Workshop on the Social Cost of Carbon Discussion of the Appraisal Project

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Workshop on the Social Cost of CarbonDiscussion
of the Appraisal Project

• 13 September 2004

Michael Spackman
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Overview

• A lot of good work, and real advance,
• but
• yet more needed on untangling key issues.
• We need and could have much more transparency
  about assumptions and about alternative views.

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The simple model

• 1 An activity (say CO2 emission) imposes
  environmental costs.
• 2 Using hard science and economics, we value
  these costs.
• 3 And then apply this damage cost (say a Social
  Cost of Carbon) to policy (e.g. as a tax on the
  activity, or as a basis for quantifying targets).

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The simple model can work for some cases

• For example
• Time delays
• Noise
• Road damage by heavy goods vehicles
• Landfill waste.
• Although even these are difficult in practice.

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But the simple model is too simple for carbon
strategy

• Mainly because it hides too much political
  judgement in the black box of a single number.
  For example
• How much does the UK population care about
  impacts on other populations over geography and
  time?
• And partly because currently so much is outside
  the black box. For example
• To what extent will UK emissions policy affect
  policies in countries that really matter (China,
  USA, etc)?
• To what extent will UK emissions policy improve
  or worsen our political standing with other
  countries?
• How do the costs and benefits of emissions policy
  compare with those of other measures to aid the
  developing world?
• Not to mention all the empty boxes in the Matrix.

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An efficient policy guidance framework for carbon

• (1) High level strategy (sustainability
  objective) guided by technical advice and
  political judgement
• to yield carbon emission targets.
• (2) These emission targets imply a marginal
  social cost (MAC) of carbon (i.e. the
  opportunity cost of carbon to the UK)
• to use in general policymaking, by DfT, DTI
  etc, including feedback as input to (1).

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(1) Analysis needed for high level strategy

• Basic needs include
• Quantification where possible and valuation where
  feasible and sensible of damage costs of
  differing world emissions levels including
  identification of gainers and losers, and
  distribution over time.
• Valuation of abatement costs over time, in UK and
  elsewhere, for differing levels of emissions.
• Identification of all other important policy
  determinants, including those that cant sensibly
  be valued, or even quantified and including
  factors such as the effect of our actions on
  other emitting countries.
• Identification of main uncertainties and what
  they depend upon.
• Whether any of this is usefully expressed, at the
  strategic policymaking stage, as an SCC is (at
  most) debatable.
• The political aspects could be brought (to some
  extent) into a formal analytical framework with a
  highly competent MCDA process demanding of high
  level resources, but drive clarification of
  issues and arguments.

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(2) Framework for carbon strategy implementation

• The emissions target regime implies a marginal
  abatement cost (MAC). This national opportunity
  cost of carbon emissions should be used for
  general policy analysis.
• Would whoever suggested that its use does not
  comply with the existing guidance on appraisal
  please explain themselves!
• But deriving a MAC is still tricky. For example
• Uncertainties about what is politically feasible
  and how technology will change
• The need for the time profile of MAC to be
  assessed against objectively expected, not
  aspirational future emissions targets (or to be
  nuanced if this is politically unacceptable).
• For most applications a single value would be
  sensible, though this does not preclude
  sensitivity analysis in some cases.

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A technical detail rich/poor vs. you/me

• The issues are probably well understood by
  everyone at the workshop, but widely
  misunderstood in public debate. Why are they
  never set out clearly?
• Spending by A to benefit B gives a net world
  welfare gain but whether A chooses to do it
  depends (largely) on how much A cares about B
  and whether A has better ways to help B.

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Conclusion

• A stated fundamental aim of this workshop is
• to start the process of consultation leading
  to a Government set of recommendations on the SCC
  and its application to policy appraisal.
• To promote good policymaking, this should be
  recast to read
• to start the process of consultation leading
  to a Government set of recommendations on
• a) the use of analytical outputs in advice to
  government on climate change strategy and
• b) how the SCC to the UK implied by government
  strategy should be applied to projects,
  programmes and policies in general.