How do we define climate pollution's cost to society?

Every year, the government recalculates how much money a metric ton of carbon costs us.

 

In a 2007 ruling on a dispute concerning fuel economy standards for cars, a judge sent a clear message to federal agencies. They could no longer continue business as usual and fail to account for climate change when assessing the costs and benefits of regulations. “The value of carbon emissions reduction is certainly not zero,” Judge Betty B. Fletcher wrote in her opinion for the U.S. Court of Appeals for the Ninth Circuit. And by treating it as such, her opinion declared, the government was acting in an arbitrary and capricious fashion.

So, if the cost of polluting is not zero, what it is? Fletcher’s ruling challenged government officials to come up with a dollar amount that represents how much a ton of carbon pollution will “cost” society over the long run. Economists refer to this as the social cost of carbon

The concept is still evolving and will only become more important to understand as governments grapple with how to address climate change in the most effective and least costly manner.

It was in early 2009 that White House officials decided it was time to develop a unified way for agencies to estimate the social cost of carbon. They knew passing comprehensive climate legislation during the Great Recession would be difficult. They wanted a plan B that would help President Obama address global warming through regulations if legislation failed.

But regulations would force industries to adopt low-carbon energy options, which would be costly. Thus, the administration needed a way to prove that the benefits of reducing carbon dioxide emissions would be worth it. “We needed a way to convert carbon dioxide into dollars,” recalls Michael Greenstone, a University of Chicago economist who, at the time, was the chief economist on the White House Council of Economic Advisors. Greenstone led a multiagency working group to come up with the government’s approach.

Calculating a social cost of carbon is complicated. First off, climate change affects many aspects of society, including public health, environment, agriculture, natural disasters and economies. Also, scientists are still figuring out many basic questions of climate science, such as exactly how much pollution it takes to increase concentrations of carbon dioxide in the atmosphere and boost temperature on Earth. A puff of carbon dioxide emitted today usually stays in the atmosphere for a couple hundred years, and a portion of it more than a thousand years, continuing to contribute to climate change. The damages from the concentration of greenhouse gases in the atmosphere — everything from heat waves to sea level rise — are felt across the globe. So the social cost of carbon has to reflect a stream of damages across time and around the globe.

The interagency group turned to academic researchers who had been studying the economics of climate change and calculating its social cost for decades. Their methods and outcomes differed.  So, the government opted to utilize three widely-used models, taking the average of the three to derive the federal government’s official estimate.

First, the models estimate how a metric ton of carbon pollution will impact concentrations of greenhouse gases in the atmosphere. Second, the models estimate how those concentrations will affect temperature on Earth. Third, they analyze how increases in temperature will translate into a range of impacts such as the loss of usable dry land because of sea level rise; stresses to agriculture from droughts; and increased need for air conditioning.

Discount Rate

To account for the fact that carbon emitted today will have impacts decades from now, the models require a discount rate, which tries to answer the question: How much money is it worth to today’s society to avoid damages for future societies?

A discount rate works basically like an interest in a bank account, explains UC Berkeley research fellow Danny Cullenward. Imagine that climate change will result in a heat wave in 2100 that causes $1 billion in destruction, in 2100 dollars. How much would you be willing to pay now, in 2015, to avoid those damages? With a 2.5 percent discount rate, you would need to invest almost $123 million today in order to have $1 billion in 2100. With a 3 percent discount rate you would only need to invest $81 million, and with a 5 percent discount rate, $16 million. A lower discount rate calculates a higher cost of carbon.

Social costs of carbon, calculated by year and by the various discount rates. For instance, in 2015, the cost with the 5% rate was $12 per ton of carbon.
Interagency Working Group on Social Cost of Carbon, United States Government

The working group couldn’t agree on one discount rate. So the group recommends that agencies consider four social costs of carbon per year, when crafting regulations. That’s one for each of the three interest rates and a fourth to reflect the possibility that the planet will heat up faster and damages will be greater than currently expected.

Government agencies just need to multiply these numbers by the tons of carbon their regulations are expected to either reduce or increase. And voila, they have the carbon costs or benefits of their regulations.

For example, if the social cost of carbon in 2030 is $48, the EPA could multiply that by 413 million short tons (this regulation uses the measurement short tons instead of metric tons) of carbon dioxide, which is the amount the agency expects will be kept out of the atmosphere that year under the Clean Power Plan. That means the regulation that year theoretically will save society $20 billion.

That’s with the 3 percent discount. But because the government uses four social costs of carbon, regulations designed to reduce carbon emissions show a broad range of possible benefits. For example, the Environmental Protection Agency’s analysis of its Clean Power Plan cites benefits in carbon dioxide reductions in 2030 that range from $6 billion to $60 billion.

Uncertainty

There’s lot of uncertainty that goes into estimating the social cost of carbon. For instance, climate scientists still are figuring how sensitive global temperatures are to increases in carbon pollution. So, when calculating its social cost of carbon, the government ran the models thousands of times using various temperature projections. The science also continues to evolve on the many damages expected from climate change such as forest fires, floods, sea-level rise and heat waves.

The government also used five different estimates of economic and population growth.

The government’s range of social cost of carbon estimates for the year 2020. The highest discount rate predicts $12 per ton of carbon, and the lowest rate predicts $62.
Courtesy Environmental Protection Agency

“These models are guesses at best; there’s an enormous amount of uncertainty,” says David Weisbach, a University of Chicago economist. Not only are the estimates uncertain, but they evolve over time. In 2013, the government revised its estimates to reflect updates in climate science, and in 2015, made additional tweaks. To make the cost more transparent, Weisbach’s research group created a website, which anyone can use to see how widely the social cost of carbon can vary depending on the assumptions applied.

Weisbach is an author of one of a handful of recent academic articles that argue that the government’s numbers are far too low because the models the government uses assume that the global economy will continue to grow over the next 200 to 300 years, even in the face of extreme climate change. One of these articles, published in 2015 by the journal Nature Climate Change, found that social costs of carbon should be several times higher to reflect the impact severe climate change likely would have on economic growth.

Given these and other criticisms, the interagency working group asked advice from the National Academy of Sciences, Engineering and Medicine, which appointed a group of engineers, climate scientists and economists to review the government’s estimates and consider ways to update the methodology. Its first report, in January 2016, did not recommend any major short-term changes but suggested ways to better communicate uncertainties. A more comprehensive and final report is expected in 2017.

While the government’s approach to assessing the social cost of carbon is imperfect, it represents a huge improvement from 2007 when Judge Fletcher called out the government for failing to assess the cost of climate change impacts. “This is 100 percent better than zero,” Cullenward says.

The University of Chicago’s Greenstone argues that the government would do well to start using its social cost of carbon to set rates for royalties and leasing federal fossil fuels. His calculations suggest such a policy would have little impact on oil and gas, but huge implications for coal because its market value is a fraction of the cost of the climate damages from extracting and burning it. 

Elizabeth Shogren is HCN's Washington, DC, correspondent. 

Feature photo by www.theenvironmentalblog.org.

Clear Gardener
Clear Gardener
Feb 05, 2016 05:39 AM
That is a very moving article, that should not only point out the cost of carbon for the environment on a global and regional scale, but on personal, too. Research shows, that private gardens can help a lot with the carbon emissions. There are suggestions about rooftop gardens in bigger cities and, of course more green spaces, such as parks. It is up to all of us to improve our and our children lives. That's why we at http://www.tomsjunkcollectors.co.uk/garden-waste/ try to make a difference and organize our employees and our customers to become more environmentally aware.
Robert Waddell
Robert Waddell Subscriber
Feb 07, 2016 07:31 PM
This climate bullshit is ripping citizens off! This has to stop! It's a universal scam to raise money for a One World Government!
Thomas Arvensis
Thomas Arvensis
Feb 09, 2016 11:51 PM
CO2 was declared a pollutant in 2009 by a government agency. The previous 4.5 billion years of this planet’s known existence, CO2 has been a fundamental building block for life and is responsible for the physical existence of most known life on this planet.

Anybody with a basic science background can recognize the importance of the carbon cycle if they remove their emotional blinders. Even if atmospheric CO2 levels are increasing, has anybody put forth reasonable theories as to why this might be bad? We sure are not going to drown from rising sea levels! Perhaps our land masses might become more productive?

Nobody wants pollution on this planet (spare the few filthy greedy and the ignorant), but the anti-co2 movement has hijacked the emotions of well meaning people desperately trying to link the building block of life to a deadly poison.

I'm not one to support "fossil" fuels and destruction of landscapes for $ (as these energy technologies are antiquated), but I don't think their use is causing our planets demise. And I absolutely don't think PAYING an incompetent legislative body is going to make one bit of difference.
Robert Waddell
Robert Waddell Subscriber
Feb 10, 2016 11:07 AM
We have a fraudulent POTUS, Obama applied for, and received foreign student financial aid for college tuition. This financial aid application is extremely scrutinized, as it should be, in the 70's the agency handling these grants were handled by employees with integrity, now I ask you, was Obama a fraud then, or when he took the oath of office? He can't have it both ways! Either he committed fraud then, or when he was inaugurated! Obama has committed High-Treason, against the United States of America, and he continues to use unlawful executive orders bypassing congress and doing as he pleases! Now there has to be justice for the American Citizens! "We The People" do not deserve to be treated in this manner! I, Robert L. Waddell, am hereby going on record, with a citizens arrest complaint against President Barrack Hussein Obama, aka Barry Soetoro aka "Bath-House-Barry" Obama swore an oath, as a stipulation during his inauguration, to uphold, and protect, the Constitution, of the United States of America! He has done nothing, but lie, cheat, and steal, since being sworn in as POTUS! Furthermore, he has deliberately aided and abetted the Muslim Brotherhood, which is an organization that is a sworn enemy of the United States of America! Everyone knows of his High-Treason, and nobody has done anything about it, why? So, as a natural born citizen, of the United States of America, I am Publicly, swearing out an arrest warrant, for Barrack Hussein Obama! Which is my legal right, and duty, to do so! Sincerely, Robert L. Waddell
Robert Waddell
Robert Waddell Subscriber
Feb 10, 2016 11:33 AM
By the way, this climate change France is just a bullshit scam to spend money to further put my homeland further in debt, so the dollar will fall. You see, there are two things keeping the U.N. and global elitists from having their evil empire, "One World Government! 1) The failure of the U.S. Dollar. 2) The disarming of the Citizens of America. Obama was put into office by evil, greedy, global elitists, because the United States of America and the citizens would never volunteer for such an evil notion! They have this one term Chicago neighborhood activist who they have been grooming for a couple of decades. This Barry Soetoro, aka Barrack Hussein Obama, is the child of a communist, Islamic, African from Kenya, a man by the same name, and a white American mother, who was a socialist employed by Timothy Geitners father. With the assistance of Bill Ayers, and wife, Bernadine Dohrn, 60's left wing radical domestic terrorists, communist, Architects of a group known as the "Weather Underground" There are at least 70 current congressional leaders today, belonging to the "Democrat Socialists of America!" The Chairman of the Benghazi-Committee, happens to be one of the members. Our Government is so, corrupt at this point in time that the American People, can't even get the truth about anything! This has got to stop! Remember "For the People, by the People?" Well, it's now a raggedy, lawless government taken over by evil communist minded trash! America, it's time to take out the trash!
Kate Schimel
Kate Schimel Subscriber
Feb 10, 2016 11:35 AM
Hey folks, just a reminder to refrain from excessive profanity in the comments. You can read our full policy here: http://www.hcn.org/policies/comments-policy

Best,
Kate Schimel
Assistant editor
Robert Waddell
Robert Waddell Subscriber
Feb 10, 2016 11:46 AM
Excuse me for using a term used by American Farmers all over this country, sometimes there is only one word that describes an action!
Robert Waddell
Robert Waddell Subscriber
Feb 10, 2016 11:58 AM
Our government is using nazi tactics directly from Adolph Hitlers personal notes archive to manipulate social media in an attempt to disarm Americans! People, this is a turning point in our society, that if we aren't diligent in our refusal to bow to this fraudulent, Islamic, communist, homosexual, dictator wannabe, and the evil global elitists behind him, then they will confiscate our firearms, and then have ultimate power over every citizen in America! Do Not Ever, Give Up Your Guns! People, our forefathers had a decision to make, and I'm sure they were scared, but they stepped up! Without their refusal to be living under foreign rule, we wouldn't be here today! We owe it to them, to step up, to be brave, and to honor the one, and only, true, living God as we go forward to face death, and this is the greatest country on earth! We all must die, but it's our choice how we live!