Updating the social cost of carbon

The “social cost of carbon” – the dollar value the U.S. government ascribes to the damage stemming from one ton of carbon dioxide released into the atmosphere – informs decisions ranging from whether to permit a new oil well to what sort of mileage goals U.S. autos should meet. The Trump administration has minimized this accounting tool and estimates global warming damages amount to between $1 and $7 for every ton of CO2 produced. The new administration is likely to put the price tag much higher.

Under the Obama administration formula, the cost would have reached $52 a ton last year. But University of California, Santa Barbara Economics Professor Tamma Carleton and University of Chicago Professor Michael Greenstone write a more accurate price at this point would be $125 a ton, and new analysis is needed to determine if it should be considerably higher. Unlike under Obama, the current administration does not take into account climate impacts overseas. And it uses a much higher “discount rate” – the rate of return used to figure out what future cash flows are worth today.

Greenstone, who helped develop Obama’s social cost of carbon while serving as the White House Council of Economic Advisers’ chief economist, said in an interview that advances in climate science and economics mean the incoming administration needs to reassess the price of climate inaction. Adopting a more realistic price also means acknowledging the benefits of other countries cutting their greenhouse gas emissions.

“Every time a ton of carbon gets abated in Moscow, or Mumbai, or Beijing, that is raining down benefits on the United States,” he said.

-Juliet Eilperin