The Social Cost of Carbon
Calculating the Cost of Climate Change
The “social cost of carbon” (SCC) estimates the monetary cost to society from the damage caused by each additional metric ton of CO2 released into the atmosphere, due to climate change impacts. Under Executive Order 12866, federal agencies must justify proposed regulations by assessing their costs and benefits. Therefore, policymakers use the SCC to evaluate the damage avoided by, or benefits resulting from, regulations that would limit emissions of carbon dioxide (CO2).
There is a broad range of SCC estimates due to the many complex factors that go into quantifying climate change’s wide-ranging impacts in the future. Although the Obama Administration’s 2013 SCC estimate (updated from the 2010 estimate) has received pushback from some members of Congress, the Government Accountability Office (GAO) recently reviewed the 2013 update and concluded that it was properly and transparently developed. Prompted by the request of critics of the tool, the GAO review found that the development process used consensus-based decision-making, relied on existing academic literature and three separate models developed outside of the government, and took steps to disclose limitations and incorporate public comment and review. Moreover, the SCC was updated in 2013 because the three models that the SCC relies on had been updated by the scientific community’s ongoing peer-review process, not because the federal working group had changed any of the input going into the models.
Still, there are many economists who think that the 2013 SCC estimate is too low and ignores many important factors.
The Range of SCC Estimates
- In 2013, the Obama Administration, in coordination with eleven federal agencies, recalculated the SCC to currently be about $36 per metric ton of carbon, up from their previous 2010 calculation of about $22.
- The original interagency group that calculated the 2010 SCC recommended that the estimates be revisited on a regular basis or as models are updated to reflect scientific and economic advances. This 2013 SCC estimate was therefore prompted by new versions of the three integrated assessment models used by the U.S. government to estimate the SCC (DICE, FUND, and PAGE).
- Economists Frank Ackerman and Elizabeth A. Stanton found in a 2012 paper that the government's previous SCC "omits many of the biggest risks associated with climate change" and could be as high as $900 in 2010 in cases of "high climate sensitivity, high damages, and a low discount rate."
- Economist Chris Hope and researcher Mat Hope published a study in 2013 that found that the relative costs of climate change are higher in a world with slower economic growth. Their model’s average estimate of the cost per ton of carbon dioxide emissions today exceeds $100.
- A 2014 report by The Cost of Carbon Pollution, a joint project of the Environmental Defense Fund, the Institute for Policy Integrity, and the Natural Resources Defense Council, found that the federal 2013 SCC update was far too low because it misses or poorly quantifies 29 key climate impacts, including ocean acidification, rapid sea level rise, and wildfires.
How the SCC is Estimated
- The SCC is estimated by economists, using models to take into account engineering, economics and climate science factors.
- Some factors that are incorporated into SCC models include: how rapidly global warming will progress as the atmosphere is filled with greenhouse gases, the severity of the damages that will result from the early and later stages of warming, and unique changes in the climate system such as irreversible tipping points. Economists must also address potential ecological, economic, and social impacts such as whether changing weather will affect species extinction, economic growth, human health, and even social conflict over limited resources.
The “Cost of Inaction” on Climate Change
- The “cost of inaction” is the potential financial cost of the many types of damage related to climate change. Projections show that climate change will likely have negative impacts on coastal areas, public health, energy and water resources, agriculture, and transportation infrastructure.
- Economists Frank Ackerman and Elizabeth A. Stanton found that if present trends continue, the total cost of climate change will be as high as 3.6 percent of U.S. gross domestic product (GDP) by 2100. Furthermore, they found that the cost of hurricane damage, real estate losses, energy costs, and water costs alone would be approximately 1.8 percent of U.S. GDP by 2100 or almost $1.9 trillion annually.
- A 2010 analysis shows that toward the end of this century the undiscounted public health costs of climate change impacts on the environmental quality inside buildings appear to between the high tens of billions and two hundred billion dollars per year (valued in current dollars).
- 2012 was the second most extreme year on record for the United States, according to the U.S. Climate Extremes Index. Reinsurer Munich Re confirmed, “The climatic changes detected are in line with the modeled changes due to human-made climate change.” 2013 continued the run of extremes, with some of the longest heat waves and most erratic weather in decades. In 2014, the world experienced the hottest May and June ever.
- A 2013 study from Harvard found that the increase in extreme events observed in the past decade is likely to continue in the future as warming and natural variability will combine to produce changing global weather conditions.
