Carbon Abatement Cost and the Social Cost of Carbon feat. Edgardo Sepulveda

In New England it has been calculated by Reiner Khur that the carbon abatement cost of rooftop solar is 800$/ton, utility wind and solar ~300$/ton and keeping existing nuclear on line ~25$/ton. In the context of a social cost of carbon and proposed carbon tax of 50$/ton the premature closure of Indian Point is a shocking indictment of the environmental NGO's that fought so hard to kill the plant. We need to add new generation to the grid not because of a growing demand for electricity but rather the need to replace our fossil fleet and “electrify everything” to get as close as possible to zero emissions. In this light the key metric by which we should judge the various decarbonisation tools from energy efficiency retrofits at our disposal is the carbon abatement cost. I am joined by Edgardo Sepulveda, a telecoms regulatory economist based in Toronto with an interest in energy economics, for another deep-dive into the Social Cost of Carbon (SCC) and carbon abatement costs. The SCC is an economic construct that estimates the long-term global monetary effect of emitting a ton of carbon today, relative to a baseline. It is calculated using Integrated Assessment Models (IAM) that estimate future population and economic growth, corresponding climate changes, a “damages” function that monetizes climate changes, and a discount rate to bring all those future monetary losses from climate change due to an extra ton of carbon emitted today to current dollars. Chris and Edgardo discuss how the SCC has been around for 20-30 years and is one of the bases for setting the level of carbon taxes. They discuss how the SCC deals with uncertainty, and how new reserchers are dealing more seriously with intra and inter-generational equity considerations. The Biden administration just re-established the SCC at US$51/Ton CO2 The abatement costs is a related concept that estimates the monetary cost now of not having emitting carbon. It can be calculated for any program or technology (the numerator) against a baseline (the denominator). Conceptually, think how one kWh of nuclear with a price of USD$0.07/kWh (in Ontario) if it displaces kWh gas (the baseline with carbon intensity ≈600g/kWh), you get an abatement cost of $116/ton; if it displaced kWh coal (≈950g/kWh) the cost is $74/ton. Here is a review article looking at abatement costs, including the difference between statics and dynamic concepts https://www.aeaweb.org/articles/pdf/doi/10.1257/jep.32.4.53 It is critical to be clear-eyed about how the numerator and denominator are being calculated, and especially whether actual “full” prices, with subsidies and all, are used, rather than some theoretical levelized cost of electricity (LCOE). For example, the 2021 peer-reviewed study shows that based on average wind price in Ontario of USD$0.12/kWh, the associated abatement cost is USD$290/ton. https://www.econ.queensu.ca/sites/econ.queensu.ca/files/wpaper/qed_wp_1440.pdf Solar costs in Ontario are even higher, at USD$0.38/kWh; given past policies to install wind and solar at inflated costs, electricity prices in Ontario become a political liability and successive Governments enacted extreme measures. Edgardo’s Twitter handle is @E_R_Sepulveda Edgardo’s take on the Ontario electricity sector is here https://www.policyalternatives.ca/publications/monitor/power-people