By Alex Guillén
A complicated accounting tool is the newest line of attack for Republicans and fossil fuel producers seeking to stop President Joe Biden from reining in greenhouse gases.
The social cost of carbon was the purview of Ph.Ds for years after the early Obama administration began using it to estimate the real-world effects of carbon emissions. Now it has become a political cudgel for red states opposed to Biden’s climate agenda — an agenda that will depend almost entirely on executive actions that must survive judicial scrutiny.
The debate holds implications for a host of executive actions that the administration has sought to justify by arguing that the benefits of addressing climate change outweigh the expense, including permitting decisions, oil and gas lease sales and public transit grants. It’s also important for a host of forthcoming regulations that would strengthen energy efficiency requirements or target greenhouse gas emissions from power plants, cars and trucks, and oil and gas production.
The social cost figure, meanwhile, has swung wildly over the years as Washington’s political winds have shifted: While former President Donald Trump’s agencies calculated that each ton of unspewed carbon dioxide brought only $1 in benefits to the U.S. economy, the Biden administration has offered an initial estimate of $51 per ton. And it may be poised to increase the number to around $200, a figure that would make it far easier to defend even expensive climate actions against GOP-driven court challenges.
The carbon formula’s importance has increased after opposition from GOP lawmakers and Sen. Joe Manchin (D-W.Va.) doomed congressional Democrats’ premier climate bill last year. That makes the cost figure a growing target for opponents of Biden’s climate effort.
Accounting for the social cost of greenhouse gases is “the gasoline that turns the engine” on climate regulations, said Michael Greenstone, an economics professor at the University of Chicago.
“I don’t think it’s controversial that it’s in the American people’s interests that that best reflects our understanding of what the effects of climate change are,” said Greenstone, who as an Obama White House official had convened the group that created the first social cost of carbon.
At the White House, officials soon are expected to propose increasing the social cost figure. Many experts argue it should be increased significantly, with Greenstone calling for at least $200. The increase is needed because of advances over the past decade in climate science and economic forecasting, experts say.
Shortly after taking office, Obama administration officials began thinking about how to use existing regulatory authority if Congress failed to pass Democrats’ cap-and-trade bill — a failure that ultimately came about.
“At that point, in 2009, it was pretty incoherent what the U.S. government was doing,” said Greenstone, who at the time was chief economist for Obama’s Council of Economic Advisers.
Various agencies offered their own estimates of how carbon dioxide emissions burdened the economy, Greenstone said: The Transportation Department’s goal was to “facilitate more driving,” so it was motivated to use a low social cost of carbon in its fuel economy rules. EPA’s focus is on environmental protection, so it employed a high social cost for its regulations. But in the real world, a ton of carbon dioxide affects the climate the same way.
Greenstone convened an interagency working group that ultimately produced a hard number: $43 per ton of carbon dioxide in 2020. (The figure goes up the further into the future you go as the benefits of carbon reduction compound.) The government has since calculated social costs for other less common but more potent greenhouse gases, methane and nitrous oxide. EPA has also developed its own social cost of hydrofluorocarbons to inform last year’s congressionally mandated regulation phasing down HFCs used in refrigerators and air conditioners.
Then came the Trump administration and its deregulatory agenda, which included reducing the social cost of carbon by changing two key inputs, as the Government Accountability Office reported in 2020.
First, Trump’s appointees decreed that officials could consider only the domestic — not global — benefits of pollution reductions when calculating the cost figure. That alone cut the 2020 estimate to $7 a ton, an 84 percent reduction from the Obama administration’s calculation.
Second, the Trump administration used higher “discount rates” — an input that adjusts the future costs of climate change and benefits of contemporary reductions into present-day values. A higher rate means future benefits are considered less important, and thus less valuable. Using the Trump agencies’ highest discount rate chopped the 2020 social cost figure to just $1.
“In a wholly unscientific way, they found the dials that would make the number go down and they just turned those dials,” Greenstone said.
Biden reversed course immediately upon taking office. An executive order issued on his first day re-formed the interagency working group and tasked it with issuing an interim figure, which ended up being $51 — the Obama figure adjusted for inflation.
But Biden also ordered a more thorough overhaul of the social cost, with a proposal expected in the coming months and a final figure this summer. It hinges on advancements over the past decade on directly connecting climate change to economic damages through a field of research called “attribution science.”
“We didn’t have data and computers that were up to the task in 2009 and 2010,” said Greenstone. “What we’ve uncovered since then, as … computers are better and we’ve got the data, is that the damages from a given increase in CO2 emissions are much larger than we had understood.”
Update the climate modeling and economic forecasting, and incorporate a suite of recommendations made by the National Academies of Sciences, Engineering and Medicine in 2017, and “you easily end up with a number in the $200 range,” said Greenstone. That would increase the estimated climate benefits of federal regulations at least four-fold from Biden’s interim figure.