Economist Frank Ackerman has called the “social cost of carbon” the most important number you never heard of. Failing that, I’ll use otters. Send in your picks today! You could be much more bored. Say you could ask the people of 2100 (some of whom may be your children or grandchildren), “would you rather inherit $1 trillion in cash or $1 trillion worth of avoided drought, storm, and famine?” Which do you think they would choose? One, how much damage will a ton of carbon do? When agencies prepare to issue regulations implementing the laws enacted by Congress, they must justify proposed regulations by assessing their costs and benefits. Likewise, human behavior is dynamic. In 2009, an interagency team of U. S. government specialists tasked to estimate the SCC reported a range of values from $5 to $65 per metric ton of carbon dioxide, with a “central value” of $21. In Step 3 of the SCC modeling process, the economic impacts can be calculated based on global damages (the total effects of emissions felt all around the world) or they can be limited to domestic damages (e.g., those felt within the United States). Our findings are as follows.
That percentage, the amount that a benefit declines in value each year into the future it extends, is the discount rate. The White House’s Office of Management and Budget (OMB) reviews all regulations prior to their being proposed and prior to adoption.1 OMB has authority to send a regulation back to the agency for revisions or reconsideration when the regulation is deemed not to “comport with the Executive Order’s principles and the President’s priorities.”2 The question they ask in the context of SCC is: if, for example, greenhouse emission standards for cars might cost $10 per ton of reduced emissions, will they bring about benefits from reduced emissions that are worth that cost or more?
Impact 50: Investors Seeking Profit — And Pushing For Change, Energy Policy Institute at the University of Chicago, the U.S. Environmental Protection Agency’s (EPA) own estimates, former Federal Energy Regulatory Commissioners. You’d choose today, obviously. In this role, Templeton helped to ensure that the $20 billion pledged by BP is available to address the claims of those affected by the 2010 Deepwater Horizon Oil Spill.
If you want to dig in, you have many long and excruciatingly boring journal articles to choose from. First, let’s discuss this notion that people’s revealed time preferences are a kind of neutral baseline discount rate, devoid of ethical judgment.
Three percent was considered the mean, or “central” value. We do this within our own lives, and it is difficult to say that it is irrational. The discount rate demonstrates how highly future benefits are valued. Thus, when policy-makers rely on a model or any of its outputs including the SCC, it is as important that they understand the assumptions behind a model before they apply its final results. Even totally carbon-free energy generation would not do it, because of the carbon that is already in the air. Now, here’s another scenario. It is by no means clear that individuals’ self-regarding behavior yields any insight whatsoever about what even those same individuals believe we owe to future generations. Often, they use a proxy, which may not adequately represent the real harms being inflicted. The federal government employs the SCC to satisfy this requirement. Surprises and how they interact with other factors are particularly difficult to capture in modeling (whether science or economics). Please correct if this is inaccurate. The SCC is used across the entirety of the US federal government as part of required benefit-cost analysis of significant regulations and other actions (as described above).
If you choose $50, you’re saying you value dollars today twice as much you value as dollars 10 years from now. While the Clean Power Plan put the social cost of carbon at around $45 per ton, the Trump Administration placed it between $1 and $6 per ton. — Oct 20, 2020, An in-depth panel discussion about the forecast for carbon pricing in 2020, what has changed in the past year, and how election outcomes could influence the future, Press Release
Social cost of carbon and growth-corrected discount rate in DICE model. In the latter case, the number of researchers who know how to use additional money is limited. And two, how much is it worth to us to avoid that amount of damage? Let’s focus on the time spans. The discount rate used in estimating the SCC incorporates both empirical evidence and value judgements. On the science, the Rule vastly underestimates the cost per ton of carbon, or the “social cost of carbon,” which provides a gauge to justify stronger limits on carbon. And allocation of additional resources to regulation does not necessarily imply that resources devoted to other approaches need to be reduced. The more provocative way to put this point is that global economic growth is entirely consistent with the loss of the entire African continent to drought and disease. After all, Africa doesn’t contribute much to global GDP. A lower SCC, which suggests a lower value placed on preventing future damages, would imply that many current regulations appear to have costs that exceed their benefits. Reasonable people can and do disagree with these choices.
In Colorado, Minnesota, and Washington, electric utilities are now required to use the federal SCC in their resource planning. No potential conflict of interest was reported by the author. In contrast, using the government’s estimate of CO2 damage costs tends to favor dirtier energy sources, and an ever riskier climate.
So what should the discount rate be? Even the government agrees: The Office of Management and Budget has official guidelines [PDF] on the use of discount rates in inter-generational cost-benefit analysis. (“You can emit carbon for free,” for instance, seems like a rather imprudent rule.) Previously, Templeton served in the cabinet of Missouri Governor Jay Nixon as Director of the Department of Natural Resources, leading the State’s efforts in energy, environmental protection, state parks, and water resources.
For example, there is a range of plausible values for certain inputs to the SCC models, such as future economic growth rates and the magnitude of climate system responses.
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