Stupidly modelized carbon price

Among the climate community, the social cost of carbon corresponds to the net balance between harms and benefits resulting from a given climate change, mostly expressed in a global temperature increase considered to be caused by anthropogenic CO2. Its evaluation has led to a lot of studies, each more hypothetical than the others. A recent one was published in the prestigious Nature Climate Change (DOI: 10.1038/s41558-020-0880-3) on determining the level at which carbon should be priced on the mid-term to achieve zero net emissions by a given later date. It is presented as a pragmatic alternative to the complex evaluation of the social cost of carbon. This is one more example of wicked “science”.

Once the date of net zero achievement is chosen (setting the remaining time to warm) as well as the pathway leading to it (the speed at which emissions are to be reduced over the remaining time), CO2 prices are calculated that would need to be imposed on the market to reach the goal. These calculations are made with the help of the “Global Change Assessment Model (GCAM)”, a fantastic multi-crystal ball assemblage[1]. The overarching climate objective is ingenuously assumed to be achieved by the magic of climate physics responding to, also assumed, more virtuous human behaviours.

For example, in the US case, if net zero must be met in 2050, it tells that the carbon price should be set at 34 – 64 US$ per metric ton of CO2 in 2025 and raised to 77 – 124 US$/ton by 2030[2]. Also, and this can be expected without wasting as much time and effort, this cost is all the higher as the goal is to reach net zero sooner, approximately three times more for 2040 than for 2060. This explains why parasites, predators and rent seekers love the climate urgency: a lot can be gained (= spent in their favour) on the short term if strong policies are enacted without delay. Therefore, one should not ask to target 2100 or later, it would neither serve their interests nor those of eco-climatic ideologists. But it may make sense from a prudent social and economic perspective.

The model has inherent sensitivities to assumptions made for “complementary policies” addressing non price related market barriers, oil price, innovation productivity, natural gas price, and national wealth (GDP), listed here from most to least sensitive. However, these variables are highly interdependent, which means that quite many of these fragile crystal balls are colliding in the air, some of them not being caught before crashing to the ground.

It seems to me that a large series of “what if” scenarios will lead to any desired range of outcomes, from total boredom to collapse. If such range is selected to make it appear more probabilistic than deterministic, then the needed seriousness is obtained to be retained as reference in the next IPCC report. But it is crap because realistic scenarios that don’t provide the expected outcome will not be selected or their outcomes will have been eliminated, and, before all, because it is an impossible combinatory task to look into so many crystal balls, even if each of them would be perfectly spherical.

Nevertheless, it is impressive to see how deeply these economists fall in love with their models; they are worse than climatologists, who at least consider a few truly independent variables. The mere fact that the range of the selected results is so wide at a relatively short term should alert them on systemic faults, like a crooked nose ruins a fairy’s beauty. Unfounded beliefs are embedded in the model fundamentals, as for example the virtuous nudging effect of politically imposed price increases on consumption behaviours and on innovation. Even in the fight against smoking, no proof has been provided about the success of imposed higher cigarette prices, as the number of die-hard smokers is stagnating at between 25 and 30% of the population; and vaping has no large success as an alternative. Zero smoke cannot be achieved at a price five times that of cigs producers but, despite the low production costs of fossil fuels, zero carbon is assumed to be achieved by such spurious mechanisms, and this at a political price far from a fivefold increase. The much more plausible response will be inflation, diligently but silently passed over to the most vulnerable in society. Two years ago, the French gilets jaunes reacted to a climatic 8 eurocent increase of the gasoline price, a mere 15% of its pre-tax production and distribution costs and 5% of its already fully taxed street price, equivalent to a tax of 30 EUR/ton CO2. The models can’t contemplate such social black swans.

Political correctness requires to expect reality to follow the most favoured scenario. How this should be achieved is not the subject of such “scientific” article.

Article originally published on European Scientist

[1] A simplified presentation is made in an Ars Technica article:

[2] Remember this order of magnitude:
Every 10 francs (or EUR or USD) per ton of CO2 would increase the price of one litre of gasoline by 2.5 cents.  Currently, the CO2 European Emission Allowances is traded at around 25 EUR/ ton.
The Swiss CO2 tax levied on fossil fuels, such as heating oil and natural gas is set at 96 Fr/ton (≈90 EUR).


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