The Social Cost of Carbon is a cost-benefit figure that shapes climate policies around the world. It does so by setting an economic value on the future impacts of current carbon emissions. In that way, climate policy decisions can have a clear economic justification, at least in theory.
What is the Social Cost of Carbon?
The first Social Cost of Carbon was developed in the USA in 2010, during the Obama years. It became one of the key tools used to justify everything from energy-efficiency standards for refrigerators to emissions targets for power plants. In 2013, the figure was set at around US$50 per tonne of CO2 emitted in 2020. This admittedly was within a range of $15-$75 per tonne, and with an assumption that a most of the impacts from America’s carbon emissions would be felt around the world.
As you may have guessed, Donald Trump wasn’t a fan of such a high value placed on carbon emissions, or of thinking about impacts anywhere outside of the USA. As a result, his administration reduced the Social Cost of Carbon to $1-$7, and then used it to justify a lot of his nonsense policies.
No wonder one of President Biden’s first executive actions called for a revision of the Social Cost of Carbon.
Carbon Emissions Models
There are many different figures and models used to assess the future impacts of carbon emissions.
In Germany, one assessment recommends a price as high as $820 per tonne. For the UK, there is a recommended a price of $20–100 per tonne of CO2 as a key part of their 2030 emission reduction targets.
In what co-author David Anthoff calls a “roadmap” for a “scientifically rigorous and transparent” climate goal, this recent assessment recommends a return to the Obama-era price of $50 per tonne. This is one of 8 priorities they argue should be a key element in new administrations’ revision.
If that $50 per tonne mark was adopted, and we then multiplied that by the estimated 50 billion tonnes of CO2 emissions each year, it means we would end up with an estimated annual cost of carbon emissions close to $2.5 Trillion.
This of course is based on thousands of different inputs, all with a range of variables and dependent on a range of inter-relationships and feedback loops. It is also several times lower than modelling of the Social Cost of Carbon in Germany.
However, if the Biden administration were to adopt and publicise this figure, it may add a clear dollar value for the international community to latch onto.
While Bill McKibbon recently critiqued Bill Gates as misguided (to say the least), both men have been big advocates for the climate community to “Do the Math”. In promoting his new book Gates has repeated “50 billion tonnes” as his mental yardstick for climate action, and I’m sure the figure is soon going to crossover into mainstream conversation.
Multiplying 50 billion by $50 makes pretty logical sense.
This nicely rounded figure obviously stands in sharp contrast to the international fundraising goal of $100 billion in annual climate finance contributions.
However, if adopted it could be used as a much easier benchmark for countries to work towards a collective understanding in eventually pricing carbon.
“Advances in science mean that researchers can now link many more extreme weather events directly to climate change, and new econometric techniques help to quantify dollar impacts,” write the 9 authors from NYU, the University of Maryland, LSE, Yale, the University of Exeter, the University of Wisconsin-Madison, and Harvard.
Over the next few weeks, the Biden administration is expected to release its revised Social Cost of Carbon. Given these advances highlighted above, I can’t imagine they would adopt a price that is less than that the one revised back in 2013.
While none of these revisions will change the vested-interests holding back political negotiations around an international price on carbon, they could become key conversational, campaign and economic benchmarks of the next few years.
“Since this article came out, Joseph Stiglitz and Nicholas stern have come out critiquing a $50 per tonne Social Cost of Carbon as far too low, and recommend a $100 rate. They are probably two of the world’s leading thinkers in pricing carbon, and would double the estimated global cost to $5 trillion annually”