Comprehensive evidence implies a higher social cost of CO2 is a recent article in Nature which claims to calculate how much worse off humans will be for each additional ton of CO2 released. The costs are summed over a period of almost three hundred years, from now to 2300. As best I can estimate from Extended Data Figure 2, about two thirds of their social cost of carbon is incurred after 2100.
This raises serious problems. To begin with, CO2 output as a function of GNP depends on the technology for producing power. An order of magnitude reduction in the cost of either nuclear power or storage would almost entirely eliminate the use of fossil fuels, as would the development of cheap fusion power, either of which could happen in the next fifty years. That makes any estimate of CO2 output over the next three centuries a guess about unknowable technological change.
Almost all of the article’s estimated cost of carbon is from either increased mortality or reduced agricultural output. Mortality from increased temperature depends on medical technology, home insulation and cooling technology, and probably other technologies. Agricultural yields depend on agricultural technologies. We have no way of predicting those effects.
This is from David Friedman, “Inflating the Cost of Carbon,” Ideas, November 20, 2022.
Another excerpt:
How does the article deal with technological change? As best I could tell, it ignores it. It is predicting the effect of temperature changes on mortality over the next three centuries on the assumption that they will be dealt with using the medical technology of today, and similarly for other relevant technologies. It is predicting the effect of climate change on agriculture with the same assumption.
Read the whole thing. One gets the sense that the multiple authors did not include economists. But that’s false. Three economists were involved. Moreover they’re from Ivy League schools: Ulrich K. Muller and Mark Watson from Princeton and James H. Stock from Harvard. Very disappointing to see economists project out more than a century. It’s the ultimate in the fatal conceit.
Moreover, while it’s easy to establish that the most-efficient way to reduce carbon is with a carbon tax, it’s much harder to establish that a carbon tax is the most-efficient way to deal with global warming. David mentions technology. What if a technology comes along that either allows us to adapt to global warming at low cost or allows us to reduce global warming without cutting fossil-fuel use? The implicit assumption behind the Nature study is that there will be no such technology in the next 200 years. I wish I would be around to make a bet.
READER COMMENTS
Pierre Lemieux
Nov 21 2022 at 12:01pm
David: Thanks for bringing the other David’s article to our attention. Reflecting on the economists involved in the Nature article, one is tempted to think that the number of economists ignoring basic economics (including health economists) has been increasing. But then, I think of Rexford Guy Tugwell (or, for that matter, John Kenneth Galbraith). Expressing his planning ideal in 1932, Tugwell wrote:
BC
Nov 21 2022 at 1:07pm
“How does the article deal with technological change? As best I could tell, it ignores it.”
To be fair, many of the authors might favor the types of interventions and regulatory regimes that are likely to stifle such technological change…
Monte
Nov 21 2022 at 3:19pm
Agreed. The damage functions based on the Greenhouse Gas Impact Value Estimator (GIVE) model don’t appear to account for the potential mitigating factors of technology. These types of extreme estimates are beneficial, however, in that they garner more publicity and tend to catalyze efforts to develop that technology. Some on this forum may be familiar with the Earth 2050 website, a compendium of forecasts and predictions by famous futurists, researchers, artists, and scientists. One of the more intriguing on climate change:
2030: With the reduction of global ice, Antartica reveals a wealth of untapped resources. United Nations (UN) claim governance over the continent and start utilizing these resources. 2040: With the devastation caused by global warming, there is little alternative but to abandon fossil fuel options to leave Earth’s orbit. Earths dwindling resources are channeled into the construction of The International Space Elevator (ISE). 2050: With the final construction of the ISE over the southern pole of UN Antartica, efficient (fossil-fuel free) space access is achieved. Not only does the ISE revolutionize efficient non-fossil fuel space travel, it can be used to expel the unwanted greenhouse gases into space. Ultimately allowing humans to readjust earth’s greenhouse gases to safe levels, reversing the effects of climate change.
You may be, at least digitally. From the same website:
I’m sure you remember the famous Ehrlich/Simon wager. I wouldn’t bet against you.
john hare
Nov 21 2022 at 6:08pm
It amuses me when people forecast out centuries of limited change. While ignoring the previous centuries of change. A century ago is so different from today. And two centuries ago is a totally different civilization, uniformly impoverished by current standards.
Thomas Lee Hutcheson
Nov 21 2022 at 7:56pm
But of course the trajectory of the tax on net CO2 emission depends on future technology of zero and negative net emissions energy production and use, which in turn depends on the tax on net CO2 emissions. And it also depends on future technology for mitigation, like GMOs to adapt crops to climate change. Perhaps your model yields a starting value of the tax on new CO2 emissions at zero, but you should not be surprised if not everyone agrees with you.
Knut P. Heen
Nov 22 2022 at 10:09am
There are significant methodological issues with CBAs over periods longer than a generation because you have to account for distribution effects between generations. I would have been much richer if my grandparents worked harder and saved more. Does that imply that my grandparents should have worked harder and saved more? No. It is incorrect to claim that a 2022-dollar is worth the same to me as to my grandparents. It is worth far less to me than to my grandparents because we are richer today. Wealth effects between generations far apart can simply not be ignored.
Moreover, discounting these costs with a risk-free rate of 2 percent when the 95 percent confidence interval of the cost is $44-$413 says more about the authors understanding of the economics of uncertainty than it says about the cost of emissions. You cannot pretend that $185 is a risk-free number when you report a wide confidence interval for that particular number. Since we are talking about costs of destruction, it is likely that the costs will be heavily correlated with the state of the economy in the future. The return of the stock market is a more appropriate discount rate, a nominal rate of 8-10 percent.
The idea behind discounting is that you can invest $100 in the stock market today and it will grow to $219,976 in 100 years (with an expected return of 8 percent per year). Hence, a future cost of $219,976 in 2122, costs only $100 today if you actually bother to make the investment.
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