Thank you Chair Castor, Ranking Member Graves, and members of the Committee for inviting me to speak today.

My name is Michael Greenstone, and I am the Milton Friedman Distinguished Service Professor in Economics and Director of the Becker Friedman Institute and Energy Policy Institute at the University of Chicago. I also serve as co-director of the Climate Impact Lab, a multi-disciplinary collaboration of researchers working to quantify the long-term impacts of climate change. My own research focuses on estimating the costs and benefits of environmental quality, with a particular emphasis on the impacts of government regulations.

I appreciate the opportunity to speak with you today about the growing risk of climate change and the costs of inaction.

The best way to summarize the economic impacts of climate change and the benefits of regulations to slow it is with a number known as the social cost of carbon (SCC). The SCC is the monetary cost of the damages caused by the release of an additional ton of carbon dioxide into the atmosphere. Simply put, it reflects the monetary cost of inaction—measured in the destruction of property from storms and floods, declining agricultural and labor productivity, elevated mortality rates, and so forth.

The SCC is arguably the most important component of regulatory policy in this area because, by calculating the costs of climate change, the social cost of carbon allows for the calculation of the monetary benefits of regulations that reduce greenhouse gases. So, for example, a regulation that reduces carbon dioxide emissions by 10 tons would have societal benefits of $510 if the value of the social cost of carbon was $51, which is the value currently being used by the Biden administration. These benefits can then be compared to the costs that the regulation imposes to determine whether the regulation is beneficial on net. Since the establishment of the United States Government’s SCC in 2010, it had been used to guide the design of more than 80 regulations as of 2017. These regulations have resulted in more than $1 trillion of gross benefits.

Critically, the SCC can also be used to determine an efficient price for market-based policies for combatting climate change, such as a carbon tax or cap-and-trade system. If set at the value of the SCC, these pricing approaches will ensure that we are pursuing policies where the benefits exceed their costs. A great appeal of these approaches is that they unleash market forces to uncover the least expensive ways to reduce emissions, thereby minimizing the costs to the economy, and do not require the ex-ante knowledge of which sector they will emerge from.

Regardless of the policy approach used, a social cost of carbon based on the best available peer reviewed research is a key ingredient in beneficial policy to confront climate change. To detail how we get there, it’s important to first understand where the SCC came from, what it tells us about the costs of inaction, and how it can be improved to better guide policy action. In the remainder of my statement, I will make the following points:

  1. The original SCC was created in 2010 after a year-long process that included intense assessment of the best available peer-reviewed research and careful consideration of public comments. Updated to reflect scientific advances, it was set at $51 per ton in 2016. The Trump administration then lowered the SCC to roughly $4 based on decisions that were not scientifically justified and ran counter to recommendations from the National Academy of Sciences issued in 2017. Following an executive order on the first day of the Biden administration, the SCC was returned to $51 in February on an interim basis while they evaluate the advances in economics and science.
  2. An interdisciplinary team I co-direct, the Climate Impact Lab (CIL), is calculating an updated, data-driven social cost of carbon. Its broad aim is to capture the rapid advances in the economics and science of climate change that have taken place over the last decade and use them to update the SCC.
  3. Our approach seeks to project changes in mortality, energy use, agricultural yields, labor productivity, and coastal vulnerability due to an additional ton of CO2; and then monetize those costs to society. The first sector-specific projections relate to climate change’s impact on mortality, finding that continuing a high emissions trajectory raises global mortality risk by 85 deaths per 100,000 people by 2100. To put this in context, it is roughly between the annual mortality risk of cancer and infectious diseases.
  4. The mortality consequences will be largest in places that today are hot and/or poor. In the United States, the mortality risk will be 10 deaths per 100,000, about on par with the current fatality rate from auto accidents in the United States. Many areas will experience mortality risks that are significantly higher. That includes areas represented by members of this committee, which I will detail.
  5. Policy has the potential to deliver some of the most significant public health gains in human history. Bringing global emissions down to moderate levels—not even as low as the Paris Agreement’s long-term targets—would reduce the mortality risk by 84% compared to the high emissions pathway. Under this moderate emissions scenario, climate-induced temperature changes are projected to be responsible for 14 additional deaths per 100,000 globally at the end of the century. In the United States, that risk would be 1.3 deaths per 100,000, eliminating almost all of the mortality risk.
  6. We estimate that the release of an additional metric ton of CO2 will cause about $37 worth of mortality damages—about three-quarters of the overall or total SCC used by the Obama administration and by the Biden administration on an interim basis. The fact that this is almost twenty times larger than the mortality costs underlying the current SCC underscores the need to update the SCC.
  7. As the Biden administration comprehensively updates the SCC, I recommend several changes to the way the SCC is calculated. These include using the latest climate modeling, applying a new valuation of climate damages, employing lower discount rates, accounting for uncertainty and equity, and better incorporating socioeconomic projections.
  8. While my work suggests that the social costs from climate change are projected to be large—both in dollars and in terms of human lives— robust climate policies guided by an updated SCC based on the latest knowledge would lay the foundation for some of the greatest public policy benefits in history.

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Areas of Focus: Climate Change
Definition
Climate Change
Climate change is an urgent global challenge. EPIC research is helping to assess its impacts, quantify its costs, and identify an efficient set of policies to reduce emissions and adapt...
Climate Law & Policy
Definition
Climate Law & Policy
As countries around the world implement policies to confront climate change, EPIC research is calculating which policies will have the most impact for the least cost.
Updating the United States Government’s Social Cost of Carbon
Definition
Updating the United States Government’s Social Cost of Carbon
Policymakers could immediately return to the Obama Administration’s social cost of carbon approach paired with a more appropriate discount rate that together would produce a social cost of $125 per...
Social Cost of Carbon
Definition
Social Cost of Carbon
The social cost of carbon is an essential tool for incorporating the cost of climate change into policy-making, corporate planning and investment decisionmaking in the United States and around the...