How Do We Define Climate Pollution's Cost to Society?

Every year, the government recalculates how much money a metric ton of carbon costs us.

“These models are guesses at best; there’s an enormous amount of uncertainty,” says David Weisbach, a University of Chicago economist.  Not only are the estimates uncertain, but they evolve over time.  In 2013, the government revised its estimates to reflect updates in climate science, and in 2015, made additional tweaks.  ...

Weisbach is an author of one of a handful of recent academic articles that argue that the government’s numbers are far too low because the models the government uses assume that the global economy will continue to grow over the next 200 to 300 years, even in the face of extreme climate change.  One of these articles, published in 2015 by the journal Nature Climate Change, found that social costs of carbon should be several times higher to reflect the impact severe climate change likely would have on economic growth.

Given these and other criticisms, the interagency working group asked advice from the National Academy of Sciences, Engineering and Medicine, which appointed a group of engineers, climate scientists, and economists to review the government’s estimates and consider ways to update the methodology.  Its first report, in January 2016, did not recommend any major short-term changes but suggested ways to better communicate uncertainties.  A more comprehensive and final report is expected in 2017.

While the government’s approach to assessing the social cost of carbon is imperfect, it represents a huge improvement from 2007 when Judge Fletcher called out the government for failing to assess the cost of climate change impacts.  “This is 100 percent better than zero,” Cullenward says.

The University of Chicago’s Greenstone argues that the government would do well to start using its social cost of carbon to set rates for royalties and leasing federal fossil fuels.  His calculations suggest such a policy would have little impact on oil and gas, but huge implications for coal because its market value is a fraction of the cost of the climate damages from extracting and burning it. 

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