Monetizing Apples And Oranges

Skating Under The Ice

Let me start by thanking Richard Tol, Marcel Crok, and everyone involved in the ongoing discussion at the post called “The Bogus Cost of Carbon”. In particular, Richard Tol has explained and defended his point of view, which is science in action.

In that post I discussed the “SCC”, the so-called “Social Cost of Carbon”. There are many things I don’t like about it, including the name itself which assumes that costs outweigh benefits. But I kept having this feeling that I was missing something fundamental, and today I realized what it was.

Let me start by defining and discussing the concept underlying the Social Cost of Carbon, the idea of “monetizing externalities”.

In general, the market sets a value on something, say fast-food hamburgers in paper takeaway wrappers. The burger might cost $4.95 … but there is also an “external” cost that is not included in the $4.95. This is the additional cost to the…

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