Inter-temporal investment appraisal of the Sanders/Boxer carbon tax bill
by Christopher Monckton of Brenchley
Standard climatological and economic techniques, combined in an investment appraisal of the proposed Sanders/Boxer carbon dioxide tax (U.S. Senate, 2013), show that even at a zero inter-temporal discount rate the cost of the Bill’s proposed CO2 mitigation if applied worldwide over ten years is 15 times greater than the benefit in the cost of warming-related damage avoided by the intended cut in CO2 emissions, which is here assumed to be – but is in reality unlikely to be – achievable at the stated cost.
Fraction of global CO2 emissions abated: By 2023, on business as usual, U.S. CO2 emissions will be 5589 Tg CO2, 8.5% down (EIA, 2013) on the 6108 Tg CO2 (EPA, 2012) emitted in 2005. En route to Sanders/Boxer’s proposed 2025 cut of 20% compared with 2005, the cut in 2023 will be 18.5% against 2005, or an additional 10% or 611 Tg CO2, representing a cut of 10.9% in 2023 against business as usual. Since U.S. CO2 emissions represent 17% of world emissions (derived from Boden & Marland, 2010 and Boden, 2010), even if the tax succeeds as intended it will abate just 10.9% of 17%, or a mere 1.9%, of global CO2 emissions.
CO2 concentration abated: Without the carbon dioxide tax, CO2 concentration in 2023 would be 422 μatm (IPCC, 2007, Table 10.26) against 397 μatm in 2013 (updated from Conway & Tans, 2011). If the tax worked as intended, CO2 concentration in 2023 would be 422 minus 1.9% of (422 – 397), or 421.522 μatm.
CO2 forcing abated (IPCC, 2007; Myhre, 1998), would be 5.35 ln(422/421.522), or 0.006 W m–2.
A suitable climate sensitivity parameter is multiplied by the CO2 forcing to determine warming over the ten-year term. Garnaut (2008) is one of many who recommend keeping greenhouse-gas rises to 450 ppmv CO2-equivalent above the 280 ppmv prevalent in 1750, to hold 21st-century warming since then to below 2 K. So the implicit climate sensitivity parameter is 2 K / {5.35 ln[(280 + 450)/280] W m–2}, or 0.39 K W–1 m2.
Global warming abated by the tax from 2014-2023 would be 0.39(0.006) = 0.00237 K.
Projected warming over the term: CO2 forcing represents 70% of all manmade forcing (IPCC, 2001, 2007). Thus, warming officially projected for the ten-year term is 0.39[5.35 ln(422/397)] / 0.7 = 0.182 K.
The percentage of projected global warming abated over the ten-year term is 0.00237/0.182 = 1.3%.
The cost of abating global warming via the U.S. carbon tax over ten years is given as $1.2 trillion.
The mitigation cost-effectiveness of the tax, i.e. the cost of abating 1 K global warming by worldwide measures as cost-effective as the tax, is $1.2 trillion / 0.00237, or $507 trillion per Kelvin abated. The cost of abating the 3 K warming predicted by the IPCC to 2100 would exceed $1.5 quadrillion.
Global abatement cost: The cash cost of abating this projected 0.182 K warming over the term, again by measures as cost-effective as the tax, is 0.182 x $507 trillion, or $92 trillion, which, divided by the global population of 7 billion, is $13,200 per head, or, divided by $803 trillion global GDP over the ten-year term (from World Bank, 2011 assuming 3% annual GDP growth from $66 trillion in 2013), 11.5% of global GDP.
Benefit in averted warming-related damage cost: Stern (2006, p. vi), estimates that the cost of abating the 3 K 21st-century global warming expected by the IPCC will be 1.5[0, 3]% of 21st-century global GDP.
The cost-benefit ratio is 11.5/1.5 = 7.7. Accordingly, based on the optimistic assumption that $1.2 trillion will buy as much CO2 mitigation in the U.S. as Sanders/Boxer assume, and taking a zero discount rate, which maximally favors future generations, it is almost 8 times costlier to mitigate CO2 emissions by typical abatement measures such as the Sanders/Boxer carbon tax than to take no action at all and to endure the later cost of climate-related damage arising from the resultant warming.
The bottom line is that if global warming of 0.14 K/decade in the 22 years since 1990 (the least-squares trend on the monthly temperature anomalies in HadCRUt3gl, 2011) continues at half of the 3 Cº central estimate in IPCC (1990), so that only half the benefit in damage costs averted is achievable, CO2 mitigation today will be at least 15 times costlier than adaptation the day after tomorrow.
Conclusion: More complex analysis would be unlikely to change the outcome sufficiently to render the U.S. carbon tax, or any policy to mitigate CO2 emissions, at all cost-effective. Removal of some of the simplifying assumptions would tend to worsen the cost-benefit ratio still further, for most of them lead to understatement of it. Results from other case studies broadly confirm the outcome in the Sanders/Boxer case. Therefore, future adaptation where needed is sensible, but present-day mitigation is unjustifiable. Congress should reject the Bill, which would reduce the current $2 trillion U.S. annual deficit by only $30 billion, or just 1.5%.
References
Boden and Marland, 2010a. Global CO2 Emissions from Fossil-Fuel Burning, Cement Manufacture, and Gas Flaring, 1751-2007. Carbon Dioxide Information and Analysis Center, Oak Ridge, Tennessee, USA. Boden et al., 2010b. Ranking of the world's countries by 2007 total CO2 emissions from fossil-fuel burning, cement production, and gas flaring. Carbon Dioxide Information and Analysis Center, Oak Ridge, Tennessee, USA.
Conway, T., & P. Tans, 2011, Recent trends in globally-averaged CO2 concentration, NOAA/ESRL, http://www.esrl.noaa.gov/gmd/ccgg/trends/global.html#global.
Energy Information Administration (EIA), 2013, Annual Energy Outlook 2013, from Annual Energy Outlooks 2009-2013. Environment Protection Agency (EPA), 2012, Inventory of U.S. Greenhouse Gas Emissions and Sinks, 1990-2010 (Washington, DC, 2012 April).
Garnaut, 2008. The Garnaut Climate Change Review: Final Report. Cambridge University Press, Port Melbourne, Australia, 680 pp, ISBN 9780521744447.
HadCRUt3gl, 2011. Monthly global mean surface temperature anomalies, 1850-2011. http://www.cru.uea.ac.uk/cru/data/temperature/hadcrut3gl.txt.
IPCC, 2001. Climate Change 2001: The Scientific Basis: Contribution of Working Group I to the Third Assessment Report of the Intergovernmental Panel on Climate Change [Houghton, J.T., Y. Ding, D.J. Griggs, M. Noguer, P.J. van der Linden, X. Dai, K. Maskell and C.A. Johnson (eds.)]. Cambridge University Press, Cambridge, United Kingdom, and New York, NY, USA.
IPCC, 2007. Climate Change 2007: the Physical Science Basis. Contribution of Working Group I to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, 2007 [Solomon, S., D. Qin, M. Manning, Z. Chen, M. Marquis, K.B. Avery, M. Tignor and H.L. Miller (eds.)]. Cambridge University Press, Cambridge, United Kingdom, and New York, NY, USA.
Murphy, 2008. Some Simple Economics of Climate Changes. Paper presented to the MPS General Meeting, Tokyo, September 8.
Myhre et al., 1998. New estimates of radiative forcing due to well mixed greenhouse gases. Geophysical Research Letters 25:14, 2715–2718, doi:10.1029/98GL01908.
Stern, N., 2006, The Economics of Climate Change: The Stern Review. Cambridge University Press, Cambridge, United Kingdom, and New York, NY, USA.
U.S. Senate, 2013, Sanders/Boxer Climate Legislation, www.sanders.senate.gov/imo/media/doc/021413-2pager.pdf.
World Bank, 2011. Gross Domestic Product 2009, World Development Indicators. http://siteresources.worldbank.org/DATASTATISTICS/Resources/GDP.pdf.
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Numerobis, methinks you are understood better than you understand your own rhetoric. Best to cut and run.
Numerobis
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Crispin wrote :
100% of that tax money comes from customers. No company is going to ‘find’ trillions of $$ in their back pocket to hand over. They will be forced to charge more for their products, raising the cost of absolutely everything by exactly the amount of the carbon tax, plus the additional (and totally unproductive) fees paid to banks and the carbon traders
This is perfectly correct. What is hard to understand there ?
A carbon tax is just inflation and there is no benefit in inflation. Inflation destroys savings and purchasing power. It drives the amount of money in circulation up.
I suspect that you are both scientifically and economically illiterate.
Don’t you see that the carbon tax is a ZERO sum game?
If the state ressources increase by 10% because of the carbon tax AND at the same time the prices of bridges increase by the same 10% because of the same carbon tax, it is obvious that the state will not build MORE bridges.
It only means that the value of the money will decrease by 10% because the state will have to print 10% of money more.
Unfortunately a normal citizen has not that privilege.
There are taxes based on goods’ and services’ production and taxes based on savings and individual earnings. The latter are “redistribution” and are generally considered as a necessary evil provided that they stay modest. However the former are just inflation drivers making EVERYBODY poorer.
So when on top of that one notices that the benefit/cost ratio is 1/14 one would have to be an utter moron to see anything positive in it.
“This is perfectly correct. What is hard to understand there”
What’s hard to understand is that it is a restatement of my first paragraph, but given as if it was in opposition to what I wrote. It’s hard to argue when you take my words to mean the opposite of what I meant them to mean, then say that I’m the illiterate one.
Here’s a third attempt at my claim: (1) Taxes are a drain on everybody. (2) Government uses money to do things that have value. (3) If you are going to do a cost-benefit analysis, and you take the revenue as a cost, then you have to account for the benefits paid for by the revenue. Alternately, you can ignore the benefits paid for by the revenue and compute just the cost incurred by companies trying to avoid paying this tax.
I thought I’d argued all that clearly before, but twice I’ve gotten point (1) thrown into my face with a claim that I’m some form of idiot since clearly taxes are a drain on everybody. Crispin seems to go one step further and claim that bridges and police in fact have zero value.
Crispin in Waterloo says @ur momisugly 7:54 pm:
“The ultimate cost of goods is the cost of energy.”
What a wonderful, prescient post! Crispin knows what’s going on.
~ D.B. Stealey [aka: Smokey]
Lord Monckton,
Is there a mistake in this: ”
I think Garnaut and others are saying atmospheric CO2-e concentration must be kept below 450 ppm, not 450+280 ppm.
I haven’t read the comments on this thread so this may have already been asked by someone else.
By the way, using Australian Treasury figures, I estimate the Australian CO2 tax and ETS will cost at least $10 for every $1 of projected savings: http://jennifermarohasy.com/2012/06/what-the-carbon-tax-and-ets-will-really-cost-peter-lang/. However, the projected savings are unlikely to be achieved – they depend on the whole world participating in a global carbon pricing system.