Episode 2: What's the right price for carbon emissions?
The social cost of carbon, climate damages, and discount rates
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Welcome to Episode 2 of Pricing Nature! In today’s episode, Naomi and Casey speak with Nobel laureate William Nordhaus (a Sterling Professor of Economics at Yale), Fran Moore (an Assistant Professor of Environmental Science and Policy at UC Davis), Howard Shelanski (a Law Professor at Georgetown University and former White House administrator), and Senator Sheldon Whitehouse (U.S. Senator from RI). They seek to understand the theory behind the “social cost of carbon”: the economic backbone of all carbon pricing schemes.
What is the social cost of carbon?
William Nordhaus: The social cost of carbon is a socially determined, or a social construct, which is designed to measure the harm that is done to societies now and in the future by a ton of emission of fossil fuels and in particular carbon dioxide. So for example, if you take a plane, you have an airplane ride from New York to Los Angeles, your share of that jet fuel that's burned in that might be one ton. And then that would be priced, at the social cost of carbon, which is the cost of that one ton to the present generation and future generations.
On understanding the damages caused by climate change:
Fran Moore: If we think about the natural system impacts, they are substantial and they are long lasting. They are by and large irreversible probably. They're potentially one of the, you know, largest kinds of effects of climate change and our understanding of the economic consequences of those I would say at the moment it's fairly limited.
William Nordhaus: It's really the intrinsic uncertainties themselves are unknown. It's not, it's not a lack of modeling. It's not a lack of the technology or the computation. It's just insufficient knowledge. It's like trying to project what the pandemic is going to look like six months from now, we could model that, but we just don't know the answer.
On the Trump Administration’s $5 Social Cost of Carbon:
Howard Shelanski: That would be literally shocking because that's not supported by any data or study or analysis that I'm aware of. In fact even corporations that use their own social cost of carbon numbers to try to assess various things like some of the big oil and gas companies have numbers in the 30s and had numbers in the 30s several years ago. So where a number in the single digits would come from, I don't know.
To learn more about the social cost of carbon, check out the following sources:
Social Cost of Carbon 101 from Resources for the Future
The Social Cost of Carbon from The Energy Policy Institute at the University of Chicago
Trump Put a Low Cost on Carbon Emissions. Here’s Why It Matters, by Brad Plumer in the New York Times
And if you want to get into the nitty gritty about the economic debate around carbon pricing, read these articles:
Climate Change and Discounting the Future: A Guide for the Perplexed, by David Weisbach and Cass Sunstein in the Yale Law and Policy Review
The Stern Review on the Economics of Climate Change, by William Nordhaus