The ‘Social Cost Of Carbon’ Is Almost Double What The Government Previously Thought

The U.S. government updated its estimate of how much carbon pollution harms the economy. They found that their previous estimated costs were too low — ranging from 50 to 100 percent depending on the year and the estimate.

An interagency working group coordinated by the White House released something called the “Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis” which is a complicated way of saying that when an agency calculates the economic costs and benefits of a regulation, it now has numbers that reflect more of the true economic impacts of climate change.

This important number has something to do with everything from the proposed Keystone pipeline to what the Obama administration does about climate change to the common microwave.

This year’s Economic Report of the President defined the “social cost of carbon” as a monetized estimate of the damages caused by emitting an additional ton of carbon dioxide in one year. These damages cover “health, property damage, agricultural impacts, the value of ecosystem services, and other welfare costs of climate change.” Heather Zichal, President Obama’s top climate advisor, explained that these values “draw on the best available science to calculate the benefits of reducing greenhouse gas emissions.”

This calculation follows Executive Order 13563, which directs agencies considering a regulation “to assess both the costs and the benefits of the intended regulation and, recognizing that some costs and benefits are difficult to quantify, propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs.” Because the Executive Order also says “each agency is directed to use the best available techniques to quantify anticipated present and future benefits and costs as accurately as possible,” the government calculated the Social Cost of Carbon.

What kind of numbers are they talking? The update compared the previous estimate with the new one, finding that across most scenarios, the social cost of carbon either doubled or at least increased by 50 percent:

The SCC estimates using the updated versions of the models are higher than those reported in the 2010 TSD. By way of comparison, the four 2020 SCC estimates reported in the 2010 TSD were $7, $26, $42 and $81 (2007$). The corresponding four updated SCC estimates for 2020 are $12, $43, $65, and $129 (2007$).

The first three numbers are three estimates averaging costs from different scenarios and models, and differ, in order, by how much they discount “future costs and benefits” (5, 3, and 2.5 percent, respectively). The last number is the cost of emitting one ton of carbon dioxide under the worst five percent of all models. These different discount rates essentially reflect how much of the damage an emission today that causes damage to people in the future is actually reflected in the Social Cost of Carbon right now. If discount rates are confusing, read this excellent explanation of what they mean courtesy of David Roberts.

Compare the new numbers:

With last year’s numbers:

What changed? Mostly how much experts think sea level rise will damage the economy. The working group updated a simple climate model to a more complex one. Another model took into account updated sea level rise damage estimates, adaptation assumptions, how temperatures respond to greenhouse gas buildup, and models of indirect methane emissions effects.

Are there other estimates of the Social Cost of Carbon? Absolutely, and most are higher than even the White House’s updated numbers. A report in 2011 by the Economics for Equity and Environment Network found that the White House’s initial calculation was dangerously low. Another study published last year in the Journal of Environmental Studies and Sciences found that the real Social Cost of Carbon was at least between $55 and $266 per ton. Other reports have estimated something called the “Gross External Damages” of economic activity (coal is the most damaging industry by far).

What’s next, and what does this mean? When agencies rely on the updated numbers to calculate cost-benefit analyses on regulations, those calculations will more completely take into account the true cost of emitting carbon dioxide. The first rule to use these updated numbers is a new efficiency standard for microwaves. With the new numbers, the cost-benefit analysis of the regulation more accurately takes into account how beneficial reducing carbon emissions actually is.

Perhaps most critically, if the White House relies on EPA regulations to carry out its climate mitigation agenda, the updated numbers will strengthen those rules. A regulation that reduces the amount of carbon that coal power plants are allowed to emit will more accurately reflect how beneficial each reduced ton of CO2 actually is.

When the State Department issued its draft Environmental Impact Statement on the Keystone XL pipeline this year, the Environmental Protection Agency recommended that State use a monetized Social Cost of Carbon estimate. If State does this, it will have more complete numbers to use in its analysis, which should make clear that projects like Keystone will emit too much carbon dioxide to allow it to pass a true cost-benefit analysis.

Other regulations, like energy efficiency and clean energy mandates that displace the use of carbon-heavy fuels, are clearly an even better deal when the true Social Cost of Carbon is taken into account.

Conservatives criticize environmental and climate regulations for their effect on economic growth, but these updated numbers help clarify exactly how much carbon pollution harms the economy.

9 Responses to The ‘Social Cost Of Carbon’ Is Almost Double What The Government Previously Thought

  1. Paul Klinkman says:

    This story needs to get to the point. How many trillion dollars does it cost the world? What would it cost the U.S. to offset a trillion dollars of damage? In other words, is controlling CO2 a profitable venture for humanity?

    What would each country’s fair share be?

    What’s the actual price of mass extinction of species? Its tourist value for, say, the next 10 years?

  2. David F Collins says:

    Some young neighbors of ours gave up all they had in order to pay for cancer treatment for their toddler. (Fortunately, other sources of aid became available and the family is not homeless.) This is one family’s concern about the future. But how about all of humanity?

    The real question here is, how does one price the priceless?

  3. From Peru says:

    I will repost here a comment written for skeptical science:

    “The social cost of carbon depends on the social discount rate r (among a lot of other variables), the lower the social discount rate, the higher the cost:

    Present value(cost) of pollution = Σ (future damage of year i)/(1+r)i……(summed over i; i is the number of years in the future)

    But the social discount rate is a function of economic growth:

    r = δ +γ g,

    ◦r is the discount rate
    ◦δ is the so-called “rate of impacience”
    ◦γ is a parameter called ” aversion to intertemporal inequality”
    ◦g is economic growth

    [source: Christian Gollier, Pricing the future:The economics of discounting and sustainable development, Toulouse School of Economics, 2011]

    δ is set to zero for intergenerational timescales, leaving r as just a function of γ and g.

    Now if the economy is seriously damaged by climate disasters, g will turn smaller, lowering the discount rate and so raising the present value of future damages.

    Is this subtle effect,accounted when the cost of CO2 is calculated?

    i.e. climate damages results in lower economic growth, reducing in turn the discount rate, making the social cost of carbón even bigger(bigger present value of future climate damages) , so the expected growth shinks even more and so again and again …

    Could this sort of “socioeconomic feedback loop” make the discount rate be smaller and smaller in each iterative round of calculations until it falls below zero, making the present value of damages(Net Present Value) to diverge to minus infinity(a numerical instability that shows future economic collapse)?

  4. Merrelyn Emery says:

    A minimum of $55 per ton? And the European market has its price at about $5 per ton. So much for markets! ME

  5. Rabid Doomsayer says:

    Just how much will you be willing to pay for that last gallon of unpolluted water?

  6. As ME alludes, an obvious link to a carbon tax. Simple, and just, quid pro quo. Makes all the sense in the world.

  7. Superman1 says:

    We, as a species, are not up to the job of saving ourselves. We are not willing to define the major climate problems objectively, and the solutions we offer bear little relation to what is required to avoid going over the cliff.

  8. MarkfromLexington says:

    Can someone explain what I am supposed to do with the numbers in the table?

    If I plan to emit (or avoid emitting) a ton of CO2 in 2015, am I supposed to include a cost/benefit of $12, $28, $58, or $109 in my calculations?

    If I plan to emit a ton of CO2 in 2025, am I then supposed to include a higher number of $14, $48, $70, or $144?

    I thought that the effect of discount rates was one of lowering the expected cost of CO2 emissions in future years.

    What am I missing?

  9. Kym Lennox says:

    It is great to see the externalities are being considered in cost-benefit analysis in this way, but they are only going so far.

    As I understand it the emissions are only considered for Scope 1 and Scope 2 emissions under the World Resources Institute’s definition for the Green House Gas Protocol. Scope 3 should also be included. Further, while discounting a future cost of an emission today is appropriate, a project emits carbon over a period of time and as such the analysis should also consider a ‘time value of carbon’ in addition to the ‘time value of money’.