The real social cost of carbon: $220 per ton, report finds

New report argues US government estimates for the social cost of carbon are woefully inadequate

By Barbara Grady,

16 Jan 2015

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How much does each ton of carbon dioxide released into the atmosphere really cost us?

Whether you’re a corporate executive penciling out the costs of new emissions-reduction strategies or a government regulator evaluating the feasibility of a carbon tax, the idea of putting a concrete price on carbon permeates the field of sustainability.

Now, a new paper by two Stanford University researchers contends that current government estimates of the “social cost of carbon” – a key metric of the economic damage caused by climate change used in cost-benefit analysis of regulations – could fall woefully short of reality.

The researchers contend in the paper published in the journal Nature that the social cost of carbon on the global economy is actually about $220 for each ton of carbon dioxide emitted, a far cry from the $37 calculated by the US government.

One key explanation for the big disparity is the likelihood of stunted GDP growth when countries use their capital to repair damage related to climate change. That idea dovetails with conversations on the necessity of building both companies and cities resilient enough to rebound from future shocks related to enviromental volatility, disease or other forms of unrest.

The new paper also adds to a growing chorus calling for a more robust measure of the social cost of carbon and stronger carbon emission mitigation efforts. The study eventually could influence regulations on fuel standards, coal smoke stack emissions and the like – or at least blunt political calls for weakening those regulations.

“The study shows that we need to take seriously the idea that climate change impacts on the economy could be very large,” said Francis C. Moore, report co-author and Ph.D candidate at Stanford’s School of Earth Sciences, in an email interview with GreenBiz. “This should prompt us to undertake more mitigation today in order to avoid those impacts.”

While the new paper does not weigh in on how the social cost of carbon may figure directly into looming carbon tax regimes, the research also comes at a time when businesses and governments are scrambling toassess the value of all sorts of assets that may be affected by climate risks. Oil, natural gas and even water are among the potential “stranded assets” that companies could see lose significant value in the face of changing low-carbon economic and regulatory frameworks.

Calculating social costs

The social cost of carbon is a government measure of the economic costs to society from one metric ton of carbon dioxide emissions. The metric includes variables such as lost agricultural productivity, property damage from floods and health costs from certain diseases. It was developed five years ago in response to a US District Court order requiring the Obama administration to include climate benefits cost analysis in regulations.

The upshot of the new report: the government may be improperly weighing the costs of carbon emissions while shaping regulatory policy.

“If the social cost of carbon is higher, many more mitigation measures will pass a cost-benefit analysis,” wrote Delavane Diaz, Stanford report co-author and PhD candidate at Stanford’s School of Engineering, in a statement.

The Obama administration’s current calculation of the social cost of carbon is $37, updated two years ago from the original calculation of $24 per metric ton of carbon dioxide determined in 2010.

Diaz and co-author Moore argue that the federal government figure does not take into account stunted growth in GDP when agricultural production is lower year after year, or when capital must be used to rebuild after climate disasters rather than investing in new facilities or growth.

When it comes to whether the new data actually will shift government procedure, officials at the US Environmental Protection Agency are reviewing the new study with interest, EPA spokeswoman Enesta Jones said.

For businesses, meanwhile, it’s worth noting that the Stanford research comes on the heals of similar calls for a more robust or accurate calculation of the social cost of carbon.

Last year, the Natural Resources Defense Council, the Institute for Policy Integrity and the Environmental Defense Fund published Omitted Damages: What’s Missing from the Social Cost of Carbon, which also documents shortfalls in the government’s calculation of the social cost of carbon.

It noted dozens of things missing from the government’s calculation, including some already-occurring impacts of climate change, such as food price spikes, species migration, soil erosion and increased instances of diseases such as respiratory illnesses. The NRDC, too, mentioned the diversion of capital from new investment toward rebuilding after weather disasters and adaptation.

While a Republican-majority Congress in the US may thwart near-term adjustments to the government’s social cost of carbon, the concept likely will loom large in the future – especially if the upcoming UN Climate meeting in Parisadds pressure on individual countries and companies to beef up mitigation efforts.

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