By John Wihbey
The social cost of carbon — “SCC,” as it’s known. Sounds a bit wonky. Yet it is becoming a crucial new instrument in putting a “price on carbon,” even as for many its meaning remains elusive, hard to grasp.
“It’s the most important figure you’ve never heard of,” says economist Michael Greenstone, a key architect of the concept as Chief Economist of President Obama’s Council of Economic Advisors.
The EPA defines it as “an estimate of the economic damages associated with a small increase in carbon dioxide (CO2) emissions, conventionally one metric ton, in a given year.” The dollar figure assigned, then, “represents the value of damages avoided for a small emission reduction (i.e. the benefit of a CO2 reduction).” The current dollar value is $37 per ton of carbon dioxide emitted.
Greenstone, now director of the Energy Policy Institute at the University of Chicago, hastens to add, “It’s not just wonky cost-benefit. It’s what our grandchildren would want us to do.”
The figure, in other words, has a unique moral dimension. So perhaps, then, it’s our moral duty to understand it.
Connecting Social Costs to Our Own Lives
The government now has a specific number it can use to make rule changes, taking into account economic damages as a result of climate change. If policy X — let’s say, a rule allowing the expansion of a power plant — prevents the generation of millions of tons of carbon dioxide, multiply those tons by $37 to get the value of damages avoided by the rule. That number is then counted as a net social benefit.
Grasping the true meaning of giant, industrial-size dollar figures can be difficult. But there’s a simple way to think about it, based on a little back-of-the-envelope calculation:
The activities of every American right now produce about 18 tons of carbon dioxide per year.
About one-third of that, let’s say six tons, comes from transportation.
So multiply six by $37, and you get $222. That’s how much the daily commute, rides to the grocery store and road trips — all our carbon-producing travel — cost in societal damages each year.
The University of Chicago’s Greenstone says that there has been an “explosion” of research on the economic impacts of climate change in recent years, none yet factored into the current models. He’s working with experts at several other academic institutions to formulate an updated model.
Continue reading at Yale Climate Connection…