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04.02.2010 - 04:42PM

Category: Environment

Economists Warn Against Setting Price for Carbon Too Low

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By Seth Walker

In its first attempts to regulate carbon emissions, the U.S. government is hindering its own efforts by using flawed economic models that grossly underestimate the impact of carbon dioxide (CO2) on the climate and on our economic future, says a new report issued today by America’s largest network of independent climate economists.

The report, from the Economics for Equity and the Environment Network (E3 Network), an organization of more than 200 economists, shows how a little-known federal task force has estimated the so-called “social cost of carbon” – the economic impact of each ton of CO2 emissions – at a “central value” of $21 per ton, which would translate to about 20 cents per gallon of gasoline.

Federal agencies will use the SCC as part of cost-benefit analyses to weigh the expected cost of regulations against the anticipated savings and avoided damages: The higher the SCC, the stricter the standards will be for fuel efficiency in vehicles, energy efficiency in appliances, and more. The number is crucial in the Environmental Protection Agency’s effort to fulfill its mandate from the U.S. Supreme Court to regulate carbon, and for many other agencies as well. It could also find its way into climate legislation being developed in Congress, causing even greater harm if it’s used to set low carbon permit prices or to justify lax emissions standards.

“The danger is that this will lead to ineffectual regulations that don’t make a dent in the climate problem,” said Dr. Frank Ackerman, lead author of the report, a senior economist at the Stockholm Environment Institute’s U.S. Center and a co-founder of the E3 Network. “We know that the higher the carbon price, the more it will reduce carbon emissions; that’s the whole point of a market incentive. If it’s this low, it will have hardly any effect.”

In the United Kingdom, by contrast, the government’s latest carbon price estimates range from $41 to $124 per ton of CO2, with a central case of $83; the report argues for at least exploring prices in this range for the U.S. The report also notes the urgency of setting a price on carbon in the U.S. Already, atmospheric carbon dioxide concentrations are about 385 parts per million, up from 280 ppm before the Industrial Revolution, and if current trends continue, they are expected to reach 560 ppm within this century. At that level, scientists estimate that the average global temperature would rise by at least 3°C (5.4°F), and more recent studies suggest increases of up to 6°C (11°F).

The full report is available at www.e3network.org, www.sei-us.org, or www.ecotrust.org.

About Economics for Equity and the Environment

Economics for Equity and the Environment (E3 Network) seeks to combat misleading junk economics popularized by climate skeptics. E3 Network organizes the expertise of economists from institutions across the U.S. who are developing and applying new economic arguments for active protection of human health, community prosperity and the natural environment. The E3 Network is sponsored by Ecotrust. More on the Web at www.e3network.org.

About the authors
The Social Value f Carbon report is by Dr. Frank Ackerman and Dr. Elizabeth A. Stanton, senior economists at the Stockholm Environment Institute’s U.S. Center, at Tufts University in Somerville, Mass. For more on their work, see www.sei-us.org/ClimateEconomics.

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