By Jean Chemnick
Two environmental economists are urging the incoming Biden administration to overhaul the way the U.S. government assigns a dollar value to the pain of carbon emissions.
This metric, known as the social cost of carbon (SCC), is used by regulators to estimate how much damage would result from a 1-ton increase in CO2 emissions.
The approach made its debut under the Obama administration but was greatly diminished during the Trump years.
Now two economists — Tamma Carleton of the University of California, Santa Barbara, and Michael Greenstone of the University of Chicago — say that the Biden administration should more than double the SCC figure used during the Obama presidency. The higher figure would justify more costly carbon controls under President-elect Joe Biden than were put forward under President Obama.
“I think it would greatly change the balance between costs and benefits in a wide range of arenas, and I think motivate and justify stricter climate regulations,” said Greenstone, a former adviser to Obama on energy and economics.
The paper by Greenstone and Carleton proposes that the Biden White House immediately scrap the Trump administration’s low social cost of carbon in favor of the Obama administration’s formula.
But instead of using the Obama administration’s central 3% discount rate, Greenstone and Carleton argue that a rate of no more than 2% is now justified because Treasury-backed interest rates have declined sharply since 2003, when George W. Bush’s White House set that as a benchmark to be used in regulatory cost-benefit analyses.