Tl;dr: This assumes pure rate of time discounting. I curious how well your analysis works for anyone who do not think that we should discount harms in the future simply by virtue of being in the future.
-- 1. THIS IS SO GOOD This is super good research and super detailed and I am hugely impressed and hope many many people donate to Let’s Fund and support you with this kind of research!!!
-- 2. LET’S BE MORE EXPLICIT ABOUT THE ETHICAL ASSUMPTIONS MADE
I enjoyed reading Appendix 3 • I agree with Pindyck that models of the social cost of carbon (SCC) require a host of underlying ethical decisions and so can be highly misleading. • I don’t however agree with Pindyck that there is no alternative so we might as well ignore this problem
At least for the purposes of making decisions within the EA community, I think we can apply models but be explicit about what ethical assumptions have been made and how they affect the models conclusions. Many people on this forum have a decent understanding of their ethical views and how that affects decisions and so being more explicit would support good cause prioritisation decisions of donors and others.
Of course this is holding people on this forum to a higher standard of rigor than professional academic economists reach so should be seen as a nice to have rather than a default, but lets see what we can do...
-- 3. DISCOUNTING THE FUTURE, AND OTHER ASSUMPTIONS
3.1 My (very rough) understanding of climate analysis is that the SCC is very highly dependent on the discount rate.
(Appendix 3 makes this point. Also the paper you link to on SCC per country says “Discounting assumptions have consistently been one of the biggest determinants of differences between estimations of the social cost of carbon”).
The paper you draw your evidence from seems to uses a pure rate of time discounting of 1-2%. This basically assumes that future people matter less. I think many readers of this forum do not believe that future people matter less than people today.
I do not know how much this matters for the analysis. A high social cost of carbon seems, from the numbers in your article, to make climate interventions of the same order of magnitude but slightly less effective than cash transfers.
3.2 I also understand that estimates of the SCC is also dependent on the calculation of the worse case tail-end effects and there is some concern among people in the x-risk research space that small chances of very catastrophic affects are ignored in climate economics. I do not know how much this matters either.
3.3 I could also imagine that many people (especially negative leaning utilitarians) are more concerned by stopping the damage caused from climate change than impressed by the benefits of cash transfers.
SO: I do not have answers to what effects these things have on the analysis. I would love to get your views on this.
Of course, philosophically, pure time discounting is wrong, but:
“Another reason to discount is that far future benefits are more speculative, and changes to the world in the meantime can disrupt your project or make it irrelevant. For example, a vaccine development project that hopes to deliver a vaccine in a few decades faces a higher risk of being defunded or the disease in question disappearing, than does a similar project that expects to deliver a vaccine in a matter of years. This is a good reason to discount future benefits and costs, but the appropriate rate will vary dramatically depending on what you are looking at, and will not necessarily be the same every year into the future.”
The social cost of carbon is generally highly sensitive to the pure rate of time preference.
But:
“The national social costs of carbon of faster growing economies are less sensitive to the pure rate of time preference and more sensitive to the rate of risk aversion” from Tol
and from the Ricke paper:
“CSCCs were calculated using both exogenous and endogenous9 discounting. For conventional exogenous discounting, two discount rates were used, 3 and 5%. the results under endogenous discounting were calculated using two rates of pure time preference (ρ=1, 2%) and two values of elasticity of marginal utility of consumption (μ=0.7, 1.5) for four endogenous discounting parameterizations.”
So maybe it’s not highly sensitive to just discounting anymore.
But both the Ricke and the Tol paper use sensitivity analyses on their SCC and different parameterizations make SCC 10s to 1000s of $ per tonne and I guess they’ll use “sensible” ranges for this.
I would love others to look into this more as well and could well imagine new research uncovering facts that would dominate this analysis.
Tl;dr: This assumes pure rate of time discounting. I curious how well your analysis works for anyone who do not think that we should discount harms in the future simply by virtue of being in the future.
--
1.
THIS IS SO GOOD
This is super good research and super detailed and I am hugely impressed and hope many many people donate to Let’s Fund and support you with this kind of research!!!
--
2.
LET’S BE MORE EXPLICIT ABOUT THE ETHICAL ASSUMPTIONS MADE
I enjoyed reading Appendix 3
• I agree with Pindyck that models of the social cost of carbon (SCC) require a host of underlying ethical decisions and so can be highly misleading.
• I don’t however agree with Pindyck that there is no alternative so we might as well ignore this problem
At least for the purposes of making decisions within the EA community, I think we can apply models but be explicit about what ethical assumptions have been made and how they affect the models conclusions. Many people on this forum have a decent understanding of their ethical views and how that affects decisions and so being more explicit would support good cause prioritisation decisions of donors and others.
Of course this is holding people on this forum to a higher standard of rigor than professional academic economists reach so should be seen as a nice to have rather than a default, but lets see what we can do...
--
3.
DISCOUNTING THE FUTURE, AND OTHER ASSUMPTIONS
3.1
My (very rough) understanding of climate analysis is that the SCC is very highly dependent on the discount rate.
(Appendix 3 makes this point. Also the paper you link to on SCC per country says “Discounting assumptions have consistently been one of the biggest determinants of differences between estimations of the social cost of carbon”).
The paper you draw your evidence from seems to uses a pure rate of time discounting of 1-2%. This basically assumes that future people matter less.
I think many readers of this forum do not believe that future people matter less than people today.
I do not know how much this matters for the analysis. A high social cost of carbon seems, from the numbers in your article, to make climate interventions of the same order of magnitude but slightly less effective than cash transfers.
3.2
I also understand that estimates of the SCC is also dependent on the calculation of the worse case tail-end effects and there is some concern among people in the x-risk research space that small chances of very catastrophic affects are ignored in climate economics. I do not know how much this matters either.
3.3
I could also imagine that many people (especially negative leaning utilitarians) are more concerned by stopping the damage caused from climate change than impressed by the benefits of cash transfers.
SO:
I do not have answers to what effects these things have on the analysis. I would love to get your views on this.
Thank you for you work on this!!!
Thank you for your kind words Sam.
On discounting:
Of course, philosophically, pure time discounting is wrong, but:
“Another reason to discount is that far future benefits are more speculative, and changes to the world in the meantime can disrupt your project or make it irrelevant. For example, a vaccine development project that hopes to deliver a vaccine in a few decades faces a higher risk of being defunded or the disease in question disappearing, than does a similar project that expects to deliver a vaccine in a matter of years. This is a good reason to discount future benefits and costs, but the appropriate rate will vary dramatically depending on what you are looking at, and will not necessarily be the same every year into the future.”
https://www.givingwhatwecan.org/post/2013/04/was-tutankhamun-a-billion-times-more-important-than-you/
The social cost of carbon is generally highly sensitive to the pure rate of time preference.
But:
“The national social costs of carbon of faster growing economies are less sensitive to the pure rate of time preference and more sensitive to the rate of risk aversion” from Tol
and from the Ricke paper:
“CSCCs were calculated using both exogenous and endogenous9 discounting. For conventional exogenous discounting, two discount rates were used, 3 and 5%. the results under endogenous discounting were calculated using two rates of pure time preference (ρ=1, 2%) and two values of elasticity of marginal utility of consumption (μ=0.7, 1.5) for four endogenous discounting parameterizations.”
So maybe it’s not highly sensitive to just discounting anymore.
But both the Ricke and the Tol paper use sensitivity analyses on their SCC and different parameterizations make SCC 10s to 1000s of $ per tonne and I guess they’ll use “sensible” ranges for this.
I would love others to look into this more as well and could well imagine new research uncovering facts that would dominate this analysis.