Climate Change 2001: Working Group III: Mitigation

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8.2.4.2 Summarizing the Ancillary Benefit Estimates

8.2.4.2.1 Presentation of the Studies

Figure 8.9 summarizes the ancillary benefits per tonne of carbon from 15 studies, along with available confidence intervals around the mid estimate. Multiple entries for a study on the Figure result from modelling of multiple policy scenarios. Most of the studies focus solely on public health impacts.
From Figure 8.9, it can be observed that:

• midpoint estimates are mostly less than US$100/tC, but range from less than US$2 up to almost US$500/tC;
  
• US estimates are the lowest while estimates from one study for Chile and several for Norway are the highest (the latter includes a broader range of benefits);
  
• significant divergence in estimates occurs across studies for the same country; and
  
• uncertainty bounds are quite large for most of the studies that report them.

Figure 8.10 provides ancillary benefits per tonne estimates related to the size of the carbon tax (in 1996 US$/tC). Points on the diagonal line AB = MC indicate that marginal private mitigationcosts (MC) equate to the tax. Some points fall on this line; more appear above it than below, with the Norwegian/Western Europe and the US studies split. If the damage (benefit) function is linear, then average benefits equate marginal benefits. Thus, points on the diagonal imply that the carbon tax is “quasi-optimal” (Dessus and O’Connor, 1999), in that the tax is optimal without considering either the direct climate mitigation benefits or any social costs over private costs (such as deadweight losses from the tax interaction effect). Alternatively, it can be assumed that the private mitigation cost function is quadratic (Total Cost=b(X²)), where X is carbon reduction.

In this case, the tax rate equals marginal private mitigation cost and average private mitigation cost is half marginal private mitigation cost. The heavy diagonal line equates ancillary benefits to average private mitigation cost. Points above this line imply there are net benefits to carbon policy, with the same important caveats as above. More points appear above the corresponding line (AB=AC) on the graph than above the AB=MC line.

In the general case, a larger carbon tax should lead to progressively smaller carbon reductions (if the marginal abatement cost curve is upward sloping). For all but one study (Abt Associates and Pechan-Avanti Group, 1999), the ratio of ancillary benefits to the tax rate does fall. As for the change in ancillary benefits per tonne of carbon, Burtraw et al. (1999) show this ratio falling dramatically in percentage terms with higher carbon taxes. In contrast, Dessus and O’Connor (1999) show it rising slightly, and in the Abt study the ratio of benefits to the tax rate rises dramatically (Abt Associates and Pechan-Avanti Group, 1999). This last result reflects that this analysis treated the SO₂ cap as non-binding considerably below the higher tax-rate modelled. In addition, this study treated the National Ambient Air Quality Standards as a cap, with abatement below these “caps” treated as benefits, but reductions above these caps treated as saving abatement costs.