Natural Gas Damage Larger Than Its Value Added For Even Low CO2 Prices

Coal does more harm than good.

Okay, public health experts have known this for a while — see Life-cycle study [Epstein et al]: Accounting for total harm from coal would add “close to 17.8¢/kWh of electricity generated.”

But now we have some of the leading (center-right) economists in the country — Nicholas Z. Muller, Robert Mendelsohn, and William Nordhaus — making this case in a top economic journal, the American Economic Review.  Their article, “Environmental Accounting for Pollution in the United States Economy” [aka MMN11], models the impact of emissions of six major pollutants (sulfur dioxide, nitrogen oxides, volatile organic compounds, ammonia, fine particulate matter, and coarse particulate matter) from the country’s 10,000 pollution sources.

Nobel Prize-winning economist Paul Krugman summarizes the core conclusions in his post, “Markets Can Be Very, Very Wrong.”

Consumers are paying much too low a price for coal-generated electricity, because the price they pay does not take account of the very large external costs associated with generation. If consumers did have to pay the full cost, they would use much less electricity from coal — maybe none, but that would depend on the alternatives.

At one level, this is all textbook economics. Externalities like pollution are one of the classic forms of market failure, and Econ 101 says that this failure should be remedied through pollution taxes or tradable emissions permits that get the price right.

What is all the more remarkable about this conclusion is that the authors use an uber-low, uber-lame, uber-outdated “price” for CO2:

We use the social cost of carbon for the year 2000. This cost will rise over time as greenhouse gases accumulate and marginal damages increase. We assume that the central estimate of the social cost of carbon is $27 per ton of carbon (Nordhaus 2008b).

Seriously.

Nordhaus 2008b is Nordhaus’s 2008 book, A Question of Balance: Weighing the Options on global Warming Policies.  It was total bunk back in 2008.  I read it but I never got around to debunking it.  Didn’t think it was relevant given that it was instantly out of date.  Alas.

The actual social cost of carbon today is at least 5 times that price and more than 10 times that in the near future (or now, see here).  As but one example, the relatively Conservative International Energy Agency (IEA) noted back in 2008 that just to stabilize at 550 ppm, which would likely still be catastrophic for humanity, you’d need a price of “$90/tonne of CO2 in 2030,” which is to say $330 a metric ton of carbon.  You need a 2030 CO2 price of “$180/tonne in the 450 Policy Scenario” — $660 a metric ton of carbon.

And let’s not forget the work of Martin Weitzman on the impact of even a small chance of catastrophic impacts — see Harvard economist: Climate cost-benefit analyses [like Nordhaus's] are “unusually misleading,” warns colleagues “we may be deluding ourselves and others.”

The fact is that on our business as usual emissions path, we have a very high chance of catastrophic impacts, not the 3% or so chance Weitzman estimates (see “An Illustrated Guide to the Science of Global Warming Impacts“).

And yet Nordhaus and company still find that the total damages from natural gas exceed its value-added at a low-ball carbon price of $27 per ton! At a price of $65 a ton of carbon, the total damages from natural gas are more than double its value-added!

And so once again the literature makes clear that a massive ramp up of natural gas ain’t the solution to global warming –  as many 2011 analyses have found, including the IEA’s.  Needless to say, if natural gas does more harm than good, you can imagine how bad coal is.

Skeptical Science has a longer discussion of this important paper, which I repost below.

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by Daniel J. Weiss

Governor Rick Perry (R-TX) plans to unveil his energy plan at a speech in Pittsburgh tomorrow.  Based on his description in Manchester Union Leader and other comments, the Perry proposal bill is a Big Oil wish list masquerading as an energy plan.  It would allow so much more oil drilling on federal lands and in waters that it is “drill, baby, drill” gone wild.

By gutting health safeguards from air pollution, it is a recipe for more premature deaths and hospitalizations, with few additional jobs, and no investment in the fast growing clean tech sector. The Perry Petroleum Plan looks backwards by reviving the Bush – Cheney plan developed in secret with big oil companies rather than providing a path to cleaner, more efficient energy production and consumption — the road our economic competitors are racing on.

Perry implored during Tuesday’s presidential debate that we must “get America independent on the domestic energy side.”  He must not know the Obama Administration has already made significant progress to reduce dependence on foreign oil.  The Energy Information Administration reports that domestic oil production is up ten percent while imports are six percent lower from 2008 to 2011.  Meanwhile, domestic oil use is down two percent, with additional oil savings due to new, improved fuel efficiency standards for vehicles.  Over the next decade, the growth in U.S. domestic oil production will outpace the progression in oil demand.

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