Today the US government bumped the ‘social cost of greenhouse gases’ up to $51. The previous administration had knocked it down to between $1 and $7.
It’s a funny expression, ‘social cost of greenhouse gases’, but it means the marginal cost of the impacts caused by emitting one extra tonne of carbon dioxide—or the equivalent amount of any other greenhouse gas. This includes impacts on the environment and human health:
• Wikipedia, Social cost of carbon.
This new decision should affect US government policy decisions based on cost-benefit analyses:
For example, if the Trump administration had applied the Obama-era calculation to its rollback of federal mileage standards, the costs of that rule would have far outweighed the benefits and would have been much harder to justify. And any federal coal leasing in the Powder River Basin would be unlikely to win approval: University of Chicago professor Michael Greenstone noted that the climate damages associated with that mining “are six times larger than the market price of that coal.”
It may also wind up affecting decisions made by state and local governments and corporations. But it lags behind some states: in December 2020, New York adopted a ‘value of carbon guidance’ ranging between $79 and $125, depending on the discount rate assumed. The lower figure assumes a 3% annual discount of future damages, while the higher one assumes 2%.
The discount rate is crucial in all these calculations! The previous administration had reached its ludicrously low figure for the social cost of greenhouse gases using a couple of tricks: it neglected costs incurred outside the US, and it assumed a 7% annual discount rate. Biden’s new $51 cost assumes a 3% discount rate. At a 5% discount rate the cost would drop to merely $14.
All these calculations will be redone more carefully in a while:
While the Biden administration has set an initial price to inform its analysis of policies ranging from gas mileage standards to purchasing, it will embark on a months-long process to determine a longer-lasting one. That price will take other factors into account, such as the fact that the poor suffer more from climate impacts than the wealthy and more recent scientific findings on climate impacts.
The above quotes are from here:
• Juliet Eilperin and Brady Dennis, Biden is hiking the cost of carbon. It will change how the U.S. tackles global warming, Washington Post, 26 February 2021.
Here is today’s White House announcement on the social cost of carbon:
On January 27, 2021, President Biden issued a Memorandum directing Federal agencies to make decisions guided by the best available science and data. Today, we are taking an important early step in bringing evidence-based principles back into the process of estimating the benefits of reducing climate pollution.
The evidence is clear that climate change is real and is already having economic consequences. The 2018 National Climate Assessment underscored the fact that climate change presents growing challenges to human health, safety, quality of life, and economic growth. We can see economic costs associated with climate change in more frequent and/or intense extreme weather events like wildfires, severe storms, and flooding, as well as the ways climate change disproportionately impacts the most vulnerable in society, particularly lower-income communities, communities of color, and Tribal communities. As decision-makers develop policies, they must incorporate the very real costs of climate change to current and future generations into their decisions.
One specific tool — called the “social cost of greenhouse gases” — combines climate science and economics to help Federal agencies and the public understand the benefits of reducing greenhouse gas emissions. The metric is a range of estimates, in dollars, of the long-term damage done by one ton of greenhouse gas emissions.
The use of this metric by the U.S. Government began in the Bush Administration and was later standardized across agencies in the Obama Administration. The Obama Administration created an Interagency Working Group of technical experts across the Federal Government to develop uniform estimates, subject to extensive public comment, in order to ensure that agencies utilized the best available science and economics.
However, the previous Administration disbanded the Interagency Working Group that had developed and refined these estimates and issued revised estimates based on assumptions that did not rely on the best available science or have the benefit of dedicated public comment. It also failed to implement 2017 recommendations from the experts at the National Academies of Sciences, Engineering, and Medicine that the Interagency Working Group had requested to ensure that these estimates continued to be in line with the latest science and economics.
This Administration will follow the science and listen to the experts. In a first-day executive order on Protecting Public Health and the Environment and Restoring Science To Tackle the Climate Crisis, President Biden reconvened the working group of technical experts from across the Federal Government and instructed them to restore the science- and economics-based approach to estimating climate damages.
The Interagency Working Group — co-chaired by the Office of Science and Technology Policy, Office of Management and Budget, and Council of Economic Advisers — today announced it is replacing the previous Administration’s estimates with the estimates developed prior to 2017, adjusted for inflation. This interim step will enable Federal agencies to immediately and more appropriately account for climate impacts in their decision-making while we continue the process of bringing the best, most up-to-date science and economics to the estimation of the social costs of greenhouse gases.
Today’s step restores three critical aspects of these estimates. First, the estimates put in effect today were subject to an extensive and robust process, including public notice and comment. A 2014 Government Accountability Office (GAO) report also concluded that the Interagency Working Group followed a “consensus-based” approach, relied on peer-reviewed academic literature, and disclosed relevant limitations when finalizing the estimates we are restoring today.
Second, these estimates take global damages into account. COVID-19 has re-emphasized the ways in which events on the other side of the globe can harm us here. Climate impacts abroad can affect the United States in many ways, including through supply chain disruptions, market volatility, and effects on our national security. In addition, climate actions taken by the United States and other countries under the Paris Agreement will benefit all countries, including the United States. Just as we expect and encourage other countries to consider the climate impact of their actions on us, we should take the global benefits of our actions into account.
Third, these estimates use the discount rates (the approach to calculating the present-day value of future climate damages) previously established by the Interagency Working Group. Restoring these rates puts these interim values in better alignment with the intergenerational nature of the climate challenge and the approaches taken in the peer-reviewed literature than the estimates used while the Interagency Working Group was disbanded.
A more complete update that follows the best science takes time. This is why we are quickly restoring the prior estimates as an interim step. With these estimates temporarily in place, the Interagency Working Group will continue its critical work to evaluate and incorporate the latest climate science and economic research and respond to the National Academies’ recommendations as we develop a more complete revision of the estimates for release within a year. Research, such as our understanding of the appropriate approach to discounting, has advanced rapidly over the past few years and we are collecting dedicated public comment through an upcoming Federal Register notice on how to improve our approach.
As this process proceeds, we are committed to engaging with the public and diverse stakeholders, seeking the advice of ethics experts, and working to ensure that the social cost of greenhouse gases consider climate risk, environmental justice, and intergenerational equity. The result will be even stronger science-based estimates developed through a transparent and robust process.