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SCC nerd alert: Stern & Stiglitz are out with a new take that's bound to make some waves.
The upshot: It's a cogent critique of 'traditional' approaches.
But: their 'recommendation' is an SCC ~$100/tCO₂ by 2030.
That's *lower* than what the 'traditionalists' get to by now!
The upshot: It's a cogent critique of 'traditional' approaches.
But: their 'recommendation' is an SCC ~$100/tCO₂ by 2030.
That's *lower* than what the 'traditionalists' get to by now!
So, Stern & Stiglitz provide a comprehensive critique of what's wrong with 'traditional' climate-economy models.
They undervalue damages, discount too much, ignore inequality, don't fully capture risks (especially 'tipping points'), etc.
They undervalue damages, discount too much, ignore inequality, don't fully capture risks (especially 'tipping points'), etc.
Always fun to pile on there. Heck, every cimate-econ Ph.D. worth their degree at some point ran DICE and found some simple way to improve things.
Time and time again, these improvements increase the SCC.
Time and time again, these improvements increase the SCC.
E.g., how do damages affect the economy? Does everything hum along some Panglossian path through, say, 2100, then suddenly damages hit? Well, no.
Climate damages affect growth rates!
Make that simple change and see the SCC go to $200: @ClimateFran & Diaz http://nature.com/articles/nclimate2481
Climate damages affect growth rates!
Make that simple change and see the SCC go to $200: @ClimateFran & Diaz http://nature.com/articles/nclimate2481
Perhaps the best recent such effort, Hänsel et al take Bill Nordhaus's DICE, update damages and discounting and increase get CO₂ prices of $100 to $200 today, and yes, they're consistent with 1.5°C! http://nature.com/articles/s41558-020-0833-x
Stern & Stiglitz say as much, on p. 51, in footnote 86:
So yes, what Stern & Stiglitz are critiquing isn't so much the latest 'traditional' climate-econ thinking, if that can still be called 'traditional'.
They're critiquing DICE, FUND & PAGE circa ~2010, or perhaps Nordhaus's 2018 Nobel. Yeah, count me in http://gwagner.com/afp-nordhaus-nobel
They're critiquing DICE, FUND & PAGE circa ~2010, or perhaps Nordhaus's 2018 Nobel. Yeah, count me in http://gwagner.com/afp-nordhaus-nobel
And, of course, Stern & Stiglitz are correctly critiquing the horrible, terrible, no good, very bad misapplication of any of that during the Trump years. Having an SCC of $1-7/t is...unjustifiable.
But, then what's the alternative?
Well, Stern & Stiglitz are a bit less...definitive on that point than in their critique.
They essentially point to the 2017 Stern-Stiglitz Commission's range of ~$50-$100/t by 2030 and say that by now we know things are worse, so pick ~$100.
Well, Stern & Stiglitz are a bit less...definitive on that point than in their critique.
They essentially point to the 2017 Stern-Stiglitz Commission's range of ~$50-$100/t by 2030 and say that by now we know things are worse, so pick ~$100.
That calculation is still based on the SCC definition, calculating the discounted marginal cost of 1 extra tonne of CO₂ emitted. (The Stern & Stiglitz then sometimes seems to confuse that SCC with what's often called an 'optimal' CO₂ price, but let's leave that aside.)
An alternative approach is what's often called a 'target-consistent' approach: pick a target, 2°C or 1.5°C, or Biden's net-zero emissions in the power sector by 2035, say, and work backward from there.
The paper there points to @noahqk et al's "NT2NZ" http://nature.com/articles/s41558-020-0880-3
The paper there points to @noahqk et al's "NT2NZ" http://nature.com/articles/s41558-020-0880-3
That's a fine (alternative) view of the world. It's what e.g. the UK and France have used for years!
There are a dozen or so models part of the decades-long Stanford EMF effort that do just that, and have done so for decades! http://emf.stanford.edu
It isn't the SCC, though.
There are a dozen or so models part of the decades-long Stanford EMF effort that do just that, and have done so for decades! http://emf.stanford.edu
It isn't the SCC, though.
Ironically, Kaufman et al's implementation of this cost-effectiveness/marginal-abatement-cost idea also leads to *lower*(!!!) implied SCCs than updating the boring, old 'traditional' SCC models!
(Quick correction to what I said before: The 2017 Stern-Stieglitz Commission didn't in fact do an SCC calc as I claimed here: https://twitter.com/GernotWagner/status/1361316449344708615?s=20 They also did a 'target-consistent' approach, limiting temps to 2°C. Thanks, @kelleher_!)
OK, so what gives?
For one, both science and economics have moved on considerably since the Obama-era SCC calculations, started in 2010, with first results in 2013 (~$30 for a ton emitted in 2020) and updated in 2015 & 2016 (~$50/t in 2020).
For one, both science and economics have moved on considerably since the Obama-era SCC calculations, started in 2010, with first results in 2013 (~$30 for a ton emitted in 2020) and updated in 2015 & 2016 (~$50/t in 2020).
A 2017 @theNASEM report recommended some major improvements https://www.nap.edu/catalog/24651/valuing-climate-damages-updating-estimation-of-the-social-cost-of
@impact_lab has made major inroads in valuing damages.
@rff has done significant work on implementing NAS recommendations
@impact_lab has made major inroads in valuing damages.
@rff has done significant work on implementing NAS recommendations
For example, if you were to re-run the exact same Obama-era SCC calc today but with a 2% 'central' discount rate instead of 3% (something eminently justifiable, using the exact same logic that led to the 3%!), the US SCC would be $125/t today(!) instead of $50!
That's precisely what @NYSDEC has done. New York State's SCC: $125/t https://www.dec.ny.gov/press/122070.html
That's boring, old, 'traditional'. It still misses lots (almost all!) of the recommended updates from the 2017 NAS report.
Ironically, it's also more than Stern & Stiglitz's ~$100/t!
That's boring, old, 'traditional'. It still misses lots (almost all!) of the recommended updates from the 2017 NAS report.
Ironically, it's also more than Stern & Stiglitz's ~$100/t!
So yes, the SCC matters, a lot. The difference between $50/t and even 'just' $125/t is the difference between an Exxon-supported 'bipartisan' carbon tax and much, much more significant climate policy ambition. http://gwagner.com/risky-climate-exxon-tax
Getting it right is important.
Getting it right is important.
Getting the SCC process right is arguably even more important.
There's a significant opening now, with Biden's Day 1 executive order on climate, especially also in combination with a second Day 1 EO, on "Modernizing Regulatory Review" https://www.whitehouse.gov/briefing-room/presidential-actions/2021/01/20/modernizing-regulatory-review/
There's a significant opening now, with Biden's Day 1 executive order on climate, especially also in combination with a second Day 1 EO, on "Modernizing Regulatory Review" https://www.whitehouse.gov/briefing-room/presidential-actions/2021/01/20/modernizing-regulatory-review/
I don't know what SCC will come out of that process. No one does.
My best guess is that it'll be well over $100/t CO₂. That's also well over what Stern & Stiglitz recommend here.
Key is for the SCC to be updated as science & economics advance. Process matters!
My best guess is that it'll be well over $100/t CO₂. That's also well over what Stern & Stiglitz recommend here.
Key is for the SCC to be updated as science & economics advance. Process matters!
The full 75-page @lordstern1- @JosephEStiglitz report is worth a look: http://nber.org/papers/w28472
@Eroston & @WillWWade have a good take @climate/ @business http://bloom.bg/3jPoiv2
Hey, and it looks like I have a topic for my @climate column this Friday. :) cc @aaronrutkoff
@Eroston & @WillWWade have a good take @climate/ @business http://bloom.bg/3jPoiv2
Hey, and it looks like I have a topic for my @climate column this Friday. :) cc @aaronrutkoff
A shorter version of the Stern-Stiglitz take @ProSyn, emphasizing the ~$100/t number https://www.project-syndicate.org/commentary/biden-administration-climate-change-higher-carbon-price-by-nicholas-stern-and-joseph-e-stiglitz-2021-02
So again, yes, plenty of critiques of boring, ol', 'traditional econ.
Except it looks like the 'traditionalists' are farther than the critics: https://twitter.com/GernotWagner/status/1361308321437859843?s=20
So again, yes, plenty of critiques of boring, ol', 'traditional econ.
Except it looks like the 'traditionalists' are farther than the critics: https://twitter.com/GernotWagner/status/1361308321437859843?s=20
Small, rather telling bit from my SCC 
: The most important bit here, by far, is the IWG SCC process.
It's about policy/legal durability, science-based policymaking, etc. ... Process.
The one tweet that didn't get any love, at all? The process one: https://twitter.com/GernotWagner/status/1361323658891976705
: The most important bit here, by far, is the IWG SCC process.It's about policy/legal durability, science-based policymaking, etc. ... Process.
The one tweet that didn't get any love, at all? The process one: https://twitter.com/GernotWagner/status/1361323658891976705
