Mon. Sep 26th, 2022
What if it costs money to buy coal and it also costs money to burn it?
enlarge What if it costs money to buy coal and it also costs money to burn it?

Some of the measures we need to take regarding climate change are quite difficult to implement without putting a price on CO2 emissions. There is no inherent benefit to be had by capturing carbon dioxide and storing it underground, for example, but that changes when a price on carbon makes it cheaper to store it underground than to emit it. Some sort of carbon tax or cap and trade program is also seen as a solution that could be attractive to all political parties, as it allows for more market-based responses.

The biggest question has always been: right price of carbon emissions. That is, what do all the effects of climate change and air pollution add up in financial terms? This is known as the “social cost of carbon”, and estimates can range from as little as $10 per tonne of CO2 to well over $100 per ton. It is not only about scientific knowledge of the worsening effects of climate change, but also about abstract and subjective factors. For example, the “discount rate” defines how much more one values ​​a dollar in the hand now compared to a dollar several years in the future. There is no right answer, but this percentage has a huge impact on the social cost of carbon values.

A team led by Noah Kaufman at Columbia University decided to approach this question from a completely different angle. Instead of trying to work out an increasingly complete financial accounting of the damage from climate change, they calculate something much more pragmatic: what price would be enough to get the desired result?

Choose a target

They explain what they describe as a “near-term to net zero approach” (abbreviated to NT2NZ in the boy band nomenclature). First you select the year in which you aim for net zero emissions, for example 2050. Then you select the path you want to take between now and then. You may think you can make steady progress right away, so opt for a linear downward slope. But if you think you need to invest in solutions that aren’t quite ready to take off, you can aim for slow progress at first, followed by a rapid decline.

Then you simply plug this scenario into some economic models and solve for the carbon price that makes this possible.

The researchers illustrate this with reference to the United States. For net-zero targets of 2040, 2050 and 2060 using simple linear paths, they use an energy economy model to calculate carbon prices. When making their estimates, they take into account additional climate policies beyond the price of carbon, such as increased energy efficiency, air pollution regulations that will retire coal-fired power plants, and subsidies for technology such as electric vehicles.

To achieve net zero emissions by 2050, the model estimates a carbon price of $34-64 per tonne of CO2 is required by 2025, rising to $77-124 per tonne by 2030. The margins are largely due to two variables: future oil prices and how aggressive other climate policies are. Higher oil prices lower the necessary carbon price, as does successful climate policy. While oil prices are difficult to predict, a carbon pricing policy would likely be accompanied by other policies, and the carbon price could be calculated from that bundle.

Here are US carbon prices for 3 different net zero dates.
enlarge Here are US carbon prices for 3 different net zero dates.

The price can also easily update over time, limiting the need for long-term forecasting – hence the “short-term” in “short-term to net zero.” The researchers’ pitch is really about ease of use for policymakers: Rather than rummaging through piles of scientific studies evaluating esoteric variables, the buttons that key this prize are pretty easy to crack.

get your prize

Once a policy target has been chosen in plain language, such as net-zero emissions by 2050, which is consistent with limiting global warming to 1.5°C, the other variables to consider are reasonable intuitive and easy to update. That also makes it easier to communicate the rationale behind the price without explaining the deep complexity underlying irreconcilably divergent estimates.

It also makes the price country specific in a simple way. The calculated US price for 2025 is not particularly high in this scenario. (The US Federal Government) already actually uses an estimate of around $40 per tonne.) That’s partly because the US still has many old coal plants that can be replaced at a relatively low cost, and partly because of the different climate policies adopted in the model. In contrast, social costs of carbon estimates are calculated completely independently of other policies.

“The NT2NZ approach does not attempt to reduce CO. configure2 prices by perfectly balancing costs and benefits,” the researchers write, “so that it does not meet the definition of an ‘optimal CO2 price’ found in economics textbooks. Instead, it allows policymakers to consider both qualitative and quantitative information about climate science and economics when selecting a net-zero target. Models can then determine the CO . to estimate2 prices for short-term cost-effective reductions, when their forecasts are most useful, with the understanding that policy details can be updated as uncertainties are resolved.”

Many recent policies and proposals in the US (including corporate commitments) have embraced a “net zero by 2050” framework. As far as carbon pricing plans are invoked, this is a simple alternative calculation to reconcile the two.

Nature Climate Change, 2020. DOI: 10.1038/s41558-020-0880-3 (About DOIs).

By akfire1

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