate to prevent dangerous global warming than mimicking volcanoes, a University of Calgary climate scientist says in two new studies. “Releasing engineered nano-sized disks, or sulphuric acid in a condensable vapour above the Earth, are two novel approaches. These approaches offer advantages over simply putting sulphur dioxide gas into the atmosphere,” says David Keith, a director in the Institute for Sustainable Energy, Environment and Economy and a Schulich School of Engineering professor. Keith, a global leader in investigating this topic, says that geoengineering, or engineering the climate on a global scale, is an imperfect science. “It cannot offset the risks that come from increased carbon dioxide in the atmosphere. If we don’t halt man-made CO2 emissions, no amount of climate engineering can eliminate the problems – massive emissions reductions are still necessary.” Nevertheless, Keith believes that research on geoengineering technologies,their effectiveness and environmental impacts needs to be expanded.”
http://www.nanowerk.com/news/newsid=17926.php
Geoengineering: Workshop on Unilateral Planetary Scale Geoengineering
Workshop on Unilateral Planetary-Scale Geoengineering: The Science and Technology of Geoengineering
Workshop on Unilateral Planetary-Scale Geoengineering: Framing the Foreign Policy Problem-Avoiding and Regulating Unilateral Geoengineering
Workshop on Unilateral Planetary-Scale Geoengineering: Planning for Next Steps
Workshop on Unilateral Planetary-Scale Geoengineering: Geoengineering and the Challenge of Global Governance
http://www.cfr.org/projects/world/geoengineering-workshop-on-unilateral-planetary-scale-geoengineering/pr1364