Wednesday 1 March 2017 11.00 GMT
The ‘social cost of carbon’ is an estimate of how much carbon pollution costs society via climate damages, and can also be considered the optimal carbon tax price. The US federal estimate ($37 per ton of carbon dioxide pollution) underpins at least 150 regulations across various federal agencies, and has thus become a prime target in the Trump administration’s efforts to roll back Obama’s climate policies.
Yesterday, the House Subcommittees on Environment and Oversight held a hearing on the social cost of carbon. The Republican Congressmen and their witnesses argued the federal estimate is too high, but a majority of economists think it’s too low. Not surprisingly, the Republican witnesses have been heavily funded by the fossil fuel industry. They made two main arguments: 1) that the $37 estimate should be based on domestic, not global climate impacts, and 2) that the government should have used a higher discount rate, which would result in a lower estimate.
Both arguments are entirely backwards.
Carbon pollution causes expensive global climate damages
The first argument, articulated by Chairman Andy Biggs (R-AZ), is an immoral one:
It is simply not right for Americans to be bearing the brunt of costs when the majority of benefits will be conferred away from home.
The “benefits” other countries would reap are effects like reducing the decimation of their crops by climate-fueled droughts. An accurate rephrasing of this statement would read: ‘It is simply not right for Americans pay for their carbon pollution when the majority of the costs and damages will be borne by poor people in third world countries.’ When framed accurately, it’s a completely unethical argument.
Moreover, those long-term global climate damages make a clear case for a higher carbon pollution cost. According to a recent paper by William Nordhaus – one of the world’s foremost climate economists – if we want to stay below 2.5°C warming above pre-industrial temperatures (let alone 2°C), the social cost of carbon today is between $100 and $200 per ton of carbon dioxide pollution, and rises by about $10 per year. This conclusion is consistent with several recent studies estimating the carbon cost around $100 to $200 per ton or more.
Avoiding dangerous climate change will require a much higher carbon pollution price than the federal estimate, but Republicans think a lower price is better for the economy. Nordhaus’ recent paper also presented an “optimal” cost-benefit scenario that would put a carbon tax today around $30 per ton and result in over 3.5°C global warming above pre-industrial temperatures. So what’s going on there?
On climate and energy, determining what’s ‘optimal’ is impossible
I spoke with Jonathan Koomey, who’s published several papers on this subject, including a 2013 paper arguing that we should move beyond a cost-benefit approach on climate change toward a strategy he calls “working forward toward a goal.” As Koomey explained:
It’s impossible to calculate optimal outcomes decades hence, and that makes the benefit-cost approach problematic. One reason why it’s impossible is because we can’t predict the exact timing and consequences of pivotal events (like 9/11 or Pearl Harbor) or of technological breakthroughs. Another important reason is that economic and social systems do not exhibit structural constancy like physical systems do.
For example, the costs of wind turbines, solar panels, and other mass produced technologies have reliably dropped in price 10-20% for every link