On Monday this week, Matt Ridley published a blog in the Times claiming that the projected £30bn public subsidy for Hinkley C is too high a price to pay for the reductions in CO2 emissions that it will provide. The Times published my letter pointing out that he should not have used today’s social cost of CO2 in his calculations as Hinkley C will not come into service before 2025, and is planned to continue generating for 60 years. I said that the SCCO2 from 2050 would be more appropriate, which would increase the estimate of Hinkley C’s climate benefits. We then had an interesting but frustrating debate on Twitter, which ended when he quite reasonably pointed out that ‘Twitter [is] no good for such discussions’.
So here’s a first stab at the proper calculation that should be done. According to Matt Ridley, once it is operational, Hinkley C will reduce the UK’s emissions by about 14 million tonnes of CO2 per year. This reduction leads to a small but measurable easing of climate change impacts around the world – crop losses in Africa, floods in Asia, catastrophic melting of ice sheets, and so on. Assuming Hinkley C comes on line in 2025 and operates for 60 years, today’s net present value of the mean climate benefits from its operation are about £56bn. As far as I know no-one has actually done this calculation before. I can do it because I have an integrated assessment model, PAGE09, which is designed for just this kind of thing.
Of course, this estimate is hedged around with caveats. The PAGE09 model has a whole slew of uncertain inputs, from the transient climate response to the pure rate of time preference, which have a profound influence on the results, giving a 90% confidence interval for the benefits of £5bn – 148bn. The lower end of this range is in line with the results that Matt Ridley describes, but he doesn’t talk about the equally likely higher end, probably because he doesn’t personally believe climate change could be that bad.
The calculation also assumes greenhouse gas emissions around the world continue to rise in line with the IPCC’s A1B business as usual scenario, which is close to the path we are on at present. It also takes for granted that Hinkley C will actually prevent 14 million tonnes of CO2 emissions each year. This is far from certain. It’s the saving that comes from operating continuously at base load, displacing gas generation. All of these assumptions would need further consideration if this were an academic paper, or a policy briefing, rather than a quick blog post.
The UK government has said that it will delay the decision until early Autumn to carefully consider the case for Hinkley C. In a rational world, a better, more complete version of this calculation would be a central part of those considerations.
Details: Results are from 10,000 runs of v1.7 of the default PAGE09 model, converted from $US2005 in the year 2008 to £2016 in 2016 using the exchange rate in 2005 and the UK GDP deflator to get to £2016, and the mean consumption discount rate in PAGE09 of 2.8% per year to get to the year 2016.