The Importance of the Social Cost of Carbon

The Social Cost of Carbon (SCC) is how the EPA considers tradeoffs between carbon emissions and their impact on humans. Though the urgency of climate action has grown drastically in the last decade, the SCC is currently calculated at less than a quarter of its initial design in 2010.

Economist Michael Greenstone, a key architect of the concept as Chief Economist of President Obama’s Council of Economic Advisors, calls the “It’s the most important figure you’ve never heard of.”

“It’s not just wonky cost-benefit. It’s what our grandchildren would want us to do,” Greenstone told Yale Climate Connections.

Carbon emissions contribute to natural disasters like hurricanes, which can leave millions homeless.
Source: Adobe Stock/Irina K.
Carbon emissions contribute to natural disasters like hurricanes, which can leave millions homeless.

The EPA defines the SCC as “an estimate of the economic damages associated with a small increase in carbon dioxide (CO2) emissions, conventionally one metric ton, in a given year.”

According to Science Magazine, the SCC was developed to “compare long-term costs from coastal flooding and other impacts of emissions of climate-warming carbon dioxide with upfront costs to the economy from curbing the burning of fossil fuels, the main source of such emissions.”

In short, this figure helps agencies like the EPA quantify savings from environmentally positive measures, as well as losses from excess carbon emissions.

The Social Cost of Carbon is meant to put a value on the impact of policies that affect the environment.
Source: Adobe Stock/Yuli
The Social Cost of Carbon is meant to put a value on the impact of policies that affect the environment.

As the Environmental Defense Fund reports, this vital tool helps federal agencies properly account for the damages caused by carbon pollution, and properly evaluate policies that affect greenhouse gas emissions. The result is a cleaner, healthier future for Americans and the rest of the planet.

“Private sector leaders have long considered the serious impacts of climate change when making decisions about capital investments and even corporate strategy. Many of the world’s largest companies already use internal measures much like the social cost of carbon in their own decision-making processes,” the EDF states in its report, “The true cost of carbon pollution.” “In the same way, the social cost of carbon can help inform and improve the decisions the federal government makes. A number of other countries, including Canada, Mexico, and the United Kingdom, have similar estimates of the social cost of carbon for use in government policy making.”

Federal agencies have used the social cost of carbon to analyze the impacts of roughly 100 federal actions that impact greenhouse gas pollution since its initial implementation in 2010. Those regulations apply to everything from car and truck emissions, to toxic pollutants, to household appliances.

 The social cost of carbon affects far more than just Americans.
Source: Adobe Stock/somchai20162516
The social cost of carbon affects far more than just Americans.

Several states employ the social cost of carbon to improve decision-making and outcomes when working with energy companies.

There are great economic benefits to reducing carbon dioxide emissions, as well. Just three of the Environmental Protection Agency’s automotive rulemakings are estimated to have saved between $78 billion and $1.2 trillion.

In March 2017,  the Trump Administration drew up a new order that required agencies to use procedures issued by the Office of Management and Budget in 2003. According to Science Magazine, the administration slashed the valuation of the social cost of carbon by more than 75%, and drastically changed the way it would be defined.

If environmental policies are made without considering the social cost of carbon, they may accelerate climate change.
Source: Adobe Stock/mbruxelle
If environmental policies are made without considering the social cost of carbon, they may accelerate climate change.

The Clean Power Plan at the time put the social cost of carbon at around $45 per ton, the 2017 EPA placed it between $1 and $6 per ton.

Among other changes, the definition of the SCC was narrowed to only direct domestic impacts to the territorial United States, leaving out U.S. citizens, investments, and military assets abroad.

This rule change has been met with strong resistance.

Judges around the country are calling for the Federal government to consider the full SCC in new developments, from construction of new interstate pipelines in the Southeast7, to expanding coal mines in Montana.

Coal mines in Montana were blocked when a judge ruled the government did not consider the social cost of carbon.
Source: Adobe Stock/photollurg
Coal mines in Montana were blocked when a judge ruled the government did not consider the social cost of carbon.

As the Environmental Defense Fund reports, the initial design of the SCC was lead by the Interagency Working Group (IWG), which included “representatives from all relevant executive branch agencies – from the Department of Agriculture to the Council of Economic Advisors – and developed the social cost of carbon by relying on the latest peer-reviewed science and economics available.”

Input from both the public and the National Academies of Sciences, Engineering and Medicine was solicited for the IWG until it was disbanded in 2017. Since then, federal agencies like the EPA have been relying on an “interim cost” that sometimes estimates the SCC at $1 per ton or lower.

“Efforts to roll back the social cost of carbon have left decisions to individual agencies, reducing accountability and transparency while creating regulatory confusion,” the EDF reports. “Weakening or eliminating it conceals the true costs of carbon pollution, incorrectly skewing the analysis and biasing decision-making away from crucial climate safeguards.”

There are several concerted efforts in play demanding a restoration of the Social Cost of Carbon’s 2010 definition, and the EPA’s promise to use that calculation in policy making. Click below to join the growing number demanding this change, and make a difference!

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