Show an ad over header. AMP

The social cost of carbon might be the most important number on climate change

Economists are urging the U.S. government to adopt a higher number for the social cost of carbon emissions.

Why it matters: The social cost of carbon might be the single most important number on climate change, one that helps decide how much we're willing to invest to slow global warming — and how much we actually value the future.


Driving the news: On Monday, prominent economists Nicholas Stern and Joseph Stiglitz published a paper making the case that the U.S. needs to reassess how it calculates the social cost of carbon.

  • The social cost of carbon reflects the ultimate estimated dollar price to society for every new metric ton of carbon dioxide emitted.
  • Under President Obama's administration, the figure was estimated at $50 per metric ton by 2030, in 2007 dollars.
  • In one of his first actions in office, President Trump essentially threw out Obama's calculations, eventually resulting in a cost of between $2–$7 — so low that carbon restrictions of almost any kind would be economically infeasible.
  • Stern and Stiglitz, reevaluating the economic models used to estimate future climate damages and putting more value on the wellbeing of future generations, suggest a social cost at the upper end of a $50–$100 per metric ton range.

What they're saying: "It is vital to get the number right — and by right, we mean higher than it has been in the past," Stern and Stiglitz wrote in a separate commentary.

Be smart: The social cost of carbon represents the economic benefit that will come from reducing carbon emissions, which means that setting a higher cost justifies regulations that make emitting carbon more expensive.

  • The number is also one of the best representations of what the present feels it owes future generations that will suffer the most from climate change — or benefit, if we can curb its worst effects.

By the numbers: As part of its calculations for the social cost of carbon, the Obama administration used a discount rate of 3%, meaning that a dollar of climate damages a year from now would be valued 3% less than a dollar today.

  • The discount rate reflects assumptions — partially wrapped up in interest rate levels — about how rich we expect future generations to be, and therefore how much we should be willing to spend in the present to save our descendants from damages.
  • A 3% discount rate implies that to save $1 a century from now, it's only worth spending less than 5 cents today. Set the discount rate at 7% — as the Trump administration did — and we're essentially telling future generations they're on their own.
  • Stern and Stiglitz — both citing ethical reasons and because today's ultra-low interest rates make them more pessimistic about the prosperity of future generations — urge adopting a lower discount rate, which in turn feeds into a higher social cost of carbon.

Of note: That's exactly what New York did late last year, which led the state to estimate a social cost of carbon of $125 per metric ton.

What to watch: On his first day in office, President Biden re-created an interagency working group on the social cost of greenhouse gases — carbon dioxide, as well as other warming gases like methane — that Trump had disbanded, and he ordered it to update the figure within 30 days.

  • Many experts believe the interim estimate could run as high as $125 per metric ton and could rise even higher by next January, when the final number is due.
  • A high social cost of carbon would be essential to Biden's climate action goals, which include making the U.S. carbon neutral by 2050.
  • Some economists argue the social cost of carbon should be even higher than what Stern and Stiglitz recommend, given the need to drive down carbon emissions immediately to avert dangerous climate change.

I don't know what SCC will come out of that process. No one does.

My best guess is that it'll be well over $100/t CO₂. That's also well over what Stern & Stiglitz recommend here.

Key is for the SCC to be updated as science & economics advance. Process matters!

— Gernot Wagner (@GernotWagner) February 15, 2021

The other side: On Tuesday, 11 business groups from the manufacturing and fossil fuel industries — which would bear much of the economic burden of a higher carbon cost — sent a letter to the White House urging "stakeholder input" on the new estimate.

  • A high cost of carbon could be vulnerable in Republican-leaning courts, just as the Trump administration's estimate of the cost of methane — another greenhouse gas — was struck down by a federal judge last year because it only included domestic harms.

The bottom line: Where we set the social cost of carbon tells us how we gauge a future-focused threat — and how much we value the generations to come.

Biden administration seeks to allow separated migrant families to reunite in the U.S.

Secretary of the Department of Homeland Security Alejandro Mayorkas announced Monday that the Biden administration will explore "lawful pathways" to allow migrant families separated under the Trump administration to reunite in the U.S.

Why it matters: Biden has pledged to reunite the hundreds of families still separated as a result of the Trump administration's "zero tolerance" policy, and signed an executive order last month creating a family separation task force chaired by Mayorkas.

Keep reading... Show less

CDC director warns "now is not the time" to lift COVID restrictions, citing stalled progress

CDC Director Rochelle Walensky warned states on Monday that "now is not the time" to lift public health restrictions, as the recent dramatic declines in coronavirus cases and deaths "appear to be stalling."

Why it matters: While the average of 70,000 new infections and 2,000 daily deaths is nowhere near the extremely high levels recorded at the start of 2021, the figures are still a poor baseline to "stop a potential fourth surge" — especially with the threat posed by more contagious new variants, Walensky warned.

Keep reading... Show less

Sen. Elizabeth Warren introduces "ultra-millionaire" wealth tax bill

Sen. Elizabeth Warren (D-Mass.) on Monday introduced a bill in the Senate that would impose a new tax on the assets of America's wealthiest individuals.

Why it matters: The plan, which Warren introduced along with Reps. Pramila Jayapal (D-Wash.) and Brendan Boyle (D-Pa.) is similar to a proposal that was the centerpiece of Warren's campaign for the presidency in 2020.

Keep reading... Show less

Private equity firms dodge cost-cutting and aim for revenue growth

Private equity is mimicking venture capital, banking on revenue growth instead of cost-cutting.

Why it matters: PE firms may struggle to maintain historical returns, particularly if the bull market slows its rampage and they're stuck with overpriced and overleveraged portfolios.

Keep reading... Show less

Former French President Sarkozy sentenced to jail for corruption

A court in Paris on Monday sentenced former French President Nicolas Sarkozy to one year in prison and a two-year suspended sentence, after he was found guilty of trying to bribe a magistrate, the AP reports.

Driving the news: Sarkozy, who was president from 2007 to 2012, is the first president in France’s modern history to have gone on trial for corruption, per AP. He was charged with corruption and influence-peddling.

Keep reading... Show less

Canceled NFL Scouting Combine puts 40-yard dashes on the backburner

Top NFL prospects would normally be gathering in Indianapolis this week for the annual Scouting Combine. But due to the pandemic, this year's event has been canceled.

What they're saying: No combine means no 40-yard dash times making headlines. Former scout and current NFL Network analyst Daniel Jeremiah thinks that could be a glimpse of the future:

Keep reading... Show less

J&J CEO "absolutely" confident in vaccine distribution goal of 100 million doses by June

Johnson & Johnson CEO Alex Gorsky said Monday that he is "absolutely" confident that the company will be able to meet its distribution goals, which include 100 million doses by June and up to a billion by the end of 2021.

Driving the news: J&J is already in the process of shipping 3.9 million doses this week, just days after the FDA issued an emergency use authorization for the one-shot vaccine. Gorsky said he expects vaccines to be administered to Americans "literally within the next 24 to 48 hours."

Keep reading... Show less

The spike in global bond yields is setting up a clash between the world's top central bankers

While Fed chair Jerome Powell is brushing off the seismic rise in government bond yields and a corresponding decline in stock prices, a group of central bankers in the Pacific are starting to take action.

Driving the news: Bank of Japan governor Haruhiko Kuroda told parliament on Friday the BOJ would not allow yields on government debt to continue rising further above the BOJ's 0% target.

Keep reading... Show less

Insights

mail-copy

Get Goodhumans in your inbox

Most Read

More Stories