About the authors: Maureen Cropper , Richard Newell , Brian Prest , and Kevin Rennert are affiliated with Resources for the Future, a nonprofit research organization.
Weighing the benefits and costs of climate-change policies is a daunting task. At the broadest level—this is, after all, a global problem—the equation would ideally have to account for every aspect of the global human economy over decades and centuries. It is no wonder, then, that economists and scientists have been struggling for years to come up with a practical measure of the true cost of humankind’s impact on the Earth’s climate.
But new research published this month in the journal Nature provides the most comprehensive picture yet of the complex interplay between nature and societal well-being. Led by researchers at Resources for the Future and the University of California-Berkeley, the paper represents a novel approach to the study of climate change and has, we believe, profound implications for policymakers.
When people (or companies or governments) are deciding whether to do something, they like to ask what they’re going to get out of it and what they’ll have to give up. Even better, they like to put a value to this action—to define it in terms of dollars and cents. What’s the benefit of working to achieve our desired outcome, both now and down the road?
In climate science, that measurement is known as the social cost of carbon. The term refers to the economic damages that result from the carbon dioxide that humans emit, the vast majority of which comes from burning fossil fuels. Measured in dollars per ton of CO 2 , those costs comprise flood damage and lost crops, increased health care expenses and rising insurance premiums borne by taxpayers, businesses, and homeowners. The social cost of carbon is not just a number: It provides an economic yardstick to help us decide how much and how fast to decrease emissions. But accurately measuring the true cost of unabated fossil-fuel use and keeping up with rapidly evolving scientific evidence present challenges.
The federal government’s current official estimate of the social cost of carbon is $51 per ton. Practically, that means that a coal power plant that produces 10 million more tons of CO 2 emissions would cause $510 million in climate damages across the economy over time. On the flipside, selling enough electric vehicles to reduce CO 2 emissions by 10 million tons would be expected to yield $510 million in economic benefits. The $51 figure, however, is based on limited, outdated models that no longer reflect the best available science and methodology.
By contrast, our newly released study draws on the latest advances in the scientific and economic literature as well as expertise across a wide range of scientific disciplines. It uses new computational tools and techniques to account for uncertainty across several intersecting factors and over longer timeframes.
The key finding of the study pegs the social cost of carbon at $185 per ton of CO 2 —more than triple the government’s current estimate. This finding indicates that many experts and decision makers have been consistently underestimating the economic effects of carbon emissions for years. It also shows, however, that actions taken by governments and corporations to reduce emissions have far greater economic benefits than previously understood. Now we’d estimate a 10-million-ton emissions cut would usher in $1.85 billion of societal benefits. For decision makers crunching numbers, this research casts a whole range of policy proposals in a new light.
Courts have required federal agencies to factor the social cost of carbon into their rulemaking since 2008, and the estimate is woven into dozens of regulations currently on the books. A triple-digit multiplier would tip the scales on the benefit-cost analysis of many new rules. From auto emissions, to appliance efficiency, to new power plant standards, an updated social cost of carbon increases the economic justification for a new era of low-carbon policies. And there is a strong case for the federal government to adopt a new value similar to the one produced by the Resources for the Future-UC Berkeley analysis. Last year, President Biden issued an executive order directing his administration to work on updating the official social cost of carbon estimate using the same criteria from the National Academies that shaped the new study.
Adoption of a revised social cost of carbon could reverberate across the economy. Many state electric utilities use a carbon-pricing tool in planning to meet power demand or to earn zero-emission credits. And more and more private companies are incorporating carbon metrics into their accounting and operations. According to the nonprofit CDP, nearly half of the 500 largest corporations in the world have adopted or plan to adopt an internal price on carbon. The rigorous model used in the new study could influence the way carbon is priced across sectors.
The benefit of this breakthrough research is not just a higher number in an important decision-making metric, but also the design of a new, open-source analytical ecosystem to analyze complex, overlapping scientific and economic models. This framework creates an opportunity for future researchers to conduct even richer analyses of the effects of energy policy. The study’s authors have also opened up their work to scrutiny and collaboration through an open-source software platform and data tool that allow users to develop their own estimates or dig into the model’s mechanics. Not only does the work represent one of the most reliable and detailed economic analyses of the costs of climate change to date, it has also been produced through a fully reproducible and transparent process.
This is science in the service of good policy and good decision making. Analysts and policy makers now have exciting new tools at their disposal to better understand the changes in the Earth’s climate, and how policy should respond to it.
Maureen Cropper is a professor of economics at the University of Maryland, a senior fellow at Resources for the Future, and a former lead economist at the World Bank.
Richard Newell is the president and CEO of RFF. He is the former administrator of the Energy Information Administration.
Brian Prest is a fellow and the director of the Social Cost of Carbon Initiative at RFF.
Kevin Rennert is a fellow and the director of the Federal Climate Policy Initiative at RFF. Cropper and Newell served as co-chairs of the National Academy of Sciences’ Committee on Assessing Approaches to Updating the Social Cost of Carbon.
Newell, Prest, and Rennert are co-authors on the article , “ Comprehensive Evidence Implies a Higher Social Cost of CO 2, ” published on Sept. 1 in the journal Nature .
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