The political economy of climate change
Translated with www.DeepL.com/Translator Originally published in Frankfurter Allgemeine Zeitung In the climate policy debate, it is often argued: Listen to science! Yet there is scientific consensus on man-made climate change and its causes. But how exactly and where to act, how fast to act, and who will pay for it - these questions cannot be answered without normative value judgments. Climate policy is political. Climate economics has developed a concept that makes the normativity of climate policy tangible: the social cost of carbon (SCC). For this purpose, all future costs of climate change are calculated that arise from a ton of CO2 emitted today. These costs include, for example, damage caused by extreme weather events, declining agricultural yields or rising sea levels. Correspondingly, SCCs also express the returns that will be generated by a ton of CO2 avoided today. The concept has something megalomaniac about it, and the uncertainties in the calculation are obvious. Nevertheless, it offers orientation, because the SCC serve as a benchmark for evaluating climate policy measures. If the cost per ton of CO2 saved, for example for a new wind farm, is lower than the SCC, this means that the returns from avoided global warming are higher than the costs. The investment is therefore worthwhile. In other words, the higher the SCC, the more radical climate protection measures are needed. The SCCs also provide guidance for the CO2 price. Indeed, the crucial question is not whether we assess a CO2 price, but how high it should be - and which complementary instruments should be used, such as moratoria on fossil fuels or subsidies for green infrastructure. Roughly speaking, the CO2 price should be equivalent to the SCC (if we disregard additional climate policy instruments). The scientific literature comes to very broad conclusions here: estimates for SCC range from 10 to over 250 euros per ton of CO2. Accordingly, some climate economists also call for CO2 prices that go far beyond the currently legally agreed 55 to 65 euros or the globally often demanded 50 dollars. On the one hand, the calculation of SCC depends on increasingly precise climate science knowledge about warming scenarios. On the other hand, however, they depend considerably on normative value judgments: How much is it worth to us today to prevent the damage caused by climate change that will occur in the coming decades? Unlike in the EU, SCCs are currently the subject of heated debate again in the U.S., because each administration has to explain which SCC benchmark it starts from - and thus which priority it gives to climate policy. The Biden administration set the SCC at about $50 last year, after Donald Trump drastically reduced the value set under Barack Obama, to under $10. The Trump experts reached that low SCC level well within the bounds of sound calculations, but with obvious political choices, namely by including only future damages on U.S. soil and ignoring climate impacts abroad. This seems bizarre, but it makes clear how much a proactive climate policy relies on the altruism of female politicians and their electorate. Similarly, the SCCs highlight the potential generational conflict inherent in climate policy. Global warming, and thus the damage of today's CO2 emissions, will not be felt for several decades. But how do we assess the costs in such a distant future? The SCC use the so-called discount rate for this purpose. Simply put, the higher the discount rate, the lower the present valuation of a future damage. Different assumptions about this discount rate account for much of the wide range of SCC between $10 and $250. The ethical explosiveness of this leaps to the eye. Some say, "Who gives us the right to value the damage of future generations less than today?" Others say, "What do I care about damage 50 years from now?" So again, it's a question of altruism, but probably also of age. The younger I am, the more I care about damages in 30 or 50 years. So we can have a good debate about how resolutely climate change should be combated - even on the basis of the same climate science facts. Moreover, we need to discuss who will foot the bill. In this context, a CO2 price on current and future emissions falls short of the mark. Global warming is the result of fossil fuel growth over the past two centuries. Both in the global North-South comparison and in the domestic political discussion, it can therefore be argued that today's wealth is based on the climate change that is already taking place. This would argue for using already accumulated wealth, especially in the rich industrialized countries, to finance climate policy. Above all, we should recognize that we cannot hide behind science when it comes to the concrete formulation of climate policy. Instead, parties and governments should explicitly articulate what value judgments they base their climate policy ideas on, who should bear the costs of climate protection, and how much altruism they base it on toward other parts of the world and future generations. This would enable open political debate commensurate with the magnitude of the task.