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Monday, October 21, 2013

Strategic CSR - Social Cost of Carbon

The article in the url below is notable for the intention behind the policy change it discusses as much as for any expected outcome:
“The Obama administration is making a second attempt to systematically account for the dollar damage from greenhouse gas pollution, … The new effort is an update to an estimate for the awkwardly named ‘Social Cost of Carbon,’ a range of costs, stated in dollars per ton, that carbon dioxide emissions are thought to impose on future generations. When the government totes up costs and benefits for a variety of proposed regulations, the Social Cost of Carbon is plugged into the calculation to decide how to write the regulation.”
As noted elsewhere (Strategic CSR – Measuring CSR), measuring something like the “social cost of carbon” is easy to say, but incredibly difficult to do:
“Supporters of the idea acknowledge the tremendous difficulties of trying to translate slippery estimates into a single mathematical factor, difficulties that perhaps help explain why there is little hope of consensus now on climate policy.”
The result of such difficulty, is widely varying outcomes:
“The new price, used for the first time [earlier this year] in establishing a standard for energy efficiency in new microwave ovens, is 50 percent to 100 percent higher per ton than the one developed in 2010.”
The difficulty arises from the unknowable impact of future events that may or may not occur:
“Some of these damages appear likely but hard to calibrate, like the extent of sea level rise. Others are less certain and thus stated as probabilities, like the increase in the number of Katrina-level hurricanes or sustained droughts, or changes that radically cut crop yields. Others are simply hard to put a dollar value on, like the extinction of species.”
The ambiguity in calculation is matched by the ambiguity in application:
“It is supposed to be used when the government establishes new regulations, like appliance efficiency standards, or fuel economy standards.”
In theory, however, these costs affect all aspects of government policy to some degree. Again, this would be OK if we could have some sense of the reliability of the numbers that were being used. Ultimately, however, the only thing we know is what we do not know:
“The only real cost of carbon that [we] know is wrong is zero.”
But, the government should be applauded for entering the debate. The consequences are potentially great. For example:
“… a new standard could not be approved unless it was advantageous to the buyer. In the case of microwaves, that would mean that the buyer would save more during the appliance’s lifetime than the added cost of buying an efficient machine, and that other benefits like saving polar bears would not enter into the calculation.”
Take care
David Chandler & Bill Werther
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New Effort To Quantify ‘Social Cost’ of Pollution
By Matthew L. Wald
June 19, 2013
The New York Times
Late Edition – Final