Market Forces

More confirmation that the Trump administration has been disregarding the true costs of climate pollution

By / Bio / Published: July 22, 2020

This post originally appeared on Climate 411

A new report highlights the Trump administration’s dangerous efforts to obscure the real costs of climate change, while a major court decision firmly rejects the administration’s approach.

Costly flooding in Houston after Hurricane Harvey

A new report from the Government Accountability Office (GAO), an independent agency tasked with providing objective nonpartisan information to policymakers, confirms what we’ve known for years: that the Trump administration has been ignoring the enormous costs of climate change. By ignoring these damages, the administration is turning its back on communities across the nation who are footing the bill for those impacts today.

In addition, a federal court recently issued a clear-cut rejection of the administration’s deceptive math on the cost of methane pollution, another greenhouse gas that is 84 times more potent than carbon dioxide over a 20 year time period. This ruling reinforces the fact that the administration has been blatantly disregarding widely accepted science and economics when it comes to the costs of climate change.

All of this comes amid a raging and widespread pandemic that underscores the absolute necessity of relying on experts and scientific data when crafting policy. With unchecked climate change fueling more devastating storms, droughts, and other public health impacts — all of which hit vulnerable communities the hardest — incorporating accurate costs of climate change in policy decision-making matters now more than ever.

Here is what this new report and court decision reveal about the administration’s backwards and harmful approach to decisions on climate change — and how experts and the courts are wholly rejecting it.

Why undervaluing the cost of climate change is dangerous

To justify its own political agenda, the Trump administration has manipulated the calculations behind the estimated impact of emissions to allow for more climate pollution from major sources like power plants and cars. The new GAO report outlines the steps the administration has taken to drastically underestimate the “Social Cost of Carbon” — a measure of the economic harm from climate impacts that is used to inform policy and government decision-making. These impacts include extreme weather events like flooding and deadly storms, the spread of disease, and sea level rise, increased food insecurity, and more.

After a 2008 court decision requiring the federal government to account for the economic effects of climate change in regulatory benefit-cost analysis, an Interagency Working Group (IWG) comprised of experts across a dozen federal agencies began in 2009 to develop robust estimates of the social costs of carbon that could be used consistently by agencies across the government. These estimates were developed through a transparent and rigorous process based on peer-reviewed science and economics that included input from the National Academy of Sciences and the public — and were periodically updated over time to account for the latest science. More recently, the NAS conducted a thorough assessment to provide guidance on updating the social cost of carbon estimates and suggestions for continuing to build on and strengthen it.

The GAO report underscores the importance of implementing those recommendations, while pointing to the fact that the federal government has done absolutely nothing to follow through. In fact, in 2017 the Trump administration recklessly disbanded the IWG — the very federal entity that already had the mandate to take on this task.

Since then, federal agencies like the EPA have been relying on an “interim cost” to inform important regulatory decisions that is seven times lower than the IWG’s estimate — a move that dramatically underestimates the profound impacts climate change has on families, businesses, taxpayers and local governments. To make matters worse, the administration is dramatically reducing the IWG figure even though it is widely recognized to be an underestimate of the true costs. There is wide consensus that the true costs are much likely significantly higher.

The Trump administration substantially reduces estimates through two key flaws in its calculations, both of which fly in the face of established science and economic principles. First, the reduced estimates ignore that carbon emissions are a global pollutant, omitting important categories of climate change impacts on the United States. Second, they undervalue the harm to our children and future generations by significantly over-discounting future climate impacts.

By vastly undervaluing the costs of climate change — and thus, the benefits of acting on climate — the administration has been able to justify rolling back critical protections such as the landmark federal Clean Car Standards. These important rules offer critical public health benefits and fuel savings for consumers.

A court ruling refutes the administration’s deceptive math on pollution costs

In encouraging news, a recent court decision outright rejected the administration’s deceptive math on a similar metric, the ‘Social Cost of Methane,’ used to estimate the impacts of methane pollution. The Bureau of Land Management, under former Department of Interior Secretary Ryan Zinke, has been using an interim social cost of methane that is more than 25 times less than the estimate from the IWG. The U.S. District Court for the Northern District of California recently overturned the BLM’s attempt to ease protections from dangerous methane leaking, venting and discharging from oil and gas activities on public and tribal lands, where it used a distorted social cost of methane as justification. EDF joined the states of California and New Mexico and a broad coalition of health, environmental, tribal citizen and Western groups to challenge in court the rescission of these vital safeguards.

In the opinion, the judge ruled that the BLM’s decision to rely on a lower interim estimate for the social cost of methane was “arbitrary” and “capricious,” and therefore, “failed to quantify accurately the forgone methane emissions and the resulting environmental impacts.” In addition, the court underscored that “the President did not alter by fiat what constitutes the best available science” on the social cost of greenhouse gas emissions. This is a major win for not only the broad coalition involved in the case, but for the basic principle of science-based decision-making on climate change. The court’s meticulous critique of the flaws in the interim social cost of methane — and the process used to develop it — could be influential in future cases involving the social cost of greenhouse gas emissions. Such a critical ruling like this opens the possibility that the Trump administration and future administrations could be required to properly account for the costs of climate change.

The Trump administration’s unwavering, politically motivated attempts at twisting facts and discrediting experts is putting Americans’ lives, health and financial well-being at risk. Unfortunately, its effort to skew the costs of climate change is far more than a political game. It is already causing real harm to communities across the country suffering from climate impacts — and it will only add to the mounting costs our children and grandchildren will pay. That is why ongoing efforts to uncover and overturn unjust climate decisions are all the more essential.

Also posted in Economics, emissions / Leave a comment

Not all fossil fuel subsidies are created equal, all are bad for the planet

By / Bio / Published: June 13, 2019

This is part two of a five-part series exploring “Policy Design for the Anthropocene,” based on a recent Nature Sustainability Perspective. The first post explored the intersection of policy and politics in the development of instruments to help humans and systems adapt to the changing planet.

A recent International Monetary Fund (IMF) working paper made headlines by revealing that the world is subsidizing fossil fuels to the tune of $5 trillion a year. Every one of these dollars is a step backward for the climate. That much is clear.

Instead of subsidizing fossil emissions, each ton of carbon dioxide (CO2) emitted should be appropriately priced. That’s also where it’s important to dig into the numbers.

It’s tempting to go with the $5 trillion figure, as it suggests a simple remedy: remove the subsidies. At one level, that is precisely the right message. But the details matter, and they go well beyond the semantics of what it means to subsidize something.

Direct subsidies are large

The actual, direct subsidies—money flowing directly from governments to fossil fuel companies and users—are “only” around $300 billion per year. That is still a huge number, and it may well be an underestimate at that. The International Energy Agency’s World Energy Outlook 2014, which took a closer look at fossil subsidies than reports since, put the number closer to around $500 billion; a 2015 World Bank paper provided more detailed methodologies and a range of between $500 billion and $2 trillion.

What all these estimates have in common is that they stick to a tight definition of a subsidy:

Subsidy (noun, \ ˈsəb-sə-dē \)

“a grant by a government to a private person or company to assist an enterprise deemed advantageous to the public,” per  Merriam-Webster.

These taxpayer-funded giveaways are not only not “advantageous to the public,” they also ignore the enormous now-socialized costs each ton of CO2 emitted causes over its lifetime in the atmosphere. (Each ton emitted today stays in the atmosphere for dozens to hundreds of years.)

The direct subsidies also come in various shapes and forms—from some countries keeping the cost of gasoline artificially low, to a $1 billion tax credit for “refined coal” in the United States.

Indirect subsidies are significantly larger

The vast majority of the IMF’s total $5 trillion figure is the unpriced socialized cost of each ton of CO2 emitted into the atmosphere. Each ton, the IMF estimates conservatively, causes about $40 in damages over its lifetime in today’s dollars.

Depending on one’s definition of a subsidy, this may well qualify. It’s a grant from the public to fossil fuel producers and users—something the public pays for in lives, livelihoods and other unpriced consequences of unmitigated climate change.

The remedy here is very different than removing direct government subsidies. It’s to price each ton of CO2 emitted for less to be emitted. The principle couldn’t be simpler: “When something costs more, people buy less of it,” as Bill Nye imbued memorably on John Oliver’s Last Week Tonight recently.

 

https://twitter.com/GernotWagner/status/1128444583229186048

All that goes well beyond semantics of what it means to subsidize. One policy is to remove a tax loophole or another kind of subsidy, the other is to introduce a carbon price. The politics here are very different.

Unpriced climate risks might be much larger still

The $5 trillion figure also hides something else. By using a $40-per-ton figure, the IMF focuses on a point estimate for each ton of CO2 emitted, and a conservative one at that. The number comes from an estimate produced by President Obama’s Interagency Working Group on the Social Cost of Carbon. That’s a good starting point, certainly a better one than the current Administration’s estimate.

But even the $40 figure is conservative. It captures what was quantifiable and quantified at the time. It does not account for many known yet still-to-be-quantified damages. It does not account for risks and uncertainties, the vast majority of which would push the number significantly higher still.

In short, the $5 trillion figure may well convey a false sense of certainty.

In some sense, little of that matters. The point is: there is a vast thumb on the scale pushing the world economy toward fossil fuels, the exact opposite of what should be done to ensure a stable climate.

In another very real sense, the different matters a lot: Politics may trump all else, but policy design matters, too.

By now the task is so steep that it’s simply not enough to say we need to price emissions and leave things at that. Yes, we need to price carbon, but we also need to subsidize cleaner alternatives—in the true sense of what it means to subsidize: to do so for the benefit of the public. Whether that comes under the heading of a “Green New Deal” or not, it is a much more comprehensive approach than one single policy instrument.

This is party 2 of a 5-part series exploring policy solutions outlined in broad terms in “Policy Design for the Anthropocene.” Part 3 will focus on “Coasian” rights-based instruments, taking a closer look at tools that limit overall pollution to create markets where there were none before.

Also posted in Economics, Markets 101 / Leave a comment

Why climate policy is good economic policy

By / Bio / Published: November 14, 2017

More than 200 world leaders met over the last few days at the United Nations’ Annual Climate Change Conference in Bonn to discuss how to fill in the details of individual countries’ pledges of the Paris agreement. And while the United States has clearly ceded its leadership role to China, Germany, France, Canada and others, there are clear signs that adopting an ambitious climate policy is smart for long-term economic prosperity.

Economists across the political spectrum agree that the market alone will not solve climate change, because carbon pollution is still largely unpriced. From an ideal point of view, the optimal climate policy would be a global carbon price. If an appropriate and sufficiently robust global carbon price existed, with clear declining limits on pollution, no other climate policy would be needed.

Unfortunately, such a carbon policy does not currently exist. So, in the absence of such a global pricing regime, what kind of climate policy is cost-effective?   Each individual climate policy can be judged on its merits, and most typically show large economic gains, as the benefits of avoiding climate change far outweigh the costs.

Ambitious climate policy passes a benefit-cost test by using the Social Cost of Carbon

To understand the benefit of climate policy, we first need a sense on the magnitude of the climate damages that can be avoided. The current economic consensus view quantifies the social cost of carbon – that is the damage from emitting one ton of CO2 – at $42 per metric ton of CO2 emissions in 2007 U.S. Dollars based on work by the U.S. Government’s Interagency Working Group on Social Cost of Greenhouse Gases.

And while estimating the full range of climate damages is a daunting task, new research indicates economists are getting much better at it. Recent empirical studies have started to expand and strengthen the quantification of climate damages based on improved statistical techniques. A recent study in Nature, for example, finds that a lack of climate policy would reduce average income by 23% by 2100. These empirical estimates indicate that the true social cost of carbon is a multiple of the estimates based on the integrated climate-economy models that the Interagency Working Group still relies on. Which is what leading researchers suspected all along.

But what about the cost of climate policy? For many, the potential cost of enacting ambitious climate policy has become a powerful argument against taking any sort of action. So how can we tell if enacting climate policy is cost-effective? A first pass is to subject individual climate policy proposals to benefit-cost analyses that weigh the cost of the specific policy against the avoided climate damages using the social cost of carbon. For example, if the climate mitigation component of a renewable energy proposal costs less than the social cost of carbon, then the policy is good economics.

On the flip side, failing to pass a benefit-cost test does not necessarily imply that a policy is not cost-effective. The social cost of carbon still only captures some of the damages, and future revisions will in all likelihood correct it upwards. Additionally, a policy might lead to important co-benefits beyond climate policy such as reductions in criteria pollutants that have negative effects on human health and the environment.

The Clean Power Plan can serve as a good example to illustrate the argument.  Using benefit-cost analysis based on the social cost of carbon, the EPA determined that the Clean Power Plan is a worthwhile investment, with net gains totaling billions of dollars. This is the case even when ignoring any non-climate co-benefits, and when using the lower consensus estimate for the social cost of carbon. Relying instead on the newly available climate impact estimates adds several billion dollars to the net benefits.

Climate policy can go hand in hand with economic prosperity

Moreover, the evidence suggests that – contrary to what some claim – we can implement climate policy while growing the economy. While there can be small adjustment costs, climate policy also leads to lead to new opportunities and innovation. Patenting in clean technologies, for instance, is as vibrant as in biotech, translating into additional growth benefits for the economy as a whole.

Uncertainty makes acting now even more compelling

While there is uncertainty as to just how much CO2 levels in the atmosphere will rise, we know it will be more than ever before encountered by modern humans. And, we already know the economic impacts will be bad. The devastation from hurricanes Harvey, Irma and Maria—made worse by the impacts of a warming climate—will cost communities, taxpayers and insurance companies billions.

But things could turn out much worse. Theoretically, catastrophic climate damages could be so high as to dominate any benefit-cost analysis. This as of yet unpriced uncertainty is a compelling reason to act, not to wait. How to quantify uncertainty with precision is still at the frontier of climate economics. A recent working paper at the NBER calibrates a climate-economy model to financial risk attitudes. The authors find that taking the uncertainty in climate impacts seriously will increase the social cost of carbon even more.

Uncertainty taken seriously means ambitious climate policy today. At least that’s what unites groups on both ends of the political spectrum, from progressive environmentalists to Nobel-prize winning Chicago economists.

 The economic case for ambitious climate action is clear. With the right policies, the benefits of avoiding climate change far outweigh the costs. And in the absence of a price on carbon, the only question is: what are the right climate policy instruments? As EDF has long argued, political debates in climate policy must not be over the if, but the how.

Also posted in Clean Power Plan, Economics, International, Politics / Leave a comment

Trump Administration misleads Americans about the cost of climate pollution

By / Bio / Published: October 25, 2017

This blog post originally appeared on Climate 411.

The Trump Administration is attempting to justify the rollback of crucial environmental and health protections by vastly undervaluing the costs of climate change.

The latest safeguards under attack are the Clean Power Plan, the nation’s first-ever limits on carbon pollution from existing power plants, and the Bureau of Land Management’s vital standards to reduce wasted natural gas from oil and gas facilities on public and tribal lands. They would have health, environmental, and economic benefits worth an estimated billions of dollars annually. But you wouldn’t know it from reading the Administration’s recently revised documents – because of a series of deceptive accounting tricks, including efforts aimed at obscuring the benefits of reducing carbon pollution.

The Trump Administration has used discredited methods to eviscerate the social cost of carbon — an estimate of the costs that carbon pollution inflicts on the public, represented as the dollar value of the total damages from emitting one ton of carbon dioxide into the earth’s atmosphere.

The social cost of carbon is a tool that helps ensure that policymakers consider the health, environmental and economic benefits of avoiding extreme weather, rising temperatures and intensifying smog when they make decisions that affect climate pollution.

Climate change harms businesses, families, governments and taxpayers through rising health care costs, destruction of property, increased food prices and more — so it’s common sense that we should properly account for the value of avoiding these harmful outcomes. But the Trump Administration has systematically undermined and attacked the well-established science of climate change – including the social cost of carbon, which has had a target on its back for a while now.

The most up-to-date estimates of the social costs of carbon were developed by an Interagency Working Group (IWG) of experts from a dozen federal agencies. They were developed through a transparent and rigorous process based on the latest peer-reviewed science and economics, and with input from the public and the National Academy of Sciences.

But in March, President Trump cast aside the results of this thorough and consultative process. He issued an executive order aimed at discrediting the IWG estimates, withdrawing them as government policy, and directing federal agencies to pick their own metric.

The executive order leaves federal agencies to fend for themselves without specific guidance, opens the door to extensive legal challenges, and effectively sets up agencies to cook the books to serve the Administration’s goals.

That’s exactly what EPA Administrator Scott Pruitt and Department of the Interior Secretary Ryan Zinke just did – releasing benefit-cost analyses that massively undervalue the costs of carbon pollution, radically reducing the estimates by up to 97 percent.

The Trump Administration would have us believe that the costs of carbon pollution are near zero. The Administration’s new estimates are only a couple dollars per ton of carbon dioxide – about as much as a cup of coffee or a bus ticket.

Sadly, communities around the country are already seeing just how wrong that is. From longer wildfire seasons to more intense hurricanes, the American public is already bearing the enormous costs of climate change.

Even the IWG estimates – roughly $50 per ton of carbon dioxide based on year 2020 emissions – are almost certainly a conservative lower bound since they do not yet reflect many different types of climate impacts.

A closer look at the Administration’s deceptive math 

There are two major flaws in the Administration’s drastically reduced estimates, both of which fly in the face of established science and economic principles in service of obscuring the very real benefits of climate action.

First, the reduced estimates ignore that carbon emissions are a global pollutant, so they omit important categories of climate change impacts on the United States.

Second, they shortchange the harm to our children and future generations from climate change.

The so-called “domestic-only” estimate

Since the impacts of carbon pollution are felt globally regardless of where the emissions come from, leading researchers and the IWG have appropriately focused on accounting for that full global impact.

In contrast, the Administration’s revised estimates claim to consider “domestic-only” impacts to the United States. But that title is a misnomer – the Administration’s flawed approach ignores important categories of impacts that affect the American public. Climate impacts beyond our borders have costly repercussions for U.S. citizens in the form of changing global migration patterns, economic and political destabilization, and other “spillover” effects.

The National Academy of Sciences specifically rejected the approach the Administration is taking in a report released earlier this year, concluding that:

[C]limate damages to the United States cannot be accurately characterized without accounting for consequences outside U.S. borders.

Economist Richard Newell – president of the think tank Resources for the Future, which is leading an effort to implement the Nation Academy of Sciences’ recommendations to update the social cost of carbon estimates – has criticized the Administration’s approach, saying that considering only direct domestic impacts is:

[U]nnecessarily constrained and unwise for addressing inherently global pollutants like greenhouse gases.

The use of a “domestic-only” number also harms Americans because it undervalues the cost of climate pollution and encourages other countries to similarly undervalue – and over-emit – this pollution.

More than half a dozen leading experts argue:

[The] United States benefits tremendously if other countries set policy based on global rather than local effects.

They also point out that the use of a global estimate can encourage reciprocal climate action elsewhere. For instance, the Canadian government incorporated the U.S. IWG value in its own policy analysis.

Undervaluing the impacts on children and future generations

The Administration’s estimates also use a sharply lower value for the benefits that today’s carbon reductions provide to children and future generations. Again, this is in direct conflict with the weight of expert opinion that supports valuing these impacts even more than we did before the Trump Administration.

The Administration’s estimates “discount” future impacts at 7 percent – a rate significantly higher than the 3 percent central rate of the IWG, and one that is wholly unsupported by the economics literature when it comes to the long-lived intergenerational effects of carbon pollution.

A growing consensus among leading economists supports lower or declining discount rates, as does the Council of Economic Advisors.

As Richard Newell of Resources for the Future points out:

Practically speaking, the use of such a high discount rate means that the effects of our actions on future generations are largely unaccounted for in the new analysis.

In other words, the Administration’s estimates reveal just how little they value protecting American children and generations to come.

The social cost of carbon has profound influence on our policy process and embodies the very real costs of climate change that communities around the country are already feeling.

The Administration’s distortion of these values is illustrative of a frequent strategy of theirs – twisting the facts to validate their desired outcome, and in the process sowing doubt around the overwhelming scientific consensus on climate change.

Unfortunately, while the math the Administration is using is warped, the costs of climate change are still very real – and the American public is footing the bill.

Also posted in Clean Power Plan, Economics / Leave a comment

Trump Moves to Cook the Books, Undercutting Common Sense Climate Protections

By / Bio / Published: March 20, 2017

This blog was co-authored with Martha Roberts

It’s reported that the Trump Administration is poised to continue its barrage of attacks on some of our most vital health and environmental protections, following last week’s assault on broadly supported fuel economy and greenhouse gas safeguards for cars and light trucks. Here’s one attack that they may try to sneak under the radar—a move that would undercut common sense climate protection all across the federal government: directing federal agencies to abandon the use of social cost of carbon estimates in their evaluation of new policy.

The social cost of carbon is a measure of the economic harm from the impacts of climate change. Specifically, it’s the dollar value of the total damages from emitting one ton of carbon dioxide into the atmosphere. Weakening or eliminating the use of the social cost of carbon would result in skewed and biased policy-making that ignores the benefits of crucial safeguards and stacks the deck against actions to protect communities from the mounting costs of climate change.

The devastating impacts of climate change on health and the environment – such as extreme weather events, the spread of disease, sea level rise, and increased food insecurity – can cost American businesses, families, governments and taxpayers hundreds of billions of dollars through rising health care costs, destruction of property, increased food prices, and more. Many of these impacts are already being felt by communities across the country, as the government’s leading scientific agencies have found.

When the federal government develops policy affecting the carbon pollution causing climate change, it is both reasonable and essential that it takes these costs into account. The social cost of carbon is a tool that allows policy-makers to do just that.

Currently, the federal government uses a social cost of carbon estimate—roughly $40 per ton of carbon pollution—that was developed through a transparent and rigorous interagency process, relied on the latest peer-reviewed science and economics available, and allowed for repeated public comment as well as input from the National Academy of Sciences.

But that may not last much longer. As we’ve seen, the Trump Administration is waging war against an array of our most crucial health and environmental protections, ignoring the urgent threat of climate change while prioritizing fossil fuel interests. President Trump’s new Administrator of the Environmental Protection Agency, Scott Pruitt, denies that carbon pollution is a primary contributor to climate change, and built his political career by suing EPA 14 times as Oklahoma Attorney General to block protections from mercury, arsenic and smog pollution, hand in hand with the worst elements of the fossil fuel industry. Meanwhile the Administration is proposing devastating cuts to the budgets for EPA and climate research, and is moving towards revoking the Clean Power Plan, America’s first-ever nationwide limits on carbon pollution from power plants.

All of this points to a clear disregard for basic science, economic principles, and our nation’s clean air laws. Eliminating or weakening the social cost of carbon is another pernicious tactic by the Administration to undermine the development of crucial climate safeguards – by erroneously making it appear as though reducing carbon pollution has little or no benefit to society and the economy. Even the current figure is very likely a conservative lower bound since it does not yet include all of the widely recognized and accepted impacts of climate change.

The details of the upcoming attack are still unclear. It’s possible that the Administration may end use of the uniform social cost of carbon estimate at the federal level—despite its rigorous basis and judicial precedent. Other indications suggest that the Administration may choose to artificially and arbitrarily discount the costs of climate change for the health and economic well-being of our kids, grandkids, and future generations—ignoring the growing consensus among economists that supports valuing these impacts more, as does a recent report from the Council of Economic Advisors. Or the Administration may decide to disregard the fact that our greenhouse gas pollution has harmful impacts outside U.S. borders that can have costly repercussions for Americans.

Throwing out the social cost of carbon may play well with President Trump’s supporters in the fossil fuel industry. But the importance and appropriateness of accounting for these costs is a matter of both economics and law. We also know that nearly two thirds of Americans are concerned about climate change. Undermining limits on pollution—protections that are rooted in rigorous scientific research, reflecting long-standing bipartisan economic principles—will ultimately harm the health and environmental safety of all Americans, including Trump’s supporters.

Also posted in Politics, Uncategorized / Leave a comment

In Win for Environment, Court Recognizes Social Cost of Carbon

By / Bio / Published: August 29, 2016

Co-authored with Martha Roberts

If someone was tallying up all the benefits of energy efficiency programs, you’d want them to include reducing climate pollution, right? That’s just common sense.

Thankfully, that’s what our government does when it designs energy efficiency programs—as well as other policies that impact greenhouse gas emissions. And just this month, this approach got an important seal of approval: For the first time, a federal court upheld using the social cost of carbon to inform vital protections against the harmful impacts of climate change.

So what is the social cost of carbon and why does it matter? It’s a crucial part of the development of climate safeguards and essential to our understanding of the full costs of climate pollution. We know that climate change is a clear and present danger now and for future generations—one that will result in enormous costs to our economy, human health and the environment. And yet, these “social” costs are not accounted for in our markets, and therefore in decision making. It is a classic Economics 101 market failure. Every ton of carbon dioxide pollution that is emitted when we burn fossil fuels to light our homes or drive our cars has a cost associated with it, a hidden one that is additional to what we pay on our utility bills or at the gas pump. These costs affect us all – and future generations – and are a result of the negative impacts of climate change. If we don’t recognize these hidden costs—we aren’t properly protecting ourselves against the dangers of climate pollution.

The social cost of carbon (or SCC) is an estimate of the total economic harm associated with emitting one additional ton of carbon dioxide pollution into the atmosphere. To reach the current estimate, several federal agencies came together to determine the range and central price point – roughly $40 per ton – through a transparent and rigorous interagency process that was based on the latest peer-reviewed science and economics available, and which allowed for repeated public comments.

It’s critical that we protect against the damages and costs caused by climate pollution. So it’s a no-brainer that when considering the costs and benefits of climate safeguards, we must take into account all benefits and costs – and that means including the social cost of carbon.

In their court opinion, the Federal Court of Appeals for the Seventh Circuit agreed wholeheartedly. Harvard Law Professor Cass Sunstein noted that their decision “upholds a foundation” of “countless” climate protections. In particular, their opinion made two important findings:

  • First, the court affirmed that the DOE was correct to include a value for the social cost of carbon in its analysis. The judges concluded that “[w]e have no doubt” that Congress intended for DOE to have authority to consider the social cost of carbon. Importantly, this conclusion reinforces the appropriateness of including the SCC in future carbon-related rule-makings.
  • Second, the court upheld key choices about how the SCC estimate was calculated. The court agreed that DOE properly considered all impacts of climate change, even those years from now, or outside our borders. These choices, the court concluded, were reasonable and appropriate given the nature of the climate crisis we face.

DOE itself acknowledged “limitations in the SCC estimates.” We couldn’t agree more. As new and better information about the impacts of climate change becomes available and as our ability to translate this science into economic impacts improves, regulators must update the current social cost of carbon estimate. There is still much we do not know about the full magnitude of climate impacts and much that cannot be quantified (as is true of all economic impact analysis) – which means that SCC estimates are likely far lower than the true impact of climate change. But as the Seventh Circuit recognized, their inclusion is a vital step in the right direction for sensible policy-making.

This decision already has positive implications more broadly—in particular, for the Clean Power Plan, our nation’s historic program to reduce carbon pollution from power plants. Just last week, EPA submitted a letter in the Clean Power Plan litigation noting that the Seventh Circuit’s decision further demonstrates the error of challenges to the treatment of costs and benefits in the Clean Power Plan rulemaking. It’s just another affirmation of the rock-solid legal and technical foundation for the Clean Power Plan.

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