A new report unveiled in January by the National Academy of Sciences, Engineering and Medicine outlines steps to build on and further strengthen the social cost of carbon – the widely used estimate of the cost of damages caused by carbon pollution.
The social cost of carbon is an estimate, in dollars, of the net damages incurred by society from a one ton increase in carbon dioxide emissions. This estimate plays a crucial role in ensuring that federal agencies are properly accounting for the harmful impacts of carbon pollution when they develop public policy.
“This report from leading experts at the National Academies affirms the need for continued scientific rigor behind the social cost of carbon, and offers ways to make this vital economic tool even stronger,” said Susanne Brooks, Program Director for EDF’s Office of Economic Policy and Analysis. “A robust social cost of carbon, based on long-standing, common-sense economic principles, is a crucial foundation for good decision-making – and thus is essential for good government. Neglecting the costs of climate change could have disastrous impacts on financial investments, on the federal budget, and on the U.S. economy overall.”
- Acknowledges that there are serious climate-related damages that are not fully accounted for in the current social cost of carbon estimate, makes clear that future updates must better reflect these dangerous impacts, and recommends an updated framework to help achieve that goal.
- Emphasizes the importance of the discount rates underlying the social cost of carbon. Discount rates are the way in which benefits of reduced pollution to future generations are accounted for; lower discount rates are consistent with higher social cost of carbon estimates. A growing consensus among economists points to the value of lower or declining discount rates, as does a recent report from the Council of Economic Advisors.
- Strongly recommends that experts maintain their longstanding work to continuously improve the social cost of carbon, by undertaking regular and transparent updates using the best science and economics research available.
The social cost of carbon takes into account the array of economic damages caused by climate-disrupting carbon pollution, such as the costs of extreme weather events, flooding, and the spread of infectious diseases. These kinds of disasters can impose costs of hundreds of billions of dollars through destruction of property, rising health care costs, increased food prices, and more.
Public and private sector leaders have long considered the serious impacts of climate change when making major economic decisions, from large-scale capital investments to important public policies. The social cost of carbon provides a clear, consistent, and uniform framework to ensure these decisions are based on the most thorough and rigorous possible information.
Courts have also consistently recognized the need to consider the benefits of reducing climate-destabilizing pollution — from a 2008 U.S. Court of Appeals decision overturning a Bush Administration policy that failed to consider the serious impacts of climate pollution when establishing fuel efficiency standards, to a more recent U.S. Court of Appeals decision affirming the Department of Energy’s use of the social cost of carbon when establishing appliance efficiency standards.
“Consideration of the social cost of carbon is grounded in the basic legal principle that agencies must engage in reasoned decision making,” said EDF lead Attorney Peter Zalzal. “There are substantial public benefits associated with reducing climate pollution. This report provides additional tools and recommendations to help make certain that the social cost of carbon remains rigorous and vibrant over time, ensuring that the actions of policymakers and corporate leaders continue to account for these manifest benefits.”
An Interagency Working Group – with representation from all relevant executive branch institutions – developed the current social cost of carbon estimate through a rigorous and transparent process that allowed for repeated public comment and was based on the latest peer-reviewed science and economics available.
The report was developed for that working group. It is the second phase of analysis; phase one examined approaches to updating the social cost of carbon, which the Interagency Working Group incorporated in its 2016 update to the metric.
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