2018-05-15

Carbon budgets and carbon taxes

DSCN2695 Rethinking the carbon budget message at Axios reports on a couple of recent reports that say carbon budgets aren't as useful as they've been touted. And this is true. But to kick off, there's Gavin's tweet:
...There's no connection to speak of between the impacts of carbon emissions (SCC) and the estimates of the remaining carbon budget...
Which made me think. Hey, that doesn't happen often. So, yes, there is no connection between SCC and carbon budget. Because the two ideas are different: SCC is "how much damage does emitting this CO2 do?" whereas a carbon budget is "how much CO2 can I emit before I do any damage?". That's not quite right, I have simplified for effect, to enhance the separation of the concepts. For a carbon budget, you've decided on an acceptable level of temperature change, perhaps 2 oC, and guessed your climate sensitivity, and so decided on an allowable amount of CO2 to emit. If this were, truely, a budget, which you weren't allowed to outspend, then your cost of emission would be zero, up to the limit, and infinite beyond that.

And so of course we're back at the carbon-taxes-versus-carbon-emission-permits debate again. Because the budget stuff is analogous to the permits.

The budget stuff has several big problems, which one study touches on. I'll ignore the quasi-arbitrariness of the size of the budget. The problems are that the budget is global, in space and in time. So no particular place, and no particular time, have any incentive to minimise their emissions. Unlike - ta da - a carbon tax, which conveniently provides incentives, and copes well with uncertainties. The disadvantage of the carbon tax, of course, is that it doesn't invite endless chatter in place of actual activity the way carbon budgets do.

I think you can be stronger than "no connection" between SCC and budgets: that if you're keen on SCC, you have to use that; you can't use budgets as your tool. They become only a useful (perhaps) illustration. Or conversely, if you really want to use budgets, then the implied-equivalent-SCC is just an illustration.

15 comments:

Tom said...

I would like to see (even participate in) a discussion about the social costs of removing carbon. ATTP at his blog wrote that those costs are included (he thought) in SCC calculations. I suspect not...

William Connolley said...

What do you mean by "the social costs of removing carbon"? You mean the cost of something like Carbon Capture and storage (CCS)? How could the costs of that be part of the SCC; SCC is what your costs are, *if* you do the damage by emitting the CO2. If you don't emit the CO2, the "social" costs are zero.

andthentheresphysics said...

I don't really understand what Tom is asking either, but I think one could do an equivalent calculation for removing CO2, but I think it would essentially be the reverse of calculating the SCC. Of course, if you wait a long time some of the costs may already be realised, but if done soon enough, removing 1MtCO2 would roughly mean not experiencing the costs associated with emitting that 1MtCO2. Of course, this would imply (I think) that it would be negative. I may, of course, be wrong about this.

William Connolley said...

> essentially be the reverse of calculating the SCC

Well, nearly. Arguably if it cost more than the SSC you shouldn't do it (because the cost is greater than the damage of the harm avoided). And if it cost less then you would be doing lots more of it, to soak up all the CO2 causing SCC. With a carbon tax set at the SCC, this would happen naturally.

andthentheresphysics said...

I was actually thinking about whether or not one could calculate the equivalent of an SCC, but for removing CO2, rather than adding it. However, what you describe would seem to be what would actually happen. If removing an amount of CO2 equivalent to what would be emitted was cheaper than paying the carbon tax (SCC), then we'd pay to have it removed so as to avoid paying the carbon tax (at least, I think that is what you are saying).

Tom said...

Hmm. Let me try and explain. Many policies instituted to address climate change carry a monetary cost. However, some of them also impose a social cost.

The UK's move towards a greener energy portfolio is one example. Allowing utilities to pass through the capital costs of offshore wind to their customers imposed a financial cost on the populace. The resulting increase of energy poverty and associated increase of winter deaths attributed (or attributable--not sure someone good has done the math) is a social cost.

The same holds true for some other policies--the withholding of development funds for fossil fuel energy plants in the developing world being another very visible example.

I do not believe those social costs are included in the calculations of SCC, nor in the few CBAs I have seen regarding climate change and our efforts to address it.

William Connolley said...

Ah. Using "social costs" in two different ways is bound to confuse, even if you didn't Capitalise them. You're talking, I think, about "opportunity costs", if I have the jargon right: if we use the money to reduce carbon emissions, then we can't use that money for something else, like poverty relief. This is a reasonable point, one that Lomborg has made in a somewhat provocative way. But no-one ever proposes a "global" cost-benefit analysis, because too many programmes ("the war on terror / drugs") would come out as utterly stupid if looked at in that way.

andthentheresphysics said...

I think Tom is also complaining about climate policies that may end up promoting a more expensive - than necessary - energy portfolio, which could then have negative consequences. This is a fair point. However, my understanding is that the whole point of a carbon tax is to avoid exactly this. Rather than having some kind of complicated policy that promotes renewables (for example) just add a carbon tax and let the market decide.

Tom said...

Both of your points are reasonable, WMC and ATTP. However, that's not quite what I'm talking about. I just commented over at ATTP: "ATTP, I’m obviously not making myself clear. There is a social cost associated with carbon emissions. Several (many) people and organizations have made a stab at calculating the social cost of carbon emissions. Although I don’t think they’ve done a wonderful job at this, I think the effort is worthwhile.

There is (fairly obviously) a social cost (by which I mean non-monetary) associated with mitigation and adaptation. Relocating a village or even Miami because of rising sea levels has a financial cost. But it also has a social cost not measured in dollars and cents. Withholding development assistance for fossil fuel power plants similarly withholds steady and inexpensive energy from companies and residents those power plants would have served. They will continue to experience blackouts, brownouts and the poorest will continue to cook on 3 stone fireplaces.

I do not believe these non-monetary costs of addressing climate change are captured. I would welcome links that show me to be incorrect. I believe at least acknowledging some of these costs would provide a more fully rounded picture of what we wish to do and what it costs."

William Connolley said...

You seem to have two different social costs in there.

Things you have to do because of GW - relocating villages due to SLR, say - has a social as well as monetary cost, and the answer is that this would, in an ideal world, be factored into "cost" with a monetary value, and would count as part of the "cost" of emitting CO2.

Things you suffer because you don't emit CO2 - like, not having enough electricity because you didn't build power plants because you wanted to avoid CO2 emissions - are also simply costs, and ought to be balanced against the benefits, of emitting CO2. That's clear when it is "you" - a country, say - making these decisions. It is a bit murkier if someone else is deciding to withhold money. I'm dubious that anyone does decide not to build power stations in order to avoid emitting CO2 and thereby running short, though. Do you have any examples?

Tom said...

I was thinking of the World Bank, USAID and your DFID which refuse to loan money for coal powered power plants.

William Connolley said...

Yes, but those are just sources of cheap developement money. Or so I presume. The entire commercial market remains open; all that happens if you pay a commercial rate. Are there actual examples of such non-building?

Silly Dreamer said...

So you have an argument that says, "Doing something about climate change will cost lives", and you find one thing (people dying of cold) to back it up. But that is like pointing out that if we have cars, people will die in car accidents. Surely you have to look at the whole picture.

Tom said...

I certainly advocate looking at the whole picture.

Marco said...

Tom, the whole picture is that neither of the three you mention categorically decline any loans for coal powered plants - but the business case must make it clear it is the only viable option. Unsurprisingly, it is often extremely difficult for any country to show that coal is by far the most obvious choice for their power plants. The by far best case - and one that shows how bad the case usually is - is that of Kosovo, where a new coal-fired plant will be built with funding from the World Bank. Cost estimates have already doubled, the usual corruption has already shown up (and note, this includes corruption at the World Bank), and the best argument in essence was that Kosovo has enormous coal reserves and already relies on coal-fired power plants.

In the meantime, Kosovo loses about 40% of its electricity due to poor infrastructure and corruption, and that is largely left as is...