Why the cost of carbon pollution is both too high and too low

Gernot Wagner

2/27/14 update: The Climate Reality Project along with partners Environmental Defense Fund, Organizing for Action and Sierra Club announced the delivery of more than 120,000 citizen comments to the White House Office of Management and Budget (OMB) in support of a strong Social Cost of Carbon (SCC).

Tell someone you are a “climate economist,” and the first thing you hear after the slightly puzzled looks subside is, “How much?” Show me the money: “How much is climate change really costing us?”

Here it is: at least $40.

That, of course, isn’t the total cost, which is in the trillions of dollars. $40 is the cost per ton of carbon dioxide pollution emitted today, and represents the financial impacts of everything climate change wreaks: higher medical bills, lost productivity at work, rising seas, and more. Every American, all 300 million of us, emit around twenty of these $40-tons per year.

The number comes from none other than the U.S. government in an effort to uncover the true cost of carbon pollution. This exercise was first conducted in 2010. It involved a dozen government agencies and departments, several dozen experts, and a fifty-page, densely crafted “technical support document,” replete with some seventy, peer-reviewed references and an even more technical appendix.

Cass Sunstein, the Harvard legal scholar of Nudge fame, who was co-leading the process for the White House at the time, recently declared himself positively surprised how the usual interest-group politics were all-but absent from the discussions throughout that process. This is how science should be done to help guide public policy.

The cost of carbon pollution is too low

The number originally reached in 2010 wasn’t $40. It was a bit more than half as much. What happened? In short, the scientific understanding of the impacts of rising seas had advanced by so much, and the peer-reviewed, economic models had finally caught up to the scientific understanding circa 2007, that a routine update of the cost of carbon number resulted in the rather dramatic increase to near $40 per ton. (There are twenty pages of additional scientific prose, if you want to know the details.)

In other words, we had been seriously underestimating the cost of climate change all along. That’s the exact opposite of what you hear from those who want to ignore the problem, and the $40 itself is still woefully conservative. Some large companies, including the likes of Exxon, are voluntarily using a higher price internally for their capital investment decisions.

And everything we know about the science points to the fact that the $40 figure has nowhere to go but up. The more we know, the higher the costs. And even what we don’t know pushes the costs higher still.

Howard Shelanski, Sunstein’s successor as the administrator of the Office of Information and Regulatory Affairs (OIRA, pronounced “oh-eye-ruh”), has since presided over a further update of the official number. In fact, this one didn’t incorporate any of the latest science. It was simply a minor technical correction of the prior update, resulting in a $1 revision downward. (The precise number is now $37, though I still say $40 at cocktail parties, to avoid a false sense of precision. Yes, that’s what a climate economist talks about at cocktail parties.)

And once again, it all demonstrated just how science ought to be done: Sometimes it advances because newer and better, peer-reviewed publications become available. Sometimes it advances because someone discovers and fixes a small mathematical error.

Your input is needed

While announcing the correction, Shelanski added another layer of transparency and an opportunity for further refinements of the numbers: a formal call for public comments on the way the cost of carbon figure is calculated, open through February 26.

We are taking this opportunity seriously. EDF, together with our partners at the Natural Resource Defense Council, New York University School of Law’s Institute for Policy Integrity, and the Union of Concerned Scientists, is submitting formal, technical comments in support of the administration’s use of the cost of carbon pollution number as well as recommending further revisions to reflect the latest science.

The bottom line, as economists like to put it, is that carbon pollution costs society a lot of money. So as the technical experts trade scientific papers, you can help by reminding our leaders in Washington that we need strong, science-based climate policies.

Update (on January 24th): The official comment period just was extended for another month, through February 26th. More time to show your support.


Have the deniers won?
*Occupywallstreet now does not even mention CO2 in its list of demands because of the bank-funded and corporate run carbon trading stock markets ruled by politicians.

*Canada killed Y2Kyoto with a freely elected climate change denying prime minister and nobody cared, especially the millions of scientists warning us of unstoppable warming (a comet hit).

The only way to shut down the denier machine now is to urge science to agree on something beyond just "could be" otherwise we are doomed.

January 23, 2014 at 9:49 am

People are not socially aware. We all have to do an environmental policy if we win the match to the greenhouse effect.

January 23, 2014 at 11:03 am

We need a real economist to figure out if $37 or $40 per ton of CO2 will hamper the economic growth NEEDED to actually transition away from FF's. Instead of a costly (and beneficial to gov't recipients) tax scheme that "everybody" will oppose (even I), why don't you just do the right thing and promote ALL forms of clean energy generation.

We need the advanced machine automation of AT LEAST 100,000 square miles of solar and MILLIONS of wind turbines and, of course, the EFFICIENT utility scale batteries necessary to store that. But we need that to be quite literally DIRT cheap. There is NO other way to do renewables in a world where the developing nations REQUIRE FIVE TIMES what we use today in order to have a decent standard of living, you know, running water, toilets, clean food, electricity, sewers system, schools, etc, etc.

I do believe that it is still MUCH cheaper to instead, simply scale up nuclear. We must LEARN about the best reactor designs. LFTR and the IFR are melt down PROOF because they are inherently safe, that is, they are walk away safe! Now, I know that although these have been proven to the demonstration level (decades ago), it may take a few years to re-develop them to actual "reduce global carbon emissions status".

Common sense states that more powerful source will be intrinsically cheaper than diffuse AND intermittent ones. Therefore, unless we can have autonomous machines build the 1 or 2% of the Earh's land space over with solar and wind, we MUST DEMAND the nuclear option. Only LEU is required to save the hydrocarbons.

Only France has ever been successful at actually reducing emissions. All other countries using solar and wind has still increased emissions because solar and wind (so far) has not been able to keep up with even trivial demand (much less a base load demand).

I suggest everybody delve into such energy awareness (and DEMAND the scientific solutions) before they dream up silly laws that can in themselves, prevent fossil fueled depletion into an over heated biosphere ;)

Robert Bernal
January 23, 2014 at 11:03 am

Your organization says "we need strong science based solutions". Ok, before I criticize, I want to acknowledge the good work EDF does for the environment (thanks). Now, just what do YOU think is the scientific way to replace fossil fuels in a growing world which will need ~5x the current global net power production?
Please respond to fireofenergy@gmail.com if you wish.

Thank you,
Robert Bernal - clean energy awareness advocate

Robert Bernal
January 23, 2014 at 11:08 am

I think that the issue of carbon pollution is a puppet handlers subject to divert the most powerful self-interest of those who want to control humanity .... 're unhappy ...

Karina Castro
January 24, 2014 at 10:55 am

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