From the WSJ's Micro Weekly Review:
Greenhouse-Gas Fight Escalates
by: Keith Johnson
Sep 03, 2013
TOPICS: Environmental Regulation
SUMMARY: A quiet move by the Obama administration to put a higher price tag on greenhouse-gas emissions has sparked a big fight, prompting new legislation in Congress and sniping in academic circles. "Buried in new energy-efficiency standards the Department of Energy released in May for microwave ovens was an administration estimate that the cost to the country for each ton of carbon dioxide emitted was $36 in 2007 dollars-up from its 2010 estimate of $21 a ton. The number is important because the more costly carbon pollution is deemed to be, the greater the apparent economic benefits of new environmental regulations. The climate plan hinges on such regulations, including restrictions on new power plants that the Environmental Protection Agency is set to release in late September." The article includes comments by economists Robert Pindyck and William Nordhaus about the estimates of the economic cost of carbon emissions.
CLASSROOM APPLICATION: The article could prompt a classroom discussion and investigations into the issue of the economic methodology of estimating the economic effects of climate change.
1. (Advanced) Why the estimate of the cost of carbon emissions important to the economic analysis of setting prices or limits on these emissions?
2. (Introductory) How does the size estimate affect the magnitude of carbon emission policies?
3. (Advanced) The column states, "Robert Pindyck, an economics professor at the Massachusetts Institute of Technology, slams the models in a coming paper to be published by the National Bureau of Economic Research, saying they use essentially arbitrary inputs and give a misplaced illusion of scientific certainty." What is the misplaced illusion of scientific certainty? How does uncertainty about the effect of carbon emissions on economic welfare affect carbon policy?
Reviewed By: James Dearden, Lehigh University
Here is an important excerpt from the WSJ article given the discussion about Pindyck's paper:
Though his work has given ammunition to skeptics of global-warming science, Mr. Pindyck said his point is really about the difficulty of modeling possible catastrophic impacts of climate change. "We know there's a social cost of carbon, and we know it's above $0," he said. "If anything, the cost of carbon could be higher" than the administration's models suggest.