Here is all the things it’s good to know in regards to the social price of greenhouse gases


An accurate indication of the cost of greenhouse gases can have a massive impact on the future of climate change.

To this end, the new White House administration announced in late February that it would use the Obama-era estimates for the “social costs of greenhouse gases” after adjusting them for inflation. The social cost of greenhouse gases was first used by the Bush administration and later standardized by President Barack Obama’s White House.

The Trump administration hired the group responsible for updating the metric and used “revised estimates” which the Biden administration said were not “based on the best science available.”

Michael Greenstone, former chief economist on the Council of Economic Advisers, has cited the social cost of greenhouse gases – typically referred to as the social cost of carbon – as the most important figure you’ve never heard of in recent years. “”

However, the reinstatement of the SCC is already facing a setback. Twelve states filed lawsuits against the Biden government Monday, claiming their calculation of the metric would harm their local economies.

Below is a breakdown of the social costs of greenhouse gases and why they are considered critical by some and devastating by others.

What are the social costs of greenhouse gases?

The social cost of greenhouse gases is a measure established by industry experts to measure the total damage caused by one tonne of greenhouse gas being emitted into the atmosphere, in US dollars.

“In many ways, it’s the ‘holy grail’ of climate economics,” Gernot Wagner, a climate economist at New York University, told CNBC Make It in an email. “How much does each ton of CO2 cost us today – and how much should each ton of CO2 cost so that we can all make the right decisions?”

Answering this question is not easy.

The action “combines climate science and business to help federal agencies and the public understand the benefits of reducing greenhouse gas emissions,” writes Heather Boushey, member of the Council of Economic Advisers. “The metric is a series of estimates in US dollars of the long-term damage caused by one ton of greenhouse gas emissions.”

Estimates change based on which factors are considered important by decision makers.

“Of course there are a wide range of possible answers, depending on a number of inputs – above all how great the climate damage is and how it can be converted back into today’s dollars and cents,” says Wagner. “In short, climate damage is usually an underestimation of reality. There is only so much science that can be attributed to climate change and that much economy can then be converted into dollars.”

Factors considered include changes in agricultural productivity, impacts on human health, property damage from increased flood risk, natural disasters, disruption to energy systems, risk of conflict, environmental migration and the value of ecosystem services in Biden Administration.

There are estimates for the cost of three greenhouse gases: carbon, methane, and nitrous oxide. For carbon dioxide, the social cost of releasing a ton is $ 51. A ton of methane costs $ 1,500, and releasing a ton of nitrous oxide costs $ 18,000, according to the SCC measure.

The cost of methane and nitrous oxide “is much higher because these pollutants cause greater warming and health effects in the short term, and thus greater economic damage in the short term,” said Susanne Brooks, director of US climate policy and analysis at the Environmental Defense Fund, to CNBC Do It.

The social costs of greenhouse gases change with the person in the White House

The president can also have a major impact on the social costs of greenhouse gases.

“The Trump administration dissolved that [Interagency Working Group] in 2017 and instead relied on its own “interim costs” to make key regulatory decisions that were seven times lower than the IWG’s estimate – between $ 1 and $ 7 per ton, “says Brooks,” says Brooks’ established economic principles were used to develop the Justify withdrawal of climate and health protection by the Trump administration such as the Federal Clean Car Standards. ”

Boushey writes that the Biden government used the IWG’s estimates prior to its dissolution. This is seen as an “intermediate step” for government agencies “as we continue the process of bringing the best and most up-to-date scientific and economic knowledge into estimating the social costs of greenhouse gases,” she says. A more comprehensive analysis will be published in January 2022.

“This was a strong first step,” said Tamma Carleton, assistant professor of economics at UC Santa Barbara’s Bren School of Environmental Science and Management, of redeeming the social costs of greenhouse gases. Carleton collaborated with Greenstone on a paper published in January outlining the steps to take to update the social costs of greenhouse gases.

“The increase in the social cost of carbon due to its unjustifiably low levels under the Trump administration will lead to policy choices that will lower emissions and ultimately reduce the damage Americans face from a warming and more variable climate,” said Carleton .

Why is it important

Proponents of the measure argue that policymakers can find a way to make decisions by taking into account the environmental costs of legislative action.

“For example, the social cost of carbon is designed to capture the cost of climate damage to families, communities, businesses, and more, and to ensure that federal agencies incorporate it into policy decisions,” said Brooks of the Environmental Defense Fund.

“If we do not fully consider the realities of climate change, our decisions are essentially semi-blind. Policy makers need estimates that reflect the true costs of climate change in order to make fair and unbiased policy decisions that affect our lives and lives impact. ” Lives of Future Generations, “adds Brooks.

Therefore, according to renowned economists Nicholas Stern and Joseph Stiglitz, it is of the utmost importance to get an accurate cost figure. in an article they co-authored and published in February.

Greenhouse gas prices have to be high enough for economies to “do nothing stupid,” wrote Stern and Stiglitz in an article published last month.

“On the other hand, if the [social cost of greenhouse gasses] set too low, there are a lot of regulations and / or projects that don’t get done – the value of reducing carbon is just not worth the cost; But that means that carbon emissions and climate change will be higher than they would otherwise have been, “they say.

Why could it be problematic

However, critics say the shortcomings of the measure make it an inefficient policy tool.

“The fact that simple and very sensible changes to the inputs of the models lead to vastly different results shows why they are not credible tools for creating regulatory rules,” said Nick Loris, an economist who specializes in energy at Heritage. , Foundation focused on environmental and regulatory issues, says CNBC Make It.

Loris testified before the Congress legislature in 2017 about the shortcomings of such a system. “These models also aim to estimate damage by 2300, which is obviously not an easy task,” he says.

According to Loris, the ramifications of using an estimate that is difficult to calculate are severe. Adding tools was used in 150 regulations.

“The higher number would carry more weight when it comes to whether or not a project is progressing through the environmental review and approval process,” says Loris. “By increasing the climate cost of projects, the regulator could use the social cost of carbon to derail everything from energy to infrastructure projects. Agencies can also use the higher value to introduce new regulations for everything from power plants to appliances in your home justify.”

Monday’s lawsuit – from Missouri, Arkansas, Arizona, Indiana, Kansas, Montana, Nebraska, Ohio, Oklahoma, South Carolina, Tennessee and Utah – called the Biden government’s calculation and use of the social costs of greenhouse gases “arbitrary and capricious “.

One of the main sources of variability in calculating the social costs of a greenhouse gas is the discount rate, according to Loris. This determines what price is necessary now to prevent various climate threats in the future.

“There is literature in favor of both a high and a low discount rate for the social cost of carbon, which makes it difficult because the difference between a 2% discount rate and a 7% discount rate changes that value dramatically can – that’s how you go from $ 7 per ton to $ 50 per ton, “says Loris.

The above social costs per tonne of carbon, methane and nitrous oxide are based on a discount rate of 3%. However, a small adjustment to this rate could lead to large fluctuations in these dollar sums.

“The National Academies of Sciences and the US Council of Economic Advisers strongly support a discount rate of 3% or less for intergenerational effects,” said Brooks of the Environmental Defense Fund. “Basically, this is a question of fairness: we need to ensure that we fully assess the climate impact on future generations in the decisions we make today.”

The name of the metric is also problematic for backers like Greenstone.

“There’s no good name for it. It’s a terrible name,” Greenstone, who is currently the director of the Energy Policy Institute at the University of Chicago, told Bloomberg Green in January. “I don’t know, did you come up with a better one?”

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