Julian Morris Outlines Problems With The Social Cost Of Carbon

Earlier this month, Reason Foundation’s Julian Morris released a great policy study examining climate change, legislation, and the interpersonal cost of carbon (SCC). In the scholarly study, Morris shows six issues with calculating the cultural cost of carbon. In this website, I’ll provide an outline of these six problems, as well as some more information on the ongoing work IER’s staff have done on the social cost of carbon.

I highly encourage one to read the entire policy study, as it provides a great overview of the problems many have determined with calculating the social cost of carbon. 1. The first problem Morris identifies with calculating the public cost of carbon is the fact that future emissions of global greenhouse gases (GHGs) are unknowable. Policymakers have consistently failed in their capability to forecast future technological change in the energy industry-the most recent example being their lack of ability to foresee the tremendous changes brought about by the shale trend. These technological changes have caused an increase in the use of more energy-dense fuels like gas. Consequently, greenhouse gas emissions from U.S. Source: Energy Information Administration.

2. The relationship between emissions and the focus of greenhouse gases is dependent on lots of variables including the amount of emissions as well as the quantity of time GHGs will stay in the atmosphere. The speed at which GHGs such as methane and dinitrogen monoxide break down depends on such things as temperature and the quantity of drinking water vapor and other chemicals in the atmosphere with which they might react. The speed of which CO2 is adopted by plants, oceans, and earth varies substantially depending on factors such as temperatures and the availability of nutrients. The dynamic and interactive nature of these effects complicates the picture further.

3. It’s likely the level of sensitivity of climate to increased concentrations of greenhouse gases is a lot less than lots of the earlier models forecasted. 4. It’s possible the advantages of an environment change outweigh the expenses, at least for likely ranges of change. Some of the benefits of climate change may include better agricultural result caused by increased concentrations of carbon dioxide in the atmosphere and a lower number of fatalities caused by winter. Furthermore, Morris points out that many economic models assume not a lot of adaptation, meaning it is likely they may be overestimating negative effects of environment change.

Rising wealth and the adoption of new systems have reduced mortality from extreme weather events by 98% in the past century (see Figure ES4). 5. The expenses of future emissions reductions are unknown and are influenced by the timeframe of any decrease. 6. The Interagency Working Group (IWG) used inappropriately low special discounts when evaluating costs and benefits. When special discounts that accurately reveal the opportunity cost of capital are used, the expenses of taking action to lessen future GHG emissions now is likely greater than the benefits of taking such action.

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Unfortunately, when discounting the huge benefits and costs associated with global warming, many experts have used special discounts that do not reflect the opportunity cost of capital. For instance, the IWG provided an estimation of the SCC at a 5% discount rate, but it’s the highest rate given. In its guidance, the IWG emphasized the SCC determined at a 3% discount rate.

Its rationale for using the low rate is that future benefits from avoiding weather change costs relate with future consumption, rather than investment. It’s not only that Morris thinks a 7 percent discount rate is more appropriate. In 2014, IER’s Robert Murphy pointed out that the Obama administration’s IWG overlooked OMB suggestions to give a SCC estimate predicated on both a 3 and 7 percent discount rate.