SLIDE 1
Carbon Pricing
- 3. The Social Cost of Carbon
The price of emissions should reflect the cost of the damages they cause
Carbon Pricing 3. The Social Cost of Carbon The price of emissions - - PowerPoint PPT Presentation
Carbon Pricing 3. The Social Cost of Carbon The price of emissions - - PowerPoint PPT Presentation
Carbon Pricing 3. The Social Cost of Carbon The price of emissions should reflect the cost of the damages they cause The Polluter Pays Principle Carbon prices should reflect the cost of damages from climate change Called the Social Cost of
SLIDE 2
SLIDE 3
The Polluter Pays Principle
SLIDE 4
Carbon prices should reflect the cost of damages from climate change Called the Social Cost of Carbon
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Additional Climate Change Additional Emissions Cost of Additional Damage Additional Damage Present cost of additional damage
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Cost of Additional Damages Additional Emissions Emissions Cost of damages Time
Cost of damages without additional emissions Cost of damages with additional emissions
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Social Cost of Carbon at a 3% discount rate (US EPA estimates from 2015)
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Uncertain and omitted costs
- Uncertainties about extent of damages and their costs
- Omits important costs
Effect of large climate changes
- Damage estimates do not capture effects of large changes
- GDP growth assumed exogenous
- Conventional economic costs not necessarily valid
- Exclusion of difficult to model risks
- Non-marginal damages
Technical issues
- Assumed starting point
- Discount rate
- Exclusion of co-benefits
SLIDE 9
The Social Cost of Carbon is a useful reference point:
- Modelling likely understates true cost
- Best used with other indicators
- Useful for identifying cost effective actions (ruling things in), less useful
for identifying measures which are too costly (ruling things out)
- Never a complete guide to action