By Maxine Joselow
An academic debate over a key metric for greenhouse gases is heating up, just as a high-profile courtroom battle is scheduled to begin.
Prominent economists are clashing over the Biden administration’s approach to the social cost of carbon, which assigns a dollar value to the harm caused by 1 metric ton of greenhouse gas emissions.
The feud comes as a federal court is slated to hear oral arguments tomorrow in a lawsuit brought by Republican state attorneys general over President Biden’s plans to increase the social cost of carbon.
“There’s a conversation going on in the economic world,” and in the courts, about the crucial climate metric, said Hana Vizcarra, a staff attorney at the Environmental & Energy Law Program at Harvard Law School.
The dispute kicked off on Friday when a prominent group of economists published a paper in Science magazine titled “Keep climate policy focused on the social cost of carbon.”
Led by Joseph Aldy, a professor of public policy at the Harvard Kennedy School and a former environmental aide to President Obama, the economists warned against shifting away from the social cost of carbon in U.S. climate policy.
“[A] shift from use of the SCC and cost-benefit analysis to an alternative approach for evaluating policy that focuses on costs alone would be misguided,” they wrote. “Rather than advocate for alternative approaches, now is the time to support efforts to update the SCC and its application to official climate policy evaluation.”
The paper was a direct rebuke of recent conclusions by two of the world’s leading climate economists: Nicholas Stern, who chairs the Grantham Research Institute on Climate Change and the Environment at the London School of Economics, and Joseph Stiglitz, a Nobel laureate and a professor at Columbia University.
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Discount rates
Another debate flaring over the social cost of carbon — both in academic circles and in court — is whether to tweak a wonky tool called a discount rate.
For decades, economists have used the tool to predict how the value of money declines over time due to inflation and other factors. Under a 3% discount rate, for instance, a dollar today would be worth 97 cents in a year.
When crafting climate regulations, federal agencies use discount rates to represent the value of avoiding future harms due to global warming. The lower the discount rate, the more value is placed on spending money today to prevent harms to future generations.
The Obama administration used a standard 3% discount rate, resulting in a social cost of carbon of $52 per ton. The Trump administration often relied on a 7% discount rate, resulting in a figure of as little as $1 per ton.
Two high-profile economists — Tamma Carleton of the University of California, Santa Barbara, and Michael Greenstone of the University of Chicago — argued in a recent paper that the Biden administration should use a discount rate of 2% to justify a social cost of carbon of $125 per ton.