Comments 1 to 35:

1. michael sweet at 10:36 AM on 16 October, 2011
   It is amazing how economists wil devalue the lives of our children (and ourselves if you are less that 60).
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2. DSL at 12:08 PM on 16 October, 2011
   Not. all. economists, Michael.
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3. keithpickering at 15:01 PM on 16 October, 2011
   The important point is that even using the most conservative estimates, the price of coal is artificially low by a factor of ~2. Correcting this imbalance via a pigovian tax would put renewables on a level playing field.
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4. michael sweet at 23:43 PM on 16 October, 2011
   I should have said "How some economists". Unfortunately, many of those economists get headlines in the Wall Street Journal and on Fox news regularly. Assessments from the other side are not publicised to the same extent in the main stream media. If the weather of the past 18 months turns out to be the new normal, they will have devalued all of our lives.
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5. AnotherBee at 04:55 AM on 17 October, 2011
   @keithpickering At great risk of running off topic (from causes to remedies), the obvious immediate risk of your proposal is that applying such a tax unilaterally within one country would (be seen to) put products manufactured in that country at a disadvantage compared to those produced in a country without such a tax. For imports, one can imagine this being remedied by an import duty based on the ratio of fuel types consumed in the producing country. However exporters would still (be seen to) be at a disadvantage. What, in outline, would be your solution?
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6. Paul D at 06:44 AM on 17 October, 2011
   Climate policy is not a left versus right issue. In mitigating climate change there is no guarantee that everyone will be equal, unequal or better off. If anything, in a truly low carbon world, poverty may well be inevitable for all, but then poverty is an emotive word designed to instil fear by the politically motivated. The biggest problem is that the continued war between left and right (especially in the US) is diverting attention away from re-writing economics and politics. There is a world outside the US.
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7. Ger at 07:10 AM on 17 October, 2011
   put the tax at the source of the fossils. It does relieve the renewables from the task of proving that their equipment and fuel used is really of the renewable kind.
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8. Michael at 07:12 AM on 17 October, 2011
   A) If one calculates the atmospheric life of an incremental ton of CO2 emissions on a First in First out Stock managment basis (CO2 now is only drawn down after the prior years airborne fraction e.g. form 1950) it is absolutely clear that each additional ton of CO2 emissions has an atmospheric life of many thousands of years....perhaps a hundred thousand years. B) Money is a medium of exchange for real goods e.g. wheat or land. C) So the financial discounting model is fatally flawed as it does not take into account the destruction of Earths ability to provide the real goods in exchange for money. It cannot be used for key environmental services as it implies impacts as severe as nuclear war on human population are economically Affordable.
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9. dana1981 at 07:57 AM on 17 October, 2011
   AnotherBee @5 - that's the point of international climate negotiations, as in Kyoto and Copenhangen (the latter of which unfortunately failed). However, the EU has had a carbon cap and trade system in place since 2005. Australia is putting one in place, as is China by 2015. So at this point no nation can claim their carbon pricing scheme is purely unilateral.
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10. Fran Barlow2 at 21:58 PM on 17 October, 2011
    I find the discussion on the social costs of coal power implausibly optimistic. It's really quite simple. We now know that any addition to atmospheric Co2 inventories opens the door to uncontrolled climate change -- a catastrophic risk to human civilisation in the future. At best, we are likely to suffer a roiling series of human induced disasters. In the best case we get +2DegC by 2100 over pre-industrial after stabilising at 450ppmv (improbable on current trajectories). After 2100, we stabilise at theat level or start to slowly see declines in temperature over perhaps 300 years. That is an unacceptable set of risks. So the question must focus on who to stabilise at perhaps 400ppmv as soon as possible -- so as to minimise passing tipping points (assuming as we must but can't that we haven't already passed them). What would be the cost of a complete Co2 stewardship program from mine head to smokestack? Could this be had for even $36tCo2e? Of course not or we'd have had this on the table by now. Coal industry folks are quoting $100tCo2e for this. Of course Co2 emissions also affect the marine enviornment. But if we are talking coal we must throw in not merely Co2 but NOx, and toxic/radioactive aerosols. We must throw in the human costs of harvest, in deaths at mines and in loss of quality life years from black lung disease. We must factor in the costs that will follow if, within 50 years, coal starts becoming sharply more expensive as ABARE has predicted. And of course it's not just about coal. It's also about oil. What are the costs of maintaining military forces in the gulf, for example? How much would a well-to-wheel stewardship program cost for oil? How much would it cost to ensure no more "Rena" disasters, such as in NZ right now. Again, I'm guessing it would be a lot more than $36tCo2e. Perhaps $250tCo2e would get the job done. Professor David Mackay in "withouthotair.com" quotes $100 just for Co2. I think that is light too, but IMO it is certainly a lot closer.
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11. GFW at 18:43 PM on 18 October, 2011
    On the other hand, there'd be positive feedback (in the good sense) from a tax of say $50tCo2e. Because the price signal would affect consumption and push renewables into a very competitive position, many of the other costs associated with fossil fuels would go down (like the risks and costs of transporting the stuff long distances - local supplies would be used first, and be much closer to sufficient). I'm not saying that's the exact right price, but I think we could get to a safe sub-450 ppm peak without needing a price as high as Fran thinks. I'm far from an expert though.
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12. Fran Barlow2 at 19:55 PM on 18 October, 2011
    Basically, $50tCO2e gets you all the abatement that is cheaper than $50tCO2e. That's quite a bit, which is why a price on CO2e is a foundational measure and the cheapest way to do abatement. That of course isn't a measure of the true community cost of burning fossil HC, because as I said, the externalities go to much more than AGW. Really, we should err, if we must, on the high side. Let's make it clear that we are moving quickly to $100tCO2e (plus beyond if needed) and see what happens.
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13. Riduna at 10:54 AM on 19 October, 2011
    Economists who apply a high discount rate in calculating the real cost of coal are not intentionally dismissing the cost to future generations. What they are doing is expressing their belief that the future effects of climate change on the economy will be much below those anticipated by science and most climate scientists. From a commercial perspective, it could be argued that they are telling us that short term profitability is far more important than reducing the future effects of climate change. There is of course another view, that retaining coal production and use are essential to protecting the comparative advantage and competitiveness of countries now heavily dependent on fossil fuel use. Those who espouse this view ignore the fact that countries implementing policies to minimize use of coal and oil (eg. Sweden, France and other EU countries) have not experienced commercial disadvantage. In Australia, where the Opposition Leader (Tony Abbott) and his spiritual mentor (Cardinal Pell) have both denied AGW and its expected effects this century, government has placed a price on carbon. In doing so, it has ignored Green Party demands for coal and oil to be priced taking into account the true cost of externalities and named a starting price of $23/tonne CO2. This price appears to have been calculated having regard to the need for a clear price signal to investors in electricity generation, more efficient use of electricity, and the development of clean energy alternatives. The Opposition has vowed to repeal and reverse the measures taken by government and warned business not to comply with government measures when they become law. Why? According to Abbott, because they pose a threat to the economy, employment and national prosperity – though he produces no supporting evidence. In reality because of a perceived threat to the fossil fuel industries, denied by government but in fact quite true and almost certain to occur over the next 50 years – hopefully sooner. For their part, proponents of the Australian scheme point to the billions raised by pricing carbon, earmarked for investment in new technology, clean energy and its improved delivery. They point to new employment opportunities which will be created and the economic advantage accruing from early adoption of clean energy compared with trading partners (eg. China, Japan, Korea, India etc) who are slow to abandon fossil fuels.
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14. Fran Barlow2 at 13:14 PM on 19 October, 2011

    Economists who apply a high discount rate in calculating the real cost of coal are not intentionally dismissing the cost to future generations. What they are doing is expressing their belief that the future effects of climate change on the economy will be much below those anticipated by science and most climate scientists. From a commercial perspective, it could be argued that they are telling us that short term profitability is far more important than reducing the future effects of climate change.

    Or put another way, they think spending money now on mitigation or adaptation or any other measure designed to avoid harm in the future will not create as much benefit in the future as doing nothing specific (or only so much) about the future impacts of climate change. Imagine that you knew that you were going to die in 12 months time. Someone offers you a fabulous investment which matures in 11 months. The benefit is enormous but you only get to enjoy it for one month. A much less fabulous investment that gives you some benefit from day one might be better. How can you work it which is better? You apply a suitable discount rate. The other thing is that we humans have to deal with uncertainty. We don't know for example, that in the future some presently unknown suite of technologies won't make it possible for people to scoff at our concerns for their safety and well-being. Foregoing our well-being now for people who may be better off than we are in the future, seems unreasonable, especially if it can be argued that we may actually be making them worse off (following the above logic on future benefits). Moreover, if you ask people how concerned they are about their children's life chances, they tupically put a high value on this. Ask about those of their grandchildren, and once again, a high value follows. These things are existential because we want people who have been born early enough to know us to think well of us after we die. This is as close as we get to immortality. Yet if one asks what one thinks about the interests of people born 100 years from now, the concern is far more diffuse. Sure in a general sense we'd like not to prejudice their chances, but it's hard enough for people to imagine the world in 2111 let alone have concern for the people being born then. They may think us as foolish as we think of the folk in 1911, and perhaps more so, but as we will never have met them, most feel less concern. Hence, benefits for these people are less important than benefits for us now. Let me say that this is not my view. IMO, we have an absolute and minimal obligation to do whatever we reasonably can to hand over the biosphere in no worse condition that it came to us. Now that we know that the generations before us acted first in ignorance and then in reckless disregard of sustainability, we are bound to play a robust part in clearing up the mess, rather than making it worse. That IMO, is many times more important than passing on the family home to the kids or not creating financial debts for future generations. This is especially important because some of the harms authoried during the last 100 years are being visited upon people right now, and the IPCC projections strike me as somewhat optimistic.
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15. rcglinsk at 05:21 AM on 25 November, 2011
    "In fact, a recent Economics for Equity and Environment Network report concluded that the SCC in 2010 likely lies between $28 and $893 per ton, and will rise in 2050 to between $64 and $1,550 a ton." Wikipedia puts 2008 emissions at 29,888,121,000 tons. That times 893 is 26.7 trillion dollars. That doesn't seem plausible, it's around 40% of global GDP.
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16. Mond from Oz at 18:14 PM on 21 December, 2011
    (apologies if this is off topic) Today (21/12) SMH 'Business News' writes that some 32 billion AUD is to be spent on mergers and acquisitions in coal production in Australia. Question: On average rough estimate how much does it cost to get a ton of coal out of the ground? In other words, how much coal is this talking about?
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17. From Peru at 11:55 AM on 15 March, 2012
    I have a question: Let's suppose I (and my sons, grandsons,etc)have a future cost of 10 000 $ a year due to pollution. This means that an income of 10000 $/year in necessary just to compensate my losses . To do this, the polluting company put 1000 000 $/person affected in the bank as a deposit, at an interest rate of 1%/year.So every year the bank gives each affected person 10 000$.This 1% is then assumed to be the "discount rate" of future pollution costs. The cost of the pollution is then estimated at 10000*N (N =number of people affected, assumed constant in time). However, this is just the cost paid by the polluting company. Now most of the burden is on the bank, because those 10000$/person paid every year do not grow magically inside the bank. And the bank must receive at least 10 000$/person every year to do this.This is obtained from the people that borrow money and then return it with an interest, with the detail that interest rate that the bank take from the borrowers is always bigger than the interest rate of deposits. So if the bank gives me 10 000$ every year, it takes 10 000$ plus some interest from others. Here is unmasked the financial lie that "infinite future losses equal finite present losses, with: present cost =future annual cost *interest annual rate Actually that costs are paid by bank borrowers, and even worse, is all that plus the interests needed for the bank to have a profit. And in our finance-dependent society, this means that that costs that the polluting company still do not pay (equal to the total accumulated cost minus the amount given by the above formula) is paid by all us plus an amount needed by the banks to have profits. Final result: the finacial trick actually increased the social costs of pollution, now mainly paid by bank borrowers. So we have changed one externality with another! This means that to estimate the true cost too society, me must sum the future cost without discounting them. Actally we should do the opposite if the clean-up is paid via the financial system, with the obvious result that actual total damage done by pollution is much bigger than the common estimations. So , this does not mean that the "discount rate" relevant for estimating the present costs of future pollution is actually zero or even negative?
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18. Tom Curtis at 12:13 PM on 15 March, 2012
    From Peru @17, suppose (implausibly) that I was a low tech farmer with a horse. I want to use the horse to plow the fields because it will be much more efficient than using a hoe, and I will be able to plant a larger crop. So, I go to the bank and get a loan to buy a horse collar, harness and plow. With that investment, I double my income, but need to give half of the extra back to the bank in repayment for the loan over a period of 5 years. For that five years, I am better of, and the bank is better of. This is an investment which has generated wealth. As it turns out, the average rate of return on investments is about 3% per annum. So, in your example, the bank can invest the money and get a return of, on average 3% per annum without anybody loosing. Indeed, some others will gain from positive externalities. I think there is a serious problem with a purely economic analysis of the cost of global warming. Such an analysis is simply incapable of totalizing the costs of (for example) the complete loss of the Great Barrier Reef. But the employment of a low discount rate is not one of them.
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19. Alexandre at 12:33 PM on 15 March, 2012
    From Peru Like Tom said above, the concept of the discount rate is better understood (IMO) if you are comparing different investment possibilities. If you invest $100 to earn $100 back in 2 years, you'd probably be better off if you just keep the money safely in your pocket. Your project may not work. You could die in the meantime. The risk of the return not effectively occurring would make the investment unattractive. Ok, that's the finacial principle. There are a few serious issues with applying the same idea to environmental problems, however. The most serious one (again, IMO) is the intergeneration ethics. It's not comparing something with a quick return to a slower one anymore: it's saying that the apple you eat today is (sgnificantly) more worth than the apple your great grandson will eat. It's saying the goods this generation will enjoy have to be considered as more important than the goods the next generations will do. It takes a lot of academic funnel view to apply the financial principle at face value to AGW.
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20. From Peru at 13:18 PM on 15 March, 2012
    Tom Curtis: You said: "So, in your example, the bank can invest the money and get a return of, on average 3% per annum without anybody loosing. Indeed, some others will gain from positive externalities." For how much time? Environmental climate damage can last tens-hundreds of thounsands of years (like the Paleocene-Eocene Thermal Maximum event). Do you think you can have a 3% of sustainable growth for 100 000 years? This image comes to my mind: Assuming eternal growth is one of the reasons of the current mess, as was discussed here. Alexandre: You said " It's saying the goods this generation will enjoy have to be considered as more important than the goods the next generations will do " And you are totally right.I do not know much about economics, so I was asking a bold question to see if someone else with more knowledge on the topic has arrived at the same thought than me, or if instead I had missed something. I could not know much about economics, but I feel that something is completely wrong about how our society is described.I post this comment to see if others share the same feeling.
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21. Bob Lacatena at 13:44 PM on 15 March, 2012
    20, From Peru, A hockey stick! I see a hockey stick!!!! And yes, there is something seriously wrong with a society that requires constant growth to simply maintain the status quo. History is full of "corrections." I really don't want to see the one that's coming (except that history says that we'll see a series of small, but still painful, corrections instead of one large one). Love the graphic, BTW.
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22. John Hartz at 15:10 PM on 15 March, 2012
    @ From Peru: Suggested reading: “Pricing climate change” by John Hassler, Professor of Economics at the Institute for International Economic Studies, Stckholm University
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23. Tom Curtis at 15:24 PM on 15 March, 2012
    From Peru @20, 1) It does not require exponential growth in perpetuity for the the discount rate to be justified, only for the duration of the calculation, ie, the next 100 years. You can, of course, point out that the cost benefit analyses by economists ignore harms beyond the current century in their calculations. That is correct, and another reason why I dislike them as tools of analysis for global warming. That is not, however, a problem with the discount rate but one of short term thinking. 2) Even if the 3% growth rate is not sustainable over the course of this century, that would be true (or not) regardless of global warming, and hence is a separate issue. Therefore economists are justified in treating it as a separate issue and using the current pure rate of investment as a discount rate until it is established that the rate of return on investments must decline. 3) Arguments that the economic growth rate must be limited in the long term are premised on several key assumptions, the most important of which is that economic growth must be matched with a similar growth in the use of physical resources. That premise is false. Currently exponential economic growth is being sustained with a linear growth in resources. 4) Although the inability of our economy to handle periods of low or negative grow does reveal a real flaw in the structure of our economies, a genuine zero growth economy is of necessity only possible in a static society and hence a highly regimented and non-democratic society. This follows from the requirement that investment be made with no net rate of return. Such a society is in no way desirable, and we should devote all our energies to ensuring it is not necessary if we have regard for more than mere survival as the sole good of future generations.
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24. From Peru at 15:59 PM on 15 March, 2012
    Tom Curtis: "Currently exponential economic growth is being sustained with a linear growth in resources" I know little of economics, could you give me a reference to a book, article or paper that show that? In any case, even a linear growth in resources is not sustainable in the long term (we are talking about centuries if not millenia) "a genuine zero growth economy is of necessity only possible in a static society and hence a highly regimented and non-democratic society. This follows from the requirement that investment be made with no net rate of return" Why? Once the economy is rich enough, everyone could have a high standard of living. At this point, personal(emotional, familiar, spiritual,etc) matters would be more important for everyday life than an already assured income. I don't think that people would want always be richer once already is rich, unless one is dominated by greed. This would be automatic if people are educated to work for the common good, and not for irrational accumulation of wealth (why struggle to accumulate millions in the bank?) No need for a rigidly controlled regime, just solidarity and common sense. With respect with investmnent and return, there should be a point where the return obtained is enough. When talking of growth, we are not talking about return of the investment, but the rate of change of that return. Even if that is zero, there should be still a lot of wealth as return if the economy is already rich enough. What would be a problem is a negative growth. Or I am missing something?
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25. Tom Curtis at 17:23 PM on 15 March, 2012
    From Peru @24, I cannot give you a specific reference, but energy production is a good proxy for use of material resources, and CO2 emissions a good proxy for energy production. CO2 emissions have been approximately linear for the last three decades. Those three decades have also seen a significant shift to the "service sector" in many well established economies, not to mention the rapid growth of internet and telecommunications services which require a far lower material input for economic gain than do traditional goods. Therefore the linear growth in material resources is a good first approximation. With regard to regimentation for zero growth, you yourself underpin the issue, or at least part of it. You indicate that in a rich enough economy "personal (emotional, familiar, spiritual etc) matters would be more important for everyday life than an assured already assured income". In other words, there will be no economic signal directing people to those tasks which while necessary, are not good at satisfying emotional, familiar or spiritual needs, like collecting garbage, or treating sewage. The consequence will be a migration from these less satisfying but essential jobs to more personally satisfying jobs. We would have a world replete with philosophy lecturers set among piles of refuse. This outcome can be avoided either by economic scarcity together with wage differentials to drive a price signal, or by mandated employment. A similar problem arises with investment. With no economic growth to create a price signal on investment, there is no reason to invest. Hence people with large amounts of capital are likely to let their large amounts of capital be frittered away on non-essentials. Again, you can correct this either by allowing a price signal or by mandated investment. If a price signal for investment is to exist, and to not be a robbing Peter to pay Paul situation (as per your 17), then there needs to be a real growth in the economy from that investment. I dislike this turn of events which has me sounding like a convert of Hayek (which I most certainly am not). Never-the-less, there is some things that classical economics gets right, and that even Hayek gets right, and that is the importance of the price signal and the importance of economic liberty to personal liberty. There are of course some things that Marx got right as well, and in most conversations those are what I would need to expound on, but I get the impression I would be largely preaching to the choir in that regard with you.
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26. Bernard J. at 17:33 PM on 15 March, 2012
    From Peru:

    I feel that something is completely wrong about how our society is described.I post this comment to see if others share the same feeling.

    Another author you would find interesting if, as I said on Greg Laden's blog, you can bear a walk on the (supposedly) wild side, is 'The Wealth of Nature' by JM Greer. He's a proponent of the Schumaker take on economics, and I have yet to see a 'conventional' economist manage even a cursory rebuttal of the main arguments from this school - they all seem to be very quiet on the matter...
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27. From Peru at 18:01 PM on 15 March, 2012
    Tom Curtis: "there will be no economic signal directing people to those tasks which while necessary, are not good at satisfying emotional, familiar or spiritual needs, like collecting garbage, or treating sewage"· I am not sure how general this is, but garbage and sewage are waste, and waste often actually has value (for example, organic waste is an intermediate good to produce biofuel like methane and fertilizer like nitrate)so a motive for processing them exist, even if today that motive is almost not appreciated. And for sewage in particular,the work is almost completely done by machines operated by a few workers in a treatment plant. And remember that a lot of people work not only for personal benefit, but for the benefit of others (as an extreme example, firefighters in my country do that dangerous work for free, yes zero pay) In a society based on solidarity, people work for others because he or she knows that the well being of the community is necessary for the well being of oneself. "If a price signal for investment is to exist, and to not be a robbing Peter to pay Paul situation (as per your 17), then there needs to be a real growth in the economy from that investment" If there is no escape from that the outlook seems grim, because eternal growth would violate the laws of thermodynamics.Growth must stop at some point because of resource depletion. By the way, "robbing Peter to pay Paul" seems like a simple but true description of what human civilization has already done since it emerged in the Neolithic, despite the inmense economic growth achieved. We can do much better I think. N.B: My insistence is in no way because I want to prove that you are wrong. I found this discussion interesting, because we exchange ideas.
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28. Alexandre at 02:41 AM on 16 March, 2012
    From Peru To be fair with economists, the kind of argument you find in AGW skeptic blogs is not representative of the state of Economy as a science. "Normal" economists will probably aknowledge externalities and the necessity of some kind of coordination to avoid at least the more serious ones. Only the far right wingers would say that emission standards for automobiles (which already exist, btw) are some kind of Marxist plot. A few years ago, I became almost obsessed about learning about some apparent contradictions between economic growth and well being, and why free market seemed not to be enough to solve some kinds of problems. Maybe it's the same kind of thing you're tentatively exploring here. If your looking for references, I could suggest the chapter about externalities in some basic Economics textbook, like Greg Mankiw's Principle of Economics. That's the very basics. I also found instructive to know more about wealth and well being indexes that are alternatives to the GDP. Like you already seem to have suggested, "well being" is a more finite and naturally limiting idea than an ever-growing economy. As for limits of the free market to solve negative externalities, I never found anything deeper and better articulated than Elinor Ostrom's work. As a businessman, I love the free market. I value freedom. My country (Brazil) was a dictatorship a few decades ago, and I remember as kid to have seen adults afraid to speak freely, even fearing torture, in a more crude and violent Latin American version of maccarthyism. But to leave those externalities to be solved for themselves equals to condemning people to the Tragedy of the Commons - an outcome no-one chose or wanted. The capability of the people of coordinating themselves to overcome this problem is an expression of wider freedom - and to prevent this is the exact opposite.
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29. Tristan at 13:30 PM on 8 June, 2012
    Maybe this isn't the thread but I'm looking to understand the ~1% net impact on GDP figure. Is that the cost of the transition? It doesn't seem feasible that Australia could transition to 100% renewable energy production for $15B.
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30. dana1981 at 14:05 PM on 8 June, 2012
    Tristan - yes, to achieve the necessary emissions cuts it's estimated that GDP growth from now to 2050 will be 1% slower (not taking into account the slowing of GDP due to climate change if we take no action). Note that's a global average GDP - it's bound to differ from country to country.
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31. Tristan at 17:38 PM on 8 June, 2012
    So if GDP growth were 1.03/annum under the no reduction regime, GDP growth would be 1.02/annum under the necessary cuts regime?
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32. dana1981 at 00:54 AM on 9 June, 2012
    I think that's right Tristan, though I could be mistaken. It could just be that it will cost 1% of GDP per year.
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33. Tristan at 01:55 AM on 9 June, 2012
    Hmm. 39 years of 1.02 growth vs 1.03 seems to cost around 20% of total production over that period. I wonder at what point adaptation costs that amount. Maybe when the first superfamine hits.
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34. dana1981 at 07:07 AM on 9 June, 2012
    I know in the USA the total estimated cost is around $1 trillion total beteween now and 2050. That's several times less than adaptation is expected to cost (see here).
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35. Tristan at 10:52 AM on 9 June, 2012
    Ahh, that link shows it's not 1% less per annum, (which rapidly becomes a very high cost) it's 1% total by 2030, no biggie.
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