Matt Ridley has a short piece in this week’s Spectator entitled Why climate change is good for the world.
In it, he draws heavily on one paper by the Climate Economist Richard Tol, claiming that this paper supports his view that climate change would be beneficial. Let’s leave aside for now that Tol is careful to stress in this paper ‘the considerable uncertainty about the economic impact of climate change and that negative surprises are more likely than positive ones’.
Let’s instead focus on another finding in Tol’s paper, about which Matt Ridley is silent. Table 2 of Tol’s paper is a review of all the net impacts, including benefits as well as negative impacts, from one more tonne of carbon put into the atmosphere today in the form of carbon dioxide, which is given the name the social cost of carbon. Converting the table to the more usual units of tonnes of carbon dioxide, it shows that the mean social cost of carbon dioxide from all the studies looked at by Tol is $33 per tonne ($120 per tonne of carbon in the original table), if one uses a 1% per year pure time preference rate to discount impacts back to the present day. This pure time preference rate is equivalent to a consumption discount rate of around 3.5% per year, as used by the UK Treasury and others. So, for every tonne of carbon dioxide emitted, the negative impacts outweigh the benefits by about $33.
In fact, Tol’s mean result is expressed in year 1995 dollars, and is for emissions at some date prior to 2009, when the paper was published. Updating to today’s dollars, and assuming conservatively that all the studies looked at by Tol were for 2008, his mean value for the social cost today is $55 per tonne of carbon dioxide. Under the polluter pays principle this is the price that should be attached to all emissions of carbon dioxide today, preferably via a comprehensive carbon tax.
There are of course many higher estimates of the mean social cost of carbon dioxide, such as this one of about $100 per tonne of carbon dioxide. But let’s stay with the source actually used by Matt Ridley and ask if he agrees that the current price on all emissions of carbon dioxide should be at least $55 per tonne, as Richard Tol’s mean results show? If not, why not?