David Friedman on the Social Cost of Carbon

 

Comprehensive evidence implies a higher social cost of CO2  is a recent article in Nature which claims to calculate how much worse off humans will be for each additional ton of CO2 released.  The costs are summed over a period of almost three hundred years, from now to 2300. As best I can estimate from Extended Data Figure 2, about two thirds of their social cost of carbon is incurred after 2100.

This raises serious problems. To begin with, CO2 output as a function of GNP depends on the technology for producing power. An order of magnitude reduction in the cost of either nuclear power or storage would almost entirely eliminate the use of fossil fuels, as would the development of cheap fusion power, either of which could happen in the next fifty years. That makes any estimate of CO2 output over the next three centuries a guess about unknowable technological change.

Almost all of the article’s estimated cost of carbon is from either increased mortality or reduced agricultural output. Mortality from increased temperature depends on medical technology, home insulation and cooling technology, and probably other technologies. Agricultural yields depend on agricultural technologies. We have no way of predicting those effects.

This is from David Friedman, “Inflating the Cost of Carbon,” Ideas, November 20, 2022.

Another excerpt:

How does the article deal with technological change? As best I could tell, it ignores it. It is predicting the effect of temperature changes on mortality over the next three centuries on the assumption that they will be dealt with using the medical technology of today, and similarly for other relevant technologies. It is predicting the effect of climate change on agriculture with the same assumption.

Read the whole thing. One gets the sense that the multiple authors did not include economists. But that’s false. Three economists were involved. Moreover they’re from Ivy League schools: Ulrich K. Muller and Mark Watson from Princeton and James H. Stock from Harvard. Very disappointing to see economists project out more than a century. It’s the ultimate in the fatal conceit.

Moreover, while it’s easy to establish that the most-efficient way to reduce carbon is with a carbon tax, it’s much harder to establish that a carbon tax is the most-efficient way to deal with global warming. David mentions technology. What if a technology comes along that either allows us to adapt to global warming at low cost or allows us to reduce global warming without cutting fossil-fuel use? The implicit assumption behind the Nature study is that there will be no such technology in the next 200 years. I wish I would be around to make a bet.