Cost of Carbon

One of the main points of debate in the argument over climate change concerns the cost of complying with the Kyoto Treaty or other mechanisms to reduce greenhouse gas emissions. Today's New York Times includes an editorial suggesting that the cost could be much lower than previously estimated, as low as $1.00 per ton of carbon dioxide equivalent reductions. However, the basis for this estimate is extremely weak, even though it originates in a recent study by the US Environmental Protection Agency.

Last month the EPA issued the results of their analysis of a variety of proposed clean air programs, including the Administration's Clear Skies initiative and several competing House and Senate bills. Their findings for the bill cited in the Times editorial, Senator Carper's S.843, are the source of the $1/ton estimate, although when you read the analysis, you will discover this note: "Due to modeling limitations, some provisions of the Clean Air Planning Act (Carper, S843) are not directly modeled. These provisions include the carbon offset provision." So the range of carbon credit prices reported are not apparently the result of detailed modeling. That's reassuring, because they don't even reflect the price of such offsets in today's market, let alone that of 2010, 2015, and 2020, as they purport.

For example, comparable credits currently trade in the EU at a level equivalent to about $25/ton. Prices on the Chicago Climate Exchange, which is strictly voluntary and not backed by the kind of mandatory national emissions cap envisioned in Senator Carper's bill, are already over $2/ton, and would certainly go higher if S.843 became law.

While large volumes of low-cost emissions offsets are available in the agricultural sector, the magnitude of reductions necessary over the next half-century will require industrial reductions on a larger scale, either from new energy technology that fundamentally emits less, such as fuel cells running on hydrogen from renewable sources, or by the capture and sequestration of carbon dioxide from combustion products. Neither of these methods will be cheap, compared to current power generation. Optimistic estimates of these costs are closer to $50/ton than to $1.

I'm not pointing out this discrepancy because I'm against dealing with climate change, or oppose emissions trading. In fact, I regard climate change as one of the most important issues of the 21st century, and I believe emissions trading is the only practical way in which to manage it, unless we enter a true climate crisis. However, selling this program to the American people on the basis that it would be virtually cost-free is misleading and probably counterproductive for an effort that will depend on a broad, sustained commitment over a very long haul.