What Is The “Social Cost” Of Carbon Energy? The WSJ points out that regulators will put whatever number suits them, so that they can make the case for non cost effective renewables. Still, there is a social cost

By Paolo von Schirach

June 29, 2013

WASHINGTON – A recent WSJ editorial reveals that the Obama administration is resorting to self-serving gimmicks to justify its fight against carbon based energy. Without any discussion or debate, the EPA has started attaching to its regulations new monetary “measurements” of the “social cost” of carbon energy. The reason for doing this are obvious. In many instances replacing carbon energy with more expensive renewables makes no economic sense. However, if you add to the measurable costs of carbon energy the additional “social costs”, then carbon sources lose because all of a sudden they become more expensive than  renewables which, by definition, supposedly carry no added “social cost’.

Arbitrary calculations

This is new way of calculating the “real” cost of carbon, as opposed to just adding the nominal cost of the various components, may appear totally unobjectionable to some. But it is also completely arbitrary, especially if the calculation is done by unelected regulators on the basis of whatever inspiration they get from different special interest groups that calculate these “social costs” according to their own metrics and criteria.

As the WSJ argues, if we let this bureaucratic prevarication go unopposed, then we can get to the absuridity whereby carbon energy will be eventually outlawed on account of its “social costs” by regulatory fiat, without any national conversation or debate on the legitimacy of the metrics used to get to the “social costs” numbers. 

There is a “social cost”

That said, I disagree with the WSJ on one fundamental point. To say, quite correctly, that regulators will select whatever arbitrary figure they choose regarding the “social cost” of carbon does not necessarily mean that the real number should be zero, simply because until now we never bothered to look at the “social cost” variables. 

Look, if anybody in America had a choice between living next door to an old, not upgraded, high polluting coal fired electric power plant and a state of the art, low emission gas fired plant it is obvious that they would choose living in the vicinity of the much cleaner gas burning plant. And why? Because they would want to avoid breathing the foul air coming out of the old coal plant. And why is that? Because polluted air is most unpleasant and it is known to cause all sorts of respiratory diseases, while increasing the chances of contracting chronic illnesses and possibly cancer. It is also known that children and the elderly are especially at risk.

Here you are. These are the “social costs” of dirty carbon sources. Therefore it is rather disingenuous on the part of the WSJ to argue that, since until now we have never included the “social cost” of  coal fired plants, the real number is and should be zero because any number we selected would be totally arbitrary. 

How do you calculate the economic damage caused by pollution?

The truth is a lot more complicated. As the example cited above demonstrates, there are indeed high social costs attached to using high polluting energy sources. The trouble is that it is extremely difficult to calculate them accurately. Therefore, given this complexity, we should not give  unelected regulators the extraordinary power to determine what these costs are purely on the basis of their intellectual biases.

That said, let’s be honest. We should all strive to create conditions that enhance our quality of life, and that includes fair scrutiny of the broader impact of the type of energy we use. It is intuitively obvious that “cheaper” energy does not always mean “better”. Ask the Chinese. They got ahead economically, but only at the cost of creating an environmental nightmare. In their single minded pursuit of economic growth, they totally ignored “social costs”. And now they are faced with the staggering costs of cleaning the air in their unlivable megacities.


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