Why Calculating Carbon Emissions’ Cost To Society Is So Hard
Youn Monroe County, home to the Florida Keys, climate change disaster isn’t 50 or 100 years off—it’s here now. The county projects that the sea level will rise another 6-13 inches in 2040.
Many homeowners will need to elevate their houses by at least 4 to 6 ft., at a minimum cost of $200,000, says Caroline Horn, who heads up an effort—the Keyswide Home Elevation Project—to educate them about what’s coming. A $1.6 billion initiative will be launched by the county to increase more than 50% of its roads to 3 feet. “We have a lot of people leaving because they can’t afford to live here anymore,” Horn says.
America still relies heavily on fossil fuels. With the exception of some countries, this is the case for almost all of the industrialized nations. Iceland receives nearly 100 percent of its energy from renewable sources. This includes hydropower, geothermal and geopower. France and Sweden both get over half their energy from other sources. However, they heavily rely on nuclear power.
One big reason for all that use of fossil fuels is that prices for them don’t reflect the costs that their emissions shift onto other people, like residents of the Keys. The United States government is 13 years into an effort to fix that by setting a “social cost of carbon,” which refers to a price per ton of emissions that it uses in calculating the costs and benefits of policies like how high to set mileage standards for cars or whether to issue oil and gas leases on public lands.
But the actual figure has swung wildly depending on who’s in control of the White House, and the Biden Administration’s interim number—set last January while it comes up with a permanent figure—faces threats in federal court. On July 19, the Administration asked the U.S. Court of Appeals of the 5th Circuit for a dismissal of a Louisiana-led lawsuit. Meanwhile, the administration’s updated number is months overdue.
Paying a Price for Carbon’s Impacts on Society
Nearly everyone agrees that gasoline prices and the cost of other fossil fuels should reflect the environmental harm. For example, a 2007 study estimated that the gas price would rise by $2.10 if you had to pay for driving damages.
Enter the social cost of carbon: a dollar value for each ton of it that’s released into the atmosphere to reflect the cost to society. One ton of atmospheric carbon equals the amount that an American car produces in just three months. This figure is used mainly by the federal government to determine the benefits and costs of any new pollution regulations. The government must determine whether the costs and benefits of any new regulations justify their cost since 1993.
A minimum of four countries have also established a carbon social cost. Canada and France use the same method as the U.S., which calculates a per-ton price to compensate for the damage caused. The United Kingdom and Germany set prices to reduce emissions at a level consistent with their national goals.
Analysts use economic models to calculate how much carbon dioxide will raise global temperatures. They then convert the increase in temperature into an estimate of how much it will cause damage to agriculture and infrastructure. According to a Stanford University 2021 study, crop insurance losses due to global warming caused payments to the U.S. taxpayer-funded federal crop insurance program (which was funded by the U.S. taxpayer) to rise $27 billion in the last three decades.
How the U.S. calculates its social carbon cost
However, what happens to those models is dependent on what gets in. The number fluctuates depending on who holds the presidency. Obama’s administration established the first group of working people to estimate and it came up with a figure around $43 per tonne in February 2010.
Included in that number was an assumption—based on emissions not being cognizant of borders—that emissions originating in the United States would impose costs on the rest of the world in areas like agricultural productivity, health, and property damage. The U.S. is the world’s 11th largest per-capita greenhouse gas emitter, according to 2019 World Bank data. Some of the world’s poorest countries with the lowest emissions, like Haiti and Yemen, will be hardest hit by climate change’s effects.
In March 2017, the Trump administration disbanded this working group and modified the way the cost of the project was calculated. This included carbon damage that occurred within the United States. This reduced the cost to $1-$7, which allowed it to repeal Obama’s environmental regulations.
The working group was revived by President Biden on his first day of office. It temporarily reset its price at $51 to keep it from rising again while they worked to update the figure. This original number had been due for release in January 20022.
The number is more important than ever after a Supreme Court ruling June 30, 2022, that curtailed the Environmental Protection Agency’s ability to set emissions caps for power plants. This had been an important driver of reducing emissions in the past decade, according to Brian Prest (an economist and fellow at the Washington D.C.-based non-profit Resources for the Future). According to Prest, the social cost carbon provides the agency with a way of evaluating the effectiveness and costs of any new or existing tool it may use in order to replace the ones that were vacated by the court.
But the metric itself isn’t immune from court intervention: The lawsuit challenging how the Biden administration came up with its interim $51 number, filed in April 2021 by 10 states in a Louisiana federal court, is set for a hearing this December. Although it may take courts some time before a ruling is issued, the result could change depending on who the 5th Circuit judges hear the case. Michael Gerrard, the creator of the Sabin Center for Climate Change Law in Columbia Law School in New York City, said that the court could delay the decision.
What Does This Mean for Corporate Action?
Regardless of where the numbers end up, businesses should pay close attention, especially if they have any connections to government. New York State used $125 per tonne of its social cost to carbon in 2019 to determine who got a contract, grant, and whether it would buy electric vehicles.
A growing number of large companies are already factoring an internal carbon price—essentially a private-sector version of the social cost of carbon—into their investment decisions. BP and Shell have set an internal carbon cost per ton at $40. Walt Disney Company has a $10 price.
They’re doing so because, especially in the energy industry, projects take a long time to come to fruition and can last decades once they start, says Mark Finley, a former BP senior economist. He says that while there is no U.S. carbon tax, companies might consider including a carbon price in their investment analysis if they believe one may be forthcoming.
The social cost of carbon could be used by Congress to set the price if a carbon tax is ever passed. Researchers suggest that the federal government could use these revenues to help those hardest hit by climate change. This is exactly what poor countries tried unsuccessfully to demand in international climate-change negotiations. It remains to be seen whether others facing thousands in extra costs—like Monroe County’s homeowners—might ever benefit from a system to use carbon tax revenues to make them whole.
This article is part a series about key issues in climate crises for time.com/CO2.com. A division of TIME, CO2.com helps businesses reduce their environmental impact. Go to co2.com for further information
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