The ‘Social Cost of Carbon’ – Historic Climate Change Decision $36 per ton (or $220 per ton?)

For the first time, the federal government has put a price on carbon dioxide and it’s bound to transform how we fight global warming.

Jay Michaelson 08.29.16 10:00 PM ET

One of the most significant court cases about climate change was decided earlier this month by a federal appeals court in Chicago. Given that it was steeped in the enervating context of refrigerator regulations, you may have missed it. But amid the stultifying discussions of compressors and insulation foam was a crucial advance in our nation’s belated attempts to forestall global climate catastrophe. It all comes down to a new phrase: the Social Cost of Carbon. Here’s why it’s important. By law, government agencies—in this case, the Department of Energy—are often required to show that the benefits of a proposed regulation exceed the costs. …

But what about climate change? … But how do you capture the “benefits” of preventing cataclysmic climate change? Beginning in 2010, a group of economists and scientists set about answering that question. They tried to calculate the likely future costs of shifting climate zones, agricultural disruptions, more extreme events like Superstorm Sandy, more outbreaks of disease, and the many other effects of climate change. The result is the Social Cost of Carbon (SCC), which, long story short, was calculated to be $36 per ton. That figure, while admittedly an approximation, is the best estimate that the government has put forward so far…. “Putting a price on pollution in general, and carbon in particular, is the best strategy for motivating change in behaviors that cause harm,” Esty told The Daily Beast. “It’s been hard to figure out the right price… but the judges in this case made clear that this was a serious and thoughtful exercise… It wasn’t an eyeball guess.”

Indeed, while most industry groups have opposed the idea of an SCC, Esty said that having the SCC ratified by a federal appeals court (review by the Supreme Court is possible, but unlikely) will help companies who have already made commitments to sustainability. “There are a number of companies, after last year’s Paris Agreements, who are beginning to think about how to prepare for a world—not yet in place in the U.S. but in place in Europe—where there is a price on carbon,” he said. “Many large companies are thinking about what internal price for carbon they should use. The Social Cost of Carbon can be a rallying point for them, for investment planning and decisions on energy projects… the [$36 per ton] price can be taken up by companies in their internal analyses.”

some environmental scientists have argued that the $36 per ton price is far too conservative. For example, a study published last year by two Stanford University scientists arrived at a price of $220 per ton. One of them, Frances Moore, told The Daily Beast that “the current models used in the government’s SCC essentially assume that climate change will not affect economic growth,” she said. “They assume climate change will have effects in some specific sectors, but the effect is not big enough to substantially alter the trajectory of economic development.”…. “There are some econometric studies that … find the effects of climate change on economic growth in poor countries could be large. Our paper simply incorporates these statistical findings into the model.” Moreover, Moore told The Daily Beast, “because impacts to economic growth compound over time, even small impacts to the growth rate have very large implications for total climate damages. This is why our value of $220 per ton is so much larger than the U.S. government’s value.”

Esty replied, “getting started with some kind of price is much better than no price. As the science gets better, we’ll have more clarity about what the harms are, and the costs of harms will be more clear. But having some price is critical and that’s what this case really does.”

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