Thursday, September 20, 2012

Have the feds put the right price on carbon?

Have the feds put the right price on carbon?:






Aurich Lawson / Thinkstock



When the US government formulates a new environmental regulation, it typically performs a cost-benefit analysis of the expected impact of the changes. These calculations can be rather complex, as things like regulating pollution exact a cost on the polluters, but may save money for society as a whole. In 2007, a court ruled that the government needed to establish a price for carbon emissions (technically, the National Highway Transportation Traffic Safety Administration was ordered to do so when formulating new fuel efficiency standards). By 2009, the Obama administration had convened a multi-agency panel to come up with a standard value to be used by all federal agencies. The group produced a range of values, but came up with a central figure that it recommended all agencies use: $21 per metric ton of CO2.
A new, open access publication has now taken that estimate to task, with its authors complaining that the feds were far too simplistic about setting a price on carbon. Their analysis suggests that the cost of carbon should be at least twice that, and possibly over 12 times higher.
The study's two authors are based at the National Resource Defense Council and Cambridge University. And, even if you don't agree with their analysis, the study remains an interesting read because it does a good job of describing why putting a price on carbon is a real challenge. As expected, the results naturally depend strongly on the assumptions that you make, showing that small differences in assumptions could have a huge impact on policy.
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