Earlier this week, CarbonPlan published a blog post critiquing the approach NCX has put forward for valuing near-term carbon storage. Solving climate change is the moonshot of our generation and we celebrate the spirit of “learning in public” needed to tackle this challenge at speed and at scale.
At NCX, we’re proud to be innovating scientifically rigorous approaches that incentivize rapid, large-scale climate action in this critical decade. We began a robust, public conversation nearly two years ago when we first published our white paper on forest carbon economics. The “time value of carbon” is an important, complex, and actively debated topic within the scientific community, and we welcome CarbonPlan’s contributions to solving climate change.
Despite the critical, technical tone of their blog post, CarbonPlan’s analysis reveals many points of basic agreement with NCX’s ton-year accounting framework. Fundamentally, we agree that discount rates are an important part of climate economics. We also agree that a robust scientific framework for valuing the benefits of temporary storage is needed, which is why we have submitted our work on ton-year accounting – done in conjunction with academic experts – for scientific peer review.
CarbonPlan’s critique comes in two main areas – how we talk about climate impact and how we choose a discount rate.
Talking about climate impact
First, CarbonPlan takes issue with our use of the phrase “climate impact” which they characterize as “misleading” because our use of the phrase focuses on the economic impacts of climate change rather than the physical amount of carbon in the atmosphere. We disagree.
Climate policy and climate action are fundamentally economic responses to the risk of future damages, and they seek to answer the question, “How should society allocate scarce resources to mitigate the damages of climate change?” That framing requires using economic incentives to drive physical change.
NCX views the future economic damages that physical climate change will cause as the appropriate focal point for effective climate action today. Carbon physically in the atmosphere is, in itself, not the problem. That atmospheric carbon does cause damages though, and those damages are the problem.
NCX’s mission is to reduce the damages to ecosystems and communities caused by climate change. Our society, with guidance from the IPCC, is mobilizing to prevent the damage (expressed in economic terms) caused by carbon in the atmosphere – that’s what we mean when we say “climate impact”.
If the physical amount of carbon in the atmosphere didn’t cause damage, we wouldn’t even be having this conversation because there would be no societal need to mitigate damages.
Choosing a discount rate
CarbonPlan’s second objection is with the discount rate NCX used. The choice of any discount rate is largely a matter of preference and social choice rather than scientific principles. As CarbonPlan notes, “any decision to discount — including a decision not to discount — comes down to moral and normative choices.”
The social cost of carbon is defined as the present value of the future damage caused by 1 ton of carbon. The discount rate is a rate at which consumers tradeoff consumption today versus consumption tomorrow.
Since there is rarely consensus on what the discount rate should be, NCX has chosen to draw from published, peer-reviewed literature that derived a discount rate of 3.3% from the IPCC’s 100-year global warming potential (GWP).
Our technical paper, which CarbonPlan cites, clearly indicates that there is a range of discount rates that could be applied depending on preferences and assumptions. We are actively engaging with academic economists to advise us on an appropriate range of discount rates to use and we welcome constructive input from CarbonPlan.
As we innovate to increase the speed and scale of climate action, we need to pay close attention to clearly stating how our model differs from legacy systems. In the coming months, we will be publishing much more on ton-year accounting and related topics in climate economics. We look forward to engaging with CarbonPlan and the climate community as we continue this robust, public dialogue.
Ton-year accounting is a complex but important topic.
NCX’s proposed approach is based on the simple idea that climate action reducing carbon in the atmosphere today is more valuable than climate action 20, 40, or 100 years from now. We accomplish this by using discount rates to find the net present value of future economic damages associated with atmospheric greenhouse gasses (GHG,) which therefore incentivizes action today.
We’re glad to see that CarbonPlan agrees with this concept and wants to help us advance the field: “We think that more work needs to be done in this field to develop a robust scientific framework for valuing the benefits of temporary storage, and any such effort needs to include economic discounting.”
NCX believes in the urgency of acting now while also building in the ability to learn, adapt, and improve. A major benefit of ton-year accounting is the ability to rapidly iterate practices that remove carbon from the atmosphere. On the contrary, committing to one approach for 100 years forgoes the opportunity to rapidly improve. We don’t think that’s good enough.
This is what climate innovation looks like. Ton-year accounting is the frontier of climate economics including its application to solve real problems. NCX continues to invest heavily in improving the integrity, efficiency, and scalability of carbon accounting and climate action through science.
We’re proud that the NCX groundbreaking white paper has sparked interest in ton-year accounting as a key unlock for nature-based climate solutions. We’re looking forward to continuing this important conversation with our academic collaborators, CarbonPlan, and the climate community. Learning in public is hard, but we believe the most effective way to do so is to apply rigorous, transparent science that turns into rapid climate action.