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Why the Cost of Carbon Pollution is Both too High and too Low

Gernot Wagner's picture
Environmental Defense Fund
  • Member since 2018
  • 83 items added with 25,769 views
  • Jan 28, 2014

Cost of Carbon Pollution

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 knowpushes 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.

From EDF Voices

Photo Credit: Carbon Pollution Costs/shutterstock

Gernot Wagner's picture
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Bob Meinetz's picture
Bob Meinetz on Jan 27, 2014

Gernot, you ask, “How much is climate change really costing us?”

I suppose that depends on who “us” is. If I’m living in the Maldives and watching everything I own being swallowed by rising seas, or I’m a Bangladeshi fisherman who’s livelihood is disappearing because of ocean acidification, it’s substantial. If I’m living in other areas the impact may be insignificant.

What is the purpose of coming up with a number for its impact on an artificial construct labeled “society”?

Engineer- Poet's picture
Engineer- Poet on Jan 28, 2014

Combustion of a gallon of gasoline emits roughly 20 pounds of CO2 (with the E10 fraction not counted as “renewable”), so $40/ton (metric) carbon tax would add about 18 cents per gallon. This is hardly crippling, but would help push users toward NGVs and electrics.

At 550 gCO2/kWh average for NG-fired generation, $40/ton carbon tax would add 2.2 cents per kWh of electricity.  Adding this to the price of gas-fired generation would have kept Kewaunee in business, preventing the loss of a valuable asset and the consequent emissions of millions of tons of unnecessary CO2.

We’ve lost millions of jobs by shipping work to carbon-wasteful countries like China.

We’ve lost a lot by failing to internalize the cost of CO2.

Roger Arnold's picture
Roger Arnold on Jan 28, 2014

I generally applaud endeavors to quantify issues.  Quantification is necessary, if one is contemplating a carbon tax to cover the unpaid external costs that burning fossil fuels entails.  The trouble is, pinning a specific number to it fosters the false impression that the effects are limited and manageable.  We need merely set aside the funds for it, and it becomes just another risk — like fire or flood or hurrican damage — that insurance can cover.

That’s not how the impacts of climate change will go.  Read Joe Romm’s current post that asks “What is the most dangerous impact of climate change?”  Joe tenders an all too credible answer: spreading social collapse and civil warfare (a’ la Syria) caused by extreme weather episodes and the “dust bowlification” of major agricultural regions.  What monetary figure does one put on social collapse and the failure of ecosystems unable to adapt to the pace of change?

Net fossil carbon emissions will ultimately need to be cut to zero, one way or another.  That can involve a combination of conservation, efficiency, switching to non-fossil energy resources, and carbon capture and sequestration (CCS).  The appropriate value for a carbon tax is whatever it takes to reach the goal of zero net emissions in an allowable time frame.  What that time frame might be, and what the value of the tax needed to reach net zero within that time frame are open and controversial issues.

What we can say with certainty is that the longer we delay, the harder it will be to avoid catastrophe.  

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