Hahn and Passel fail to count carbon's cost in NYTimes editorial

Posted on September 16, 2008

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In Monday’s New York Times editorial section, Robert Hahn of the American Enterprise Institute and Peter Passel of the Milken Institute wrote that drilling for oil in the Arctic National Wildlife Refuge (ANWR) and on the outer continental shelf (OCS) would make so much money for the U.S. treasury that it would enable huge swaths of other territory to be set aside as wilderness. In essence, let’s sacrifice ANWR and the OCS in order to save other sensitive areas around the country. And in support of this argument, Hahn and Passel used some basic economic calculations: at $100 per barrel, the total 18.5 billion barrels estimated to be in ANWR and in the OCS are worth $2.1 trillion (including some peripheral benefits in addition to the actual per-barrel price), and with $400 billion set aside for environmental recovery, that’s still $1.7 trillion that Congress could allocate for other environmental projects, such as the aformentioned wilderness areas.

There’s only one problem – the $400 billion they allocated only includes “the expected costs of developing all that oil, including cleaning up environmental damage….” There doesn’t appear to be any costs estimated for the carbon dioxide that will be put into the air in the process of combusting all that oil and the resultant damage to the global climate. Let’s do those calculations.

The Energy Information Administration keeps data on all the petroleum inputs and products produced on a monthly basis. According to this data, 564,629,000 barrels of refinery and blender products were produced in June, 2008 (the latest year the EIA has available). The EIA also has a list of definitions that you can use to determine what of those various products are used as fuels of one kind or another, and an estimate of how much carbon dioxide (CO2) each of those fuels produces per barrel combusted. Using that data, I was able to put together the table below (click on it for a full-size and more readable image):

The graph also has, based on the EIA data, how much carbon we can reasonably estimate as being put into the atmosphere if all the oil in ANWR and the OCS is combusted. It’s just over 8 billion tons of CO2. For comparision, the EIA estimates that the entire world put only 28.2 billion tons of CO2 into the air in it’s most recent year, 2005.

Now, if we apply cost estimates, in dollars per ton of CO2, to the total number of tons of CO2 acquired from the first table, we get the following table of costs:

By all means, check my numbers.
Chicago Climate Exchange
Carbon Tax Center 10/10 hybrid plan
Social Cost of Carbon (SCC) estimate
UK DEFRA estimate
Lower Stern estimate
Upper Stern estimates (price for 2% is from DEFRA above, modified for 5% and 20% as “cost of doing nothing”)

Now, it’s a fair question why the price per ton of CO2 varies so greatly. It’s a function of different policies, different assumptions in different economic models, and, in the case of the Chicago Climate Exchange, a market failure as a result of an oversupply of trading credits.

I personally feel that the arguments put forth by Stern, as supported by Jim Hansen and others, are more likely estimates of the damage as a result of the “cost of doing nothing” than the lower estimates produced by the Carbon Tax Center, the lower end of the SCC, or skeptics like Bjorn Lomborg. For that reason, I expect that the likely cost of the carbon in ANWR and the OCS will be somewhere between the $681 billion and $6.81 trillion. In either case, however, it’s clear that the overall costs of extracting the oil from ANWR and the OCS is much more than the $400 billion estimated by Hahn and Passel. Instead, the total costs will be between $950 billion and $5.85 trillion.

In the first case, the U.S. might make a total of about $1.2 trillion ($2.1 income minus $950 billion costs), and then we have to ask ourselves agian whether that amount of money is enough to justify drilling if a lot of it is used for wilderness protection elsewhere in the U.S. – maybe it is, but maybe it isn’t. But if the CO2 costs are as high as $1.4 trillion (the 5% GDP level from the Stern review, not the 20% worst case), then the straight economic costs of drilling in ANWR and the OCS very nearly outweighs the income generated by the oil sales (there would be only $300 billion in profits).

And that’s not even trying to put a price on so-called “the loss of the intangible benefits Americans get from knowing that the Alaskan refuge and outer continental shelf have been left untouched.”

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