Why are carbon taxes so low?

I came across a post by Joseph Heath, called why are carbon taxes so low (H/T Willard). I found it very interesting, because it clarified (for me, at least) why some people probably hold the views that they do. I may not have it completely right, but the basic argument is that if you can estimate the future damage due to climate change, then the way you address it is by introducing a carbon tax that essentially pays now for the damage that will happen in the future (discounted, of course, to today). As I understand it, most estimates suggest a carbon tax that is, initially at least, quite low.

I asked a couple of questions at the end of the post, but didn’t get an answer. I’ve worked one of them out myself, I think. Rather than paying the estimated carbon tax now (which would be to cover the cost of damages that will actually happen) we could choose to pay more so as to actually reduce the future impact of climate change. The problem with this is that it would imply that people today would be paying in order to help people in the future who will likely be richer than we are now. The argument against doing this is that we would essentially be asking poorer people today, to help richer people in the future.

The other question I asked related to future economic growth. A basis of much of the argument is that continued economic growth means that “even though climate change gets worse over time, the economic situation gets better at a much faster rate (under the most probable set of scenarios), and so it is rational to delay some action.” My understanding, though, is that most estimates of a carbon tax are based on models in which continued economic growth is assumed. Even for modest growth rates, the size of the world economy would double in a few decades. Hence, damages due to climate change would need to be substantial in order for people in the future to be poorer than they are today. If economic growth does continue, then this does indeed seem very unlikely.

What I was wanting to understand is whether or not anyone had attempted a self-consistent calculation in which one tries to incorporate the impact of climate change on economic growth itself. I have a feeling that some have and seem to remember Stoat having a post about this, but can’t find it. If anyone can find it, maybe you could point it out.

There was one other aspect of a carbon tax that I have been trying to understand. In principle the idea is that you’re paying today for damages that will happen in the future (internalising externalities). If the estimates are correct, then every MtCO2 emitted, will actually produce the damage that is estimated. In other words, a properly determined carbon tax does not prevent this damage from happening, it simply ensures that we’re paying the full cost of emitting this carbon. However, climate change is a global issue. Taxation is typically local. It would seem, therefore, that this would imply that a rich part of the world could be paying today, for damages that will occur in a poor part of the world in the future.

Maybe I’m wrong about the above (if so, feel free to explain why) and it may not really make a difference from a market perspective. The goal of a carbon tax is really – I think – to simply ensure that the market is fair; to ensure that everything is properly priced so that the market can operate in the most efficient way possible. However, it does seem as though there is the possibility of rich parts of the world paying today for damages that will accrue in poor parts of the world in future. If I’m wrong a about this, maybe someone who understands this better than I do could explain in the comments.

I’m also aware that even if I am roughly right about this, it doesn’t mean that a carbon tax isn’t the way to go, because the alternatives may well be far less effective. Even though a carbon tax is intended to simply pay the future damages due to emissions today, a goal is obviously to ultimately reduce emissions by ensuring that fossil fuels don’t have some kind unfair advantage over alternatives (and vice versa, of course). I should make clear, however, that I am just a lowly physicist, so may well be confused about some of this complicated economics 🙂

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227 Responses to Why are carbon taxes so low?

  1. dikranmarsupial says:

    “However, it does seem as though there is the possibility of rich parts of the world paying today for damages that will accrue in poor parts of the world in future.”

    Isn’t that as it should be if the damage that accrues in poor parts of the world in the future from the carbon emissions from rich parts of the world today (or “yesterday”)? The thing that would be more difficult to factor in is whether it is fair for the developing world to pay more (via e.g. carbon taxes) to bring their standard of living closer to that of, Say Europe, Japan or the USA who have had the historic benefit of fossil fuels without this overhead. I don’t think we can take a purely economic view of this any more than a purely scientific one as maintaining civilized relations with other countries is also an issue. Glad I am just (noodly appendages help me) a machine learning devotee! ;o)

  2. Isn’t that as it should be if the damage that accrues in poor parts of the world in the future from the carbon emissions from rich parts of the world today (or “yesterday”)?

    I may well be confused, but what I was meaning is that the carbon tax we pay today, stays in our local economy. It doesn’t actually go to pay for the damages that will happen in the future. It seems as though there is a possibility that some region that may have emitted very little, will have to deal with damages that may be due to past emissions from other regions that may well be richer than they are. At least, I think that is possible.

  3. The impact of climate change on economic growth has been included in the models that estimate the social cost of carbon since Nordhaus (1992, Science). Indeed, excluding this was one of the major criticisms of Nordhaus’ initial estimate (1991, Economic J).

    Nordhaus uses theoretical considerations and an old-growth model. Fankhauser & Tol (2005, Res Ener Econ) revisit this using new-growth models. Dietz & Stern (2015, Economic J) do the same, reaching drastically different conclusions.

    There are empirical estimates too. Dell, Jones & Olken (2012, Am Econ J: Macro) and Burke, Hsiang & Miguel (2015, Nature CC) offer sharply different estimates.

  4. > incorporate the impact of climate change on economic growth itself

    I’m pretty sure that was a piece about IAMs, one of which had folded in GW effects on the economy. http://scienceblogs.com/stoat/2013/08/15/climate-change-policy-what-do-the-models-tell-us/ refers, but isn’t the right one. Oh, I think http://scienceblogs.com/stoat/2015/01/17/how-much-is-climate-change-going-to-cost-us/ is the one you want.

    OTOH, it isn’t as interesting as you’d think to do that, because the impact of GW, until it gets Really Big, isn’t very big. If you’ll forgive the handwaving. Try looking at Stern’s damage estimates to 2100 for example.

    > a goal is obviously to ultimately reduce emissions by ensuring that fossil fuels don’t have some kind unfair advantage over alternatives

    Its may be truer (from a pure economics perspective) to say “a goal is to [ensure] that fossil fuels don’t have some kind unfair advantage over alternatives”; and that the emissions reductions are incidental.

  5. WMC,
    Thanks, that’s the one.

    Its may be truer (from a pure economics perspective) to say “a goal is to [ensure] that fossil fuels don’t have some kind unfair advantage over alternatives”; and that the emissions reductions are incidental.

    That was what I was trying to get across, even if I didn’t make that clear. So, yes, I agree.

    Richard,

    The impact of climate change on economic growth has been included in the models that estimate the social cost of carbon since Nordhaus (1992, Science). Indeed, excluding this was one of the major criticisms of Nordhaus’ initial estimate (1991, Economic J).

    Do you mean that some kind of impact is included, or that the calculation is actually self-consistent? The latter would seem to imply some kind of evolution in time.

  6. @wotts
    Both: Included and self-consistent. (On the latter, Nordhaus is a son of Bourbaki, recall.)

  7. ATTP, ah, I see what you mean; yes there would need to be some form of (I am sure universally popular with the electorate) mechanism for redistributing the taxes in foreign aid. The problem is indeed not just an economic issue.

  8. Prof. Tol, just another reminder: There have been some new flaws identified in your piecewise linear analysis paper here. Your response/clarification would be appreciated.

  9. Do any of the economic models incorporate the issue that ATTP has identified, i.e. that the taxes are not raised in the countries where the damages are necessarily incurred. Is the assumption that each nation will tax carbon according to its own susceptibility to damages (which would be rather unfair) or is the world treated as a single monolithic economy (which would be an unrealistic “spherical cow”) or is something better done?

  10. I sure hope you got it wrong when you wrote “In principle the idea is that you’re paying today for damages that will happen in the future (internalising externalities).”

    The idea is (should be?) to introduce a bias in the market to favor a gradual shift from CO2 emitters to non CO2 emitters. This isn’t a tax you pay today in one lump sum, it’s an amount X which you will pay each time you emit CO2. Maybe you perceive its “too low” because you didn’t factor it’s going to exist for decades or centuries.

    One reason why I hammer away at the unreasonable emissions estimates used in RCP8.5 is the end result, which leads to excessive “damages from CO2”, estimated using a bogus set of figures. In a sense you guys cut your own throat by exaggerating and creating a hysterical approach to something that’s much more manageable if you don’t set those ridiculous objectives you have.

  11. The article you mention is most interesting, and rasied a lot of points I hadn’t thought about. But there are a number of implicit assumptions.

    The first is that climate change is linear and that therefore its costs are linear too, But for things like hurricanes/floods/droughts it is clearly non-linear because of the hydrological cycle. Secondly there is the likelihood of potential negative feedbacks. If temperatures rise enough, there will be the very significant risk that methane clathrates in the tundra and on continental shelves will melt. Methane is a far more powerful greenhouse gas than carbon dioxide. The second assumption is that growth will continue. But it may not, not because of any failure of the growth engine itself (technological advance) but because of the negative impacts of global warming. There are also the externalities other than global warming to consider. Burning fossil fuels causes air pollution which kills millions of people each year (https://www.theguardian.com/environment/2016/feb/12/air-pollution-deaths-india-china)

    He assumes also that switching to renewable energy sources will be costly.

    In one sense, it will: we will have to make capital outlays to replace generating plants with renewable versions (though in the developed world the majority of coal-fired power stations are coming to the end of their useful lives anyway, so it’s not additional expenditure).

    However, wind and solar are now cheaper than (new) coal, though about the same as gas. Lazard ( https://www.lazard.com/media/2390/lazards-levelized-cost-of-energy-analysis-90.pdf) has estimated (November last year: a lot can happen in renewables in a year) the LCOE of wind at $32 to $77 per MWh, of solar at $58 to $70 per MWh while (new) coal is at $96 to $150. But the critical point is this: the costs of renewables are plunging as we move down the learning curve. So wind is falling by 10% per annum, solar even faster. In Lazard’s chart, they have a forecast for PV in 2017 at $46 per MWh. But that forecast has already been surpassed in Dubai and Chile, where contracts have been signed at $29.90/MWh (Dubai) and $29/MWh (Chile) A year ago, a PV contract was signed in Dubai at $59/MWh and most industry insiders regarded this as reckless. Comments ranged from “mad” to “impossible”! A year later …..

    The most interesting perhaps is the plunge in the price of concentrated solar power (CSP) Lazard has estimated that at between $119 and $181 /MWh. CSP can deliver baseload power, or even better, power when the grid needs it at peak periods which no conventional baseload plant can do. Dubai has just signed a CSP contract for the largest CSP plant in the world at $70/MWh. Yes, these are in places with very high solar radiance (see chart here: https://gnightearth.com/2016/08/15/sunlight-the-equitable-energy-source/.) But places with half the radiance will only double the costs of PV or CSP, which would put them still broadly as cheap as coal and gas.

    Batteries are falling in price too: the rash of new battery giga-factories has caused a precipitous decline in battery costs of 70% over the last 18 months (http://volewica.blogspot.com.au/2016/07/battery-costs-fall-70-in-18-months.html) Tesla’s published battery costings suggest a LCOE for their batteries *now* of $230/MWh which is not much more than the top end of gas peaking power ( http://volewica.blogspot.com.au/2016/08/tesla-powerpack.html.)

    And all these costs are falling exponentially.

    In other words, a carbon tax (which is morally and economically justified to remove the externalities, but which should also include the costs of air pollution other than carbon emissions) may simply encourage economies along the path they were already going to take, and would have no negative impact on growth. Given that the risks of global warming are not symmetrical–the costs of temperatures exceeding model estimates are an order of magnitude larger than the costs of undershooting model forecasts– carbon taxes are eminently sensible and prudent. Since governments have to raise tax anyway, a carbon tax is as good a way of doing it as any other. In fact, taxes should in principle be levied on “bads” (like tobacco, for example), and smokestack and exhaust emissions are surely the ultimate bad once you have alternatives which are clean, green and cheap.

  12. > redistributing the taxes in foreign aid

    I think you’ve misunderstood. As I read it, ATTP is saying that the current rich world might be paying future costs for the poor world. That would imply redistribution the other way round.

  13. ATTP clarified later – the foreign aid would be necessary to address that problem and send the taxes to where they can ameliorate the damages, rather than just staying in the countries where they are collected. The problem is that the current rich world won’t be paying the future costs for the poor world in practice, despite paying for the damage being the justification for the taxes. Won’t happen, of course, which rather limits that justification for carbon taxes.

    Rather good point (if I now understand it correctly), which hadn’t occured to me before.

  14. Fernando,
    No, I meant what I said and, as I understand it, that is the idea behind a carbon tax. If anything, what you’re suggesting is what the post I linked to is discussing. We could choose to introduce some kind of bias that acts to further reduce future damages, but that might imply people today paying to help people in the future who may well be richer than we are now (on average).

    WMC,
    Dikran has got the point I was trying to get at. It may well be that I misunderstand something, though.

  15. ATTPs point appears to be that “Even though a carbon tax is intended to simply pay the future damages due to emissions today”, however “Taxation is typically local [but damages are incurred globally]. It would seem, therefore, that this would imply that a rich part of the world could [should] be paying today, for damages that will occur in a poor part of the world in the future.” but there is no mechanism for fairly distributing taxes collected locally to where the damages are incurred.

    I misinterpreted the “could” at first.

  16. Red herrings galore: These are Solow growth models with a perfect capital market and single representative agent per region.

  17. Greg Robie says:

    …ATTP, this is the perfect the question to goes with my AM coffee. 😉 and good questions have far greater social value than answers! Among your question I can see this:

    Your eyes are starting to see through the Orwellian doublespeak of the motivated reasoning of the meme. Congratulations.

    First, what I think you are seeing is that the Paris Agreement is framed for the privileged’s financial institutions and is, at best biased to a cap and trade approach to putting a price on carbon. Perhaps because of European first hand experience with the structural weaknesses of cap and trade with offsets, the conversation there is about a carbon tax, but from what I read in the Paris Agreement the negations that will be ongoing for the next five years [at least] relate to cap and trade with offsets. This approach allows for commissions, the life blood of financial businesses. Sure, a carbon tax is an approach to carbon pricing that makes better sense than cap and trade, but with the financial sector of the US economy being in excess of 20%, and, like The Square Mile [until Brexit], an expanding sector of the economy, governments are rather locked into policies that keep those operational revenues secure.

    I also hear in your questions a framing that makes current expenses, future costs. The physics of the climate system define the future as being in the past. We don’t have the language for the truth of this. But the consequence is that the inertia of the climate system makes economic calculations fundamentally flawed … Or CapitalismFail.

    Conservative climate science modeling is, but for the increasing likelihood that climate sensitivity is low, struggling with observational data that suggest mitigation and backing out of abrupt climate change trends is a pipe dream; that geo-engineering is all that is politically/economically practical [while we wait our scientist-priests to save us with a technological fix]; that the Paris agreement, as, functionally, Orwellian doublespeak, is necessary to maintain the ‘civility’ of the “total war” that’s systemic within CapitalismFail … And all that really has been agreed to. Or, as a compassionate physist, you are being played.

    So, consider that the contradictions these questions seem to be about are not contradictions. Rather, think about whether they might be born of motivated reasoning that is wearing thin. And that the “warrior” in you needs this report from a “scout”.

    =)

  18. I’m not entirely sure I understand ATTP’s point. Remember (I think I’ve got this correct) that from an economics point of view, the purpose of the taxation is to internalise the externalities. And that’s it. It is *not* there to pay for the damage.

    If the point is that costs and benefits are unevenly distributed and it seems “morally fair” that some of the rich world taxes should go to the poor, then… errrm… that’s kinda bleedin’ obvious, no? At least, I’ve been talking about that kind of thing for ages; e.g. http://scienceblogs.com/stoat/2012/12/03/time-for-carbon-taxes/.

  19. ” errrm… that’s kinda bleedin’ obvious, no? ”

    Indeed, I think the point is that this is unlikely to happen as the taxes will be spent on other things in the countries in which they are collected, rather than being spent on ameliorating the problems caused elsewhere by the emissions being taxed.

  20. WMC,

    I’m not entirely sure I understand ATTP’s point. Remember (I think I’ve got this correct) that from an economics point of view, the purpose of the taxation is to internalise the externalities. And that’s it. It is *not* there to pay for the damage.

    Yes, that is my understanding too. I was simply pointing out that if the estimates are accurate then the damages will actually occur, and someone will end up paying for them, and those people may not be the ones who benefitted from the emissions in the first place.

    If the point is that costs and benefits are unevenly distributed and it seems “morally fair” that some of the rich world taxes should go to the poor, then… errrm… that’s kinda bleedin’ obvious, no?

    It does seem obvious. It’s just not obvious that this will actually happen.

    Richard,

    Red herrings galore: These are Solow growth models with a perfect capital market and single representative agent per region.

    Okay, but that doesn’t really clarify anything. Care to elaborate?

  21. > the purpose of the taxation is to internalise the externalities. And that’s it. It is *not* there to pay for the damage.

    I thought negative externalities included damage costs:

    Today, the most pressing and complex externality problem is greenhouse gas (GHG) emissions. The atmospheric accumulation of greenhouse gases from human activity has been identified as a major cause of global warming. Barring policies to curb GHG emissions, scientists expect this problem to grow and eventually lead to climate change and its accompanying costs, including damage to economic activity from the destruction of capital (for example, along coastal areas) and lower agricultural productivity. Externalities come into play, because the costs and risks from climate change are borne by the world at large, whereas there are few mechanisms to compel those who benefit from GHG-emitting activity to internalize these costs and risks.

    http://www.imf.org/external/pubs/ft/fandd/basics/external.htm

  22. FWIW, concerns have recently been raised about how the stoopid modulz take into account Joseph’s second item, technological innovation:

    https://judithcurry.com/2016/08/30/climate-policy-fake-it-til-you-make-it/

    We should celebrate that for once Judy agrees with Kevin Anderson about something.

    (No paradigm seems to have been harmed in the target editorial, quite a feat considering that Oliver is one of its authors.)

  23. andrew adams says:

    Yes, negative externalities do include damage costs, but I think the point is that by levying a tax on something equivalent to the cost of the damage it causes means we have to decide whether we value the benefit we get from that activity more than the x dollars we pay for the externalities. It doesn’t necessarily mean that the tax levied is specifically used to pay for the cost of the damages caused, especially if the damages occur in future.

  24. “the purpose of the taxation is to internalise the externalities. And that’s it. It is *not* there to pay for the damage”

    Actually, it is. A Pigou tax both discourages the externality and compensates its victim.

    “Care to elaborate?”

    Pick up a textbook? Romer’s Advanced Macro has it all.

  25. andrew adams says:

    The problem with this is that it would imply that people today would be paying in order to help people in the future who will likely be richer than we are now.

    I guess we’re getting into questions of intergenerational justice now, which are always tricky, but if I were a person from the future I might be rather peeved if I were suffering adverse consequences of climate change and realized that my predecessors saw it coming and did nothing to stop it.

    The thing is, those people in the future may well be richer than us but we have one thing which they may not have (or not to the same extent), which is a choice – whether to continue on the current path or try to alter our behavior before it is too late.

  26. Andrew isn’t that basically saying that we don’t know how to discount (because we are not very good at deciding what we really want/care about). I think there is a lot of the sorts of thing that Kahnemann talks about in “Thinking, fast and slow”, in that we don’t have the cognitive ability to reliable balance long term costs and short term benefits – if we did there wouldn’t be so many of us that are overweight or obese (for example).

    If the justification for the tax is not the reason that it is actually imposed, then that seems to be one of those things that tends to make the electorate cynical about politics (c.f. brexit/NHS funding).

  27. izen says:

    I see no reason that a carbon tax would be any more, or less, effective in reducing consumption or encouraging alternatives than the other consumption taxes on tobacco and alcohol.

    Current plans to operate a sugar tax in various localities reveal the depth of regulatory capture and the inelasticity of demand.

  28. Andrew,
    Indeed, I think that is right (at least, that’s how I understand it). [edit: so many comments have appeared since I started writing this, I should make clear that this refers to Andrew Adams’s first comment. However, his second about intergenerational justice also makes some good points.]

    However- I think – in many scenarios where one might do this, the future cost is levied on those who may have benefitted from the activity that took place in the past. So, they can pay because their economy has grown due the activity that produced the damage. In this case, it seems quite likely that many of those who will probably suffer will not have benefitted much from the activity that produced the damage. This may be obvious (as WMC says) but it’s not obvious – to me, at least – how we might deal with this, or that we will really do so.

    To follow up on this, I have seen people argue that a carbon tax would mean we’ve solved climate change. As I understand it, this is a rather nuanced interpretation of solved. It may well be that it would produce the optimal future pathway, but I don’t think it really means that we’ve solved it.

  29. Richard,

    Actually, it is. A Pigou tax both discourages the externality and compensates its victim.

    The latter is the bit that doesn’t seem obvious. How does it compensate the victims?

    Pick up a textbook? Romer’s Advanced Macro has it all.

    Okay, but I thought that maybe someone who has accussed things here of being “red herrings” might be good enough to elaborate a little. This isn’t some kind of trick.

  30. RCP8.5 is for the people who claim CO2 is life, who are fighting a political war to increase CO2 emissions as much as possible because it is a net benefit. A lot of such people are on WUWT. I am sure Fernando Leanme is attacking them as ferociously as he attacks people who want to solve climate change.

  31. Willard says:

    > I guess we’re getting into questions of intergenerational justice now, which are always tricky, but if I were a person from the future I might be rather peeved if I were suffering adverse consequences of climate change and realized that my predecessors saw it coming and did nothing to stop it.

    Joseph tackles that point, which I believe gets us to the main issue:

    The idea that all this fossil fuel is going to just sit there, underground, untouched – this amazing source of incredibly cheap energy – and that all the nations of the world are going to cooperate to ensure that it stays that way, is to me totally unbelievable. So like many other people, I see the “end game” of policy as simply correcting a negative externality, eliminating the price distortion that it created, then relying upon the combined efforts of both governments and market actors to find a technological solution to the problem, which will eliminate the underlying incentive to burn fossil fuel.

    Also note that Joseph makes sure that he doesn’t taking “Lomberg’s line” [sic.], which is kinda cool since it’s most probably fallacious, and that he contrasts his economic approach to a deontological one, for which he cites this paper:

    https://www.anu.edu.au/fellows/jbraithwaite/_documents/Articles/Limits_Economic_1981.pdf

    The link in the article is deprecated. This one looks more robust.

  32. Willard says:

    > I see no reason that a carbon tax would be any more, or less, effective in reducing consumption or encouraging alternatives than the other consumption taxes on tobacco and alcohol.

    One is more crucial to a good life than the other. No, I’m not telling you which one.

    Joseph seems to neglect the possibility that a tax to cover for the SCC acts like an excise tax. Speaking of which, there’s an important psychological dimension in how to implement taxation:

    Economists have actually quantified this. One study found that when taxes were included in groceries’ sticker prices, demand went down 8 percent. You see the same effect with automatic tolls like E-ZPass. What you’re paying is less obvious, so governments can get away with charging more.

    The bottom line for policymakers is clear: If you want people to consume less of something, make the tax more obvious. If you want to just collect more money, make it less obvious.

    http://www.npr.org/sections/money/2013/11/22/246743018/whats-the-best-way-to-tax-marijuana-it-depends-on-what-you-want

    This may explain why tobacco and oil companies stopped whining to the public about how much taxes they were paying.

  33. Willard says:

    > I thought that maybe someone who has accussed things here of being “red herrings” might be good enough to elaborate a little.

    Identifying the red herrings would be great.

  34. The Very Reverend Jebediah Hypotenuse says:


    Identifying the red herrings would be great.

    Because an unidentified red herring is itself a red herring.

  35. andrew adams says:

    Dikran,

    I think in theory it does assume we are not making a judgement about an activity being “good” or “bad”, merely whether we are prepared to pay the economic cost. Obviously this isn’t necessarily how it works in practice – we do sometimes use taxes as a deterrent for things we judge as “bad”.

    Where the costs are incurred currently then maybe the taxes, as Richard says, should be used to directly compensate those who suffer the negative externalities, but I don’t think that’s how it normally works in practice. Certainly in the UK I can’t think of any taxes which are hypothecated in this way – we don’t specifically spend tobacco taxes on the NHS or car tax on maintaining the roads. OTOH, we still have to ensure that those who suffer are helped in one way or another, otherwise there could certainly be political consequences.

  36. ‘”Actually, it is. A Pigou tax both discourages the externality and compensates its victim.”

    The latter is the bit that doesn’t seem obvious. How does it compensate the victims?’

    Pigou indeed is not the clearest of writers. The original definition is a page long. Modern definitions are much shorter, and have that the Pigou tax is paid by the polluter to the pollutee.

  37. Richard,

    Modern definitions are much shorter, and have that the Pigou tax is paid by the polluter to the pollutee.

    What I’m trying to understand is how this happens, in practice, with a carbon tax. As I understand it, a carbon tax would be paid by the consumer and the revenue would go into general taxation in the country in which it is paid (correct me if this is not what is suggested). How then, does this compensate people in a different country who may suffer some of the damages due to these emissions?

    My understanding was that a carbon tax was really intended as a way of ensuring that we’re paying the full cost of emitting CO2, rather than as a way of generating income to actually pay for the damage that would occur in future.

  38. @wotts
    To the best of my knowledge, no country has ever levied a Pigou tax. There are plenty of environmental taxes, which are typically paid to the exchequer. A recent exception is the English plastic bag levy, which is paid to retailers who are under a moral obligation to pass the moneys to a charity of their choice.

  39. Richard,

    To the best of my knowledge, no country has ever levied a Pigou tax.

    I see. So the idea might be to implement it as a Pigou tax, but we may never have actually implemented such a tax?

    There are plenty of environmental taxes, which are typically paid to the exchequer.

    Yes, and my understanding has always been that this is also how a carbon tax would be implemented. Are there suggestions that it might be implemented in some different way?

  40. Andrew “merely whether we are prepared to pay the economic cost.”

    I wasn’t referring to whether something was good or bad, just that we are not very good at determining whether we are prepared to pay an economic cost or not, where the cost is incurred now but the benefit is substantially deferred (even if the beneficiary is ourselves, it is even more difficult when it is someone else). This is a cognitive issue, rather than an economic one. If we were rational about this sort of thing then a strictly economic view might be practical, but as I pointed out we are demonstrable irrational in our “discounting” in everyday life.

    If we want to use a carbon tax to prevent people from generating fossil fuel emissions, then we should set the taxes at a rate that will produce the required reduction in emissions, rather than pretend that it has something to do with offsetting the damages caused later. Call me old-fashioned, but it seems to me that the tax might be more palatable if the justification for the rate set was consistent with the stated reason for the tax and there was a plausible mechanism by which it could be implemented (which is the problem pointed out by ATTP).

    I personally have no problem with a carbon tax designed to reduce our emissions of CO2, with the revenue redistributed to society via e.g. NHS or education or e.g. fuel subsidies to those who would otherwise not be able to afford their necessary fossil fuel emissions (e.g. avoiding hypothermia in winter), as it is really “luxury” emissions that need taxing most.

    I also think that rich nations should compensate poorer nations for the losses incurred by the poorer nations due to the fossil fuel use of the richer nation. That seems only fair. However, if the carbon tax is justified or determined on that basis, then there needs to be a mechanism to ensure that the revenue generated is used for that purpose or there is a logic fail that will invite cynicism.

  41. izen says:

    @-“Pick up a textbook? Romer’s Advanced Macro has it all.”

    That presupposes the neo-colonialism and dubious a prior assumptions implicit in his analysis are credible or at least something the reader can agree with. Other viewpoints exist.

  42. dana1981 says:

    There’s Moore & Diaz (2015), finding that climate change particularly stunts the economic growth of poorer countries.
    https://www.theguardian.com/environment/climate-consensus-97-per-cent/2015/jan/26/climate-change-could-impact-poor-much-more-than-previously-thought

    And then Burke et al. (2015) found that wealthy countries have been just as susceptible to impaired economic growth due to hotter temperatures as poorer countries, once a country passes the ideal temperature (13°C).
    https://www.theguardian.com/environment/climate-consensus-97-per-cent/2015/oct/27/global-warming-could-be-more-devastating-for-the-economy-than-we-thought

    The purpose of a carbon tax is both to reflect the actual costs of products in their market price, and discourage the consumption of fossil fuels because of the harm they’ll do particularly to future generations (but also to ours).

  43. @izen
    Romer is David, not Paul.

  44. andrew adams says:

    ATTP,

    To follow up on this, I have seen people argue that a carbon tax would mean we’ve solved climate change.

    Yes I think I’ve seen Tim Worstall make this argument or something very similar. The logic is that as long as the carbon tax matches or exceeds the calculated cost of climate change then whatever level of emissions we continue to produce afterwards will be an indicator of the level of climate change harm we have decided is acceptable given the cost of avoiding it.

  45. BBD says:

    Yes, I think Tim Worstall does say something like that. However, the argument depends on perfect knowledge of the damage costs and so is flawed.

  46. Willard says:

    > To the best of my knowledge, no country has ever levied a Pigou tax. There are plenty of environmental taxes, which are typically paid to the exchequer.

    For Richie’s Eyes Only:

    Over the past decade, the trend toward greater use of tax policy toward environmental problems has nearly become a stampede, as the administration, Congress, and environmental groups have shown a much greater interest. Some of the better-known examples include the excise taxes on hazardous chemicals, enacted in 1980 to fund the Environmental Protection Agency’s hazardous waste site clean up program (Superfund). In the aftermath of the Exxon Valdez oil spill, Congress in 1989 imposed an additional excise tax on petroleum and petroleum products to fund the Oil Spill Liability Trust Fund. That same year, Congress imposed an excise tax on the manufacture of ozone-depleting chemicals, a provision that will be discussed in greater detail later in this article.

    http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.8.1.133

  47. izen says:

    @-“Romer is David, not Paul.”

    The one with the Cato institute ?
    Worse.

  48. @izen
    No, that’s Lester. And that’s a Romero rather than a Romer.

  49. There are also a few Romans called Cato, but they did not favour neo-colonialism either, instead arguing for the classical variant.

  50. andrew adams says:

    BBD,

    Yes, I think it’s flawed on a number of levels.

  51. @willard
    As the text says, that’s an excise rather than a Pigou tax.

  52. andrew adams says:

    Dikran,

    Sorry if I misunderstood you slightly – I certainly don’t disagree with any of that. I think there are some issues where we can leave it up to individual choices (even if they are flawed) but on others where the impacts are wider and can only be tackled through collective actions we do have to make value judgements about whether certain behaviours or their effects are undesirable in themselves and use pricing as a deterrent rather than just a reflection of the actual costs.

    I also agree that we need transparency in the mechanisms for raising those taxes and even if they are not directly hypothecated there does have to be some corresponding increase in spending on things people feel are worthwhile, so it’s not just seen as government raiding the taxpayer for its own enrichment.

  53. Willard says:

    > that’s an excise rather than a Pigou tax.

    Some see no dilemma there, Richie:

    Excise taxes can nevertheless serve the function of controlling externalities, a consideration omitted from the Atkinson-Stiglitz framework. Pigou (1920) famously proposed the imposition of corrective excise taxes at rates equal to marginal external damages, noting that doing so restores economic efficiency, and Sandmo (1975) illustrates the optimal application of Pigouvian excise taxes. when the government relies on excise taxes to raise revenue In practice, governments impose heavy taxes on energy products, motor vehicles and other transportation, waste management, ozone-depleting substances, and other products and activities that arguably create externalities in degrading the environment. In 2000, OECD countries raised an average of 5.5 percent of their total tax revenues from these environmental taxes, with European Union members averaging 6.8 percent, and the United States the lowest in the OECD at 3.4 percent (Hines, 2007).

    http://www.bus.umich.edu/otpr/WP2007-2.pdf

    Must be a vocabulary thing.

  54. @willard
    All Pigous are excises, but not all excises are Pigous.

  55. Greening the tax system by shifting the tax revenue from stuff we like such as labour to stuff we need less of such as environmental pollution is clearly a good idea. It would also be a very efficient way to to solve climate change and the state influence would be least intrusive that way.

    I would prefer the peoples of this world to negotiate the right prices and not leave that up to the dictate of some economists who claim to defend to poor of today against the greedy rich of tomorrow. First of all, the discount rate is up for negotiation; there is no objective way to set it. Secondly, people will die, will lose their loved ones, will end up in hospital, will be handicapped for life due to climate change impacts. Economists are right that there is a finite price we are willing to pay to avoid one death, but I think we the people should set that price and not the economists. Thirdly, we have have the historical emission from the rich from which the rich got the benefits. Economically it may make no difference who emits CO2, but morally it sure does and the rich should naturally pay more to clean up the mess they made and benefited from.

    In the light of the recent and ongoing price drops of renewable energy the optimal price of CO2 emission may also no longer be that important. If we would stop the subsidies for fossil fuel companies, probably nearly any small price on CO2 emissions would make sure that all new electricity generating capacity would be carbon free. Setting the price on emissions higher would lead to the destruction of a lot of invested Capital. We are already very close to that point in the industrialised countries, most of the new capacity is already renewable. The step to 100% is not that big any more.

    A higher price on emission would still be desirable to speed up the transition in non-electric sectors such as heating and currently still transport. If you want to avoid too much turmoil in the electricity sector, which politicians likely prefer, who wants to provoke a recession on their watch, you may need regulations to speed up the transition for these sectors. Regulations such as building codes that set increasing standards for energy efficiency or like the new Dutch mandate that new cars will have to be electric starting in 2025.

    https://www.theguardian.com/technology/2016/apr/18/netherlands-parliament-electric-car-petrol-diesel-ban-by-2025

  56. verytallguy says:

    First of all, the discount rate is up for negotiation; there is no objective way to set it.

    This. Economics of climate change is a smokescreen for values; even if we could predict with complete accuracy everything, marginal changes in discount rate make orders of magnitude difference in evaluation of alternative policies.

    Quantitative economics has little or nothing to offer us in deciding policy.

  57. Willard says:

    > All Pigous are excises, but not all excises are Pigous.

    Indeed, and some, but not all environmental taxes could be Pigouvian excise taxes.

    Some of them already seem to exist, contrary to what you said.

    Unless you don’t consider these examples are truly Pigouvian?

    I can try to find others.

    ***

    In other news, Denizens are preparing a motion to impose a Unicorn tax.

  58. David B. Benson says:

    “Carbon tax”? Surely everyone who has taken high school chemistry knows the difference between carbon and carbon dioxide. The former, in the form of graphite is used as pencil leads and as carbon fiber for Boeing Dreamliners and pricey auto body parts. As diamond it has uses in industry and for diamond anvils in high pressure laboratories.

    Carbon dioxide is a gas and as there is too much of it in the atmosphere it seems wise to introduce a fee on excess carbon dioxide emissions.

    While the chattering classes seem to fail to understand the difference surely scientists and engineers understand that the correct term is

    Excess Carbon Dioxide Emissions Tax.

    Kindly do not fall for the confusion caused by the lazy and the ignorati. Use the correct term.

  59. R.Tol writes: “These are red herrings…” What ‘these’ refers to is [apparently] left as an exercise for the reader.

    Any model that assumes perfect markets and complete information is — of course — divorced from reality. Full stop.

    Reading Stern can be interesting. Stern (and I believe Tol) use a pure time discount rate(δ) of 0.1%. As I wrote at Stoat’s some months back:

    [Stern] “For δ=0.1 per cent, there is an almost 10% chance of extinction by the end of a century. That itself seems high – indeed if this were true, and had been true in the past, it would be remarkable that the human race had lasted this long. Nevertheless, that is the case we shall focus on later in the Review, arguing that there is a weak case for still higher levels.”

    It’s really a rather amazing discussion where he basically says: Ethically we should treat future generations preferences the same as today, but then we’ll discount their preferences anyways because they might not exist (think asteroid strike). And if you don’t like our low number we could have made it higher!

    The converse – where our decisions today *cause* economic or societal catastrophe — is not dealt with. Those apparently happen too far in the future to contemplate. And while discount rates and rates of time preference can surely skew any IAM results, the more interesting question is: Why do we want a carbon tax? Those who obsess over economics (after having divorced Econ from both reality and morality) will speak of internalizing externalities in the (often unstated) name of economic efficiency. But whence did efficiency become our overarching goal? It’s more efficient to simply kill off the elderly once they get past their productive lifespans. Yet I rarely see this argument for efficiency being made.

    I would hazard a guess that for many of us the reason a carbon tax is an acceptable tool has little to do with externalities or efficiency, but the chance to reduce emissions. Paying for the externalities is a fool’s game; the possible damages are infinite. Only by playing a mathematical game of three-card monte can we deny what we all know – at some point net emissions must be reduced.

    I’ll propose a Mission Statement for those who think we can discount rate our way out of this mess: Our generation won’t reduce emissions. We will pass this task on to future generations. We hope and pray they have more adult supervision than us — and that we haven’t completely screwed them before they get the chance to correct our mistakes.

    P.S. What effect should the last 8 years of global economics, specifically negative interest rates and ‘secular’ stagnation’, have on our choice of discount rate?

  60. oneillsinwisconsin,

    And while discount rates and rates of time preference can surely skew any IAM results, the more interesting question is: Why do we want a carbon tax? Those who obsess over economics (after having divorced Econ from both reality and morality) will speak of internalizing externalities in the (often unstated) name of economic efficiency. But whence did efficiency become our overarching goal?

    When optimal started sounding rational?

    My modest proposal is for SCC to be calculated as the estimated cost of replacing it. Seems the more tractable analysis, and can be modified empirically as we actually begin doing it.

  61. @oneill
    I always use a range of discount rates in my work.

    @victor
    The value attached to health risks are not set by economists, but rather estimated from the behaviour by we the people.

    There is a debate whether the discount rate should be set by a committee of wise men (few women would arrogate this privilige) or measured like the value of health risks. If the former, these men are not economists (for economics is silent on this subject) but rather philosophers and theologists.

  62. Richard,
    I’d be quite interested in a response to this question (I don’t really expect one, but I thought I’d try anyway). Just for everyone else’s benefit, Richard is complaining about me allowing rather unpleasant comments. There are two aspects to this that I find a little strange.

    1. He’s doing so at cliscep.com. I don’t claim that the comments here are never unpleasant, but I would dispute any suggestion that they come close to the level of unpleasantness that is achieved there.

    2. Richard has in the past complained about me “censoring” comments (once tweeting my university to complain). I can either “censor” (which I would call moderate) unpleasant comments, or I can not “censor” (moderate) unpleasant comments, but I can’t do both. Complaining about me “censoring” comments and complaining about me supposedly allowing unpleasant ones, seems rather inconsistent.

  63. verytallguy says:

    ATTP,

    following your link, cliscep is clearly a toxic place, and gleefully delights in attention seeking behaviour.

    What is your motivation for commenting there?

    Genuine question.

  64. R.Tol – “I always use a range of discount rates in my work.”

    The argument was that the pure rate of time preference should ethically be zero. What ranges of PRTP have you used? Have they ever been negative rates? Why not?

  65. vtg,
    I don’t have a good answer. I think I still harbour a naive hope that maybe some kind of interesting discussions are possible. It probably isn’t, but sometimes I try.

  66. @oneill
    We routinely use PRTPs of 0, 1% and 3% per year, but we’ve gone lower as well as higher in selected papers.

    There is, by the way, no valid ethical reason why the PRTP should be zero, as shown by Koopmans (the same) in the 1960s.

  67. Richard, speaking of things that are zero, you still haven’t clarified this AFAICS.

  68. Marco says:

    “Richard is complaining about me allowing rather unpleasant comments”

    Well, I can imagine he finds Dikran’s insistence to get an answer to a simple question “rather unpleasant”.

  69. Marco, I’d say that Richard’s unwillingness to answer the new criticisms of his work (piecewise linear model) while being keen to criticise the works of others, isn’t exactly pleasant. If Richard responds to the points made, or says that he is unwilling to respond to them, then I’ll stop asking.

  70. My comment about “unpleasant comments” was a statement of fact rather than a complaint.

  71. Willard says:

    > There is, by the way, no valid ethical reason why the PRTP should be zero […]

    Is there an ethically valid reason it should be as high as your favorite one, Richie?

  72. Willard says:

    > My comment about “unpleasant comments” was a statement of fact rather than a complaint.

    Unpleasantness is now a factual thing. That’s just great.

    Does it mean I can say that how Richie’s ignoring Dikran’s question borders sociopathy?

    Just as a statement of fact, of course.

  73. “My comment about “unpleasant comments” was a statement of fact rather than a complaint.”

    If you find having your work criticised unpleasant, the I understand that, but that doesn’t mean that there is anything wrong with the criticism. It also doesn’t mean that you should ignore the criticism, especially if you publish it in a “learned journal”.

  74. Richard,
    I was simply looking for some examples. Given what you say yourself, and the site on which you said it, it’s quite hard to know what you regard as “unpleasant”.

  75. Richard,
    In an attempt to draw something to a close, on page 2 of this working paper, you say:

    The 11 estimates for 2.5ºC show that researchers disagree on the sign of the net impact: 3 are positive, and 8 negative.

    If you look at Table 1, the 3 positive ones appear to be 0, 0, and 0.1. Dikran has asked about this, and your penalty term, a number of times. Maybe you could either clarify your penalty term and why you appeared to refer to two zeros as positive numbers, or you could say that you don’t wish to discuss it, and – I think – Dikran will be happy to drop it.

  76. IMHO this is a pretty unpleasant dismissive respsonse to a reasonable question about the methodology used in one of Richard’s papers:

    Richard Tol (@RichardTol) says:
    November 18, 2015 at 11:30 am

    Dikran, do you teach your grandma to suck eggs?

    Richard never did specify the type of penalty term that was used in his paper. I present this as an example of how Richard can substantiate his assertion (which ought to be a reasonable expectation in a rational discussion).

  77. ATTP wrote “Dikran will be happy to drop it.” indeed I would, at least then I would be certain that Richard was aware of the error in his paper.

  78. Willard says:

    > I was simply looking for some examples.

    Not a good idea, AT.

  79. Richard Tol wrote “My comment about “unpleasant comments” was a statement of fact rather than a complaint.”

    It could be that Richard is able to assert this as a fact because he can remember making comments here himself that he acknowledges were unpleasant. ;o)

  80. Not a good idea, AT.

    Quite possibly, I’m not sure that I really know what is a good idea, and what isn’t, anymore 🙂

  81. numerobis says:

    BC’s carbon tax levies the tax on (some) polluters and gives the proceeds to everyone in the province. That’s pretty close to pigouvian — BC doesn’t have a foreign policy, so it can’t spend the money on foreign aid to help poorer countries cope with the warming it causes (nor on bombing foreign places that are at war due to climate change).

  82. Raff says:

    Although I support carbon taxes, I find them problematic:
    1. There is no objective way to set their level;
    2. They don’t seem sufficient alone in reducing emissions close to zero. How big does the tax need to be to pay for the damage done by vehicle emissions in cities? There is no particular reason why that level of tax should make electric cars cost competitive with diesel or petrol. Regulations will be needed as well to force change.

  83. > I’m not sure that I really know what is a good idea

    Pay the ball.

  84. Perhaps this is clearer. As a bonus, it features our Haughty Herald of Hypocrisy.

  85. Eli Rabett says:

    VTG, wrt your question, abusing bags of wind is good sport.

  86. Eli Rabett says:

    Onell in WS, Stephan Gardiner in Climate Change, a Perfect Moral Storm knocks it out of the park

    In conclusion, the presence of the problem of moral corruption reveals another sense in which climate change may be a perfect moral storm. This is that its complexity may turn out to be perfectly convenient for us, the current generation, and indeed for each successor generation as it comes to occupy our position. For one thing, it provides each generation with the cover under which it can seem to be taking the issue seriously – by negotiating weak and largely substanceless global accords, for example, and then heralding them as great achievements – when really it is simply exploiting its temporal position. For another, all of this can occur without the exploitative generation actually having to acknowledge that this is what it is doing. By avoiding overtly selfish behaviour, earlier generations can take advantage of the future without the unpleasantness of admitting it – either to others, or, perhaps more importantly, to itself.

  87. Speaking of moral stuff, I’ve interviewed Lawrence Torcillo by email.

    Stay tuned.

  88. Richard Tol,

    There is a debate whether the discount rate should be set by a committee of wise men (few women would arrogate this privilige) or measured like the value of health risks. If the former, these men are not economists (for economics is silent on this subject) but rather philosophers and theologists.

    On this side of the Pond, we call such types central bankers.

  89. @brandon
    Central Banks set the interest rate, rather than the discount rate. On your side of the pond (with which I assume you mean the USA), the OBR sets the discount rate.

  90. Richard,

    You assume correctly about my location, but there may be some quirks in terminology. Anyway, the minor point of my snark is that there is a class of politically-appointed economists who twiddle the dials according to their own particular philosophy. I don’t understand why a carbon tax should work any differently — manipulate the levers based on some educated guesswork until the desired economic behaviour begins to manifest and periodically fine tune as conditions change.

  91. @brandon
    Economics, as a discipline, has nothing to say about how discount rates should be set, or at what level. Discount rates are set, however, and sometimes by people who are trained as economists.

  92. R.Tol writes:”@oneill We routinely use PRTPs of 0, 1% and 3% per year, but we’ve gone lower as well as higher in selected papers.”</i?

    I quoted the Stern Review earlier (see pages 46-47):

    [Stern] “For δ=0.1 per cent, there is an almost 10% chance of extinction by the end of a century. That itself seems high – indeed if this were true, and had been true in the past, it would be remarkable that the human race had lasted this long. Nevertheless, that is the case we shall focus on later in the Review, arguing that there is a weak case for still higher levels.”

    Stern also writes: “But what then would be appropriate levels for δ? That is not an easy question, but the consequences for the probability for existence of different δs can illuminate – see Table 2A.1.

    Table 2A.1’s highest value is 1.5%. For 1.5% the probability of the human race *NOT* surviving 100 years is 78%. For RT’s value of 3% (or higher) the probability approaches 100%.

    Some might intuit that even 0.1% is too high. For δ=3 per cent, I would categorize myself as speechless.

    One should note that δ is not the discount rate, it is one of the variables that Stern uses to calculate the discount rate. Stern refers to it as the “pure time discount rate.” Other economists refer to it as the pure rate of time preference. I suspect that R.Tol has not read the [previous messages thoroughly enough to understand what has been discussed and conflated the pure time discount rate with the discount rate. If not, then my original point – that many are just trying to discount our way out of this mess – is even more true than I knew.

  93. Willard says:

    > For δ=3 per cent, I would categorize myself as speechless.

    Why?

    ***

    > Economics, as a discipline, has nothing to say […]

    Perhaps because Richie sees economics as speechless.

  94. Willard says:

    Somehow related:

  95. Sou says:

    I haven’t read through the comments, however I’ll just add that I’ve never thought of a carbon tax in the way you’ve described it’s purpose, ATTP. Maybe I’m the odd one out but I have always seen it in a much shorter time frame and having a much more local purpose. That is, to discourage the use of fossil fuels and by default or, more usually by using the tax, to encourage the shift to renewables. A carbon tax can be structured in a way that it doesn’t penalise those least able to pay the cost. The tax is imposed on the carbon emitters who pass it on (or reduce their emissions so they don’t have to pay so much). The people who pay for the passed on tax will either be compensated out of the tax revenue if their income is low, or bear the cost, and/or find ways to reduce the cost themselves (eg by reducing their energy use). The rest of the revenue raised is to support R&D or investment in renewables.

    If it works well, then emissions will drop, there’ll be less to tax, the cost of renewables will fall, and the economy will have been restructured to one of much less reliance on carbon emitting energy.

    Economic restructuring goes on all the time. This is arguably the biggest effort so far, but it’s far from being the only example. (Countries set and remove tariffs, pay farmers not to use land for particular purposes, or to manage it in a particular way, tax tobacco so as to get a shift in the health costs, set up/remove central marketing and or production quotas on agricultural products, pay farmers to pull out grapevines, use taxes to build communications infrastructure to shift from copper to fibre etc etc. These aren’t identical to a carbon tax, but the purpose of economic restructuring is the same.)

    Carbon taxes may in the future have to be used to pay for adaptation or recovery from extreme weather events, but so far they aren’t used for that. (In Australia we had a once off flood levy to pay for Queensland under water. The rest of the country under water had to pay for its own recovery through insurance and normal taxation. Queensland is uninsurable to all intents and purposes.)

    (The cost of renewables is dropping so quickly that carbon taxes could become redundant by the time most governments get around to introducing them. I’m barely half joking about that.)

  96. BBD says:

    Sou

    (The cost of renewables is dropping so quickly

    The cost of solar PV panels is falling. The cost of hollowing out mountains for pumped hydro and providing utility-scale battery backup for SPV remains very significant.

    I truly wish the ‘cost of renewables is falling’ meme would die a death. It is horribly misleading and these things usually come back to bite.

  97. @oneill
    The probability of extinction is not the only reason to set the pure rate of time preference unequal to zero.

    Stern’s reasoning is peculiar. He sets the probability of human extinction for reasons other than climate change equal to 0.1% per year, and on that basis argues that climate change is our main priority.

  98. Sou says:

    You could be right BBD. I was thinking as much about wind as solar. I don’t see hydro growing much. States that rely on it a lot suffer the consequences when there’s a drought (Brazil, Tasmania). Wind and solar make a good combination, supported by other lesser sources (wave power, geothermal etc).

  99. BBD says:

    Sorry Sou, I could have been clearer – the typically omitted cost of large-scale wind resource is the equally large-scale pumped hydro reserve required to offset intermittency.

    More here.

  100. Vinny Burgoo says:

    Sou: ‘I don’t see hydro growing much. States that rely on it a lot suffer the consequences when there’s a drought (Brazil, Tasmania).’

    And of course in tropical and sub-tropical countries hydro often isn’t low-carbon.

    Which makes a bit of a nonsense of this thoughtless ‘hurrah for renewables!’ puff-piece in the Indy (other outlets are equally guilty):

    http://www.independent.co.uk/news/world/americas/costa-rica-renewable-energy-100-days-power-climate-change-a7217441.html

  101. Sou says:

    South Australia has been shifting to wind energy, and it is the driest state on the second driest continent after Antarctica. It’s currently generating more than 30% wind and it’s growing each year. No hydro.
    When the grid is set up properly you don’t get much intermittency. If it’s not blowing somewhere it’s blowing somewhere else. There’s a national grid in Australia.
    I’ve put a widget up in the sidebar showing where the energy comes from (live) around Australia. It’s not daytime yet so you won’t see the solar. What you can see is the heavy reliance on coal in the eastern states. Initially wind will be the biggest replacement followed by solar. In the longer term solar will increase more.
    http://blog.hotwhopper.com/2016/09/is-there-any-difference-between-willis.html#HTML9

    Each country is different of course.

  102. CM says:

    Seems to me that one could take at least two approaches to setting the carbon price. One is to internalize externalities by setting it at whatever level the damages are estimated to be, i.e. the social cost of carbon (SCC), as Heath argues. The other is to set it at whatever level it takes to avoid a chosen danger threshold, like the 2°C limit agreed by governments, by cutting emissions rapidly to zero and staying within the given carbon budget for the danger limit. Either way would be a good start In economies that haven’t introduced carbon pricing, but in the longer term, the two approaches might not align.

    One reason carbon prices are low is that they are low *initially*, as ATTP mentions but Heath, I think, doesn’t. The social cost of carbon increases over time as each ton emitted pushes us into more dangerous territory. For example, the EPA’s currentSCC estimate increases from $42/tCO2 in 2020 to $69 in 2050 (based on a 3% discount rate; the Americans calculate SCCs for several different rates). But whatever the rationale for the price, a carbon tax should start low and be ramped up, preferably in a predictable way.

    So, I wonder how well the two approaches align in practice. I’d have guessed that current SCC estimates were inadequate as a basis for carbon pricing to meet the 2°C target. But looking at the IPCC WG3 technical summary, I wonder if a global carbon price set according to the EPA’s low-discount version of SCC, over the next couple of decades anyway, just might be compatible with a chance of staying below two degrees. At least for modest odds of success, and in *highly* idealized scenarios.

    (Eyeballing the IPCC’s fig. TS.12, the 25-percentile price associated with limiting atmospheric concentrations to a level that gives a >66% chance of meeting the 2°C limit looks to be about $40 USD in 2020, rising to $70 in 2030 and ~$150 in 2050. The corresponding U.S. SCC figures with a 2.5% discount rate are $62, $73 and $95.)

    I’m not an economist. Thoughts by people with a better grasp of this stuff?

  103. Sou says:

    Which makes a bit of a nonsense of this thoughtless ‘hurrah for renewables!’ puff-piece in the Indy (other outlets are equally guilty):

    For me, I can’t see anything puffy about the move to renewables, and less so when it comes to having targets. That’s what’s got to happen. The cost is dropping – which is how this mini-discussion started. Nikolaos wrote this article based on a report from a firm who analyses this stuff:
    http://volewica.blogspot.com.au/2016/09/more-on-electricity-costs.html

  104. R.Tol – the PRTP is an ethical judgement – not an economic one. Stern’s reasoning is clear – though I disagree that δ should ever be a positive number. Any positive δ is preferential to the current generation.

    “…as we have emphasised allocation across generations
    and centuries is an ethical issue for which the arguments for low pure time discount rates are
    strong…. If the ethical judgement were that future generations count very little regardless of their consumption level then investments with mainly long-run pay-offs would not be favoured. In other words, if you care little about future generations you will care little about climate change. As we have argued, that is not a position which has much foundation in ethics and which many would find unacceptable.

    Most people care about the future — especially those children and/or grandchildren. I seriously doubt if a positive δ is their preference. And at δ=3% any multi-decade project is essentially ruled out. That’s a δ only applicable to an individual already 60 years old — not a country, culture or civilization.

  105. BBD says:

    Sou

    It’s currently generating more than 30% wind and it’s growing each year. No hydro.
    When the grid is set up properly you don’t get much intermittency. If it’s not blowing somewhere it’s blowing somewhere else. There’s a national grid in Australia.

    As you say, this is a bit of a sidetrack so just a quick summary of what I see as the key points:

    – Cost of SPV has fallen. Not sure about wind turbines but let’s assume that this is also falling.

    – Wind and solar are free riders in developed countries at present because there’s enough spare conventional FF capacity in the grid to compensate for intermittency.

    – Enter the cheap renewables meme.

    – But. Once the wind and solar fraction of any national energy mix exceeds the ability of existing spare capacity to act as backup, costs rise sharply. More (non FF) storage capacity and wide-area interconnections are required to compensate for local/regional intermittency.

    – This will be expensive.

    I see a risk in creating a popular misapprehension that the necessary and massive expansion of wind and solar will be cheap.

  106. Ken Fabian says:

    Others have no doubt made this point – I’m not sure that internalising the costs of future, external damages is the appropriate way to think of Carbon pricing; incentivising the transition to low emissions is what it should be for. Enough to make low emissions option the financially preferable ones for relevant investment should be how the price is set.

    As for future costs, it seems to me the irreversibility means that the costs of climate consequences will persist for centuries to millennia and might be better seen as a permanent loss of essential and irreplaceable capital that will limit future economic growth. Even if a period of economic growth may exceed the economic losses to “compensate” does not reverse that loss. And for those of us who value our remnant natural ecosystems losing them forever is all loss.

    BBD – I think intermittently competitive renewables will force fossil fuel plant into intermittency and such plant spending more time offline is a step in exactly the right direction. It can create an emergent de-facto carbon price in FF rich energy systems and be the incentive for change; it should not become the basis for protecting those FF assets and preventing change by limiting RE access.

    This is a sector that will only change if it has to and solar and wind are forcing the change that policy has failed to do trigger. The true value of energy storage, demand management and efficiency as well as reserve backup will be better appreciated and even if we can’t know with certainty what the longer term solutions to intermittency will be I think it offers more hope than protecting the status quo. In the absence of real and effective policy to bring about a transition it may well be disruptive, but being disruptive in that absence may well force some development of real and effective policy.

  107. Sou,

    That is, to discourage the use of fossil fuels and by default or, more usually by using the tax, to encourage the shift to renewables.

    Clearly, this is why it is discussed and regarded as something we should do. However, I think that formally it is intended to simply internalise the externalities, which essentially means paying – today – the full cost of using fossil fuels. If done properly, that would then mean that they did not have some kind of advantage over other energy sources and the market could operate more efficiently.

    Of course, we could choose to impose a carbon tax that further penalised fossil fuel use so as to accelerate the change. The point being made in the Joseph Heath post was that this would then potentially imply that people today were paying more than they needed to in order to help people in the future who will probably end up richer than we are now.

  108. @oneill
    The pure rate of time preference is indeed an ethical judgement that all should make for themselves. The teachings of philosophers and theologicians since Socrates notwithstanding, most people seem to use a PRTP that is greater than zero — so your argument becomes paternalistic one: Let’s override the will of the people in the name of a superior morality.

    And then there is Koopmans: A zero PRTP implies violation of Pareto.

  109. Richard Tol “Let’s override the will of the people in the name of a superior morality.”

    This is just rhetoric. Brexit provides a good example of why judging whether something is right by referendum isn’t such a good idea. There is a good reason why we have representative democracy, which is that (one would hope) those in political power are smarter than average and spend more time studying the subjects one which decisions should be made than we can reasonably expect from the electorate. The “will of the people” is not rational; as the increase in obesity demonstrates, we are not good at discounting in our daily lives, so why should we be expected to be able to discount correctly when dealing with benefits for future generations or those in other parts of the world?

    You still haven’t addressed the new errors identified in your paper, and I don’t think anyone is fooled by your playing possum.

  110. Andrew Dodds says:

    Personally, I thought that a kind of ‘Atmospheric Carbon Rent’ would be more appropriate. The idea being that if you emit 1kg of CO2, you pay an annual rent of a fixed proportion of GDP, declining according to known sequestration. The only way to clear this payment (non dischargable through bankruptcy) would be though a geological sequestration scheme.

    That kind of perpetual payment may concentrate minds better than a single up front tax. Would also strongly incentivise CCS.

  111. MartinM says:

    The point being made in the Joseph Heath post was that this would then potentially imply that people today were paying more than they needed to in order to help people in the future who will probably end up richer than we are now.

    Seems to me that argument elides important matters of distribution. The poor of the future will not end up richer than the rich of the present.

    There’s also the minor detail that future generations didn’t cause the problem. We did. That might be important, too.

  112. Sou says:

    Clearly, this is why it is discussed and regarded as something we should do. However, I think that formally it is intended to simply internalise the externalities, which essentially means paying – today – the full cost of using fossil fuels. If done properly, that would then mean that they did not have some kind of advantage over other energy sources and the market could operate more efficiently.

    Thanks ATTP. Yes, there is that underlying philosophy which also helps to set the price. The Heath article was useful. I get what he is saying and don’t find much to disagree with in principle. The point about benefiting people in the future – that’s been happening for centuries. Buildings constructed to last for generations, infrastructure etc. The point his article is making is how long should we take to spread the cost over time. That’s one for the policy makers to nut out and will be different for different countries.

    The thing is, that after we get to a sufficiently low emissions level that there’s a radiation balance, there will continue to be changes like rising sea levels, melting glaciers, lack of water (when glaciers have gone) etc. I doubt anyone is planning to invest now to cover those costs. They’ll be borne by future generations. To keep the problem manageable and achievable, it seems to me we just have to focus on shifting to renewables while still being able to pay for reduction of/recovery from climate change damage.

    The other thing is that IMO the value of a carbon tax is that it’s much more transparent than hiding the it in general revenue (what we call consolidated revenue). That’s one of my biggest objections to what Tony Abbott did when he got rid of the carbon price in Australia. The cost of climate change action by government is now buried deep in the budget. We’re still paying for it, but it’s much harder to figure out how much we’re paying and what it’s being spent on and what services have been shelved to meet the cost.

  113. R.Tol agrees that the pure rate of time preference is an ethical judgement — then cites economic *EFFICIENCY* as an argument against. I’ll ask again: Whence did efficiency become the Holy Grail? Is it P-K efficient to care for the elderly past their productive lifespans?

    In the same post he cites the will of the people. Has any country ever voted on the appropriate value of δ ? Has any politician or political party raised the question in a campaign? Has any polling organization ever included a question on it? No, of course not. Tol’s statement is silly.

    Individual PRTP – as I stated in my comment – is not the same as that for a country, culture or civilization. Individuals have short, finite lives. A value of δ that is appropriate for an individual tells us nothing about whether that value is appropriate for a state. In fact, we know that it is not.

  114. Tom Curtis says:

    Tol: “A zero PRTP implies violation of Pareto”

    In laymans terms, a requirement that markets be Pareto Optimal is merely the assertion that it is immoral to make beggars better of, if it results in the Koch brothers being worse of. Frankly violation of Pareto Optimality is as likely to be a virtue as a fault – and the great store economists place in Pareto Optimality shows the extent to which ideology dominates their discipline.

  115. Willard says:

    > A zero PRTP implies violation of Pareto.

    And a PRTP of 4 would be a violation of what?

  116. @willard
    A PRTP that is not equal to zero would be a violation of anonymity.

    In other words, you cannot make a morally unambiguous argument for a particular PRTP.

    Or, if you want, Koopmans showed that Socrates was wrong (and with Socrates, St Augustine, Mohammed, Thomas Aquinas and so on and so forth).

  117. Willard — Pindyck never mentions Pareto. I wonder why?

    “In a recent article, I argued that integrated assessment models (IAMs) “have crucial flaws that make them close to useless as tools for policy analysis.” In fact, I would argue that calling these models “close to useless” is generous: IAM-based analyses of climate policy create a perception of knowledge and precision that is illusory, and can fool policy-makers into thinking that the forecasts the models generate have some kind of scientific legitimacy. IAMs can be misleading – and are inappropriate – as guides for policy, and yet they have been used by the government to estimate the social cost of carbon (SCC) and evaluate tax and abatement policies.”

    The Use and Misuse of Models for Climate Policy. Robert Pindyck, NBER Working Paper No. 21097, Issued in April 2015

    An interesting contrast to R.Tol’s statement that “…economic theory is well equipped for such problems–and advice based on rigorous economic analysis is any way preferred to wishy-washy thinking.”

    TARGETS FOR GLOBAL CLIMATE POLICY: AN OVERVIEW, Richard S.J. Tol, University of Sussex, Economics Department Working Paper Series, No. 37-2012

  118. P.S. — gotta love that ol’ wishy-washy Pindyck.

  119. @oneill
    Pindyck focusses on model specification and parameterization, rather than on welfare theory. I’ve never asked Bob, but chances are Koopmans explained these matters to him in person.

  120. Willard says:

    > You cannot make a morally unambiguous argument for a particular PRTP.

    Then how about a PRTB between 5 and 10?

  121. R.Tol – δ is an (arbitrary) parameter. Part of the model specifications. Pindyck has written explicitly on it:

    ” I would argue that the rate of time preference is a policy parameter, i.e., it reflects the choices of policy makers, who might or might not believe (or care) that their policy decisions reflect the values of voters. As a policy parameter, the rate of time preference might be positive, zero, or even negative.[10] The problem is that if we can’t pin down δ, an IAM can’t tell us much; any given IAM will give a wide range of values for the SCC, depending on the chosen value of δ.”

    Footnote 10: Why negative? One could argue, perhaps based on altruism or a belief that human character is improving over time, that the welfare of our great-grandchildren should be valued more highly than our own.

    http://web.mit.edu/rpindyck/www/Papers/PindyckClimateModelsJELSept2013.pdf“>Climate Change Policy: What Do the Models Tell Us? Robert S. Pindyck, Journal of Economic Literature 2013, 51(3), 860–872, http://dx.doi.org/10.1257/jel.51.3.860

    This would seem to indicate that Pindyck accepts the possibility that δ can be negative — regardless any possible personal relationship with Koopmans.

  122. @oneill
    Sure, having devoted much of his career to project evaluation, Pindyck knows the arguments about discount rates inside out and upside down.

    @willard
    Any PRTP between 5 and 10 is a particular value.

  123. Willard says:

    > Any PRTP between 5 and 10 is a particular value.

    That a range can be a particular value is quite peculiar, Richie.

    So I guess we can conclude that no value above zero can be morally justified in an unambiguous manner.

    Why then insist in having unambiguous moral justification, if not to defend your own choice with some kind of cheap tu quoque?

  124. Ken Fabian,

    Others have no doubt made this point – I’m not sure that internalising the costs of future, external damages is the appropriate way to think of Carbon pricing; incentivising the transition to low emissions is what it should be for. Enough to make low emissions option the financially preferable ones for relevant investment should be how the price is set.

    More or less exactly how I see it and how I tend to argue it. But I’m an unlearned man who may be confusing naivete for pragmatism.

  125. BBD says:

    Which is why it is so very important to be clear-eyed about the actual cost of displacing FFs with renewables especially at higher penetrations of renewables into the energy mix.

  126. Richard Tol wrote “@willard
    Any PRTP between 5 and 10 is a particular value.”

    By that argument, the fact that we can’t define the probability of observing the value pi from a standard normal distribution means we can’t define the probability of observing a value between 3 and 4 (which of course we can). I suspect however that Richard has simply explained his point badly, and doubled down by being cryptic, rather than trying to explain it more clearly.

    “morally ambiguity” sounds like standard operating conditions to me, so I am not sure that there is a substantive point there anyway.

  127. Pindyck: “the rate of time preference might be positive, zero, or even negative”
    R.Tol now: “Pindyck knows the arguments about discount rates inside out and upside down.”
    R.Tol then: “And then there is Koopmans: A zero PRTP implies violation of Pareto.”

    I’ll ask again: Is it P-K efficient to care for the elderly past their productive lifespans? Should we care if it’s P-K optimal?

    One might intuit that Koopmans and Pareto were brought in as window dressing – since they apparently have nothing to say about our choice of δ.

    I will note that R.Tol has not answered why the PRTP for individuals should be used as the appropriate value for a state. Especially in light of the fact we know states make investments far out into the future. In some cases decades longer than the average individual’s lifespan. And Pindyck’s footnote 10 cited above states the obvious; an argument for a negative value of δ is easily made.

  128. @willard
    No. Koopmans showed that PRTP=0 violates Pareto and PRTP0 violates anonymity. As both Pareto and anonymity are unambiguously desirable, any PRTP is morally wrong.

  129. “I will note that R.Tol has not answered why the PRTP for individuals should be used as the appropriate value for a state.”

    Sadly Richard’s track record on answering questions is, err, questionable.

  130. @oneill
    “why the PRTP for individuals should be used as the appropriate value for a state”

    it shouldn’t (e.g., Ogura & Yohe, QJE, 1977)

  131. Chris says:

    MartinM

    Seems to me that argument elides important matters of distribution. The poor of the future will not end up richer than the rich of the present.

    No certainly. However one needs to consider what one means by “rich” anyway. There’s abundant evidence that high levels on measures of societal well-being (e.g. high life expectancy, low infant mortality, educational participation etc.) are achieved in countries having a quarter of current GDP levels of US/Canada/Western Europe [1], and that it is the levels of wealth and income equality that are a major factor in indicators of well-being, rather than absolute wealth e.g. [2].

    Putting aside the question of a carbon tax as an element in addressing the full cost of fossil fuel burning and in stimulating the development of sustainable energies, there is a long term consideration of the nature of future societies based on sustainable energies, and whether the transition to these will be relatively trouble-free or brutish. But there’s certainly no need that the poor of the future have a wealth/income that is anywhere near the levels even of the average individual of current Western economies, if the aim is for strong indicators of personal well-being…

    [1] e.g. UN development programme statistics
    [2] e.g. Wilkinson and Pickett (2009) “The Spirit Level”

  132. Willard says:

    > As both Pareto and anonymity are unambiguously desirable, any PRTP is morally wrong.

    Since all your papers provide ranges and that ranges are particulars, then all the choices you’ve made in your papers should be morally wrong, dear Richie.

    That may make Gremlins mad.

  133. Willard says:

    Oh, and here’s the basis of Richie’s smug pea and thimble game, O’Neill.

    Note that “smug” is purely descriptive.

  134. @willard
    Exactly. Koopmans is as infuriating as Goedel.

  135. R.Tol then: ” most people seem to use a PRTP that is greater than zero — so your argument becomes paternalistic one: Let’s override the will of the people in the name of a superior morality.”

    R.Tol now: “@oneill “why the PRTP for individuals should be used as the appropriate value for a state”
    it shouldn’t (e.g., Ogura & Yohe, QJE, 1977)

    And they say Trump flip-flops. I remember an economist writing about wishy-washy thinking — who was that? Seems our R.T. wants to have it all ways always.

  136. Richard wrote “As both Pareto and anonymity are unambiguously desirable, any PRTP is morally wrong.”

    So the smallest violation of pareto efficiency is instantly “morally wrong” (rather than, say “suboptimal”)? Is Pareto efficiency achievable in practice (rather than in spherical cow gedankeneconomicenexperiments)? This seems like hyperbole to me.

  137. R.Tol “As both Pareto and anonymity are unambiguously desirable”

    By this rationale doesn’t it follow then that killing off the elderly is desirable once they’ve reached the end of their productive lifespans? Caring for the elderly violates both.

    Long ago, in my first comment upthread, I wrote: “Any model that assumes perfect markets and complete information is — of course — divorced from reality. Full stop.”

    This could well be amended to: Any model that assumes Pareto and anonymity are unambiguously desirable is — of course — divorced from reality. Full stop.

  138. BBD,

    Which is why it is so very important to be clear-eyed about the actual cost of displacing FFs with renewables especially at higher penetrations of renewables into the energy mix.

    You having made a point of it on this thread has caused me to reevaluate my own views on that, which is good.

    Something which has long concerned me about pricing carbon is how high that needs to be to actually change market behaviour. I don’t think it helps that oil prices …

    … jump around like a june bug on a hot skillet. Two things make me nervous about that plot, energy security and price elasticity of demand. If I had the ability to set the market rate of all energy, I find myself wondering where I’d put it in barrels of oil equivalence. 200 USD? I find myself thinking that’s not nearly high enough. At the same time, I wager a majority of my fellow ‘Murkins would think I was being punitive.

    Call me a purely revenue neutral carbon tax sceptic. No … doubter. Sceptic, in the unsullied sense of that word, implies that I’m well enough informed to be more than just dubious.

  139. Willard says:

    Don’t be so melancholic, ONeill:

    Because generations arrive in order, it is natural to violate anonymity […]

    Richie’s just being smug.

  140. @oneill
    Above, you confused Pareto and Kaldor-Hicks, so perhaps you do not quite know the meaning of anonymity?

    Ogura and Yohe argue that the social rate of the discount rate equals the market rate of discount times a correction factor. So, the two are not equal but not unrelated either.

  141. Vinny Burgoo says:

    @Chris Ah, the good old ‘Spirit Level’, which proved that income inequality increases child misery by pointing to a correlation between income inequality and UNICEF’s Child Wellbeing Index, which was partly built on measurements of income inequality.

  142. @willard
    “natural to violate anonymity” but not right — just read Rawls

  143. Vinny Burgoo says:

    What’s your point, good ol’ Willard? (Did you know that Will Self’s second name is Woodard?)

  144. Willard says:

    > just read Rawls

    Which part should I reread, Richie?

    If violating anonymity is natural but not right, why did you pick 3?

  145. oneillsinwisconsin,

    Long ago, in my first comment upthread, I wrote: “Any model that assumes perfect markets and complete information is — of course — divorced from reality. Full stop.”

    This could well be amended to: Any model that assumes Pareto and anonymity are unambiguously desirable is — of course — divorced from reality. Full stop.

    Brilliant arguments both, and the first one is something I was just trying to essplain to the crew over at cliscep just last night through the lens of real estate market behaviour … which is about the only climate-related topic with which I have anything remotely resembling insider experience. And even then, I’m being generous to myself.

    It does seem contradictory Tol saying that economists don’t make normative judgement calls, and then arguing moral wrongness for setting any non-zero PRTP. But if you step back from it a second, you might see that those two things are perfectly consistent so long as they can exist in their own compartment.

  146. Willard says:

    Vinny,

    My point is that if there was the obvious circularity you claim there is, you’ve topped all the crap in that Wiki section.

    Show me.

  147. Eli Rabett says:

    So Eli has a question for Dickie, do rich and poor pay the same for transportation and child care. Is that Pareto optimal or merely unicorns?

  148. Vinny Burgoo says:

    @Willard It might be now. It wasn’t when you posted.

  149. Willard,

    Should I be unsurprised to read this:

    (Chichilnisky 1996) replaces anonymity with weaker axioms of non-dictatorship and independence. (Alvarez-Cuadrado and Van Long 2009) further refine this, dropping independence and thus expanding the model space with optimal solutions.

    Whither hast thou departed, anonymity? And whence did thee return?

    For once, I’m with McCoy:

    Leonard McCoy: Dear Lord, do you think we’re intelligent enough to — suppose — what if this thing were used where life already exists?

    Spock: It would destroy such life in favor of its new matrix.

    Leonard McCoy: Its new matrix? Do you have any idea what you’re saying?

    Spock: I was not attempting to evaluate its moral implications, Doctor. As a matter of cosmic history, it has always been easier to destroy than to create.

    Leonard McCoy: Not anymore. Now we can do both at the same time! According to myth, the earth was created in six days. Now watch out! Here comes Genesis. We’ll do it for you in six minutes!

    Spock: Really, Dr. McCoy. You must learn to govern your passions. They will be your undoing. Optimal solutions suggest—

    Leonard McCoy: Optimal solutions? My God, the man’s talking about optimal solutions! We’re talking about universal Armageddon. You green-blooded, inhuman—

  150. Willard – I wouldn’t characterize it as ‘smug’ — just exactly the type of mathematical obfuscation that Pindyck talks about. I..e., Tol: “For a 3% PRTP, the mean Bentham social cost of carbon is $25/tC. For a 0% PRTP, it is almost 12 times as large: $296/tC”

    The sensitivity to choice of discount rate is an order of magnitude. That’s all we really need to know. Any old back-of-the-envelope calculation can tell us the rest once we agree upon the discount rate. Tol agrees that the discount rate is an ethical decision – yet keeps citing econ formulas. I don’t need to chase down everyone of his red herrings.

    R.Tol – Are you claiming that current allocations for caring for the non-productive elderly are Pareto optimal? Sure looks like it. And since we haven’t actually specified a care system, apparently they’re *all* Pareto efficient. What a Panglossian world we live in. Did someone mention economics divorced from reality?

  151. (I was going to comment at Heath’s post but I either don’t know how to do it, or comments there are closed. Hence, here.)

    A Carbon Tax is an odd beast, and there are many flavors of them possible. Most of the discussion is about how large it should be when it crests, and where the money should go. But there are many nuances, such as how rigorous enforcement should be to prevent cheating, and whether or not offsets should be swept into the scheme. Moreover, there’s the question of latent Carbon in imports … Should products which have not had their Carbon taxed in the countries of manufacture be taxed upon entry to the U.S. economy? Would this be incredibly difficult to police and enforce? What formula would be used to estimate upstream Carbon emissions in the cases of these products?

    Unless some of these details are settled, the result can range from a Carbon Tax which is meaningful and provides steering to the economy, or a Carbon Tax which is essentially useless.

    To the question of amount and size, if the purpose of the Tax is to change economic behavior or steer it towards low Carbon products, then it by rights needs to be steep. If not, there’s little pain for remaining at the Carbon feeding trough.

    And, something I have never seen discussed which occurs particularly in the instance of a “conservative’s Carbon Tax”, when the income from the Tax is revenue neutral and is used to offset, say, corporate or income taxes, if the Tax is successful and Carbon emissions approach zero, the Carbon Tax is a disincentive to reduce Carbon emissions further, since revenue will be dried up if that’s done.

    I really don’t know what’s better: A Carbon Tax which penalizes use of Carbon? An emissions tax which penalizes emitting, even upstream to make products which are then imported? Or a tax like a premium on everything which goes into a big fund which is saved to offset harm from climate disruption down the road?

    One thing always gets me about these discussions, and something which Heath mentions: The exponential growth model of economies. This showed up explicitly in Heath’s opinion, but usually shows up in the form of the discount rate when future harm’s present cost is appraised. First, I don’t know what justifies the assumption of exponential economic growth apart from projections of historical patterns. It surely is far less solid than, say, impacts of radiative forcing. Second, isn’t exponential economic growth the core problem that needs solving? It’s not sustainable.

    Finally people really need to remember that the problem is cumulative emissions not emissions intensity. It’s not at all like controlling ozone depleting substances, where there is a relatively natural process for destroying CFCs. Not sure a Carbon Tax gets us to zero.

  152. Ken Fabian says:

    Given the very long persistence of climate impacts, should a form of compound interest be applied to assessing their costs?

    BBD – “Which is why it is so very important to be clear-eyed about the actual cost of displacing FFs with renewables especially at higher penetrations of renewables into the energy mix.”

    I don’t think we can know the actual costs – not beyond immediate to a few years ahead. If carbon pricing is to incentivise moving to low emissions then the market emergent pricing effect of intrusion of low cost intermittent renewables has the potential to do what policy makers have avoided and in many cases, strenuously opposed. If a de-facto carbon pricing mechanism is emerging on it’s own via imposed additional cost on fossil fuel plant by being forced into intermittency then I think we would be unwise to intervene to prevent that effect, even if moderating and directing it would be beneficial.

    Not fair that fossil fuel plant operators bears the burden of costs of renewable intermittency? As long as fossil fuels are avoiding the full and true costs of their use – climate and health – I can’t feel much sympathy. Certainly I would oppose protectionist measures for affected fossil fuel plant operators even if I can see there may be a case for support for reserve capacity for backup specific purposes, under arrangements that reward time spent offline rather than ongoing operation whilst the transition proceeds. Hydro, especially where there are water constraints, should do well, by cutting back during solar and wind rich periods to concentrate on supply outside them, even without the need for dedicated pumped storage. Nuclear won’t do so well from it – the effect won’t discriminate; there may be grounds for market interventions or other support, but, as with supporting, say, gas plant, in a reserve backup role, it needs to be within a framework that has the transition to low emissions as a high priority.

    I’m not so sure there is any benefit to future transition efforts by framing such penetration as something disruptive that should be prevented – doing so will protect fossil fuel businesses from the need for embracing change.

    Of course it would be far better to have well designed and managed policy for bringing about change but in it’s absence the “disruption” of intermittent competition may shake things up enough that the business as usual, fossil fueled status quo can’t be sustained. If that “disruption” induces our policy makers to get serious, I will be gratified.

    Perhaps the most significant benefit of intermittently low cost solar and wind could be political, by weakening the assumptions by commerce and industry that the transition will be too economically damaging and divide the greater part from it’s support for the fossil fuel sector – and the desire of commerce and industry to avoid climate responsibility to avoid a burden of costs is, in my view, the greatest source of support for obstructionist politics. And the demise of obstructionist politics would crack the whole issue wide open. In an ironic twist, it could even put nuclear on the table in ways that are not possible whilst it’s unfortunate political overlap with climate science denial politics persists and prevents the largest body of support for it from being mobilised for emissions reductions in any effective way.

  153. Willard says:

    Why wouldn’t Richie use a 2% PRTP, O’Neill?

  154. Willard – As I’ve shown above, Pindyck accepts the possibility that δ can be positive, zero, or even negative. I have no idea what R.T’s personal preference for δ is. He’s never used a negative rate. So, unlike Pindyck, he apparently does not believe that a generation can either be altruistic or care enough for its children or grandchildren for δ to be negative.

    Again, these are moral decisions – not really economic ones. Sticking an arbitrary answer to a moral question into a mathematical formula may give it the veneer of ‘science’ – but it ain’t. Stern said ethically δ should be zero – but then went on and *still* used a positive δ – though a “low” one at +0.1%. I put ‘low’ in quotes because many would still believe that the sign should be reversed. Including me.

    R.T’s earlier polemic about the ‘will of the people’ was based on an individual’s PRTP – where 2% (or higher rates) might be relevant. For a society or state, depending on the project, that might be pure nonsense. We build large dams with the engineering expectation that they will last 100 years or more. We build the largest ones engineered with lifespan expectations in the centuries or millennia. An individual’s PRTP is obviously not going to extend to centuries or millennia – at least not until we discover the Fountain of Youth.

    In physics the joke is about the assumption of a spherical cow. In economics, it often turns out we’re assuming spherical cows, spherical farmers, spherical farms, spherical barns, etc. etc. It’s an assumption of sphericity all the way down.

  155. -1=e^iπ says:

    With respect to people arguing for a zero discount rate, I made some arguments against them at Judith Curry.

    https://curryja.files.wordpress.com/2015/11/expected-social-welfare-maximization-2.pdf

    “Some individuals, such as Stern (2007), have taken the moral position that discounting with ρ > 0 is immoral because it values present generations more than future generations and therefore values people unequally. There are a few issues with such a position. For one, with ρ = 0 the SWF does not converge and therefore cannot generally be evaluated (so policy decisions cannot be made); ρ = 0 suggests that all time periods have no weight in the SWF, except the limit of the period as time approaches infinity (which has all the weight, but cannot be reasonably evaluated as our universe would likely be long dead by then). Rather than being moral, ρ = 0 is arguably immoral as it would suggest that the present has no value (Creedy and Guest 2008 give a strong axiomatic basis for using a positive discount rate). Furthermore, with ρ > 0, the SWF can be numerically approximated by only evaluating the first X finite periods, provided that X is sufficiently larger than the inverse of ρ; for a ρ of 1.5%, the first 200-300 years are likely sufficient for expected social welfare maximization.

    A second issue with the ρ = 0 position is that it has very strange policy implications. For example, it suggests that expected social welfare maximizing governments should save more money for future generations as long as the pretax real riskless interest rate exceeds ηg. This suggests that governments around the world should run very large surpluses in order to save large amounts of money for future generations, rather than run deficits as they are now. Unless one also advocates that governments should run very large surpluses to do this, taking the position ρ = 0 when it comes to the issue of climate change would be inconsistent.

    A third issue with the ρ = 0 position is feasibility. Ultimately, it is individuals alive today that are currently negotiating to come to an agreement in Paris, and it is voters alive today that they are supposed to represent. The ρ implied by the Ramsey equation arguably not only tells us how much individuals value their future consumption but also how much individuals value future generations. If current generations valued future generations as much as themselves then current generations would likely increase savings for future generations (such as for their children and grandchildren) until r = ηg. So if market interest rates suggest that ρ > 0, then this suggests that current generations likely value future generations less than current generations. If a policy can only be justified by valuing future generations more than current generations value those future generations, then current generations will have no incentive to go with that policy. Thus, such a policy is not feasible.”

    ^ SWF means social welfare function.

  156. -1=e^iπ says:

    @ Richard Tol – Wow, I had no idea that a zero discount rate violates Pareto. That’s a pretty strong argument against a zero discount rate.

    With respect to a non-zero discount rate violating anonymity, doesn’t that depend on how you define anonymity with respect to different generations? One could argue that it violates anonymity if one’s utility function depends on their birth year. But if one’s utility function does not depend on their birth year (so how people value their year 1950 income vs their year 2000 income is the same even if the individual is not alive) then I don’t see how you have a violation of anonymity. In fact, one could argue that having the utility function be dependent on one’s birth year is a violation of anonymity. Perhaps I misunderstood something.

    Also, I’m not sure how “both Pareto and anonymity are unambiguously desirable”. There are many moral systems that violate one or both of these principles.

  157. b fagan says:

    Interesting post, enjoyed the comments too.

    My education in the “science of economics” stopped a while back when I realized they posited rational actors. Unfair, I know. In recent years there’s been some application to humanity instead, but has the field gotten around to the following questions when they continue to assume a wealthier future population?

    I ask because I think there are a series of things that could come down to a probabilistic coin toss as to expectations of future wealth to handle the impacts of climate change on top of the other future costs. Maybe a discount rate attached to “climate change” applies, but is there a discount rate being set for “here’s the future”?

    – best case – we survive and population growth reverses – how does an economy based on growth handle applying wealth to societal issues when the population stabilizes or declines (from peaceful attrition, I hope)?

    – robotics and productivity – add this on top of population stabilization/decline – we talk about taxing people, but how does that handle an economy less and less dependent on people for so much productivity? Where does funding to internalize externalities come from?

    – targeted taxes – here in the US we’re doing a bad job of even keeping the gasoline-based highway taxes anywhere near inflation, and we aren’t looking hard at growth in electric cars affects road/bridge/tunnel wear and tear. That tax has to be changed.

    A carbon tax sounds good – but if/when we stop emitting, and still have heavy lifting to do to “adapt” to the longer-term effects, how’s the bill paid for massive adaptation after mitigation’s been finished? Do we just apply depreciation tables to Florida after a given interval, and salvage rights after that?

    – tools that can make future generations wealthier have much sharper edges – consider cheap desktop CRISPR/Cas9 kits combined with ubiquitous international air travel — while we get smarter, we also are creating potential issues where a point-source damage could spread globally without being an intended act of the typical corporate/government actors. How do economists factor in developments that decrease the cost of doing something that can put a real dent in human population?

    And back to “rational actors”. As we move from trading algorithms to computer systems that start replacing the C-level officers in companies, and decision makers in government, who will determine “rational” there?

    The future is guaranteed to be really interesting even without the persistent greenhouse gases we emit. Just wondering how rational the rational decision making is going to be while the rest of the world moves along too. Thanks for this blog.

  158. Richard Tol wrote “Exactly. Koopmans is as infuriating as Goedel.”

    so not particularly infuriating then?

  159. @willard
    The bit about the veil of ignorance — an you should add year of birth to that.

    A pure rate of time preference of 3%/year is roughly consistent with our saving and investment behaviour (or so we thought 25 years ago when this became the default choice).

  160. @-1=e^iπ
    Koopmans’ result is well-known to those who know it well, but for all his fame there aren’t too many of those.

    Discounted welfare orders things by importance based on the year in which they occur. People who are born later have a greater chance of experiencing things that occur later, so a positive (negative) discount rate discriminates against people who are born later (earlier).

    The appeal of anonymity is intuitive. Suppose there is a class of 20 students. One will win £1000. Knowing nothing about the students, we should be indifferent whether student A or student B wins the £1000.

    In an intergenerational context, this work as follows. Suppose there are 20 generations. One will be hit by a disaster. Knowing nothing about the generations, we should be indifferent whether generation A or generation B will be hit.

    The unnaturalness of anonymity is that, while we can imagine not knowing anything about a group of students, we cannot reorder generations and pretend time does not pass.

  161. “The appeal of anonymity is intuitive. Suppose there is a class of 20 students. One will win £1000. Knowing nothing about the students, we should be indifferent whether student A or student B wins the £1000.”

    but if you knew that 19 of the students were the children of billionaires and one was from a family in poverty, one would hopes that we were not indifferent to who won the £1000. We do know something, e.g. the Bangladesh of the future is unlikely to be more wealthy than the Germany of the future, so perhaps anonymity is not unambiguously desirable?

  162. @dikran
    I should change my name to … and then there’s math.

  163. Richard,
    If you really think that zero is a positive number, maybe you shouldn’t.

  164. Richard, I think “and then there’s hubris” might be more appropriate, but thank you for the most ironic blog comment of 2016, LOL!

  165. -1=e^iπ says:

    “Discounted welfare orders things by importance based on the year in which they occur. People who are born later have a greater chance of experiencing things that occur later, so a positive (negative) discount rate discriminates against people who are born later (earlier).”

    This claim is only valid if you insist that the utility function take birth year into account and that discounting be done with respect to one’s birth year. Such a social welfare function that uses such a utility function seems ageist to me, and if the utility of individuals had a preference for the present over the future (which is consistent with observation) then this would suggest that the utility of young people in any given year be worth more than the utility of the elderly. So my utility for 2016 would be worth more than your utility for 2016, because I am younger than you.

    And if your position is valid, well women live longer than men and white people live longer than black people. So women / white people have a greater chance of experiencing things that occur later than men / black people. Therefore, giving equal weight to women as men or to white people as black people discriminates against women / white people, so a social welfare function should give more weight to women than men and to white people than black people.

    I’m personally not a big fan of such an ageist, sexist, racist social welfare function. Not to mention that a utility that doesn’t take race, sex or age into account is simpler, so should be preferred if one follows occam’s razor / has a preference for simplicity.

    “The appeal of anonymity is intuitive. Suppose there is a class of 20 students. One will win £1000. Knowing nothing about the students, we should be indifferent whether student A or student B wins the £1000.”

    If each individual’s utility function has a preference for the the present over the future, and you were to argue that the social welfare function should discriminate against age in order to not discount between generations, then one could make an argument that the probability of each student winning that $1000 should depend on age. In particular because the utility of old people would be discounted more, that $1000 should go to the youngest individual in the class, assuming we knew nothing else about the individuals.

    “Knowing nothing about the generations, we should be indifferent whether generation A or generation B will be hit.”

    Yes, but the reality is that we do know stuff about the generations, particularly the birth year(s). If we did not have that information, then I would agree that we should be indifferent, not out of some moral principle, but due to necessity and lack of information.

    The way I understand it, for welfare economics, anonymity merely requires that each individual has the same utility function. If you were to give each individual a time-additively-separable utility function where utility is zero for zero consumption / death / not being born yet, then you can have a social welfare function that simultaneously satisfies the anonymity principle AND has a positive rate of social time preference.

  166. @-1=e^iπ
    No and no.

    Social welfare at time t is a function of the utilities of everyone alive at time t. As the group of people alive at time t is different than the group of people at time t+s, discounted social welfare discriminates between groups.

    Anonymity is an anti-discrimination axiom rather than a similarity axiom.

  167. I think Richard is turning a blind eye to the “math” error in his paper yet again…

  168. Richard wrote “Anonymity is an anti-discrimination axiom rather than a similarity axiom.”

    sometimes (positive) discrimination is the ethical thing to do.

  169. Willard says:

    The veil of ignorance may have inspired or justified anonymity, it may not imply it, dear Richie. Both strong Pareto and anonymity fail reciprocity and you can’t even have both, as you yourself say. Why would you prefer anonymity to strong Pareto in a problem where you’re trying to save the asses of the worse offs? Shooting for a function hopefully generation-neutral while betting heavily on GRRROWTH to cope does not look that natural to me. Innovation is certainly not anonymous.

    Also, a PRTP of 3% might be more “roughly consistent” with your evergreen optimism than any saving and investment behaviour. Is it roughly consistent with how we should insure our assets? AGW carries at least as much risks as profits. We won’t be able to face the consequences of these risks by printing more money in situ.

    Contrast with Watkiss & al 2005, who use 2%:

    A recent review of the literature of the marginal social costs of climate change has found just under 30 studies2 . If these are combined, this provides a mean value of around Euro 25/tCO2, and a 95th percentile of Euro 96/tCO2. Some recent studies in the literature show a trend towards lower values than these, with some studies indicating marginal benefits that are lower than the marginal abatement costs of post-Kyoto (2020) scenarios, i.e. lower than Euro 20/tCO2, and some probably lower than Euro 12/tCO2. However, these values must be viewed with caution. Recent work has reviewed these literature estimates against the all potential climate change impacts – as represented by the matrix below showing all impacts and values. The work has concluded that the current literature values only represent a sub-set of all impacts. Most studies tend to be focused on the top left hand corner of the matrix (looking at market damages from predictable events). Very few cover non-market damages, and almost none include major events. The current literature values are therefore a sub-total of the full cost of climate change.

    25/tCO2 looks a bit more than your 25$ calculation in the paper cited above. Let’s assume the mean is 35$, even if this number is pre-Gremlins. That’s 5$ lower than Joseph’s number, 10$ than yours, and 25$ more than the lowest number in your 10, 20, 30 figure of speech. What difference 15% or 30% ever made among friends?

    Priming an audience with a 70% low ball might be harder to justify.

    Also note that both Joseph’s and your numbers are under the mean, and that according to Watkiss & al 2005, the top 95% can reach above 100$. You can’t say you are very “anonymous” about your preferences. It certainly doesn’t abide the veil of ignorance. And then there’s the GWPF.

    Since a choice of PRTP looks more symbolic than anything, I suggest 1%. We could make it Anonymous too.

  170. Willard says:

    > There are many moral systems that violate one or both of these principles [Strong Pareto and Anonymity].

    An example would be nice.

  171. BBD says:

    Ken Fabian

    At no point have your responses reflected what I actually said.

    I don’t think we can know the actual costs – not beyond immediate to a few years ahead.

    I said that the costs would be very high and that there was a danger in the misleading ‘cheap renewables’ meme. The cost of renewables increases substantially as the installed capacity exceeds the existing (FF) spare capacity on a given grid.

    Not fair that fossil fuel plant operators bears the burden of costs of renewable intermittency?

    I never said this or anything remotely like it.

    Perhaps the most significant benefit of intermittently low cost solar and wind

    ‘Intermittently low cost’? At this point I don’t even know what you are talking about, which I suspect makes two of us.

  172. @willard
    That’s not what I said. The veil of ignorance extended to year of birth would argue for a zero pure rate of time preference, just like anonymity would.

  173. Willard says:

    What is it that you’ve not said, Richie?

    You forgot to say if 3% was roughly consistent with how we should insure our assets, and why you primed Harrabin with a 10$ low ball.

    Let me also remind you of this bit:

    RH: You’re an economist, of course you have to believe in the figures. Some other people looking at the figures will say, ‘Well frankly, we don’t know what to believe here. It looks like a problem but can we quantify the problem?’ It’s very hard. It comes down to politics, surely, not economics.

    RT: Well, what you can do is stick all these factors into a big computer model, run them and see what happens. That is not very informative. A number will come out but what is much more interesting is if indeed you can show for a range of credible assumptions that you find a relatively narrow range of results. And that is what we should be trying to do and we should also be very frank that for some of these things, the results are indeed fragile to alternative equally credible assumptions. That happens all the time in this field.

  174. @willard
    Not sure what you’re getting at. Instead of arguing for a single number for any parameter, we should define a credible range and test the robustness of our results within that range. The estimate of the social cost of carbon is very sensitive to the assumed pure rate of time preference, and the range of reasonable pure rates of time preference is wide.

  175. Richard wrote: “You cannot make a morally unambiguous argument for a particular PRTP.”

    Willard asked: Then how about a PRTB between 5 and 10? [i.e. a range of values]

    To which Richard responded “Any PRTP between 5 and 10 is a particular value.

    Richard now says “. Instead of arguing for a single number for any parameter, we should define a credible range and test the robustness of our results within that range.”

    and Richard isn’t sure what Willard is getting at!?!?!

    This appears to be the second time Richard appears to have directly contradicted himself on this thread.

  176. Willard says:

    > Not sure what you’re getting at.

    My intuition is that the veil of ignorance should apply to the overall model, not only PRTB.

    Justice just ain’t some function you can filter out with some GRRROWTH magic.

    Besides, what Dikran says about ranges.

    You included 10$ in your range when priming Harrabin, yet you’ve not used any value above the 35$ mean. Why is that?

    Perhaps I should go look to see who argues for a 10$ SCC. Later. I need to buy a washing machine, and this matters more:

  177. Willard says:

    A quick search reveals an SCC as low as 7$ or 12%:

    The SCC number that the EpA and other federal agencies now use was produced by an interagency working group (iWg) and presented first in 2010 and then revised in 2013 (and corrected in minor waysin 2015). Between 2010 and 2013, the iWg significantly raised its estimate ofthe SCC for 2020 CO2 emissions from $7, $26, or $42 perton emitted (using discountrates of 5 percent, 3 percent and 2.5 percent,respectively) to $12, $42, or $62 perton

    A good way to sell 3% is to lukewarmingly insert it between 5% and 2.5%.

    And then the ever non-ignorantly-veiled CATO goes on to use Huybers’ work to argue that the actual modulz downplay climate damage functions. It also prepares for the legal fight with which CATO’s readership may need to brace themselves.

  178. Willard says:

    82 pages of Omitted Damages:

    The 2013 Interagency Working Group on the Social Cost of Carbon (IWG) updated the U.S. social cost of carbon (SCC) for 2015 from a central value of $24 to $37 using three integrated assessment models (IAMs): DICE-2010, FUND 3.8, and PAGE09. The SCC is the additional economic damage caused by one ton of carbon dioxide. While some have questioned the increase in the SCC as too high, a thorough examination of the latest scientifi c and economic research shows that $37 should be viewed as a lower bound. This is because the studies available to estimate the SCC omit many climate impacts—eff ectively valuing them at zero. Where estimates are available for a given type of impact, they tend to include only a portion of potential harms. This paper represents the fi rst attempt to systematically examine and document these omissions for the latest versions of the three IAMs used by the IWG, as well as earlier versions when they are used in calibrating the updated models.

    25$ looks quite closer to 24$ than to 37$.

  179. Willard says:

    A classic where the $25 appears, vintage 2009, with emphasis for ONeill:

    The best available knowledge—which is not very good—is given in Table 2. A government that uses the same 3 percent discount rate for climate change as for other decisions should levy a carbon tax of $25 per metric ton of carbon (modal value) to $50/tC (mean value). A higher tax can be justified by an appeal to the high level of risk, especially of very negative outcomes, not captured in the standard estimates (Weitzman, forthcoming). The price of carbon dioxide emission permits in the European Union was $78/tC in January 2009. The United States has no federal policy specifically to reduce carbon emissions, although many utilities apparently factor in the likelihood of a carbon tax of $15/tC in their investment decisions (Richels, personal communication). This pattern suggests that the European Union may be placing too high a price on carbon emissions, while the United States is placing too low a price on such emissions. Outside the high-income countries of the world, essentially no climate policy exists—although these countries are most vulnerable to climate change, and some of them like China and India are major emitters of carbon. Many of these countries subsidize fossil fuel use, rather than taxing it.

    Again, 50 bucks is 100% higher than 25 bucks.

    The mean, the modal, and the modulz – an anticlimatic movie.

  180. Willard says:

    A proposition that may reconcile ONeill and Richie:

    Proposition III. In dynamic analysis of environmental quality and consumption, a typical individual will have a short-term discount rate which is the sum of a pure rate of time preference and the product of the elasticity of her marginal utility of consumption with respect to her level of consumption times the growth rate of her consumption. Consumption growth rates will change as the economy evolves over time so that reasoning in terms of a constant social discount rate is beside the point. Whether the pure rate is a (small) positive number or zero is of secondary importance.

    Their first example assumes 1%.

    Coincidence? You be the judge!

  181. Willard says:

    The most accessible introduction to all this seems to be Heal 2009: The economics of climate change: a post-stern perspective, cited in the previous cited Note. An intriguing quote:

    A PRTP greater than zero lets us value the utility of future people less than that of present people, just because they live in the future rather than the present. They are valued differently even if they have the same incomes. Doing this is making the same kind of judgment as one would make if one valued the utility of people in Asia differently from that of people in Africa, except that we are using different dimensions of the space–time continuum as the basis for differentiation.

    It’s possible to find the article on a hub somewhere.

    The author cites Berry & al 1978, which bring thermodynamic arguments to the economic table, may appeal many readers of the blog, including MT. He also cites Heal 2005 for some historical overview.

  182. Willard says:

    Coup de théâtre:

    The bottom line, then, is that we can’t select either the PRTP or the CDR without making ethical judgments. My own personal ethical judgment on the PRTP is that it should be zero, and in this I am in the same camp as many British economists—Frank Ramsey (1928) famously commented that “discounting future utilities is ethically indefensible and arises purely from a weakness of the imagination,” Roy Harrod spoke in similar terms (1948), and the philosopher Henry Sidgwick commented (1890, page 412) that “It seems … clear that the time at which a man exists cannot affect the value of his happiness from a universal point of view; and that the interests of posterity must concern a Utilitarian as much as those of his contemporaries, except in so far as the effect of his actions on posterity—and even on the existence of human beings to be affected—must necessarily be more uncertain.” This is an ethical judgment not a theorem so you don’t have to agree, but I personally find it difficult to see any reason for valuing future people differently from present people just because of their futurity.

    More so if we are supposed to model Rawls’ original position.

    (“But date of birth,” “but date of birth.” I know, Richie.)

    In a mathematical knife fight, I’d bring my Ramsey.

  183. -1=e^iπ says:

    “Social welfare at time t is a function of the utilities of everyone alive at time t. As the group of people alive at time t is different than the group of people at time t+s, discounted social welfare discriminates between groups.”

    Our disagreement is not with the definition of social welfare at a time t. Though we might be disagreeing on the definition of social welfare over all time periods.

    The natural extension of your above definition to all time periods is that a social welfare over all time periods is a function of the utilities of everyone over all time periods. And since in economics it is very common to discuss multitemporal utility functions, for example: U(C1,C2) = (C1^(1-σ) – 1)/(1-σ) + (C2^(1-σ) – 1)/(1-σ), such an extension is clearly defined.

    I’ll finish this post with an example of a social welfare function that both satisfies anonymity and has a social rate of time preference ρ > 0. Define the social welfare function as the sum of the utilities of all individuals where the utility of an individual is defined as Σ(t = – infinity to + infinity; sqrt(C(t))*e^(-0.01t)), where C(t) is the consumption of the individual at time t. In this case, there is no violation of anonymity and there is a social rate of time preference of 1%.

  184. -1=e^iπ says:

    Also, let me see if I understand this correctly. If we were to define a utility function of an individual as U(X1,X2) = X1 + 0.95X2, where X1 is hot chocolate consumed in 2016 and X2 is hot chocolate consumed in 2017 and we were to justify such a utility function on the basis that observed behaviour suggests that people prefer drinking hot chocolate in 2016, a utilitarian social welfare function that uses such a utility function would be immoral / violates anonymity according to Richard Tol as it discriminates against people in 2017.

    But if we were to define a utility function of an individual as U(X1,X2) = X1 + 0.95X2, where X1 is hot chocolate consumed in Canada and X2 is hot chocolate consumed in Indonesia and we were to justify such a utility function on the basis that observed behaviour suggests that people prefer drinking hot chocolate in cold countries over hot countries, would a utilitarian social welfare function that uses such a utility function would be immoral/violates anonymity accord to Richard Tol as it discriminates against people in Indonesia?

    So it’s immoral to use utility functions in a social welfare function that have any spatial or temporal preference even though observations suggest that people have spatial and temporal preference for things?

  185. -1=e^iπ says:

    “Anonymity is an anti-discrimination axiom rather than a similarity axiom.”

    Another name for the anonymity axiom is the symmetry axiom.
    I think that you are incorrect here Mr. Tol.

  186. Ken Fabian says:

    BBD – I expressed my views about how increasing penetration of renewables may play out and what some consequences may be. Perhaps Australia’s National Energy Market works differently to what happens elsewhere – wholesale prices are variable (in 30min blocks, with pressure to reduce that to 5min), with bids submitted for supplying the next block. At times prices hit some extreme highs and there are times when renewables are already the least cost energy within that market and as RE penetration increases it has the potential to cause fossil fuel plant to sit idle and/or fail to earn any income. In order to make the same revenues the prices charged outside those periods will tend to rise – which provides the same kinds of incentives for solutions as are associated with carbon pricing. I think of it as an emergent property of that market with high penetration of low cost intermittent renewable energy.

    I think there is a feedback loop of justification that prevents change – storage is expensive and the amount is inadequate so intermittent renewables should be restricted to below the point where storage might be required. But as long as renewables are restricted investments in storage – which are required before economies of scale and investment in emerging technologies will occur – that will reduce it’s cost and increase it’s capacity. So I don’t think we can know that it will ultimately be too expensive or unmanageable, only that in the near term it appears to be whilst real potential for costs to significantly decrease beyond that exist. Of course much depends on priorities and when the transition to low emissions is lower priority than preventing price volatility – and lowering emissions is not even formally a consideration of the NEM authority.

    So I think this emergent property of a market with high penetration of intermittent renewable energy is one that should be used to drive change, not be the justification for impeding it. Even if that means a commitment to renewables in the presence of uncertainty about how the consequences will be managed I still think it’s a step in the right direction; certainly sticking with the FF powered status-quo comes with virtual certainty of deeply undesirable and irrevocable consequences and costs.

  187. Willard says:

    From what I can read, anonymity is one of the symmetry axioms.

    Names of axioms are a pain.

  188. Sorry – I haven’t read anything further upthread from yesterday other than the last few posts. Anonymity is a symmetry axiom *and* in economics, per this discussion, is desirable to avoid intertemporal discrimination.

    Of course there are many flavors of both Pareto and Anonymity. It’s not always easy to tell which flavor a speaker is using. As I’ve tried to point out – in most cases it’s irrelevant. The arbitrary values we choose are *moral* choices – not scientific ones.

    The value we choose for a pure rate of time preference or how we decide to care for our elderly once past their productive lifespans cannot be derived from a mathematical group of equations, functions, or economic (or mathematical) model. *We* have to decide what those answers are – they can’t be found in economics or science.

    I still find it interesting that very, very few economists even consider a negative PRTP. One tends to believe they all must be childless to never conceive that we might value future generations *more* than our own. Quite odd, since it’s a belief that most parents hold. Pindyck is the rare exception that even mentions the possibility the rate could be negative. I may have to start seeking out other examples – perhaps I’ve just led a life sheltered from economists I might actually like 🙂

  189. @-1=e^iπ
    You can of course construct a welfare function that satisfies anonymity, but not without violating Pareto.

    There seems to be some confusion:
    The axiom of (Strong) Anonymity requires that two infinite utility streams be judged indifferent to one another if one can be obtained from the other through a permutation of utilities of a finite (an infinite) number of generations. (words borrowed from Dutta)

  190. BBD says:

    Ken Fabian

    So I think this emergent property of a market with high penetration of intermittent renewable energy is one that should be used to drive change, not be the justification for impeding it. Even if that means a commitment to renewables in the presence of uncertainty about how the consequences will be managed I still think it’s a step in the right direction;

    Unfortunately, we are still not on the same page. I repeat: I am not arguing for any ‘impediment’ to the process of transitioning to renewables. I am arguing against misleading rhetoric surrounding it. I am cautioning against the eventual electoral blowback that *will* arise if the misrepresentation of cheap renewables is encouraged and allowed to gain widespread traction (something now happening). This creates a weapon that will be used by the mitigation sceptics (to borrow Victor Venema’s excellent phrase) to impede the future of energy transition.

    One last summary:

    It’s imperative to remember that the purpose of the exercise is to displace fossil fuels. Therefore the process must work like this:

    – initial deployments of renewables are free riders, amply backed up by existing spare FF grid capacity.

    – at higher penetrations, additional non-FF capacity must be added to compensate for renewable intermittency, causing the total cost of renewables to rise significantly as their share of the energy mix increases.

    – this process operates in parallel with the ongoing decommissioning of FF plant.

    – the final result is a substantial transition to renewables with non-FF backup – job done.

    It seems to me that your argument is over-focused on the early part of the process.

    certainly sticking with the FF powered status-quo comes with virtual certainty of deeply undesirable and irrevocable consequences and costs.

    Once again, I am *not* arguing for this. I am suggesting that the ‘cheap renewables’ meme is misleading and so should be avoided and criticised when encountered. It is very likely to do more harm than good in the long run. As Willard correctly points out, in Climateball, anything you say will be used against you, sooner or later.

  191. izen says:

    @-“The value we choose for a pure rate of time preference or how we decide to care for our elderly once past their productive lifespans cannot be derived from a mathematical group of equations, functions, or economic (or mathematical) model. *We* have to decide what those answers are – they can’t be found in economics or science.”

    But in practise the decisions are entrusted to financial economists, and bankers.

    http://budgetresponsibility.org.uk/sir-charles-bean-nominated-to-join-obr/

  192. Pingback: Uke 35 (2016): Gla’nytt fra Kina, dødsbobler fra havdypet? | Mot normalt

  193. Willard says:

    > You can of course construct a welfare function that satisfies anonymity, but not without violating Pareto.

    This might be a tad too strong:

    Following Koopmans [14], Diamond [9] establishes that anonymity is incompatible with the strong Pareto principle when ordering infinite utility streams. Moreover, he shows that if anonymity is weakened to finite anonymity—which restricts the application of the standard anonymity requirement to situations where utility streams differ in at most a finite number of components—and a continuity requirement is added, an impossibility results again. Hara et al. [12] adapt the well-known strict transfer principle due to Pigou [15] and Dalton [7] to the infinite-horizon context. They show that this principle is incompatible with strong Pareto and continuity even if the social preference is merely required to be acyclical. Basu and Mitra [5] show that strong Pareto, finite anonymity and representability by a real-valued function are incompatible.

    Faced with these impossibilities, it seems to us that the most natural assumption to drop is that of continuity or representability. We view the strong Pareto principle and finite anonymity as being on much more solid ground than axioms such as continuity or representability, especially in the context of the ranking of infinite utility streams where these conditions may be considered to be overly demanding. Svensson [21] proves that strong Pareto and finite anonymity are compatible by showing that any ordering extension of an infinite-horizon variant of Suppes’ [20] grading principle satisfies the required axioms. The Suppes grading principle is a quasi-ordering that combines the Pareto quasi-ordering and finite anonymity. Given Arrow’s [1] version of Szpilrajn’s [22] extension theorem, this establishes the compatibility result. As noted by Asheim et al. [2], Svensson’s possibility result is easily converted into a characterization: ordering extensions of the Suppes grading principles are the only orderings satisfying strong Pareto and finite anonymity

    We might need to distinguish finite and infinite anonymity and to clarify the assumptions on which Koopmans’ negative results rest.

  194. Willard says:

    Basu & Mitra 2007 can also be found here.

    This paper rests on a result established in this other paper by Basu & Mitra.

    Basu & Mitra’s result has been extended by Crespo & al.

  195. Roger Jones says:

    Ramsey is absolutely needed in this knife fight. If anything on a hierarchical needs basis is non-substitutable then future human welfare is the same as today’s. If it is, then the social discount rate should reflect the degree of substitutability leavened by the increase in future welfare. Many of these basic needs are non-substitutable.

    However, if future welfare is threatened to be less than today’s, the model falls apart. Given that simple growth models never get to this point because they aren’t constructed to handle collapses, the whole point is moot.

    In Richard’s world, damages never get to this state, but in mine they do. And this presents a fundamental challenge for economics. The cost of the absolute versus the cost of the marginal has ever been a tension – one requires philosophy and ethics – the other can use mathematics to formalise the thinking that has evolved to preserve social groups of walking monkeys in the savannah

  196. Roger Jones says:

    ok, apes, hominids. I got carried away with the lyricism.

  197. @roger
    “In Richard’s world, damages never get to this state”

    Nonsense. My 2003 Climatic Change paper is all about that, and it features in a supporting role in a number of other papers.

  198. You might like the note I cited earlier, RogerJ:

    http://www.economicpolicyresearch.org/images/INET_docs/publications/2013/Note-28-Foley-Rezai-Taylor.pdf

    In particular the section **Methodological fallacies in GHG cost-benefit analysis**.

    After the washing machine, now I need to buy a mouse.

    I’ll copy-paste the relevant bits later, and if I find the time, I’ll indulge in more Gremlins.

  199. Tell us more about continuity, dear Richie.

  200. Andrew Dodds says:

    What BBD said, plus..

    Having the lights go out – as in significant sustained blackouts and brownouts – is one of those things that politicians dread, because you can’t talk your way out of it, and to make it go away the lights have to come back on.

    So if it happens because you’ve been installing lots of intermittent renewables, decommissioning FF and just sort of hoping it all works.. then all your political support is gone. It’s hard enough to get people to accept even small increases in power bills to fix global warming; mess with grid reliability and it’s game over.

  201. Andrew Dodds says: “mess with grid reliability and it’s game over.

    The grid is more reliable in countries that are making the energy transition than in the mitigation sceptical countries (USA and UK). I find it rather remarkable the kind of black outs the USA is willing to accept because it would require evil regulation to make it more reliable, but apparently it is not game over for politicians to support this kind of institutional incompetence that hurt the entire economy.


    From:
    http://energytransition.de/2014/10/germanys-energiewende-clean-and-reliable/

  202. BBD, for now renewable electricity is cheaper and getting cheaper every year. Maybe we will need more storage in future, we will see. I find it more likely that businesses will exploit the fluctuations in price to make a profit by using electricity when it is almost for free, by building stronger and larger networks and by using hydro and bioenergy when the price is high. Let’s see how much storage we then still need additionally. We’ve got markets to bring supply and demand together; I see no reason why electricity markets should not work where a much more complicated smart-phone market does work.

  203. rconnor says:

    “Read Rawls”
    “The veil of ignorance extended to year of birth would argue for a zero pure rate of time preference, just like anonymity would.”
    Rawls was rather big on increasing the standing of the worst-off. If future generations, due to climate change, are likely to be worse-off than current generations, the suggestion to read Rawls might lead one to argue for a negative PRTP…

    (VV, in (North) America, the Energy Policy Act and the increasing scope and influence of NERC was born out of the mess caused by deregulation in the energy market (namely Enron and the East Coast Blackout of 2003), so progress is being made. There is, of course, the usual reaction that these are crippling energy companies/the economy/America.)

  204. Willard says:

    I’m starting to think that when Richie says “Rawls,” he means Nozick.

  205. BBD says:

    Victor

    BBD, for now renewable electricity is cheaper and getting cheaper every year.

    I’ve already explained why this meme is dangerously misleading.

    Maybe we will need more storage in future, we will see.

    Of course we will. There is no possibility of avoiding it.

    Hydro is at or close to maximum potential in most developed countries (and expensive and environmentally damaging to expand where this is possible) and bioenergy is very low density and consequently of limited potential.

  206. BBD: “Of course we will. There is no possibility of avoiding it.

    Whether your energy storage price catastrophe happens still depends on whether we need it 10 or 90% of the capacity. If it is just 10% and we only need when we have a lot of renewables, which are quickly getting cheaper, the energy system may be cheaper than today.

    Let me add that I have no problems with it being more expensive, the environmental improvements, especially no polution, but also climate change are worth something.

    Remember, we will be twice when the energy transition is finished, thus even if it it would cost as much as our entire current economy, which it will not even with 100% storage, we would keep our standard of living.

    I do not get your alarmism about a situation we are not sure will happen at all.

  207. BBD says:

    I do not get your alarmism about a situation we are not sure will happen at all.

    I don’t think you really understand this very well at all, Victor.

  208. seaice1 says:

    A couple of thoughts aimed at people not familiar with this area. Sorry to those for whom this is obvious. I may also be wrong, as I am not an expert, but this is my understanding.

    First some terms, Pareto improvement is where nobody is worse off and some are better off. Pareto optimum is where no further Pareto improvements can be made. No change can be made from a Pareto optimum that would not make someone worse off. In practice this does not happen except in simple exchanges because there are always losers that end up not compensated.

    Enter Kaldor Hicks. A re-allocation is a Kaldor–Hicks improvement if those that are made better off could hypothetically compensate those that are made worse off and lead to a Pareto-improving outcome. For example, the invention of machines makes the world in general much better off, but leaves some workers worse off. It is not Pareto improvement because someone is worse off. However, the gains by most people would be enough to compensate the workers if there were a mechanism to make it happen. The gains to the many are greater than the losses to the few. We often accept Kaldor Hicks improvements as a good thing as long as the gains are to many and the losses to few. It would still be Kaldor Hicks improvement if all the gains went to one person and left everybody else worse off. That would be a Kaldor Hicks improvement we would generally not approve of. So whilst it is difficult to argue against Pareto improvement as a good thing, that is not quite the case with Kaldor Hicks, although in practice it is generally a good thing as the gains outweigh the losses.

    In a theoretical perfect market we would always get Pareto exchanges. This is economic efficiency. Real markets re not perfect. A negative externality makes an imperfect market and produces a different outcome from the Pareto optimum because some of the costs are borne by people not deciding how much of something to consume. In a perfect market the bearer of those costs would be compensated by the user to the exact extent that results in Pareto optimum. I make widgets but pollute a stream. I must pay the people downstream exactly how much they require to permit me to pollute, or I must stop or reduce the pollution. Either way I end up producing fewer widgets to be economically efficient. Without such compensation more of the good is consumed than is economically efficient – I make “too many” widgets.

    If instead of compensating the victims of my pollution I am instead taxed the exact same amount, then I will end up making the economically efficient number of widgets. This is not a Pareto improvement, because the victims are still worse off. It is a Kaldor Hicks improvement because in principle the tax could be redistributed to the victims, even if that exchange never actually happens. The gains outweigh the losses and it is not possible to improve on this level of production of widgets as it is the same as would be produced by a Pareto optimum.

    Thus a carbon tax at the correct level ensures that the economically efficient amount of carbon is produced, even if the gains are not re-distributed to the victims. The world as a whole is gaining the maximum amount of benefit.

    The criterion is used because it is argued that it is justifiable for society as a whole to make some worse off if this means a greater gain for others. This is problematic when we consider the global economy, as the “society as a whole” is fragmented. However, the Kaldor Hicks optimum will provide the greatest amount of wealth for potential re-distribution to compensate the losers and is at least a good starting point. Any other level of tax would require justification as it would produce lower level of overall wealth.

  209. Victor,

    I read BBD cautioning against making promises we may not be able to keep. As you say, “… the energy system may be cheaper than today …” but you do not know that. Arguing to err on the side of pessimism is very akin to arguing to err on the side of precaution.

  210. seaice1,

    I cannot say whether your arguments are not wrong, but I can say that they make sense. Thanks for the summary.

  211. brandonrgates says: “I read BBD cautioning against making promises we may not be able to keep.”

    That could be one reason for the disagreement, I read BBD as saying it will be a problem. I feel that is overconfident given that it is hard to predict future technological developments, especially when it comes to technologies we do not need yet.

    If we need storage, also the price of that is plummeting. Who knows what it will cost by the time we would need some to keep the grid stable.

    The energy system may be cheaper than today. And if it is not, there are so many benefit to it, that I am happy to pay for that: air pollution, global warming risks.

    When I was young I expected that the rich people, including me, might have to lead a more modest life and I am fine with that. I no longer see that as realistic. It might be necessary, but I no longer expect it. If we want to solve all other environmental problems, especially bio-diversity loss, we may well have to, but I expect that global warming by itself is most likely a technological problem by now. And a political problem because part of the US population is determined not to solve it.

  212. Victor,

    That could be one reason for the disagreement, I read BBD as saying it will be a problem.

    Quick review, BBD wrote: I am suggesting that the ‘cheap renewables’ meme is misleading and so should be avoided and criticised when encountered. It is very likely to do more harm than good in the long run.

    And: Of course we will [need more storage in future]. There is no possibility of avoiding it.

    ‘Very likely’ leaves some room for uncertainty, ‘of course we will’ and ‘no possibility’ does not. So I better understand your argument now that I read over it again.

    If we need storage, also the price of that is plummeting.

    That’s key, I was not aware of this. Which kinds of storage?

    And a political problem because part of the US population is determined not to solve it.

    Which may explain why I have affinity for BBD’s argument here.

  213. BBD says:

    Victor

    If we need storage, also the price of that is plummeting.

    That’s provocatively incorrect :-). The cost of hollowing out mountains and building dams is rising. The cost of utility-scale batteries is unknown as no mature battery technology capable of utility-scale application actually exists at present.

    The amount of storage required scales with the contribution of renewable to the mix so will rise over time.

    I think the problem here is that I haven’t managed to explain why there will be a necessity for very large scale backup at high renewables penetration. But it is simple: all arguments that there will be enough energy to meet demand (in high renewables scenarios) rest on the assumption that there will *always* be a sufficiently large dispatchable surplus to meet any regional shortfall.

    Since these regional shortfalls can be widespread and long-lasting and simultaneously affect wind and solar resources (eg. anticyclonic weather in winter in Northern Europe) there needs to be a substantial buffer against periodic and potentially widespread disruptions to supply.

    The only way to create such a buffer is by adding large scale storage to regional / national grids and interconnecting them. But don’t forget that the first call on regional backup will be from within the region that owns it and every region will seek to maintain enough standing reserve to ensure continuity of supply. Only any excess will be available for export (dispatch).

    Now to the key problem. Any grid lacking substantial storage will ultimately be parasitical on all those to which it is interconnected which *do* have large scale storage. I cannot stress this enough as it seems to be a near-universal blind spot. The idea that entire regions can wing it, always reliant on the assumption that there will be an exportable (dispatchable) surplus somewhere else is implausible both from an engineering and a political standpoint. To join the club, you have to pay your membership fees.

  214. Andrew Dodds says:

    VV –

    It is somewhat misleading to take numbers from a point before absolute electricity availability becomes an issue; you are essentially saying ‘Who currently maintains their grid best’. From Wikipedia.. Germany gets c. 33% of electricity from renewables, of which almost half is biomass and hydropower. So very much still at the free rider phase.

    I also feel that the comparison with data networks is not suitable. The equivalent of brownouts (slow or intermittent connections due to contention) are common in current networks, and getting rid of them would take an order of magnitude more equipment. You can happily plug 10 30Mb/s customers into one 30Mb/s backbone connection without too many problems. Try plugging 10 30kW customers into a single 30kW substation connection and see what happens.

    As I said – one or two big capacity shortfall events (cf. Winter blocking high for a week) and that’s the end of the renewables transition. Even if it was on the path to working fully.

  215. Prices for batteries going down:
    http://www.energypost.eu/cheap-can-energy-storage-get-pretty-darn-cheap/

    People are working on making gas out of electricity, which would provide storage. Some day we will also use electricity for heating, which can be buffered (in the ground). That all makes no economic sense right now, but when renewable energy keeps on getting cheap it will. A lot of storage will be available due to the transition to electric cars, which you best fill up when the supply is large. This like before really need so much storage yet, which is a good test drive for this technology.

    Andrew Dodds says: “It is somewhat misleading to take numbers from a point before absolute electricity availability becomes an issue; you are essentially saying ‘Who currently maintains their grid best’. From Wikipedia.. Germany gets c. 33% of electricity from renewables, of which almost half is biomass and hydropower. So very much still at the free rider phase.

    That is all the empirical evidence we have. There are no countries where renewable energy leads to black-outs, which would have provided better evidence.

    Otherwise we just have modelling studies: “To achieve the mind-term goals of the Energiewende, does not depend directly on the addition of power storage options… In the longer term, if the share of flexible energy generation options (such as solar thermal or biogas) increases and if demand can be managed flexibly, then even high renewable energy penetrations (about 90% in Germany and over 80% in the rest of Europe) can be balanced by the power system without the addition of new storage options
    From:
    https://www.agora-energiewende.de/fileadmin/Projekte/2013/speicher-in-der-energiewende/Agora_Speicherstudie_Web.pdf
    Translated by:
    http://energytransition.de/2015/11/renewable-energy-and-storage-lessons-from-germany/

    You would use the biomass and hydropower in those periods that the supply of wind and sun is relatively low. Now they are used all the time because the price of electricity does not change yet. Thus old fossil fuel power plants are still standing around. Once we need buffering that would be a waste. Such a period would also be the moment BBD would be willing to pay more to keep his lights on and aluminium smelter would stop its production. The lights and computer of BBD can also be powered by a battery.

    It would be more profitable for a aluminium smelter and other industrial activities to use the power when the supply is high and electricity nearly free. I think entrepreneurs will learn the trick of making a buck out of the nearly free electricity when supply is large and not to use it when household would like to keep the lights on.

    What is special so about electricity? Why is the market able to get supply and demand together for every good we have in this world, but not for electricity?

  216. BBD says:

    Victor

    Li-Ion batteries are not suitable for utility-scale storage so it is *incorrect* to make the claim that ‘storage costs are plummeting’ when the topic is utility scale storage. I’m disappointed to see you doubling down on this. And it is an excellent example of the misinformation surrounding renewables.

    That is all the empirical evidence we have.

    And it isn’t relevant. Andrew was correct to pull you up on this – I should have done.

    Since you’ve largely ignored everything else I wrote, I’ll leave it at that.

  217. BBD I am really sorry that this world cannot provide empirical evidence for a problem that is currently just in your mind.

    We do not need storage yet, so where would you like to get numbers from except for Li-Ion batteries, which have market due to cars and laptops? First utility scale Li-Ion storage systems do exist. California mandates storage to stimulate the development of a market:

    http://www.theenergycollective.com/frank-swigonski/2385794/renewables-grid-services-drive-energy-storage-growth
    The majority of the market for advanced energy storage comes from battery technologies, which have seen significant reductions in price along with improvements in capabilities and functionality in the last two years. An average utility-scale Li-ion energy storage system, which could be installed for around $1,500/kWh in 2014 are now being built for under $1,000/kWh. Li-ion batteries have undergone technological advancements in recent years. But cost and operational life continue to present an obstacle to deploying Li-ion storage at utility-scale. New advancements in liquid metal batteries, pioneered by Ambri, are designed to help solve the problem of cost-effective, utility-scale battery storage. Ambri’s liquid metal battery is made from abundant materials, is designed to handle high voltage, and made to last for significantly longer than most Li-ion batteries. If successfully commercialized, Ambri’s batteries could also be made at a fraction of the cost of Li-ion batteries.

    But batteries aren’t everything that’s hot in energy storage. Other interesting developments include advances in modular thermal energy storage from companies such as Ice Energy and Calmac. Their technologies are used to reduce the energy demand from air conditioners by freezing water at night to provide cooling during daytime peaks. Significant advances have been made in flywheel technology in recent years by companies including Amber Kinetics, Temporal Power, and Beacon Power. New flywheel systems now allow energy to be stored for up to four hours. This technology has the advantage of a longer lifecycle with potentially lower operating costs compared to batteries.

    Most likely utility-scale storage will only partially use Li-Ion batteries, you need storage at a large range of temporal and spatial scales. Other types of batteries are being developed as well as other storage technologies already mentioned above.

    Since you’ve largely ignored everything else I wrote, I’ll leave it at that.

  218. Victor,

    I am really sorry that this world cannot provide empirical evidence for a problem that is currently just in your mind.

    In other news, CO2 is plant food.

  219. BBD says:

    VV

    From the text that you quote above:

    Li-ion batteries have undergone technological advancements in recent years. But cost and operational life continue to present an obstacle to deploying Li-ion storage at utility-scale.

    I hope that is sufficiently clear to close this matter. And despite the handwaving about Ambri et al. there’s nothing beyond prototype stage that I know of as yet. Li-Ion is a not-especially satisfactory tech for microgrids at that’s as far as it ever looks likely to go.

    So:

    – The only true utility scale storage currently available is not battery-based

    – The cost of true utility scale storage is not falling

    – The battery technology that will dominate utility scale battery storage is not yet developed

    BBD I am really sorry that this world cannot provide empirical evidence for a problem that is currently just in your mind.

    No, it is the standard position. From your earlier link from which you highlighted a controversial pair of studies:

    Poppycock!

    Or so one could summarize the reaction of dena, the German Energy Agency, a for-profit think tank created by a consortium including Deutsche Bank and the federal government, to support the Energiewende and inform policy-making. The chairman of dena’s management board, Stephan Kohler, asserts that “energy storage is indispensable for the Energiewende – whoever says otherwise, damages the Energiewende and ultimately jeopardizes the reliability of Germany’s electricity supply.” dena’s main concerns are that a) the expansion of the German transmission system will not proceed as quickly as required to keep up with the growth of intermittent renewables, and b) demand-side management options are at best uncertain means to manage the grid and cannot therefore be relied upon as a substitute for increased investment in storage. Furthermore, whereas fossil fuel-fired power stations can have several weeks of reserves (gas storage) or direct access to fuel (local coal), there is no such strategic reserve in case of a protracted lack of energy supplies with solar or wind energy. Furthermore, there are concerns that the European power market will not operate as one, leading to bottlenecks whenever transborder power balancing is required.

    It’s not ‘just in my mind’.

    This conversation seems to be drifting (or perhaps being pushed) a long way from my original point which was that the ‘cheap renewables’ meme is misleading and so should be avoided as it is very likely to do more harm than good in the long run. I’ve explained why several times already.

  220. Willard says:

    OK guys. You’re all ClimateBall ™ veterans. You’ve said your piece. That’s enough.

    Carbon taxes. Why so low. Joseph Heath. PRTPs. Social Welfare Functions. Stuff like that.

    Here’s something to cheer us all:

    The utilitarian criterion with discounting has been attacked by many economists, from Ramsey (1928) to Chichilnisky (1996), and others. Let me quote a forceful example from Chichilnisky (1996, page 235):

    “…Discounting future utility is generally inconsistent with sustainable development. It can produce outcomes which seem patently unjust to later generations. Indeed, under any positive discount rate, the long-run future is deemed irrelevant. For example, at a standard 5% discount rate, the present value of the earth’s aggregate output discounted 200 years from now, is a few hundred thousand dollars. A simple computation shows that if one tried to decide how much it is worth investing in preventing the destruction of the earth 200 years from now, the answer would be no more than one is willing to invest in an apartment.

  221. [Snip. -W]

    But, yes, how society looks in 2 generations is hard to have an idea about and to talk about. At some moment you have to agree to disagree. Frustrating as it is.

  222. Pingback: Why I find it difficult to discuss climate policy | …and Then There's Physics

  223. Pingback: 2016: A year in blogging | …and Then There's Physics

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