The Global Cost of Carbon Emissions: A Lingering Quandary For Policy

The federal government has a new estimate for the global social cost of carbon emissions. A recent “Technical Support Document” prepared by an interagency working group bears the more elaborate and dispassionate sub-title: “Technical Update of the Social Cost of Carbon for Regulatory Impact Analysis—Under Executive Order 12866.” That Executive Order, among other things, allows “agencies to incorporate the social benefits of reducing carbon dioxide (CO2) emissions into cost-benefit analysis of regulatory actions that impact cumulative global emissions.”

The May 2013 report does nothing less than attempt to quantify the global “social cost of carbon” (SCC) expected to be reached by the year 2020. That cost, derived on the basis of methodologies and assumptions contained in the report, has a mid-point of around $43 per ton of CO2 (expressed in 2007 dollars) compared to a figure of $26 per ton in a similar study released just three years earlier. The $43/ton global total comprises monetized damages in, among other things, “agricultural productivity, human health, property damage from increased flood risk, and the value of ecosystem services.” With an estimated worldwide CO2-emission total of around 30 billion tons by 2020, we’re talking about more than a trillion dollar’s worth of greenhouse-induced damage to society annually. These numbers are close to estimates by the International Monetary Fund.                                                                                                                           

As with past attempts to estimate such a global total, it is important to underscore the separability of the overall global externality, on the one hand, and the location of the damage-causing emissions on the other. That separability has an anomalous implication for benefit-cost analysis—that otherwise prized vehicle for helping inform natural resource and environmental policy decision-making. Let’s accept the Working Group’s $43/ton estimate of the benefits of emissions cuts (i.e., damages forestalled). But $43/ton may seem excessive if a country presumes itself immune or at least relatively safe from climate impacts.

It was such a mismatch that prompted two eminent legal scholars—Eric Posner and Cass Sunstein—to reject the logic of benefit-cost analysis as a workable approach to an international climate accord in a 2008 article and law review article. As they observe, the United States, above all, “would not benefit, on net, from [an] agreement that would be optimal from the world’s point of view.” This, they concede, need not preclude—as a matter of “distributive justice”—rich countries transferring funds to help poor countries cope with the threat of climate change, although they would expect, and sympathize with, developing countries prioritizing present-day gaps in health, education, and basic societal needs rather than the future burden of climatic change that a then-wealthier society will be in a position to manage. (In any case, even a country—say, India—that sees net benefits from paying a $43/ton emission charge may still question its affordability, whether or not crowding-out of other developmental priors).

I believe it can be argued that, even five years ago, the somewhat relaxed notion of existing developmental needs outweighing still-to-materialize climatic realities tended no longer to be persuasive. Be that as it may, the more stark climatic soundings now evident and the federal Working Group’s heightened damage estimates make such a position questionable.

At the same time, don’t expect the Posner-Sunstein explication of the global-vs.-national benefit-cost conundrum to fade. Indeed, as the notion of a worldwide, across-the-board emission fee takes hold, it may well require patience and remain work in progress before the conflicting interests and perceptions of net-benefit winners and losers can be resolved in the interest of a strategy for achieving a climatically-stable environment.

 

 

About Joel Darmstadter

JOEL DARMSTADTER is an economist and senior fellow at Resources for the Future, which he joined in 1966, following an earlier stint in the corporate sector and several research organizations. Specializing in economic and policy aspects of energy and the environment, he has written, co-authored, and contributed chapters to, numerous books and journal articles. He has appeared as an expert witness before congressional committees, been a consultant to several government agencies, and served on a number of National Research Council panels. During 1983-93, he was a professorial lecturer at the Johns Hopkins University School of Advanced International Studies. He has degrees in economics from George Washington University (A.B., 1950) and the New School for Social Research (M.A., 1952).

Views expressed above are those of the author. Resources for the Future does not take institutional positions on legislative or policy questions. All information contained on Common Resources is intended for informational and educational purposes and may only be used for these purposes. Please see RFF's Terms of Use for further information.

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