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.
Climate ace:
“What with Guns R Us, the Tea Party fruitloops, your carbon problem and your debt problem you have huge challenges. ”
Carbon problem? Are you suggesting that if the US implements “a carbon pricing mechanism” then “practically all useful economic indicators [will] show that the economy will be in a much better state of health?”
Many folk have been arguing that carbon pricing has the effect of reducing the wealth of a nation by raising energy costs. From my limited knowledge of economics I have tended to believe them. Could you please give an economic argument as to why you think carbon prices increase prosperity, rather than say, Australia’s economic position being the result of some other (unrelated) factors?
Thankyou Johanna for presenting the long-overdue word “voodoo” in this debate. It’s rather touching, the primitive faith shown by some commenters in a pseudo-science called “economics.” The voodoo practitioners of economics failed to see the financial crash coming, they can’t tell us how to get out of it, and they still can’t explain how it happened. The prime requisite of a science being that it should make falsifiable predictions which upon testing turn out to be not false. Now both sides in this debate are using “the shonkiest economic hokum” (thankyou Johanna) to back their arguments. What a friend we have in economics.
I suppose that if I wanted to spout some hokum of my own and shoot down the “social cost” balloon, I would wonder why the brand of smartphone most beloved in green circles is produced at the highest social cost. Bah humbug.
“Extreme” weather also has both costs and benefits. Both are nicely shown by this series of photos of unusual snow and rain in the Middle East. Flooding has obvious costs but it also brings money to the enterprising donkey-ferry operator, and brings topsoil to farms in the floodplain. A few inches of snow may impair traffic, but it also brings enjoyment to kids in refugee camps.
http://www.telegraph.co.uk/news/picturegalleries/worldnews/9791269/Winter-storms-snow-torrential-rain-and-flash-floods-hit-the-Middle-East.html
@Willis
“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.”
There is a market principle called the value proposition. When the benefits of the proposed value porposition exceed the cost, people are willing to make the purchase. A lot of the perceived value is…perception, let’s not fool ourselves, but the principle remains. If buying CO2 brings enough perceived benefit people will do it. Failing that, they won’t.
The concept of a carbon is as bass-ackwards as the many other fiat currencies that have been proposed over the years.
lol I’m not a native english speaker but I’m pretty sure you didn’t need the sarc/ tag for my post. So your reply is an attempt to insult me. You failed, just like you have failed everything throughout this thread. I sugest you drop the ace part of your name..You can’t even troll properly.
davidmhoffer says:
Then you whine about cheaper corn doesn’t help them when they have to build sea walls. Well Jimmy, you have missed the point entirely. It costs 10 times or more to not have to build sea walls as it does to build them, and that is on the assumption that spending the money to not have to build them can possibly work in the first place.
If the reason sea walls might be needed is due to the land sinking then it’s rather unlikely that geo-engineering to alter the composition of the atmosphere would be in any way useful. Even if this geo-engineering actually “worked”.
Indeed even if the “worst case” AGW claims for sea levels were true buliding sea walls still might be the easiest and cheapest thing to do.
Climate Ace says:
January 12, 2013 at 10:11 pm
mpainter
“4) the impact on food availability caused by chemical changes in the oceans, for example, the possible collapse of Southern Ocean fisheries based on pterapods”
You seem to be obsessive about ‘acidification’. BAU boosters love to hate the term so I don’t use it.
I was referring to the changes in ocean chemistry arising from rising concentrations of atmospheric CO2
——————————————–
ok, Climate Ace what do you call changes in ocean chemistry arising from rising concentrations of atmospheric CO2?
Climate Ace says:
January 12, 2013 at 5:35 pm
…Who said anything about acidification? Not me. Stop pretending that I did…..
Explaining us what you understand under changes in ocean chemistry arising from rising concentrations of atmospheric CO2, would help us avoid to misunderstand it as ocean acidification?
You have snowed the thread with a lot of posts but no one of those contains a single scientific reference to support you.
trafamadore says:
January 12, 2013 at 8:36 pm
davidmhoffer says: “I provided you a link to an article discussing a peer reviewed paper recently published in Nature.”
Right. Does the paper say that droughts cant be caused by AGW? No. It says there is no conclusive evidence that that droughts are caused by AGW but there could be. That means we dont know. Which is what I said.
>>>>>>>>>>>>>>>>>>>>>>>>>
You are confusing science with spin. The science part of the paper is quite clear, no evidence. Then the author allows that even though there is no evidence, it is possible. Well, there is no evidence that the sun will explode tomorrow, that we’ll be invaded by aliens, that we’ll be hit by an asteroid… but it is possible. Sure, but is it likely. According to the science, these things are highly unlikely which is why we don’t spend any of our resources trying to prepare for them. Our resources are limited, there are only so many possibilities that we can prepare for. Which ones should we choose to prepare for? The ones the science can find not evidence for? Don’t be daft.
some further thoughts …
Not just should the benefits of CO2 be weighted against the costs, but the costs of mitigating CO2 should equally weigh in the argument. There is cost/benefit both in DOING something and in NOT DOING something.
And to add to the futility of trying to monetize either, the $300 billion benefit in increased plant growth itself has related costs. Plants can’t increase growth with CO2 alone. Increasing growth also increases the uptake in nutrients and water, changing the rate or balance of soil depletion and otherwise available water. How should this impact be monetized?
Climate Ace;
Which ‘entire premise’? That effective monetisation requires a time frame and needs to integrate climate thresholds and the non linear nature of climate? You have not demolished the premise. You have reinforced it.
>>>>>>>>>>>>>
Uhm no. I pointed out that the threshold examples you provided are not relevant in the modern context and I pointed out that the non-linear nature of climate dictates that temps fluctuate within a very narrow range and hence are also not relevant to your argument.
davidmhoffer says:
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
It’s perfectly possible that you need a sea wall after spending that $100,000,000 e.g. because the sea level “rise” was nothing to do with CAGW; the anti-CAGW didn’t work or CAGW supporting bankers and politicans just took the money for their own ends.
http://www.omafra.gov.on.ca/english/crops/facts/00-077.htm
extract
Natural air exchange
Leaks in the greenhouse allow a continuous infiltration of outside air, which contains only 340 ppm CO2. An average value for infiltration in a glass house would be one air change per hour. To compensate for this dilution, approximately 0.37 kg CO2/100 m2 must be added to maintain the desired level of 1,300 ppm CO2.
davidmhoffer says: “You are confusing science with spin. The science part of the paper is quite clear, no evidence. Then the author allows that even though there is no evidence, it is possible.”
And me thinks you confusing the results with the discussion.
In a paper, the results section is fact, the discussion is opinion. Never believe the discussion, or at least view with skepticism.
I find it interesting that many of love to use science to support your cases when you can, but seem to ignore it when it shows the earths temp is going up. Sort of an interesting kind of color blindness.
Climate Ace said @ur momisugly January 13, 2013 at 12:44 am
At the Organic Farming Conference in Adelaide in 1990, I met a researcher who had radioactively labelled phosphorus to determine P uptake of wheat in the Mallee. He said that the wheat plants were exploiting P from 2 metres deep in the soil, not just the top 100 mm convention says plants exploit. Further, he had calculated that this notoriously phosphorus deficient soil had sufficient P reserves to allow more than a thousand years of wheat cropping. Presumably, CO2 stimulating more extensive root development in plants allows those plants to exploit a greater volume of soil. There’s far more to plant nutrition than merely what comes from the fertiliser bag.
On another note, perhaps King Cnut should have built a sea wall to protect the port Rutupiæ. The island of Ennor had been inundated by sea level rise and in Cnut’s day had become what we now call the Scilly Isles and mitigation is so much less expensive than adaptation. Rutupiæ is now several miles inland from the sea. [/sarc]
tralamadore says: January 13, 2013 at 9:42 am
it shows the earths temp is going up.
===================================
talk about ignoring the data, you do so chronically. The temperature trend has been flat for the last sixteen years.
This thread is well threadjacked,
Has the Zero aka ace offered a single link to scientific evidence in his jolly handwaving distraction tour through this posting?
Only link I followed was to an opinion piece in a small time news paper.
Some trolls are savagely funny, others stunningly obtuse but the Ace is neither, its tag will have to change before I bother reading it again.
I demand a better class of troll.
Come on Ace, up your game.
The greens have stated that increased CO2 is putting off the start of the next ice age, scheduled to start right about now.
An ice age would kil billions of people on this planet due to the shutting down of huge areas of farmland, not to mention the following wars over the remainder and the wars of desperate migrations.
So, as a social benefit, a huge chunk of the worlds wealth and lives.
I should be paid to drive my car!
About the difference between mitigation and building a seawall, there is one wee little problem.
We don’t need a seawall.
The carbon dioxide has increased.
There has been no detectable increase in the extremly slow rise of sea level for the last several thousand years of 9 inches or less per century seen (actually SEEN, actual data, not fictional computer models).
For global warming to be true, there MUST be an increase in the rate of sea level rise.
There is NOT (the model has been falsified).
Conclusion, we do not need that seawall.
Reset it’s cost to ZERO.
And the mitigation costs you stated are huegly underestimated, by orders of magnitude.
Reduce the worlds population down to 500 million, a problem:
Who stays?
Who goes?
Who decides?
What if those who are told “you have to go” decide they do not wish to?
And if you really believe that the worlds population should be smaller, what are you still doing here? Practice what you preach.
9:50AM Sydney 19C, both Melbourne and Adelaide 16C, Canberra 13C a very warm Australian global warming summers day so far!
“I see that the New York Times (NYT) is going to close their environmental desk. Given that there still are actual environmental problems on the planet, I consider the closing as a sad commentary on the hijacking of the environmental movement by carbon alarmists. CO2 alarmism has done huge damage to the environmental movement, and thus to the environment itself.”
Bingo. Give that man a Cigar.
Climate Ace says:
January 13, 2013 at 12:58 am
….The monetizing CO2 idea is excellent. Using CO2 to replace the USD for settlement of US govt accounts would overcome the debt ceiling/defecit problem. Being an invisible gas would conceal the fact that the emperor has no clothes. Is the gas bag half empty or half full?
I am most excellently glad that I live in Australia and not the USA. We have a carbon pricing mechanism and practically all useful economic indicators show that our economy is in a much better state of health than that of the USA. (Even the dopey Opposition whose leader has said ‘Climate Science is Crap’ has a policy of doing something positive about CO2 emissions.)
Compared to the US, we have lower unemployment, lower inflation, higher growth rate, lower debt to GDP ratio, higher international ratings agencies ratings, etc, etc, etc. Home borrowers do not have negative equity in their houses here and the Aussie dollar has been above parity with the US dollar for some time. And it is mostly safe to go out for a walk at night.
Climate Ace, you are monetising on the past. Like climate, the economy has a certain inertia, it does not react immediately to drivers.
What you had until now was cheap energy based on coal. You have to face the facts:
https://en.wikipedia.org/wiki/Energy_in_Australia
What is the existing current base of the Australian economy that you are so happy & proud about?
The carbon tax was introduced shortly. If it stays at least 2-3 years you’ll see the results. In 10 years this can be better quantified. The energy production base should be at least 5 to 10 years in advance to the rest of the economy. You got it? If this is not the case disruptions may occur, and disruption means huge loses in industry.
For the current economy state you should thank to those who were setting up the rules several years ago and the good entrepreneurs who did the hard work. But they need a functioning environment for this.
If the economy would be based on renewables not on coal, then you could put that as an example for carbon tax. For the future it is interesting to see what wikipedia says:
“Electricity shortage in the near future
The electricity producers in Australia are not building gas-fired power stations to meet future demand,[15] while the 4 major banks are not willing to give loans to build dirty coal power stations,[16] therefore power cuts are predicted in Queensland in 2013-14 and NSW, Victoria from 2015-16.[17]”
Does this help you start a thinking process?
I am no australian, so all this is not directly relevant to me, but as Jo says on her site:
“…hate to see a good civilisation going to waste”
http://joannenova.com.au/
Lars P. says:
January 14, 2013 at 1:26 am
Climate Ace says:
January 13, 2013 at 12:58 am
….The monetizing CO2 idea is excellent. Using CO2 to replace the USD for settlement of US govt accounts would overcome the debt ceiling/defecit problem. Being an invisible gas would conceal the fact that the emperor has no clothes. Is the gas bag half empty or half full?
I am most excellently glad that I live in Australia and not the USA. We have a carbon pricing mechanism and practically all useful economic indicators show that our economy is in a much better state of health than that of the USA. (Even the dopey Opposition whose leader has said ‘Climate Science is Crap’ has a policy of doing something positive about CO2 emissions.)
Compared to the US, we have lower unemployment, lower inflation, higher growth rate, lower debt to GDP ratio, higher international ratings agencies ratings, etc, etc, etc. Home borrowers do not have negative equity in their houses here and the Aussie dollar has been above parity with the US dollar for some time. And it is mostly safe to go out for a walk at night.
Climate Ace, you are monetising on the past. Like climate, the economy has a certain inertia, it does not react immediately to drivers.
What you had until now was cheap energy based on coal. You have to face the facts:
https://en.wikipedia.org/wiki/Energy_in_Australia
What is the existing current base of the Australian economy that you are so happy & proud about?
The carbon tax was introduced shortly. If it stays at least 2-3 years you’ll see the results. In 10 years this can be better quantified. The energy production base should be at least 5 to 10 years in advance to the rest of the economy. You got it? If this is not the case disruptions may occur, and disruption means huge loses in industry.
For the current economy state you should thank to those who were setting up the rules several years ago and the good entrepreneurs who did the hard work. But they need a functioning environment for this.
If the economy would be based on renewables not on coal, then you could put that as an example for carbon tax. For the future it is interesting to see what wikipedia says:
“Electricity shortage in the near future
The electricity producers in Australia are not building gas-fired power stations to meet future demand,[15] while the 4 major banks are not willing to give loans to build dirty coal power stations,[16] therefore power cuts are predicted in Queensland in 2013-14 and NSW, Victoria from 2015-16.[17]”
Does this help you start a thinking process?
I am no australian, so all this is not directly relevant to me, but as Jo says on her site:
“…hate to see a good civilisation going to waste”
http://joannenova.com.au/
You may well be right but I would be a bit skeptical about it because you have ascribed to me the post of another person.
The Pompous Git says:
January 13, 2013 at 10:24 am
Climate Ace said @ur momisugly January 13, 2013 at 12:44 am
To underdstand them you have to get down and dirty with reality. The figures quoted in this study, inter alia, depend on the continued availability of phosphorous as an input. Over the course of the next century, this is questionable at best.
At the Organic Farming Conference in Adelaide in 1990, I met a researcher who had radioactively labelled phosphorus to determine P uptake of wheat in the Mallee. He said that the wheat plants were exploiting P from 2 metres deep in the soil, not just the top 100 mm convention says plants exploit. Further, he had calculated that this notoriously phosphorus deficient soil had sufficient P reserves to allow more than a thousand years of wheat cropping. Presumably, CO2 stimulating more extensive root development in plants allows those plants to exploit a greater volume of soil. There’s far more to plant nutrition than merely what comes from the fertiliser bag.
On another note, perhaps King Cnut should have built a sea wall to protect the port Rutupiæ. The island of Ennor had been inundated by sea level rise and in Cnut’s day had become what we now call the Scilly Isles and mitigation is so much less expensive than adaptation. Rutupiæ is now several miles inland from the sea.
Poor old Cnut. He took his entourage down to the beach to show that he could not stop the tide and all sorts of folk have been misrepresenting him every since. This is especially clear when you realize that BAU boosters based their philosophy on hunamity’s complete mastery over nature. You know what I mean. You can see why it pays to be skeptical about BAU booster assertions.
The bottom line is that phosphorous is a critical limiting element for plant growth and that phosphorous, not atmospheric CO2 concentrations, is going to be why we are heading for something of an interesting time.
Plants just have to have it. I am sure that as phosphorous becomes scarcer and more expensive, all sorts of GMO, cropping and nanotechnologies will be brought to bear. I hope so. But that will only slow down what every single farmer in the developed world knows: they need to add phosphorous to keep productivity high. What they may not know is that phosphorous deposits take a long, long time to build up. And once they are used up, that is it.
We are talking a century? Maybe two? Meanwhile, I advise you to stay skeptical.
BTW, as for sea walls, any investment horizon ought to be centuries. I am skeptical of folk who think that that are erecting a seawall and can then walk away from it. Every single seawall will have to be broadened and heightened as sea levels rise and the maintenance costs will not increase in a linear fashion. That is a dirty little secret that the adaptationists will not talk about. It pays to be skeptical of them.
Reblogged this on gottadobetterthanthis and commented:
Here is a quick calculation you can check yourself, indicating the benefits of CO2 outweigh the even exagerated costs presumed by alarmists.