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.
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Climate Ace says:
January 11, 2013 at 10:15 pm
I have neither treated the environment as an externality nor as an internality. I have not assumed that the environment is an infinite source/sump. I have not ignored time frames. I have not made any assumptions about AGW at all.
Those are all your fantasies, Ace, or perhaps the result of a terrible reading problem. Sure, fossil fuels have an effect on the environment. But I made no assumptions about infinite sumps.
I said that fossil fuels have made you wealthy, and without them you would be crushingly poor, and that was ALL I SAID. I note that you are running from that idea will every fibre of your being …
But what I said happens to be true, so you can take your externalities and your time frames and go play with them all you want. I don’t care. But you can’t claim I’m “treating the environment” in any way at all, since I haven’t said a single word about the environment.
Please deal with what I say, and leave off all of your fantasies about “classic cases”.
w.
Climate Ace says:
January 11, 2013 at 10:45 pm
Reposting something which was unintelligible the first time doesn’t make it more intelligible, Ace …
I’d ask you for an explanation of your mystery terms, including RIRO, but I know I would regret it.
w.
After all, the company Johnson Co2 generators gets paid for providing them for greenhouses to increase the co2 levels up to 1000ppm.
davidmhoffer, reading what you said again, it is very convoluted but you say it is cheaper to build sea-walls than not to have to build them. Here I am assuming you are talking about effective CO2 mitigation versus building sea walls. Mitigation won’t be effective, so go ahead and build those sea walls. Where is the money coming from? Cheaper corn, apparently.
@ur momisugly Climate Ace, troll, thread-jacker and bureaucrat.
You have “Whip Smart” scientist friends?
Your belief is charming,matches your apparent gullibility. Science does not require belief. If you speak truth, you have no excuse for your inability to produce genuine science to back your assertions.Plenty evidence you assert, links???
All you have offered so far is bureau-speak and handwaving.
So, “Ace”, right now you look like a zero, a zombie desk warming parasite on the taxpayers back.
Jim D says:
January 12, 2013 at 8:15 am
That’s absolute bollocks, Jim. Mitigation is hugely expensive and may not even work. Even its supporters agree that it will make virtually no difference. See my post “How Much Would You Buy?” for an explanation of the actual economics.
w.
Climate Ace,
” I didn’t bother with going to Willis’ 10% plant productivity argument per se because it was, any which way you want to look at it, absurd.”
This is an argument? You might claim that while it’s an interesting idea, the details just don’t work out and then give some examples. But to call it absurd with no back-up is what’s absurd. And surely you know it won’t work here. Maybe on some hot-house blog, but not on WUWT.
” ignore the poverty which is part and parcel of BAU”
I’m not sure what use of “poverty” you’re using. As Willis points out in a response, a huge amount of poverty has been alleviated by the development of fossil fuels. Do you really realize what people had to do without in the past that we take for granted these days? OTOH if you were using “poverty” in the sense of modifying “BAU”, i.e. claiming that BAU is a poor position to take, you first need to realize that “business as usual” is a slur on the actual skeptic position(s) which don’t reject sensible changes in the way we do things, but actually encourage and expect them. It’s the CAGW crowd which assume there will be no breakthroughs in energy production and thus claim we have to act now rather than wait until there’s better technology, increased wealth to draw from, and most importantly actual damages, before we spend vast sums trying to change our energy infrastructure.
“use poverty as an argument for doing nowt (sic) about AGW.”
If you don’t understand that directing huge amounts of money toward subsidizing unprofitable energy sources will take money away from alleviating poverty, then I’m not sure what I can say other than “get an education.” The claimed things which will affect the poor via CAGW like sea level rise, increased floods and droughts, etc. Just aren’t happening, at least not yet.
And this applies also to your clarification: “my general point was that for BAU boosters to look at only one side of the ledger when looking at AGW and poverty is palpable nonsense, that those who argue that adaptation is cheaper than prevention ignore AGW reality, and that the consequent costings are a sham.”
First of all, Willis was using the AGW boosters’ analysis of what the “cost of C in CO2” is. If they really think it’s much more, then that’s what you should be arguing for. And the costs of carbon at any given time should reflect any current damages which should be remediated.
As an example, say that we did deplete all our fossil fuels. Does that really create a problem in terms of the long-term survivability of the earth, or even the human species? I don’t see where it will. We’ll still have solar power, wind, biomass, etc. to fall back on as well as whatever newer sources are discovered / developed. Furthermore businesses (and governments) will see this depletion coming and start to ramp up their investments in such areas at the appropriate time. Yes I know there have been people pushing peak oil, for instance, but it doesn’t look like that’s going to be the case. And now we have the new and improved fracking technology which will give us an expanded supply which will delay for decades or centuries the time when fossil fuels become rare.
Willis, why is that people think the only mitigation measure is reducing CO2 emission rates? Clearly that is not going to happen. Look at China and India and other global growth in carbon footprints. No, the real cost is in mitigating the effects. Sea-walls is one area, energy, water, food production are others where things can be done early. Even just saving money for future expenditure earlier can save emergency measures at larger cost later, because that needs deficit spending if no planning has been done for it. The only difference between mitigation and adaptation is whether it happens before or after the disasters (take Sandy). Mitigation is better. More corn for everyone may help too, though.
Jim D says:
January 12, 2013 at 9:41 am
davidmhoffer, reading what you said again, it is very convoluted but you say it is cheaper to build sea-walls than not to have to build them. Here I am assuming you are talking about effective CO2 mitigation versus building sea walls. Mitigation won’t be effective, so go ahead and build those sea walls. Where is the money coming from? Cheaper corn, apparently.
>>>>>>>>>>>>>>>>>>>>
Seriously, how old are you?
Let’s put it in point form so that your reading comprehension challenges are… dare I say it? mitigated to the extent possible.
Cost of Sea Wall, $10,000,000
Cost of not needing Sea Wall $100,000,000
Savings if CAGW is real. $90,000,000
Savings if CAGW is not real. $100,000,000
You can pay with cheaper corn, more expensive corn, popped corn, corn dogs, or corned beef if you want, you still need 10x as much for a problem that evidence suggests doesn’t exist.
Jim D says:
January 12, 2013 at 9:41 am
David actually said:
Convoluted? Seems perfectly clear to me. Perhaps you should re-read it. He’s saying that if you wish to stop sea level rise by increasing the poverty in the world, AKA increasing the cost of fossil fuels via various mechanisms like Kyoto, it’s gonna cost you ten times more than building sea walls. I would say he is being hugely conservative. I’d say it would be at least a thousand times more costly to try to affect sea level by way of fossil fuel price increases than to build them as and when they are needed.
Reducing temperature by reducing CO2 costs literally trillions of dollars per possible degree saved, and we have no certainty that it will make the slightest difference. Perhaps you think that’s a good deal. Me, not so much. To me it’s like spending a thousand dollars on insurance that only pays out a hundred dollars.
w.
I would like to thank William Astley on his thoughtful post regarding the environmetal benefits of CO2 and would concur that 1000ppm would be a good level of CO2 for the planet and those that live on it.
Willis;
I’d say it would be at least a thousand times more costly to try to affect sea level by way of fossil fuel price increases than to build them as and when they are needed.
>>>>>>>>>>>>>>>>>>>>>
Agreed. But what value establishing the order of magnitude to any degree of accuracy when the proponent is having difficulty with the concepts of “more” and “less”?
We need a better quality of troll.
Has anyone mentioned that CO2 is not the limiting factor in plant growth? If you follow the web page that Willis refers to (Table2), and then follow that (thru another web page or two) to the literature sources the term “well watered” is seen a lot. I suspect they are well fertilized as well. One thing for sure, 900 ppm CO2 wouldnt have helped the fields in the midwest last summer, and in the real world I suspect the situation where conversion of CO2 is the limiting factor is not that common.
I see that the New York Times (NYT) is going to close their environmental desk. OMG don’t say it true, where will we learn the art of spinning, story line adjustment, cover ups techniques, we’ve got the alarmists backsides covered. Maybe just maybe the NYT is seeing through the socialist/water melon fog and is SLOWLY backing away form the indefensible.
Or the crock and crooked Carbon trading market is showing itself to be the ultimate Pozi scheme it always was, Or they cleaned their rose/red/green coloured glasses and to their shock and horror AL GORE is now an OIL man and a big green gig liability.
Take your pick, or add to it?
“We’ll still have solar power, wind, biomass, etc. to fall back on as well as whatever newer sources are discovered / developed. ”
No you can not. There is nothing wrong with getting a small amount of energy from ‘alternatives’. The word ‘alternative’ like ‘sustainable’ are used those who ignore why we do things. If we could grow enough energy, there would be only a few coal miners providing coal to the steel industry.
All the power society needs can be produced by fission. There is a reason that the AGW crowd ignores nuclear power. Many of the leaders got their start fear mongering nuke plants.
After a while when no one is hurt from LWR with containment buildings, people stop listening to the fear mongers. AGW is the perfect topic for fear mongers. It will out live them.
I predict that people will stop listening but for a different reason. The fear mongers jet around the world in party jets and ride in big limos while suggesting solutions that they personally or are just down right silly.
They are addicted to drama and other things. They are recovering alcoholics who want to ban the rest of us from a glass of beer or wine with dinner. They want us to turn down our thermostats while the fly to Hawaii for the holidays.
Willis says: “To me it’s like spending a thousand dollars on insurance that only pays out a hundred dollars.”
What if it was playing out $100 to each of the next 20 generations of your descendants? That would be a more accurate comparison.
Let’s put adaptation versus mitigation into a slightly different context.
Oil is selling at about $100 per barrel right now. There’s about 690 cups in a barrel. In other words, crude oil is selling for about 15 cents per cup. You can’t even buy a cup of coffee for 15 cents. 15 cents won’t even cover the tip on a cup of coffee!
Oil is possibly one of the cheapest commodities on the planet. What else can you buy in raw form for 15 cents a cup? That’s around 2 cents per ounce! That’s a whopping 70 cents per kilogram.
Now what can you DO with a barrel of oil? Well a lot. For example, you can extract gasoline from the oil. Let’s say you extract one gallon of gasoline. You’d have almost the entire barrel left. Plus you would have enough gas in that single gallon to propel a 3,000 pound car with four occupants a distance of 30 miles or more. Yes there are refining costs and so on, but the raw materials in that gallon of gas actually sell for pennies. B*tch and complain though we do about the price of fuel, the fact of the matter is that it is almost free.
Mitigation versus adaptation falls apart pretty quick when you understand that the raw material required as an input for adaptation is almost free.
Find me a mitigation scheme based on something even close.
Jim D says:
January 12, 2013 at 9:41 am
davidmhoffer, reading what you said again, it is very convoluted but you say it is cheaper to build sea-walls than not to have to build them
Sea levels have oscillated a lot in the past, with a rising sea level since the end of the glaciation.
Looking at the tide gauges I am asking myself where do you see that accelerated sea level rise?
http://www.sealevel.info/MSL_global_trendtable2.html
average 1.07 mm
See also the Maldives from a greenie blog:
http://www.marklynas.org/2012/04/where-sea-level-rise-isnt-what-it-seems/
The problem to mitigate is not the sea level rise, but many other big problems, read through Mark’s post. the check Willis posts here at WUWT about life on atols.
There are real many problems that need to be addressed there, wasting money and making more people poor is not the way to fix any:
http://www.bbc.co.uk/news/world-asia-16072020
Excellent article Willis.
In part you bring up the issue of unintended consequences. My Bother-in-Law, an economist, suggest we should have particular concern at what he called “unintended, but not unforeseeable, consequences”.
Those who have a problem understanding unintended economic consequences should read Thomas Sowell’s book “Basic Economics”.
Nothing is free. No matter how well intended it may be.
monetising CO2:
9 Nov 2011: Sydney Morning Herald: Elizabeth Knight: Carbon tax just another cost – so get used to it
The director of emissions and environment at Westpac, Emma Herd, describes carbon as a bit like a currency. Each country has a different carbon currency and Australia will soon join the ranks.
Most can also trade in the international carbon currency, the CER…
http://www.smh.com.au/business/carbon-tax-just-another-cost–so-get-used-to-it-20111108-1n5k6.html
13 July 2011: Australian Financial Review: John Kehoe: Banks cash in on carbon market
Banks will cash in on the Gillard government’s carbon policy as they develop new financial products and services and trade instruments in a market estimated to be worth many tens of billions of dollars locally…
“We think that there are going to be opportunities to arbitrage between different markets internationally, so that’s going to open up opportunities for us,” said Morgan Stanley executive director Emile Abdurahman, who recently relocated from Singapore to set up a Sydney trading desk…
While the carbon price policy will present some trading opportunities for banks in the initial three-year fixed carbon tax period from 2012, the real bonanza for the finance industry will come when ETS permits are auctioned by 2015.
ANZ’s head of energy trading, Gary Wyatt, said international evidence suggested the value of the derivatives carbon market would dwarf the $10 billion initially raised by the government.
“I’d be really surprised if the trading market didn’t end up being several multiple times of the underlying physical market,” Mr Wyatt said.
Besides trading carbon permits on their own account, banks say there will be business opportunities from entering into forward contracts for big-emitting clients wanting to lock in a future certain carbon price, hedging fuel costs for airlines, and hedging currency risk when permits are traded internationally…
Emma Herd, director of emissions and environment at Westpac, whose London-based energy traders have been trading European permits since 2006 and which was the first bank to trade New Zealand ETS permits, said the bank would use its offshore experience in Australia.
“There really is a lot of overlap between energy, commodities and carbon markets,” she said.
“They either trade directly in correlation with each other or they’re heavily influenced by activity in related markets.”…
Banks also plan to develop new carbon-related financial products, to take advantage of the government’s carbon farming intitiatives (CFI)…
http://afr.com/p/business/financial_services/banks_cash_in_on_carbon_market_ZHUVTvKlE0Akcs1JaL9n8M
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2 July: National Times Australia: Lenore Taylor: Let’s give it a chance, says business grouping
Emma Herd, Westpac’s executive director for emissions and environment, said her company had supported a carbon price for a decade, under two chief executives and three prime ministers. ”When we talk to clients now they just want certainty, they want to know the rules and they want to get on with the job.”…
http://www.nationaltimes.com.au/opinion/political-news/lets-give-it-a-chance-says-business-grouping-20120701-21b2v.html
@Climate Ace: “You need to put your thinking into some sort of time frame that gets you beyond the here-and-now. China is heading for the wall, vis-a-vis environmental blowback.”
Right, letting those poor people act on their own instead of us “saving” them always results in their self-destruction! Therefore, Climate Ace, China needs you now more than ever – so as to ensure its future wellbeing, and ours! Drop us a line sometime from the PRC.
trafamadore says:
January 12, 2013 at 11:34 am
Willis says: “To me it’s like spending a thousand dollars on insurance that only pays out a hundred dollars.”
What if it was playing out $100 to each of the next 20 generations of your descendants? That would be a more accurate comparison.
>>>>>>>>>>>>>>>>>>>>
What if it was $1,000 per generation for 20 generations versus a payout of $100 per generation for 20 generations? Are the trolls so dense that they think mitigation costs are a one time thing? Or do they think that skeptics are so dense that they might fall for such a totally absurd notion?
Jim D says:
January 12, 2013 at 10:08 am
Willis, why is that people think the only mitigation measure is reducing CO2 emission rates? Clearly that is not going to happen. Look at China and India and other global growth in carbon footprints. No, the real cost is in mitigating the effects. Sea-walls is one area, energy, water, food production are others where things can be done early.
>>>>>>>>>>>>>>>>
I see the problem. The writer doesn’t understand the difference between mitigation and adaptation. So, he insists that mitigation is better than adaptation, then when faced with the costs of mitigation, proposes instead adaptation measures and mistakenly calls them mitigation measures.
Willis,
Reading this post and some of the comments and the other WUWT post http://wattsupwiththat.com/2013/01/11/the-royal-society-disaster-movie-starring-the-ehrlichs-and-the-prince-of-wales/ I cannot help but ‘think’ that the whole reduce CO2 furphy is still driven by the original ‘kill off the population because we haven’t got the resources’ crap.
For anyone to deny that CO2 is not beneficial to plant growth or that the fossil fuel industry has not made an enormous contribution to the greening of the planet is OTFH (Off Their Fracking Head).
In Germany, ‘green’ has led to a greater use of coal. When will these nuts realize they are urinating into the wind?
http://notrickszone.com/2013/01/12/germanys-green-energiewende-energy-transition-has-only-led-to-greater-coal-consumption/