President Biden Increased The Social Cost Of Carbon, But Is It Enough?

For years, economists and climate scientists have worked to attribute a price tag to the pollution driving the climate crisis, known as the Social Cost Of Carbon (SCC). The SCC can be leveraged in policy and decision-making to weigh the harms and benefits of different policies or projects’ long-term impact on the climate crisis, making it an important metric for guiding policy at the federal, state, and local levels.

Since the Obama administration began more formally implementing the SCC into decisions in 2009, we’ve seen the complexities of trying to calculate the almost immeasurable value of climate change impacts. While Obama used the SCC to support initiatives like his Clean Power Plan and similar policies that aimed to tackle carbon pollution, we’ve also seen the inherent variability of SCC calculations used to promote the deregulation of polluting industries.

Under the Trump administration, many of the overhauls of climate and environmental regulations were justified using a greatly reduced SCC of $7 per ton of carbon dioxide (CO2). Not only did these rollbacks move to inflict serious harm to communities and our climate, but they also failed to account for the true cost of pollution.  

Last week, President Biden took a step to rectify this wrong. As part of his day one executive order, Protecting Public Health and the Environment and Restoring Science To Tackle the Climate Crisis, he vowed to reinstate the group working that calculates an SCC that is sufficiently aligned with both national and international climate goals. The latest update to the SCC guiding federal policies has been temporarily elevated to close to $52 per ton — which aligns with the value implemented during the Obama-era. Although a positive step, the latest research tells us that it’s insufficient and would need to be more than doubled to meet international emissions reduction goals.  

Remind Me, What Exactly Is The “Social Cost Of Carbon?”

The basic premise of the SCC is to generate a value for just how much each ton of CO2 is costing our society in economic terms. Assigning a monetary value to the cost of human life and suffering — which will undoubtedly result from the climate crisis — comes with serious implications, not to mention that the real losses from this crisis cannot ever be captured by any monetary amount. Unfortunately, however, calculating this number is an important aspect to taking the actions needed to address the scale of the climate crisis, and begin to account for the real costs of emissions. 

The SCC accounts for the adverse effects of carbon pollution in areas such as public health, natural ecosystems, agriculture, energy use, and other areas impacted by rising emissions and the threats of climate change. The value is then used to inform policy and legislative decisions, allowing for more detailed reporting that provides a more comprehensive understanding of how societies stand to gain economically from emissions reductions.

The SCC used within federal agencies is typically calculated by the Interagency Working Group (IWG) — which consists of members from the Office of Science and Technology Policy, Office of Management and Budget, and Council of Economic Advisers. During his tenure, President Trump removed SCC modeling from the IWG’s purview and effectively ignored the cost of uncontrolled pollution on society. By restoring the group’s mission and implementing a somewhat sufficient SCC, Biden is setting up his administration’s policies to be guided by what the latest science and data are telling us we need to tackle the climate crisis. 

The Price Is (Not) Right 

The newly updated SCC of $52 per ton is merely a baseline, serving as a placeholder until Biden’s administration and the IWG can calculate a more updated value to use. And while $52 per ton is still a huge improvement from $7, it’s not nearly high enough to achieve goals in line with the Paris Agreement and limiting warming to 2º Celsius or even 1.5ºC. Biden’s decision to temporarily raise it to $52 reflects the calculations made under Obama, but the latest research reveals that those calculations were flawed.

When Obama took office in 2008, he tasked the IWG to determine what an appropriate SCC would be for guiding his policies, and the group produced $52 per ton at a 3% discount rate. The discount rate essentially refers to the weighing of present trade-offs for future benefits, so the lower the discount rate, the higher the SCC. For reference, when Trump was using a $7 SCC, the discount rate was pushed up to 7%, despite economists’ recommendations that discount rates be below 3% to more accurately reflect the harms of carbon pollution. The Trump administration’s calculation was also narrowly focused on U.S. impacts of climate change, not global impacts.

The latest research from experts at the University of California, Santa Barbara, and the University of Chicago also indicates that for the SCC to be an effective policy tool, the price needs to be at least $125 per ton — more than double its current amount. The authors argue that if we want ambitious action on climate change, the SCC needs to be high enough that the benefits of action outweigh the costs of inaction. As federal, state, and local agencies look at regulations, decision-makers should be able to lean on the SCC to determine how their actions will either harm or benefit society and the environment in the long-term. We’re talking about a number that puts a price on lives saved because of reduced air pollution or mitigating flooding in coastal communities — it’s literally putting a price on future livelihoods and we shouldn’t undervalue that.

As Biden’s team works on producing a (hopefully) higher number for the SCC, economists warn that too low a value would be detrimental to achieving meaningful emissions reductions. In a recently published paper offering an alternative approach to the SCC, the researchers find that previous economic modeling failed to account for both the complexity and magnitude of climate inaction, which resulted in low SCC values. The paper also indicates that tendencies to reduce ambition on climate action are largely derived from underestimating the tangible benefits to society if we reduce carbon pollution and mitigate the climate crisis.

The researchers write

It is clear that climate change involves the management of risks of enormous magnitude and multiple dimensions, which could destroy lives and livelihoods across the world, displace billions, and lead to widespread, prolonged, and severe conflict […] The idea of integrating economics and the environment makes eminent sense, but the devil is in the details.” 

New Prices Expected In 2022

The research is clear that the same air pollution driving the climate crisis is costing us millions of human lives every year. A 2021 study from Harvard University, the University of Birmingham, the University of Leicester, and the University College London, found that nearly 1 in 5 deaths in 2018 was estimated to be caused by air pollution from the burning of fossil fuels. From this finding that eight million deaths were linked to excess CO2 pollution, we can speculate that the true cost of carbon is most likely much higher than $125 per ton. 

While an updated SCC from the Biden administration and the IWG is slated to be announced in January of 2022, it’s clear that a higher price will be needed if Biden wants to follow through on promises of ambitious climate action. The White House announcement for updating the SCC also included plans to create updated social costs for methane and nitrous oxide — two greenhouse gases that are largely emitted from fossil fuel burning and agriculture — to further contribute to reigning in anthropogenic planet-warming emissions. 

Advocates have made clear that they plan to keep this administration accountable for their campaign trail commitments, and this is an area where we’ll need to remain steadfast in calling for a higher SCC. Having this metric accurately reflect what’s at stake can help our nation move towards the low-carbon economy that we need to mitigate this crisis and create the prosperous future our people and planet deserve.

Featured Image: Smokestack photo by Thomas Millot via Unsplash, Illustration by Amanda Griffiths, Climate XChange