I was going to write about Earth Hour once more, and for the last time, when I realised that it seemed to have passed its use-by date, for it seemed to have been almost unnoticed. There was no sign of it in Hobart, where I was on the hallowed night, and I couldn’t find out much about its effects in Canberra, where I have been for past Earth Hours. Earth Day passed too, without much fuss. So I have gone on to a subject I have been playing with for some years now, which is caught up in the phrase, ‘the Social Cost of Carbon’.
There is a paper with this title, but it is American, the work of the Environmental Protection Agency (EPA), and it underpins all sorts of ‘climate’ regulations in the USA (and Canada). No matter, it has cousins in the Stern (UK) and Garnaut (Australia) Review Reports, since all of them take for granted some aspects of the science surrounding the study of climate, make assumptions about the future, and then tell us that bad things, really bad things, will happen if we don’t mend our ways, because their models say so. The phrase ‘the social cost of carbon’ tells you something at the beginning. First, it is not actually about carbon but about carbon dioxide, and the scientists in the Environmental Protection Agency, who wrote the paper, must know this. But for some unexplained reason, the slip to ‘carbon’ occurred, as it did in Australia when Senator Penny Wong, then the responsible Minister, was fond of talking about ‘carbon pollution’. My feeling is that the use of carbon was intended to demonise coal, but I may be wrong.
Second, if you are going to talk about ‘costs’ in the context of government, you normally talk about ‘benefits’ as well, and compare the costs with the benefits. This paper simply ignores any benefits, or if it mentions them at all, belittles them or glides over the issue. Here is a little of the introduction: EPA and other federal agencies use estimates of the social cost of carbon (SC-CO2) to value the climate impacts of rulemakings. The SC-CO2 is a measure, in dollars, of the long-term damage done by a ton of carbon dioxide (CO2) emissions in a given year. This dollar figure also represents the value of damages avoided for a small emission reduction (i.e., the benefit of a CO2 reduction). The SC-CO2 is meant to be a comprehensive estimate of climate change damages and includes changes in net agricultural productivity, human health, property damages from increased flood risk, and changes in energy system costs, such as reduced costs for heating and increased costs for air conditioning.
No benefits at all? Here’s Ross McKitrick, at the beginning of an impassioned diatribe against Earth Hour, which I’ve used before. I abhor Earth Hour. Abundant, cheap electricity has been the greatest source of human liberation in the 20th century. Every material social advance in the 20th century depended on the proliferation of inexpensive and reliable electricity. Giving women the freedom to work outside the home depended on the availability of electrical appliances that free up time from domestic chores. Getting children out of menial labour and into schools depended on the same thing, as well as the ability to provide safe indoor lighting for reading.
Development and provision of modern health care without electricity is absolutely impossible. The expansion of our food supply, and the promotion of hygiene and nutrition, depended on being able to irrigate fields, cook and refrigerate foods, and have a steady indoor supply of hot water. Many of the world’s poor suffer brutal environmental conditions in their own homes because of the necessity of cooking over indoor fires that burn twigs and dung. This causes local deforestation and the proliferation of smoke- and parasite-related lung diseases. Anyone who wants to see local conditions improve in the third world should realize the importance of access to cheap electricity from fossil-fuel based power generating stations. After all, that’s how the west developed.
And more of the same. I wrote about the Powerhouse Museum in Streaky Bay, South Australia a few years ago, and you could see there the machines, now forgotten, that did the work that flicking an electricity switch with now does for us. But how do we know what these social costs are, never mind about the benefits? If you go to the EPA website you will be sent off to a series of papers, most of them technical. I found a more useful summary in a British effort, the work of CarbonBrief, which is solidly in support of the orthodoxy. The Q&A it provides is accessible to the ordinary reader.
Since it is a summary of the American position, it provides the same sort of introduction:
Scientists expect climate change to have increasingly negative consequences for society, from rising sea levels to more frequent heatwaves. There is broad agreementthat initial, modest benefits – for instance, increased yields for some crops in some regions – will be outweighed by costs as temperatures rise. Even those who see climate change as a relatively minor problem agree that damages will exceed benefits above 1.1C of warming. Moreover, the world is already experiencing record-hot temperatures around 1C above pre-industrial levels. So how much should we be willing to pay to avert future climate damages?
A dispassionate reader will see some large claims here, and some inaccuracies as well, and reading further offers some heroic (or perhaps diabolical) assumptions: there is such a thing as carbon sensitivity, and it is high; climate change is a case of market failure: carbon dioxide persists in the atmosphere for thousands of years, and so on.
We jump then to integrated assessment models (IAMs), which are blended scientific and econometric models. They try to answer questions like these:
- First, there are socioeconomic projections: How many people will be alive in 2150? How fast will the economy grow next century? How much CO2 will humans emit?
- Second, there is a “climate module”: How will the climate change in response to CO2 emissions? How quickly will sea levels or temperatures increase? What about rainfall patterns and extreme weather events?
- Third is benefits and damages: How will climate change affect crop yields? What is the cost of living with, or adapting to sea level rise? How do increased temperatures affect labour productivity or energy use for heating and cooling? How can we value non-market impacts, such as loss of species and habitats?
- Finally, the fourth element uses discounting to value future benefits and costs in today’s money. Future damages tend to dominate SCC estimates, because CO2 persists in the atmosphere for thousands of years and damages increase as temperatures rise. As a result, discounting has a big impact, see below for more.
‘Each of the four elements in the models,’ the Q&A continues, ‘is uncertain and incomplete’. You can say that again. As fas as I can see, the models use the worst-case possibilities that flow from IPCC reports, no matter what the evidence says.
Just think about the assumptions piled on assumptions that would provide the ‘data’ for these models. There are three models, DICE, FUND and PAGE, and they don’t provide the same outcomes.How could they? There are so many possible measures you could invoke, and you are talking about the future, for which we have no real data at all.
After trying to guess at population, GDP, technological status, health and all the rest, the most difficult aspect of all this for me is the discount rate, which is how we might value costs today and benefits in future. And there are a couple of ways of doing this. You could use ‘social time preference’ — how important to you is $70 now compared with $100 in ten years’ time? Another is ‘social opportunity cost’. The orthodox will tell you that investing now in, say, renewable energy means less global warming in future. A third is the ethical perspective, which suggests that we are responsible for the problem (setting aside whether we really have one, or whether the proposed cures would actually work, or whether anyone in government anywhere is really serious about doing so).
Then you pick a discount rate. The higher the discount rate the more you are valuing those alive today compared with future generations. Since my own guess is that future generations will know a lot more than we do, I am prepared to leave some of these problems to them. So if I had to, I would choose a high discount rate. The Stern Review chose one of 1.4 per cent.
The more I read of this stuff the more puzzled I become. The very notion that we have models that can tell us how things will be in a hundred years, based on what we know today, seems preposterous to me. But governments instituted reviews that provided these models and the policies said to flow from them. Looking back, all that activity seems set in the context of the rapid rise in warming from 1975 to 1998, and the graph that showed carbon dioxide accumulations rising at exactly the same rate. That simultaneity stopped after 2000, but the Stern and Garnaut reviews are a product of that earlier time. Nearly two decades later we can see that nothing has happened of any consequence other than the earth has become greener and food more readily available. I still await the clear sign of anything bad that can be shown to be caused by increased carbon dioxide levels.
President Trump may well tell the EPA that he is not going to take any notice of the Social Cost of Carbon, and indeed he is acting as though that is the case. As far as I am concerned, more power to his elbow.