Appreciate the feedback. We definitely agree that not all benefits are captured in market valuation and that this leads to an underestimate. While working on this, we initially tried creating an “external benefits multiplier,” but ultimately couldn’t come up with a particularly sound way of estimating this multiplier prior to the submission deadline. Regardless, I think we were not focused enough on the fact that the US plays this significant role in the global energy innovation system, so thanks for bringing that up too. In retrospect, we should’ve just added something as a placeholder and then made updates later.
The general framework we could use to create this multiplier is to calculate the ratio of a standard carbon price recommended by environmental economists (e.g., ~$51 − 125 per ton) over an estimate of the “implicit US carbon price” (i.e., standard carbon price/implicit US carbon price). The implicit US carbon price could be derived by calculating an emissions-weighted carbon price associated with RGGI and the California cap-and-trade market, as well as the implied dollar paid per emission abated through current US subsidies for carbon reduction technologies. We could rely on work from UChicago’s EPIC to help guess the implied dollar paid per emission abated through US subsidies. However, as you can see in the aforementioned UChicago paper, US policies likely pay way more than $125/ton in some instances (e.g., with the weatherization assistance program) and miss cheap emissions reduction opportunities in other instances (e.g., nature-based solutions). This could make the “implicit US carbon price” look artificially high. Regardless, the implied emissions price may still be relatively low (e.g., <$30/ton). Thus, the external benefits multiplier might be something like 2 or 3.
If we further account for the US’ role in the global innovation system, potential existential risks associated with climate change, etc., we could increase the numerator.
Would love either of your thoughts on this approach!
Appreciate the feedback. We definitely agree that not all benefits are captured in market valuation and that this leads to an underestimate. While working on this, we initially tried creating an “external benefits multiplier,” but ultimately couldn’t come up with a particularly sound way of estimating this multiplier prior to the submission deadline. Regardless, I think we were not focused enough on the fact that the US plays this significant role in the global energy innovation system, so thanks for bringing that up too. In retrospect, we should’ve just added something as a placeholder and then made updates later.
The general framework we could use to create this multiplier is to calculate the ratio of a standard carbon price recommended by environmental economists (e.g., ~$51 − 125 per ton) over an estimate of the “implicit US carbon price” (i.e., standard carbon price/implicit US carbon price). The implicit US carbon price could be derived by calculating an emissions-weighted carbon price associated with RGGI and the California cap-and-trade market, as well as the implied dollar paid per emission abated through current US subsidies for carbon reduction technologies. We could rely on work from UChicago’s EPIC to help guess the implied dollar paid per emission abated through US subsidies. However, as you can see in the aforementioned UChicago paper, US policies likely pay way more than $125/ton in some instances (e.g., with the weatherization assistance program) and miss cheap emissions reduction opportunities in other instances (e.g., nature-based solutions). This could make the “implicit US carbon price” look artificially high. Regardless, the implied emissions price may still be relatively low (e.g., <$30/ton). Thus, the external benefits multiplier might be something like 2 or 3.
If we further account for the US’ role in the global innovation system, potential existential risks associated with climate change, etc., we could increase the numerator.
Would love either of your thoughts on this approach!