How Much Should We Pay to Emit Carbon?

Many consider emissions of greenhouse gases to be what economists call a "negative externality," meaning that they are likely to impose a cost on society through climate change and ocean acidification. The cost of that externality should, in principle, be borne by the emitters, who should pay a price to emit. But what should that price be?

The long chain of connections to arrive at a price

A recent book by Yale economics professor William D. Nordhaus, The Climate Casino, represents a monumental effort to explain how that price should be determined. The book is exhaustive and pitched to the general reader. Readers who are knowledgeable about science or economics will be able to skim large sections.

The chain of causalities and implications leading to the determination of the price is long and tortuous. Some links are frailer than others, and some are extremely frail indeed.

The links in the chain are as follows:

  1. Greenhouse gases (GHGs) are emitted by industrial processes into the atmosphere.
  2. As a result, concentrations of these gases in the atmosphere increase.
  3. GHGs act in the atmosphere like the transparent roof and walls of a greenhouse: They allow short-wavelength solar radiation through but they impede longer-wavelength re-radiation from the surface of the earth.
  4. This tends to trap heat in the atmosphere and produce warming. It also causes secondary effects – feedback loops – that can lead to more warming or dampen warming.
  5. Long-term computer simulations, together with measurements of historical temperature trends, imply that changes in temperature and climate over future decades will be significant.
  6. Further computer simulations have attempted to project the future economic costs of those changes in climate.
  7. Finally, a means of discounting can be applied to collapse these projected economic costs into a single number, enabling comparison between the costs of taking action to prevent or adapt to those changes and those of not taking action.

The argument for the series of causalities represented by steps 1-4 is virtually airtight. As a result of the emissions of greenhouse gases (GHGs), most of them caused by the use of fossil fuels in the energy sector, atmospheric concentrations of these greenhouse gases increase. Carbon dioxide (CO2), in particular, is emitted in huge quantities by the burning of coal, oil, and natural gas. CO2 concentrations in the atmosphere have increased from about 315 parts per million (ppm) in 1958 to about 390 ppm now. It was this observation – measured at the Mauna Loa Observatory in Hawaii by a group led by Scripps Institute of Oceanography scientist Charles David Keeling – that first brought widespread public attention to the issue.

The basic mechanism of temperature rise caused by increased greenhouse gas concentrations, all else being equal, is irrefutable as a matter of science.

But steps 5, 6 and 7 are increasingly tenuous.

The computer estimates in step 5 are not airtight. Temperature alterations are the subject of the massive computer programs that attempt to simulate and project future temperatures and the climate changes resulting from them. Projections of computer simulations over the next 200 years of the earth’s atmosphere and its interaction with oceans and earth need to be taken with liberal doses of salt.