Federal climate policy should preempt state and regional initiatives<\/a><\/p>\n Perpetuating the myth that climate policy is all cost<\/a><\/p>\n
\t\t\t\tby Frank Ackerman <\/p>\n
The
\nsocial cost of carbon may be the most important number you’ve never heard of.
\nU.S. climate legislation is stalled in Congress, but in the meantime, the Obama
\nadministration is trying to fill the gap by considering climate impacts in the
\nregulatory process: from the tailpipe emissions limits and gas mileage
\nstandards unveiled April 1, to energy-efficiency standards for many types of
\nresidential appliances and commercial equipment.<\/p>\n
<\/p>\n
This
\nis important work; U.S. action to reduce greenhouse-gas emissions is long
\noverdue, and it’s crucial in the global picture, both because of our large
\nshare of total emissions, and because of our ability to influence other
\nnations. But it’s also important to do this right, and a look at how the
\nadministration has handled the social cost of carbon (SCC) raises some serious
\nconcerns.<\/p>\n
<\/p>\n
The
\nSCC is the estimated price of the damages caused by each ton of carbon dioxide
\n(CO2) released into the atmosphere. In cost-benefit analysis of government
\nregulations, it’s a sort of volume dial: The higher the SCC, the more stringent
\nthe standards—if it’s $5, say, only regulations that cost less than $5 to
\nimplement would be deemed worthwhile; if it’s $500, the demands imposed on
\npolluters could be correspondingly greater. (With no price on carbon emissions
\nat all, of course, the effective price is $0, and no reductions are
\n“worthwhile.”)<\/p>\n
<\/p>\n
So
\nfar, the administration’s interagency working group that has been studying the
\nSCC has come up with a range of values, with a “central” estimate of $21 per
\nton of CO2 in 2010, or roughly 20 cents per gallon of gasoline. Over time, the
\nSCC would rise, but only to $45 per ton (in 2007 dollars) by 2050. That’s far
\nlower than the projected cost of many substantive mitigation measures, and if
\nwidely adopted, it could result in ineffectual regulations that would barely
\nreduce U.S. emissions, if at all.<\/p>\n
<\/p>\n
Even
\nworse, the $21 SCC could easily find its way into discussions in Congress, and
\nbe taken as the recommended level for a carbon tax or permit price. If that
\nhappens, there is no way the United States could reach the widely discussed,
\nscience-based goal of cutting emissions by 80 percent by 2050, which would
\nrequire a much higher price on carbon. Given how cost-benefit analyses dominate
\nU.S. policymaking, a $21 SCC could have a devastating impact on environmental
\nlegislation.<\/p>\n
<\/p>\n
But
\nthis doesn’t need to be the last word. In fact, it absolutely shouldn’t be,
\nbecause the analysis that led to that number is based on deeply flawed
\neconomics, omissions, and poor value judgments. We’re not alone in pointing
\nthis out: The Environmental Defense Fund, the Natural Resources Defense Council,
\nthe Pew Center, the Sierra Club, the Union of Concerned Scientists, and others
\nraised many of the same points we’ve made in formal comments to the
\nEnvironmental Protection Agency as part of its tailpipe emissions standards
\nreview.<\/p>\n
<\/p>\n
What’s
\nwrong with the analysis behind the $21 SCC? For starters, it relies on an
\noverly narrow review of climate economics, relying on a handpicked set of
\nmodels—FUND, PAGE, and DICE—that happen to produce very low SCC
\nestimates. All three models have serious problems: FUND mistakenly predicts a
\nhuge reduction in mortality due to the early stages of climate change, then
\nvalues the lives allegedly saved on the basis of their per capita incomes.
\nPAGE, in its default mode, assumes that developed nations will adapt to climate
\nchange at near-zero cost (it offers a wide range of alternate estimates, the
\nhigher of which the working group ignored). DICE assumes on very thin evidence
\nthat most people in the world would prefer, and would be willing to pay for, a
\nwarmer climate, and recommends a very slow “climate policy ramp” as a result.<\/p>\n
<\/p>\n
We
\nalso found that the working group was aggressive in “discounting” the value of
\nfuture costs, considering rates of 2.5 to 5 percent per year that trivialize
\nfuture damages, suggesting it is worth spending very little to protect the
\nenvironment our descendants will inherit. And the estimates fail to consider
\nunmonetizable costs—from the true value of human lives, to the value of our
\necosystems.<\/p>\n
<\/p>\n
A
\nlast and very serious concern is that the SCC calculations don’t take into
\naccount the small but hugely important risk of catastrophic climate damage. As
\nclimate scientists refine their models, they are finding that a significant
\ndegree of uncertainty in their predictions is inescapable, and disastrous
\nworst-case scenarios cannot be ruled out. Responding to the average projected
\ndamages—as measured by the SCC—may be less important than doing whatever
\nit takes to eliminate the risk of catastrophe. Policy designed from this
\nperspective would not rely on cost-benefit calculations, but rather would set a
\n“safe” minimum standard, based on the scientific analysis of potential risks,
\nand determine the least-cost strategies to meet it. The “cost” of carbon would
\nequal the cost of those strategies.<\/p>\n
<\/p>\n
There
\nare too many open questions in the SCC calculation to recommend a precise
\nalternate value based on the information now available; there is a need for
\nmore extensive research, examining the full range of available studies of
\nclimate damages and costs, and analyzing assumptions about the risks and
\nmagnitudes of potential climate catastrophes. In the United Kingdom, where
\ncarbon pricing and cost calculations have a longer, better-researched history,
\nthe latest estimate is a range of $41 to $124 per ton of CO2, with a central case
\nof $83. We believe an expanded calculation of carbon prices for the United
\nStates should at least explore prices in this range, and should consider the
\npolicy options that such prices would open up.<\/p>\n
Related Links:<\/strong><\/p>\n Federal climate policy should preempt state and regional initiatives<\/a><\/p>\n Perpetuating the myth that climate policy is all cost<\/a><\/p>\n