It would have been reasonable for them to use the mean global income as the baseline, rather than dollars to the mean US citizen.
If I understand correctly, that would boost things by about a factor of 3 in favour of climate change (mean global income is about $20k, vs. mean US income of about $60k). Though, I suppose that’s a fairly small uncertainty compared to the others listed here.
The assumption is that a policymaker will use these results to shape how strict climate policy is. Stricter climate policies will reduce present-day consumption in the policymaker’s jurisdiction. The goal is to have a climate policy that is just strict enough to balance the future utility gain from improved climate with current utility loss from reduced consumption.
For most real world applications it is convenient to have marginal damages expressed in monetary terms, rather than in utility units. In a final step, the marginal damage estimate therefore must be converted into monetary units. In principle one would just divide the marginal damage estimate expressed in utility units by marginal utility of income or consumption in the present to convert from utility to monetary units. Income inequality in the present however implies that the marginal utility of income is difference between regions and therefore the conversion depends on the choice of the reference or normalization region. Unless potentially very large transfers equating marginal utilities are allowed this yields different monetary values for different reference regions of the aggregated marginal damages as shown in Anthoff et al. (2009a)
I think it’s conventional in the literature to use the US as the reference region: “In order to make the numerical results comparable with previous studies we take the US as reference region x throughout this paper” (ibid).
My current understanding of how we should interpret a social cost of carbon of $y is:
“Given certain assumptions about future climate effects, emissions trajectories, how utility scales with consumption, and how much we discount future utility, a utilitarian policymaker in country x should be willing to reduce current consumption in his country by up to $y in order to abate 1 ton of carbon emissions”
This also means that, due to assumptions about diminishing marginal utility, the choice of reference region majorly affects the SCC. For example, Anthoff and Emmerling show how reference region affects their results. (Remember that this, like all SCC estimates, is subject to lots of assumptions about the effects of climate change and discounting.)
(Sorry for the huge image)
If the SCC estimate is low enough it can actually be negative for some regions, meaning that any reduction in present-day consumption in those countries to mitigate climate change would reduce utility.
I wanted to jump in here while the discussion is active, but I’ll also flag that John, Johannes and I are working on this and should have a post on comparing climate vs. global health/development interventions in the not-too-distant future.
Great, thank you for this! Look forward to seeing more work also.
And just a quick thought: if we know what the SCC of carbon is for Africa (looks like ~$10), and it’s defined in the way you say, then we could also do the comparison directly with the Africa-SCC figure, rather than converting into US equivalent first e.g.:
1 tonne of CO2 averted → equivalent to $10 of consumption in Africa
If it costs $1 to avert a tonne, then $1 → $10 consumption
$1 cash transfer → $1 of consumption in Africa (or maybe ~$5 to a GiveDirectly-recipient)
$1 to AMF → ~$50 African-consumption-equivalent (thinking of it as 10x GiveDirectly)
So with these figures, carbon offsets are better than cash transfers, but AMF is 5x better than carbon offsets.
I had emailed all the authors of this analysis and asked them, but they didn’t get back to me, so I think it’s ambiguous and not really replicable. But yes I agree it’s a fairly small uncertainty compared to the others.
I’m still a bit worried about this.
It would have been reasonable for them to use the mean global income as the baseline, rather than dollars to the mean US citizen.
If I understand correctly, that would boost things by about a factor of 3 in favour of climate change (mean global income is about $20k, vs. mean US income of about $60k). Though, I suppose that’s a fairly small uncertainty compared to the others listed here.
The assumption is that a policymaker will use these results to shape how strict climate policy is. Stricter climate policies will reduce present-day consumption in the policymaker’s jurisdiction. The goal is to have a climate policy that is just strict enough to balance the future utility gain from improved climate with current utility loss from reduced consumption.
(Anthoff and Emmerling, 2016, p. 5, emphasis added).
I think it’s conventional in the literature to use the US as the reference region: “In order to make the numerical results comparable with previous studies we take the US as reference region x throughout this paper” (ibid).
My current understanding of how we should interpret a social cost of carbon of $y is:
“Given certain assumptions about future climate effects, emissions trajectories, how utility scales with consumption, and how much we discount future utility, a utilitarian policymaker in country x should be willing to reduce current consumption in his country by up to $y in order to abate 1 ton of carbon emissions”
This also means that, due to assumptions about diminishing marginal utility, the choice of reference region majorly affects the SCC. For example, Anthoff and Emmerling show how reference region affects their results. (Remember that this, like all SCC estimates, is subject to lots of assumptions about the effects of climate change and discounting.)
(Sorry for the huge image)
If the SCC estimate is low enough it can actually be negative for some regions, meaning that any reduction in present-day consumption in those countries to mitigate climate change would reduce utility.
I wanted to jump in here while the discussion is active, but I’ll also flag that John, Johannes and I are working on this and should have a post on comparing climate vs. global health/development interventions in the not-too-distant future.
Great, thank you for this! Look forward to seeing more work also.
And just a quick thought: if we know what the SCC of carbon is for Africa (looks like ~$10), and it’s defined in the way you say, then we could also do the comparison directly with the Africa-SCC figure, rather than converting into US equivalent first e.g.:
1 tonne of CO2 averted → equivalent to $10 of consumption in Africa If it costs $1 to avert a tonne, then $1 → $10 consumption $1 cash transfer → $1 of consumption in Africa (or maybe ~$5 to a GiveDirectly-recipient) $1 to AMF → ~$50 African-consumption-equivalent (thinking of it as 10x GiveDirectly)
So with these figures, carbon offsets are better than cash transfers, but AMF is 5x better than carbon offsets.
I had emailed all the authors of this analysis and asked them, but they didn’t get back to me, so I think it’s ambiguous and not really replicable. But yes I agree it’s a fairly small uncertainty compared to the others.