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According to this figure, global carbon dioxide emissions last year amounted to about 30.4 billion tons. The US contribution was slightly more than 5 billion tons. The IPCC estimates that the damage caused by a ton of CO2 is roughly $25. Putting these together, it seems to be that the annual damage* caused by CO2 emissions is $760 billion.

Here’s my tongue in my cheek: that’s the annual budget of the health and human services department. Simply eliminate that department and dedicate those funds toward climate mitigation and we’ve taken care of the CO2 problem for the entire world!

Here’s something less tongue in cheek: how much would a sensible investor pay to prevent annual damages of $760 billion? That is the same question as asking, what is an investment that nets $760 billion each year worth? The answer depends on what the path of interest rates is, and what the other risk-adjusted returns are in the market. For argument’s sake, suppose the relevant rates of return are around 2%. What is a $760 billion stream of benefits worth? About $38 trillion. Use a higher rate of return and this number will fall, use a lower one and it would rise.

So, when these kinds of guys estimate that it will cost $100 trillion to change the entire planet’s electricity generation system (excluding the costs of transmission lines and regulatory and legal costs), the thing to keep in mind is that they are arguing it is worth spending $100 trillion for sure, to save an annual expected stream of damages of roughly $760 billion (and presumably increasing). Those do not seem like good numbers, unless of course we enter a world where interest rates go negative. And we could never get into that kind of a situation, could we?

One final caveat: I am attributing 100% of the damages from CO2 emissions to that produced by the electricity sector, but that is nowhere near the case. Here is what the source of CO2 emissions across the globe looks like:

If this is right, and I have no reason to suspect PBS of fudging these numbers, then a little over a quarter of CO2 emissions comes from electricity. Let’s assume that 100% of transport and energy supply is covered by the plan above – so we are talking about 39% of CO2 emissions and hence 39% of CO2 damages. Would you spend $100 trillion to prevent $297 billion of losses each year?

* This is really the present value of future damages. Despite what you might read, there is very little current confirmed damage from CO2 emissions. Certainly if there is, you would be reading gross damage figures and not net ones. At low levels of warming, it is pretty apparent even from the alarmist models that the net effects of CO2 emissions are positive.

3 Responses to “Putting the Damage in Perspective”

  1. Rod says:

    This is one of those factoids that need to be challenged every time it pops up. What damage? CO2 is a necessary component of the life cycle of plants and animals. It isn’t even clear that man-made CO2 adds anything at all to the concentration of CO2 in the atmosphere. Rainfall and the world’s oceans wash CO2 from the air, turning it into carbonic acid, which is in solution in an equilibrium state. Thus one of the major questions about atmospheric CO2 is whether global warming (something that has been occurring on this planet intermittently for its entire geologic history) causes increases in atmospheric CO2, just as CO2 is released from a soda if you warm the bottle (and vice versa if the soda is chilled).

    BTW, ALL rain is acid rain. It can be a little more acidic if the rain dissolves SO2 or chlorine gas. Those Adirondack lakes that have become acidic over the years don’t have limestone under the waters, so gradually they become fit for bass but not trout. All great natural trout streams flow through places that have limestone to dissolve.

    Anyway, any claim of damage needs to be accompanied by a convincing demonstration of cause and effect.

  2. Harry says:

    I assume you cite the IPCC’s figures just to get our juices flowing.

    We used to get around ten pounds, maybe more, daily, some of it junk, but a lot of research from brokers.

    Often, these reports contained stories about companies written by some Chsrtered Financial Analyst, who was probably paid better than the Business Editor of the Chicago Tribune.

    I used to gauge these stories by their length — the shorter the better. A five-page report with three ten-column spreadsheets calculating expected cash flow five years from now went into the trash. If we had been short-sellers, maybe I would have saved them, but I never played that game.

    Some time ago you had wondered about the limitations of Macroeconomics, and macroeconomists to devise government policy. Yep. What discount rate do you plug into your global model?

    Well, suppose the economist is a Greek in denial, or from Ghana, where there is not a single dot on Wintercow’s map? Would you risk your own money on his forecast of what your money will be worth a year, let alone ten years from now?

  3. Harry says:

    If you cut out industry, agriculture, and forestry, the CO2 problem is solved, right?

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