Sunday, February 17, 2019

Climate Damages:  Uncertain but Ominous, or $51 per Ton?

EPA Logo (Credit: EPA) Click to Enlarge.
According to scientists, climate damages are deeply uncertain, but could be ominously large (see the previous post).  Alternatively, according to the best-known economic calculation, lifetime damages caused by emissions in 2020 will be worth $51 per metric ton of carbon dioxide, in 2018 prices.

These two views can’t both be right.  This post explains where the $51 estimate comes from, why it’s not reliable, and the meaning for climate policy of the deep uncertainty about the value of damages.
How much can we afford?
As explained in the previous post in this series, deep uncertainty about the magnitude and timing of risks stymies the use of cost-benefit analysis for climate policy.  Rather, policy should be set in an insurance-like framework, focused on credible worst-case losses rather than most likely outcomes.  Given the magnitude of the global problem, this means “self-insurance” – investing in measures that make worst cases less likely.

How much does climate “self-insurance” – greenhouse gas emission reduction – cost? 
Several early (2008 to 2010) studies of rapid decarbonization, pushing the envelope of what was technically feasible at the time, came up with mid-century carbon prices of roughly $150 – $500 per ton of carbon dioxide abated.[1]  Since then, renewable energy has experienced rapid progress and declining prices, undoubtedly lowering the carbon price on a maximum feasible reduction scenario.

Even at $150 to $500 per ton, the cost of abatement was comparable to or lower than many of the worst-case estimates of the SCC, or climate damages per ton.  In short, we already know that doing everything on the least-cost emission reduction path will cost less, per ton of carbon dioxide, than worst-case climate damages.

That’s it:  end of economic story about evaluating climate policy.  We don’t need more exact, accurate SCC estimates; they will not be forthcoming in time to shape policy, due to the uncertainties involved.  Since estimated worst-case damages are rising over time, while abatement costs (such as the costs of renewables) are falling, the balance is tipping farther and farther toward “do everything you can, now.”  That was already the correct answer some years ago, and only becomes more correct over time.

Read more at Climate Damages:  Uncertain but Ominous, or $51 per Ton?

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