Carbon Pricing

Published on January 16th, 2015 | by Silvio Marcacci

16

The Social Cost of Carbon Is Six Times Higher Than Estimated

January 16th, 2015 by  

What if the social cost of carbon – a calculation of economic damage caused by carbon dioxide emissions used as the foundation of American climate policy assessments – was wrong? And not just “oops-I-forgot-a-decimal-point” wrong, but “ruin-your-national-economy” wrong?

Unfortunately, according to a new study from Stanford University scientists, the price tag for the ever-growing amount of CO2 humanity is spewing into the air is six times higher than previously estimated by the U.S. government.

factory emissions

If true, this higher social cost of carbon has major implications for emissions policy. Not only do the grim economic projections of climate change impacts become much worse in developed nations, they may leave some developing countries unable to sustain economic growth.

A Trillion-Dollar Economic Threat to America?

Economic evaluation of U.S. federal climate policies has hinged on a social cost of carbon estimate since it was first defined in 2010 and subsequently updated to $37 per metric ton of CO2 in 2013. The social cost of carbon estimates monetized damages from climate-related impacts like decreased agricultural production, human health, and flood damages, among others.

Unfortunately, $37 seems like a dangerously low estimate. Each metric ton of carbon dioxide emitted into the atmosphere causes $220 in economic damages, say the Stanford researchers. If that seems like a manageable cost, add in context from overall U.S. emissions and a staggering economic threat takes shape.

In 2013, American energy sector CO2 emissions rose 2.5%, totaling 5,396 million metric tons. If the Stanford research is applied, America may face a price tag of well over $1 trillion dollars annually just from generating power, not to mention transportation or manufacturing-related emissions. Considering America’s gross domestic product (GDP) was $16.7 trillion in 2013, our carbon costs are significant, to say the least.

Higher Costs Over Time, Higher Social Cost of Carbon

So how have we gotten the social cost of carbon so wrong? Inaccurate economic modeling, in essence, say the Stanford researchers. America’s social cost of carbon (as well as those in Germany, the United Kingdom, Canada, and others) is based on an integrated assessment model (IAM). IAMs combine myriad inputs to assign costs and benefits to certain actions (in this case cutting emissions), but IAMs assume climate change costs are felt immediately without permanent damage to GDP, and fail to add up how climate change and associated economic impacts add up over time.

The Stanford study arrived at a $220 social cost of carbon by allowing climate change to impact an economy’s development as a certain amount of money is spent adapting to rising seas, hotter temperatures, and stronger storms. “For 20 years now, the models have assumed climate change can’t affect the basic growth rate of the economy,” said Stanford’s Frances Moore, a study co-author. “If climate change affects not only a country’s economic output but also its growth, than that has a permanent effect that accumulates over time, leading to a much higher social cost of carbon.”

Put another way, with every extreme weather event caused by climate change, more money must go toward rebuilding or recovering, limiting money available for investment and gradually eroding capital infrastructure like roads and buildings. Sure, New York and New Jersey recovered from Hurricane Sandy, but every dollar funding climate resiliency and repair is one less spent on existing needs, and every day a worker couldn’t work because their business was closed or home destroyed was one less day to generate income.

Developing Nations to Bear Brunt of Economic Damages

These “climate shocks” are a drag on developed countries, but can be devastating in developing nations without financial reserves where economic activity hinges on agriculture and physical labor. Typhoon Haiyan, for instance, ravaged the Philippines in 2013 with damage estimated around $14 billion and just $2 billion covered by insurance. Recovery in the Philippines will certainly take longer than in New York City.

But even if major events like hurricanes or floods are ignored, rising temperatures will harm economic output – a 2013 study estimated heat stress reduces labor capacity 10 percent now, and could cut labor productivity 20 percent by 2050 in places like India, the Middle East, Southeast Asia, and the Caribbean.

The Stanford research flushed these different economic impacts out by dividing their model into two regions, to represent high and low-income countries, and the results don’t bode well for developing nations. Using the impacts over time + adaptation spending, developed economies lose 12% of GDP by 2100, but developing economies fare much worse. “Average annual growth rate in poor regions is cut from 3.2% to 2.6%, which means by 2100 per-capita GDP is 40% below reference.”

Silver Lining: Decarbonization Becomes A Bargain

If there’s a silver lining to this story, it lies in the  economic modeling used to evaluate climate policies. For instance, the U.S. Environmental Protection Agency’s proposed emissions reduction regulations are affordable with a $37 social cost of carbon, but more expensive mitigation and adaptation measures would become eminently affordable if that number was adjusted to accurately reflect higher costs.

At $220 a ton, rapid decarbonization becomes a bargain for global economies. “Until now it’s been very difficult to justify aggressive and potentially expensive mitigation measures because the damages just aren’t large enough,” said Moore. Indeed, under Stanford’s outlook, emissions would need to drop to nearly zero by 2030 to avoid dangerous economic damage.

The Clinton Global Initiative recognized the potential for portable solar power to aid Pakistan's flood victims

This goal is nearly impossible given current political outlooks, but it means renewables like wind and solar beat every fossil fuel on cost while expensive adaptation measures like sea walls become realistic. The authors also note every dollar increase in GDP means another dollar to potentially invest in mitigation or adaptation measures, meaning even partially reducing emissions can help reduce economic impacts.


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About the Author

Silvio is Principal at Marcacci Communications, a full-service clean energy and climate policy public relations company based in Oakland, CA.



  • CarbonEraser

    Dear CleanTechnica:
    I really want to share this (and other) stories on Facebook, but can you please use relevant images? The Viagra-happy couple that appears on the FB post just doesn’t work with a story about the social cost of carbon. TYVM for your attention to this matter.

  • Whether the Stanford study at $220./tonne of CO2, or the conventionally held view of $37./tonne of CO2 is most accurate, there is no doubt that anthropogenic damage is occurring.

    If we adopt the $220. number, nothing will ever get done, as it is too big a number and policymakers and governments will be in paralysis, which often happens when human beings must confront problems that seem too large to solve.

    However, more important than what the actual number is… is that we begin to do something, at all!

    For example, if we (globally) set a carbon price of $20./tonne of CO2, resulting in a price increase at the gas pump of 3 cents per gallon — perhaps 6 cents per gallon because the oil companies would want to make a profit on it, and really, who can blame them, they’re in business to make money just like any other business.

    Setting a global $20./tonne price for carbon is, I believe, the ‘tipping point’ price where actual and measurable changes away from fossil fuel will begin in earnest.

    Right now, most countries around the world are merely ‘playing at’ adding renewable energy to their grids, and are not keeping pace with new power generation from all sources.

    By setting the carbon price near the ‘tipping point’ we will begin to make forward progress, instead of the endless conversation about the rate of CO2 increase in the world.

    And with falling gasoline prices (coal prices bottomed out months ago) adding a tiny $20. carbon price, should hardly be noticed and should be easily passed in Congress and other legislatures around the world.

    Yet, it would be just enough to get the ball rolling, IMHO.

    A small carbon price now, when we can actually have a chance to change things for the better over a decade or two, sure beats a last-minute, emergency carbon price of $100./tonne of CO2, in 2030.

    Cheers, JBS

    • cutter1954

      I think your numbers are a little off.what I have seen on these pages is ~$10 per ton carbon = $.09 more per gallon gasoline.charles krauthammer,hardly a liberal has suggested a revenue neutral gasoline tax hike of $1.00,given the current drop in US gas prices.whether or not you start small,as with a $20 per ton fee or tax,or go big much later is dependent upon multiple factors.realistically I think a one time hike of $20 is pretty meaningless.I thnk a hike first year of $20 per ton,followed each following year by say,$10 is not.(See REMI study).that I think would be both prudent and not disruptive.that would be a strong signal for both energy producers and consumers.

      • Hazel

        That sounds about right. 1 gallon is about 3.5 kg gasoline, about 3 kg carbon, about 11 kg CO2, which is about 0.01 tonnes. So divide the per tonne price by about 100 for the gallon of gasoline equivalent. 30 bucks to 30 cents, $220 to $2.20. Your 9 cents is probably more accurate. Thanks.

        • Hi Hazel,

          An oil exec (who asked not to be named) worked those numbers out for me some time ago.

          I have no problem with your math.

          The whole point is, if the carbon pricing is too high (i.e.: more than $20.00/tonne of CO2 emitted) it will NEVER become law in any jurisdiction.

          And that’s everything.

      • Hi cutter1954,

        An oil exec (who asked not to be named) worked those numbers out for me some time ago.

        I have no problem with your math.

        The whole point is, if the carbon pricing is too high (i.e.: more than $20.00/tonne of CO2 emitted) it will NEVER become law in any jurisdiction.

        And that’s everything.

        • cutter1954

          when I feel pessimistic I think we will never see what would be rational,a tax on carbon.Filling up the tank with cheap gas is for the US what cheap subsidized bread is in Egypt.In December 1941 most rational people thought the US would ultimately enter the war.But it took Pearl Harbor.Unfortunately for climate change we are unlikely to see one drastic event which will engage the nation like that did.

  • onesecond

    I have to say I am astounded by the stupidity of previous studies. Did they really think that Climate Change with increasing natural disasters, hindered agriculture production, ocean acidification and costly adaption measures would not have an impact on economic growth? Seriously? O_O
    Noone can’t be that stupid, must be lobbyism at its worst.

  • Mint

    Sorry, but this is complete bullshit.

    The only way you can get such huge implications on GDP is through an economic model heavily tainted with neo-con supply-side theory. Productivity is not the limiting factor in output in the current global economy.

    What’s more is that such a high SCC justifies keeping poor people in poverty until they get clean power and transportation. How can someone in Africa afford $220/tonne?

    The IPCC tells us that 100ppm causes less than 1 degC of warming. Looking at world emissions (35B tonnes/yr) and atmospheric CO2 rise (2ppm/yr), we’re supposed to value 0.01 degC warming at $4T dollars? And that’s supposed to be good for developing countries?!? No way in hell do they get trillions of dollars of value from a hundredth of a degree cooler climate. There’s far more important things to spend money on there.

    We need to fix global hunger and disease before even suggesting something as stupid as pricing CO2 at $220/tonne.

    • Ronald Brakels

      Mint, I think your mind is jumping to conclusions that your body can’t cash. If the damage caused by a tonne of CO2 emissions is $220 a tonne it does not follow that the carbon price needs to be $220 a tonne. For example, if every time you drink a bottle of tequila you cause an average of $220 worth of damage, the solution is not to put aside $220 every time you drink a bottle, the solution is to stop drinking tequila.

  • cutter1954

    I have an idea.let’s have a california senator read this study into the congressional record while the senate debates whether climate change is significant and why they should jump on the KXL train.

  • Maxwell Erickson

    The Tesla fleet has saved 100 million liters of fuel, by Tesla Motors’ last estimate. 100 million liters is equivalent to 26,417,200 gallons of gas, which, when burned, creates 20 lbs CO2 per gallon, or roughly 528,344,000 lbs overall. 528,344,000 lbs is roughly equivalent to 239,652.807 metric tonnes, and when multiplied by $220, our final number is $52,723,617.54

    Which means Tesla has saved our us $53 million dollars so far. And that’s not counting gasoline costs! 🙂

  • Will E

    In Australia they are crybabies when they get burned by devastating bushfires. Yet they vote a government to halt renewables, In California they want ot emigrate because of the drought, yet they vote Republicans to halt renewables.
    The Philipines are flooded away by weekly hurricanes due to warmer seawater. Florida only has to wait to get inundated.
    and 100 of 000 nds die of air pollution caused by petrol cars in the cities, yet these manufacturing companies are celebrated at Detroit car show. and so on and so on
    The cost is really high. Elon Musk is my super hero.
    Where are the Elons in this world.

    • Ronald Brakels

      Actually Australians voted in a government that specifically promised not to halt renewable developement. They just weren’t telling the truth. In general Australians are not anti-environmental. However, their current government is.

      But yes, we do squeal like a pig on a rocket when seared with flame.

      • cutter1954

        I will donate to my freestanding solar install in Maine.australia has a really dicey ecology and may have already exceeded its carrying capacity.but as far as energy is concerned I would think with solar and storage,plus some wind,it could be entirely renewable.given the political will.

  • Vensonata

    This, if accurate, is very, very important news. Virtually every previous economic and technological calculation goes flying out the window in the light of this study. Especially issues such as the cost of storage of energy from wind and solar, shrink to insignificance when you boost the true cost of fossil fuels, expecially coal, by 6 times. It just becomes absurd to argue against anything but a moonshot initiative to energy from wind, solar, hydro,and geothermal. We’d better move like our hair was on fire!

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