Determining the social cost of carbon emissions

In 2009, the Obama administration formed the Interagency Working Group on Social Cost of Carbon. The group draws on the latest science and data models to calculate the costs and benefits of reducing greenhouse gas emissions through federal regulations. According to the agency, calculations of the social cost of carbon (SCC) have been conducted to…

“…allow agencies to incorporate the social benefits of reducing carbon dioxide (CO2) emissions into cost-benefit analyses of regulatory actions that impact cumulative global emissions. The SCC is an estimate of the monetized damages associated with an incremental increase in carbon emissions in a given year. It is intended to include (but is not limited to) changes in net agricultural productivity, human health, property damages from increased flood risk, and the value of ecosystem services due to climate change.”

A senior economist at Synapse Energy Economics characterizes the social cost of carbon as…

“…the estimated price of the damages caused by each ton of carbon dioxide (CO2) released into the atmosphere. In cost-benefit analysis of government regulations, it’s a sort of volume dial: The higher the SCC, the more stringent the standards — if it’s $5, say, only regulations that cost less than $5 to implement would be deemed worthwhile; if it’s $500, the demands imposed on polluters could be correspondingly greater.”

In 2010 the group released the initial carbon cost estimates based on climate data available at the time. The group recalculated the carbon cost estimates in July of this year. More current information on climate change was incorporated into the data models (like rising sea level figures) which increased the calculated cost of carbon by 60%. This is a substantial increase which the administration will use to reinforce the push to pass climate change regulation.

There has been debate surrounding the process used to establish the numbers. Environmental groups argue that the cost estimates are too low, others insist the social cost of carbon should be zero, and some have criticized the process used to establish the social cost of carbon as lacking transparency. A recent hearing before the House Committee on Oversight and Government Reform allowed the Office of Management and Budget administrator, Howard Shalenski, to explain in detail how the group established the numbers and the underlying technical review process.

It will be interesting to see what comes of the recent carbon cost calculations and whether the US government will take meaningful steps toward protecting the planet and the economy from damages associated with climate change.

environmental dataCarissa Ries

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