PrintIn policy making, we must consider the cost of a proposed policy against the benefits of the proposed policy. How much would it cost taxpayers? How much would it benefit tax payers?
In the case of policies designed to address climate change, how does government put a value on the benefits of reducing emissions? What is saving a ton of CO2 emissions worth to tax payers? A mechanism used to give a value to emission reductions is called the social cost of carbon (SCC). It puts a dollar value of the (calculated/estimated) costs to society caused by a single ton (or tonne) of CO2 emissions over the lifetime of said emissions. In other words, the SCC is the calculated cost, in dollars, of the social cost of carbon emissions. Remember that social cost = private cost + external cost. Since there is no actual price for emissions in the U.S., there is no private cost. Thus, the social cost is equal to the external cost. These costs are entirely borne by society.
The SCC is set by the federal government and is used to determine the value to taxpayers of proposed policies designed to reduce CO2 emissions. As such, it is a matter of public politics with a wide range of highly motivated and engaged stakeholders.
To Read Now
- This article provides some insight into one of the first examples of major public sector action on which carbon pricing had a major impact. Pay special attention to how SCC was used in the cost-benefit analysis for fuel efficiency standards. "Developing a Social Cost of Carbon for US Regulatory Analysis: A Methodology and Interpretation" (2013, Review of Environmental Economics and Policy). Read Abstract, Introduction and Conclusions.
Calculating and utilizing the SCC is a complicated and controversial topic. The following articles are not meant to be comprehensive, but to provide a snapshot of the science behind, and some competing views of SCC.
- For an excellent summary of the history of SCC, the Trump Administration's alternative, and some recent research-based estimates of the SCC, read "The Trump EPA is vastly underestimating the cost of carbon dioxide pollution to society, new research finds" by Dana Nuccitelli of Yale Climate Connections.
- For a peek inside of some federal-level public sector machinations, read the "Fast Facts" and "Highlights" of the Government Accountability Office's (GAO's) report on the Social Cost of Carbon from June 2020. "SOCIAL COST OF CARBON: Identifying a Federal Entity to Address the National Academies' Recommendations Could Strengthen Regulatory Analysis." You can access the full report as well, if you are so inclined.
- To see the Biden Administration's perspective on SCC (and response to the directive from the GAO described in the previous article), read "Change Is in the Air: Biden Revives the Social Cost of Carbon" from the National Law Review in June 2021.
- This article provides details of peer-reviewed research in Nature Climate Change, which is a highly regarded journal. "New study finds incredibly high carbon pollution costs – especially for the US and India." The Guardian, October 2018.
- "Federal Court Rules in Favor of Social Cost of Carbon and Environmental Justice." Triple Pundit, August 17th, 2016. According to this article, this court decision "is the first time that a U.S. court has ruled on the legality of carbon accounting in any form," and so is a very important decision. Note the variety of nonmarket actions.
- Finally, please read the written testimony of Robert P. Murphy of the Institute for Energy Research (IER). The IER is funded by the fossil fuel industry, and it's former president Thomas Pyle led Trump's transition team for the Department of Energy. It provides a window into some arguments presented by stakeholders who are opposed to the SCC.
Optional Reading
- "Estimated social cost of climate change not accurate, Stanford scientists say." Stanford News, Jan. 2015. This is a summary of an oft-cited peer-reviewed study on SCC.
- The World Bank has a Carbon Pricing Dashboard that contains a wealth of information about public sector carbon pricing around the world, on both national and subnational levels. Feel free to explore the site.
- For a very good explanation of some of the basics of SCC, read "More than Meets the Eye, The Social Cost of Carbon in U.S. Climate Policy, in Plain English," by the World Resources Institute, Environmental Law Institute in July 2011. Read Summary and stop at section 4a How do the SCC Models Work?