Fifty dollars per ton of carbon dioxide
Posted by Daniel Hall on April 2, 2008
That is what Marty Weitzman thinks we should do about climate change.
This came up at the World Bank event I wrote about yesterday. During the Q&A session a World Bank employee came to the mic and said that the Bank would likely soon adopt a social cost of carbon (SCC) to use when evaluating its projects, and what SCC would Weitzman recommend?
Weitzman hemmed and hawed and noted that the whole point of his paper was that there are these big uncertainties, and that previous attempts to calculate the socially optimal price on carbon haven’t accounted for these and thus are wrong, and that you couldn’t even really do the calculation with the current tools we have. But he finally acknowledged that if you made him philosopher-king and demanded an answer he would say that the price on emissions (i.e. a carbon tax or the price of a cap-and-trade permit) should be $50 per ton of CO2, rising at rate of a few percent over inflation.
A few thoughts:
1. Muse about uncertainty all you want, but ultimately you have to name your price.
2. This is higher than a lot of mainstream economists who work on this issue. Bill Nordhaus thinks the right value today is around $10 per ton of CO2 (see Table 5-4 of this publication); Billy Pizer at RFF thinks it is close to double this (ungated version here, see Table 5 (3 in gated version) suggesting the correct valuation is 82% higher). On the other hand Nic Stern estimates it should be $80 per ton of CO2.
3. Carbon prices in Europe are currently about 70% of this level (thanks partially to the weak dollar).
4. Carbon prices in the U.S. are short of this mark by about… oh, that’s right, $50.