A pair of economists at Economics for Equity and the Environment (E3) have just released a study positing that the social cost of carbon is far higher than previous estimates, by up to an order of magnitude. The official estimate used by the US government is $21 per metric ton of CO2 as of 2010, and various estimates go up to about $100-200, e.g. the Swedish carbon tax is 101 Euros per ton, and James Hansen recommended $115 per ton. In contrast, the E3 study’s range, using newer estimates of damages, goes up to $900 per ton of CO2 as of 2010, escalating to $1,500 in 2050, when the discount rate is low and the price is based on a worst case scenario (95th percentile) rather than the average.
One should bear in mind that the discount rate used to get the high numbers is 1.5%, in line with what was used by the economists at Bjorn Lomborg’s Copenhagen Consensus to arrive at the conclusion that climate change mitigation was a waste of time. It’s not a radical estimate, although some commentators have wrongly confused it with zero discount rate; it’s in line with the long-term risk-free bond yields. Even using average rather than worst-case damages (but still averages coming from the newer, higher estimates) would give a carbon tax of $500 as of 2010, escalating to $800 by 2050.
The carbon content of gasoline is such that a $900/ton tax would be almost to $8 per gallon of gasoline, or $2 per liter. For diesel, make it $9 per gallon. Good transit advocates are engaging in fantasy if they think this, even together with other costs such as air pollution, would eliminate driving; however, it would severely curtail it, inducing people to take shorter trips, switch some trips to public transportation, and drive much more fuel-efficient cars. All three are necessary: not even in Switzerland has the transit revival gotten to the point of abolishing the car. However, the current US car mode share – 86% for work trips – is unsustainable and has to go down under any scenario with a high carbon tax.
More intriguing would be the effect on electricity consumption and generation. Current coal-fired plants in the US would see an average tax of about $0.89 per kWh; natural gas plants would be taxed $0.49 per kWh. Cities already have an advantage there – New York City claims 4,700 kWh of annual electricity consumption per capita, while the current US average is about 13,000. Obviously, in both cases, fossil-fired electricity consumption would crash, while solar and wind power would become a bargain, but it would be easier to do this in large cities. But again, urban revival has its limits; suburban houses would still exist, just with much more passive solar design and extensive solar panels.