(C) Daily Kos This story was originally published by Daily Kos and is unaltered. . . . . . . . . . . The Social Cost of Carbon [1] ['This Content Is Not Subject To Review Daily Kos Staff Prior To Publication.'] Date: 2023-10-28 The social cost of carbon, is a number used by governments to determine what regulations produce more benefits than costs and which don’t. According to economic dogma it is the proper carbon tax rate. It is the “most important number you have never heard of.” Obama set it at $43.00/ton. The Biden administration sets it at $51.00/ton of carbon dioxide, which is just the Obama price updated. The Trump administration set it at $3.00-$5.0/ton. The EPA under Biden would like to raise the social cost of carbon to $192.00. Needless to say I approve. If you are interested in translating these dollars into number that people can understand, a gallon of gasoline makes 20 pounds of carbon, so a ton of carbon dioxide is 100 gallons of gasoline. So just divide the cost of carbon by 100 to get the price per gallon of gas. $43 dollars a ton is a 43 cent a gallon charge. A video All three administrations used the same estimates supplied by the Inter-agency working group, which first produced the document for Obama in 2010. The difference between Trump’s and the other’s social costs is the discount rate. Discount rate is a thing economists used to value the future. It’s kind of an implied interest rate. So if you get paid in a year the “net present value of that payment” is reduced by the discount rate. Trump used a discount rate of 7%, which is the rate used by business for new equipment. At that rate a dollar in damages in 2200 would be worth $0.0034. Obama used a 2.5% discount rate in which case a dollar of damage in 2200 is worth $0.142. The new estimate of the costs, at a discount rate of 3.5%, increases the social cost of carbon to $120/ton and the EPA recommends reducing the discount rate to 2.0%, but actually uses a complicated calculation to produces a discount rate. However, a 2017 report by the US National Academies of Sciences, Engineering, and Medicine1 (NASEM) highlighted that current SC-CO 2 estimates no longer reflect the latest research. The economics papers used to estimate this are called integrated assessment models. The new EPA document is an update related to the National Academies suggestions. There are a large number of caveats in in the working group paper and all of the economics papers that estimate the cost of carbon. The list of possible errors is as long as the rest of the papers. Usually models use a business as usual to estimate emissions, which would be changed by any mitigation effects. We could spend a lot of time on this, but I want to talk about the damage function. Damage Functions All of the integrated assessment models (what the economists call their models) include a damage function as a function of temperature change and as fraction of GDP. Anybody who has followed Daily Kos, and especially Pakalolo, but also (Meteor Blades, birches, Stinkypoo, Fishoutof...) knows that things are happening now. But looking at the title figure, which estimates damages/WDP vs global temperature increases we don’t see many damages at the 1.1C increase that we are now at. Nordhaus (The Dice model in the title figure), estimated climate damages as a function of temperature change (and yes he won a Nobel Prize for this) as 0.00227T2 (where T is the increase in Temperature due to global warming) as a fraction of the GDP. He updated this to 0.00236T2 in 2017. That is it, no complexity at all. He appears to have chosen T2, because it is a simple convex function, and not for any other reason. Nordhaus is not a denier, but he can be infuriating. He has stated that the optimum warming is about 4 degrees, and doesn’t think there will be cost to any sectors other than agriculture, forestry, space heating and cooling, sea level rise, and health. Nothing that takes place indoors will be affected (not snark). ( His optimum path is warming of 3.5 C in 2100, with a peak in CO2 emissions in 2050). Economists were officially expecting gains from agriculture until well into the 22nd century, but newer data has raised estimates of the near term costs. Zhao et al. broke out, damages by economic sector, and has estimated the damage to agriculture as 1.6 trillion dollars per year today globally. The gains from carbon dioxide fertilization have been eclipsed by losses due to temperature changes. The figure below is from the Nature communications Moore. The effect of average temperature change on the yields of 4 major foods. Data used for the EPA estimate of damages to agriculture. from Moore et al. creative commons. There is a large increase in damage to the agricultural sector in the new work. The increase in agricultural damage explicitly does not include droughts or extreme weather, it is only the effect of a change in the average temperature over a growing season. There is a term in the statistical fit for precipitation, which is supposed to remove drought (although it seems possible that some drought or extreme weather could sneak in.). Most crops are grown very close to their optimum conditions (duh) and changes are not welcome, and except for soybeans they are already experiencing stress. The effect of global warming on forestry, according to economists, appears to still be an expectation of increased productivity of forests into the 22nd century. The gain, in the year 2020, according to Zhao et al. was about 10 billion a year in additional “welfare.” This seems silly to me. The other big increase in global warming costs according to the EPA over the earlier model is in deaths from temperature change which are expected to increase a lot. Figure 3, From the EPA document. Closed circles are effects that the EPA feels are well documented, half circles are half estimated and open circles are effects that the EPA doesn’t feel have good enough data to include. What is left out is not a rounding error. From Docket ID No. EPA-HQ-OAR-2021-0317 Government document. Figure 3 taken from the EPA document shows what is included in the working paper and what is not. Open circles are items that are not included in the work: Precipitation extremes, ecosystems, ocean acidification, air pollution from forest fires, water resources, fisheries, heat waves, extreme storms, human migration etc. Weather Disasters What we all want to know about is whether weather disasters are well estimated as costs. Weather disasters are not included as a global warming cost in the EPA document. They were also not included in the original DICE model from from Nordhaus. Nordhaus did add a 25% increase to the DICE model to cover things he couldn’t calculate. The Page and Fund models both break out weather disasters, but only tropical storms. They add nothing for heat waves or droughts. Zhao et al. included a cost figure of about 50 billion dollars US a year in 2020 for global disaster damages, which was a small part of the total damages he calculated. To compare to Zhao, insurance company Aeon estimated 2020 weather disasters damage as $258 billion, and 2021 as 137 billion, factors of 5 and 2.5. A 2008 paper by the natural resources defense council predicted hurricane damage to the US as 10 billion dollars a year in 2025, up to 142 in 2075. The natural resources defense council would be expected to use the highest “credible” estimate. Last year the 5 year average of US hurricane damage was 65 billion, and the year before the 5 year average was 107 billion. The highest year for hurricane damage was 2017, when the cost of tropical storms was 328 billion. (not snark) Even ordinary thunderstorms have caused more damage than the 10 billion dollar estimate for 2025 in the last few years. Heat waves do not appear in any of the calculations, nor do floods and droughts. Compare to WDP and GNP The Dice model expects a total climate damages as fraction of GDP equal to 0.00236T2. In 2020 the increase in temperature was 1.1 degrees C (0.00285/WDP). In 2020 GWP was 84,894 billion dollars US. So total damages should be 242 billion dollars or 0.00285 as a fraction of the GNP. Us damages should be 60.1 billion. Weather disasters alone were 165 billion dollars in 2020 in the US and world wide disasters were 258 billion in 2020. In both cases the weather disasters alone are larger than the total damages expected by the official work, and as we know climate disaster costs are growing much faster than the WDP or the GNP. This years heat waves may have cost the world 0.6 percent of the WDP cite. The second highest source of damages in Zhao, water resource improvements, are also not in the EPA paper. It seems pretty clear that the economics profession has completely FUBARED the cost of global warming by a very large margin. Weather disasters, which when they were calculated were expected to be a small part of total damage, have exceeded the total damage calculations at this time. What the integrated assessment models have going for them is that they are really the only game in town. Just claiming civilization is going to fail, without having some idea of how it’s going to happen or when really doesn’t work. After all the GNP dropped 15% in a few years in the great depression and society went on. On the other hand it seems that the economics models have an implicit assumption that global warming won’t break anything. There seems to be a bias against the “fat tails” that show up in so much of the modelling, in which the models often changed to make them disappear. Thinking that the effects of global warming are actually 70 years in the future seems to be economic doctrine. This means that the discount rate will turn out to be the main variable. Notes Nordhaus always used a business as usual emission scenario. He expected emissions to peak around 2050. He expected a 2 C increase in 2050 and a 3.6 degree increase in T by 2100. He expects a change in T of 3.8C in 2100). The EPA expects much lower warming of 2 in 2050 and 2.3 in 2100. With this lower volume they still found a higher cost of carbon. Zhao calculated 3 scenarios and compared them: a business as usual and a 2C and a 1.5C scenarios. One question I had is if the damages caused by global warming were fed back into growth. Nordhaus appeared to do this, but none of the new models do. They calculate the effect of uncertainty by doing calculations of many possible futures and do statistics. [END] --- [1] Url: https://www.dailykos.com/stories/2023/10/28/2194182/-The-Social-Cost-of-Carbon?pm_campaign=front_page&pm_source=latest_community&pm_medium=web Published and (C) by Daily Kos Content appears here under this condition or license: Site content may be used for any purpose without permission unless otherwise specified. via Magical.Fish Gopher News Feeds: gopher://magical.fish/1/feeds/news/dailykos/