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What is all the more remarkable about this conclusion is that the authors use an uber-low, uber-lame, uber-outdated “price” for CO2: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).
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 Didn’t think it was relevant given that it was instantly out of date.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.