Petroleum Cost-Benefit

By: Michael Levi


The social cost of carbon puts a dollar figure on the damage that a tonne of carbon-dioxide emissions could be expected to cause.

The methods that scientists and economists use to estimate this are complicated and controversial. In a 2009 review of the numbers, the US government concluded that every tonne of emissions causes a little more than $20 worth of harm — though it acknowledged that the real figure might be three times larger, or possibly several times smaller.

Others have argued that the actual damage is considerably higher… Keep in mind that when US oil production raises by one barrel, some Opec members are likely to cut their own output to stabilise prices.

Imagine, for instance, that every barrel the US adds to the market is offset by four-fifths of a barrel that others remove, so that the net increase is only one-fifth of a barrel.

Since producing and burning a barrel of oil leads to about half a tonne of carbon-dioxide emissions, the net climate damage from every added barrel of US oil works out to about $2. Even if the US government analysts are way off, and the social cost of carbon is $100 a tonne, the net climate damage from every extra US barrel is probably less than $10.

Unless oil production depends on subsidies that are much larger than the ones currently in place, the economic benefit gained from a barrel of US oil production will almost always exceed these costs by more than that.

From “The Power Surge: Energy, Opportunity and the Battle for