The social cost of carbon (2002)
The social cost of carbon refers to the estimate of the monetary value of world-wide damage done by anthropogenic carbon dioxide emissions. As is well known, carbon dioxide is the oxidised form of carbon, and is the major greenhouse gas implicated in projections of global warming. The social cost is the damage done by carbon dioxide emissions compared to a baseline context in which those emissions do not increase. But it does not follow from this that the correct or socially desirable level of emissions is such that this social cost is zero. There are two reasons for this. First, greenhouse gases have long residence times in the atmosphere, so that climate damage today and in the near future is the result mainly of past, irreversible emissions. Since nothing can be done about those emissions, the relevant policy window relates to the difference between projected levels of warming from 'doing nothing' and the level of warming that will occur anyway due to time lags in the climate system. Second, economists and risk analysts will point out that the socially optimal level of any pollutant or hazard is rarely zero. This is because reducing pollution is not costless. It makes sense to reduce pollution so long as the benefit of doing so exceeds the costs. But as soon as a further incremental ('marginal') reduction in pollution incurs costs greater costs than benefits, that is the time to declare the policy measures optimal and not go any further. As we shall see, while simple to state, this costbenefit rule is immensely complicated to formulate in practice in the global warming context.
14 Sep 2018