01 Jul 2013

The Social Cost of Carbon

Climate Change, Economics, Shameless Self-Promotion 19 Comments

I discuss some interesting facts about the modeling results, and remind people to sign up for my class on Energy Economics.

19 Responses to “The Social Cost of Carbon”

  1. ABT says:

    I’m very confused here…
    How would you ingest climate projection information into the social cost of carbon model?
    Maybe the better question is what are the climate/biosphere variables used by the social cost of carbon model?

    because here is how the model seems to work:
    Take some output variables from climate models (probably the suite of CMIP5 models from the IPCC) and pass those into some equation in the carbon cost model
    OR translation
    take variables that have very high uncertainty and are poorly understood and use them as initial conditions for another model and then trust the numbers you get.

  2. Transformer says:

    So if you ignore all generations living beyond 2060 and all foreigners then the The Social Cost of Carbon is low or even negative. Got it.

    • Bob Murphy says:

      I’m glad you’ve “got it” Transformer, because 99% of Americans don’t. They have been systematically lied to, and led to believe that manmade climate change is causing them massive net damages right now, and that Americans will benefit from a carbon tax in the range of $35/ton, if not much much higher. None of this is supported by the peer-reviewed literature.

      • Transformer says:

        I don’t know much about the economics or science of climate change (and have tended to be a bit skeptical about it) but if it is true that it will adversely affect much of the globe outside of the USA and all generational beyond 2060 then I should probably start taking it more seriously.

        I’m not sure how one would go about deciding what discount rate to use when calculating the costs of future damage (perhaps science will come up with a fix, or people will find ways of adjusting, and that probability needs to be factored in) but it seems a bit selfish to be saying “I’m going to be old (or dead) in 50 years times so I’m going to discount the costs of future damage so much that its not worth doing anything about.right now”

        • Dan says:

          Why wouldn’t you be even more skeptical of the science of climate change now that you know a lot of its proponents have been blatantly lying to people by telling them it is causing massive damage right now?

          • Transformer says:

            I agree that the disinformation is bad but I already sort of knew about that. My take away from Bob’s video was that if there is a high probability that this will start to have increasingly negative effects is just a few decades then that is not something you can just ignore.

            • Bob Murphy says:

              I don’t think there is a “high probability.” I think it’s hilarious that we are talking about imposing trillions of dollar in new taxes because of what a computer simulation shows happening in the year 2060 and beyond. See here for more on this.

              My point in the video is that, even using the Obama Administration’s own preferred models etc., the actual situation would make most Americans say “hell no!” to a carbon tax.

        • jack says:

          NO you should dig into IF it’s true, not assume it’s true because it pleasantly massages your ‘save the earth religion’ while your confirmation bias kicks in. It’s a model upon model stuffed with mostly arbitrary politicised data collected by central agency that wants to rip you off. Thats all. I don’t want to insult you, maybe I did already, but damn – that’s not so hard to see since they changed climate warming (when the data was too hard to forge) to climate climate (climate already retains change in itself…).

          It’s funny that climate models and NOT doing anything about CO2 is actually consistent with Keynesian counter-cyclical policy 😀 Too subtle?

        • Matt Tanous says:

          The tax will have negative economic effects, simply because it is a tax. The economic growth it prevents could be the difference there – it could be that this growth allows for the quick accessing of resources to solve this problem.

          Plus, these are computer models that are projecting out 50 years, have a poor track record with the last decade, and are based on practically nothing (most climate change literature ASSUMES AGW to be true, and then goes into specifics that would create different possible outcomes). Seriously, the literature is something like 70% computer model predictions, 10% economic forecast based on those computer models, and maybe 20% actual examination of the science either way.

  3. Tony says:

    Look at Lord Monckton’s figures when he calculates the decrease (or lack of increase) in temperatures using the cost of Australia’s carbon tax, and using IPCC’s rosiest figures and using Australia’s co2 removed per dollar. Maybe we can agree that the science is “settled” when these bums quit adjusting their forecasts and models. If we do have the predicted weak solar activity, then we could be in a cooling trend in the next solar cycle.


    Now extrapolate this beyond just Australia. There is not enough wealth in the world to make a meaningful difference, and the unintended consequences of wealth destruction must be considered.

    I tend to side with his conclusion. Even if Al Gore’s propaganda were true, the cost of “doing something” is worse than doing nothing. Especially when considering that those resources could have otherwise been employed.

    “Opportunity Cost”

  4. Brent says:

    I still don’t understand how anyone can seriously think an estimate so far out is worth anything. Development will happen, technology will change, people will move. If we feel that bad for the equator countries, how about Canada and the US just allow fre(r) immigration?

  5. Ken Pruitt says:

    It is my opinion that the “Social” cost of Carbon (whatever the hell that means) can’t be measured objectively. There are too many factors at work to say anything for certain.

  6. Martin says:

    Bob, I don’t understand most of what you say. The initial benefits of global warming are sunk. Social costs of carbon are marginal damage cost estimates (i.e. the costs of further emissions). Apart from the calibration of the damage function in an IAM (and even that, per se, does not tell you anything about its slope later on), why do you mention initial benefits when you talk about SCC? You say that the SCC are “a present net value of a stream of decades of net benefits and then at some distant point in the future it flips to net damages.” This seems blatantly wrong. Even part of the damages in those “strings” may be sunk and thusly don’t enter the SCC calculations. Totals don’t matter. I know that you know that, because Richard Tol told you once in the comments:


    How can the SCCs, if the costs of an incremental increase of greenhouse gas emissions (CO2 equivalents), turn negative tinkering with the discount rate? The only way the SCC could be negative was if further emissions result in a net benefit (do you have any model predicting this?). A negative does not become a positive changing the discount rate, and initial benefits are sunk. See also here:


    As these are marginal damage costs, one cannot conclude that there is a net benefit from a certain regulation – that would be comparing total to marginal costs. Could you point me to a government assessment where such a thing has been done, as you say at the beginning in your video?

    Also, the 2010 Interagency Working Group assessment uses the same set of discount rates (5, 3, and 2.5 percent) as the new one. Where did they use a 7 percent discount rate? This seems really high in this context.

    At last, that others are impacted by the economic activity of somebody is kind of the definition of an externality. One could always downplay damages by sorta-kinda implying that including those affected by the damage is a choice. What you do allude to is the fact that rich countries can always decide to take a dump on poor ones. Why this possibility should play a role in a CBA assessing the costs of a GLOBAL pehnomenon, is not clear. In a first-best policy setting and accepting a Pigovian framework the implication of SCC is a tax, of course based ona global assessment (Is there any framework suggesting that it is OK to harm others as soon as they happen to live in another country? If not, why come up with it? This seems a bit contrived.) Your choice of words to refer to not doing damage to somebody else for the sake of your own benefit as conferring net benefits to them seems… well.. I’ll rather not say it. “One might argue”? According to which moral framework might you NOT argue? Are you thinking about some interpretation of Kaldor-Hicks efficiency? If so, why don’t you say it? Similarily, if you have a Coasean or Buchanan-inspired critique against a tax framework, why don’t you point it out?

    What does it mean to “calibrate” a carbon tax to the SCC? What does this mean?

  7. skylien says:

    Is the date 2060 peak benefits and from there starting to decline. Or is peak benefits already say 2035 and 2060 all the benefits from warming are already eaten up again so that on net 2060 is like 2013?

    If the former than it would mean maybe another 50 years until it was like 2013 again… However I guess it is the latter, right?

    • Bob Murphy says:


    • Tel says:

      The Earth is slowly heading into another glaciation. They are quite consistently cyclic (see the Vostok ice cores). Nothing to any of us to worry about but there will come a time when future generations need all the warming they can get.

      • jack says:

        If hoppes theory is correct humans should wise the f*ck up, just because of harsh environment. Sadly – not in my lifetime.

    • Martin says:

      However, skylien, these benefits have nothing to do with the calculation of SCC, as implied in the video (and as the blog title suggests!). Economists – be it in the peer-reviewed literature or not – don’t get SCC by summing up discounted benefits and costs of global warming from now until some cut-off point in the future. They are the expected damage costs that an increase of greenhouse gas emissions now will cause at some point in the future. This cost is positive, thus no benefit. There is absolutely no way to discount a cost in a way to get a a benefit (i.e. to turn a positive negative and vice versa by discounting), this is mathematically impossible. The “net” in the SCC refers to costs and benefits ocurring at the same time, so accounting does not change anything here. You can make them basically zero rather fast with a high discount rate, but you can’t change sign. The suggestion that you get a positive present value of carbon emissions by increasing the discount rate, so that initial benefits are weighted much more than later damages, is bogus. It is based on an embarrassingly ill-informed reading of the literature – actually, it suggests that the literature has never been read. That is not how SCC are calculated. And the worst part ist that Bob got pointed to this basic mistake in his assessment by the leading economist in this field (the co-developer of FUND, one of the three IAMs used by the EPA) long ago. And he is repeating it right here. It’s nonsense. Initial benefits have no significance for the assessment of SCC. And the mistake is one of conflating total costs with marginal costs. If someone wants to criticize the calculation of SCC, he should criticize what economists are actually doing, not make stuff up.

      Also, uncertainty about the future damages makes the SCC higher, not lower. I can link the paper for you if you are itnerested (actually, I linked one of them right above – and if you are wondering: yes, it has already been peer-reviewed, accepted, and published).

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