The Biden Administration Endorses a Social Cost of Carbon Equal to $200 per Ton of Carbon Dioxide
No Adaptation on the Horizon?
In a recent New York Times piece profiling Richard Revesz, this quote is worth talking about.
Mr Revesz is not an economist. He is a lawyer. What model is he relying on that generates this large Social Cost of Carbon? I bet that this model does not incorporate adaptation. Adaptation means that over time, we as individuals and firms and governments become better at coping with extreme weather and natural disasters and droughts.
An objective look at the data highlights that fewer people are dying over time in natural disasters. This is a very important example of climate change adaptation. If our probability of dying in the face of extreme events is falling sharply over time, how can the cost of greater global warming be so large? Even the New York Times acknowledges that the death count from natural disasters in the developing world is declining due to information technology through Smart Phones spreading information about emerging risks.
Conditional that we are alive, are we thriving? Due to global markets and trade, we are growing richer over time and global poverty rates are falling. Is Mr. Revesz saying that global poverty will start to rise due to climate change? How much will it rise? How much will agricultural yields decline by? What are his economic estimates of these effects? Does he believe that these estimates are “physics constants” that do not change over time?
In my 2021 Yale Press book, I sketch out how I believe that these marginal damage estimates will shrink over time due to adaptation. Adaptation is costly but these costs decline due to learning by doing effects and competition.
Professor Revesz teaches at Harvard. Which Harvard and MIT economists have helped him to design this model that yields the prediction that each extra ton of carbon dioxide released will cause $200 in present value damages to the world through exacerbating climate change? What percentage of economists at Harvard and MIT would endorse this model as an accurate model of our world economy?
If we don’t have such a model (and I don’t believe that we do), then where does this social cost of carbon equal to $200 a ton come from? What is the basis of our knowledge? The Nordhaus Nobel Prize model does not incorporate adaptation into his model. Here is what Robert Pindyck wrote about these models.
While I respect Professor Pindyck’s critique, I think he overstates the expected loss from catastrophic climate outcomes because his aggregate approach does not allow for spatial reallocation of people and economic activity within nations. “Higher ground” always exists and we are always building and rebuilding and reorganizing our economy. My 2021 Yale Press book explores this theme.