How do you put a price on the climate crisis? Quantifying a messy worldwide phenomenon that manifests in every aspect of life is no easy task.
The ‘social cost of carbon’ is one metric that provides some kind of estimate, valuing the cost of impact future emissions have on humanity.
The US Environmental Protection Agency is one authority that estimates the social cost of carbon to help policymakers make cost-benefit analyses in their decision-making. This figure essentially puts a price tag on what economic damage an additional ton of greenhouse gas emissions would cause.
The social cost of carbon includes everything from lost wages when working conditions are too hot to be outside, to homes damaged by natural disaster, to crops that don’t grow in drought periods, and much more.
The estimate helps understand the benefits of climate mitigation for the future, and curbs present-day actions that could inflict prolonged damage that the social cost of carbon estimates, Stanford University professors Marshall Burke and Lawrence Goulder explained.
The higher the cost, the more aggressive the climate response will be.
In late November 2022, the EPA proposed to raise its social cost of carbon from its current level of $51 to $190, nearly a quadruple increase.
What’s behind this sharp hike?
For starters, environmentalists have been advocating for a higher value for a while. The Trump administration decreased the value significantly to a $1-7 range, which several groups opposed.
“This dramatically underestimates the profound impacts climate change has on families, businesses, taxpayers and local governments,” Environmental Defense Fund said in their public response to the Trump administration’s updated policy.
Tom Erb, Policy Fellow at the Center for Climate and Energy Solutions, noted that a higher value is important for intergenerational equity and the future economy as well. “The social cost of carbon is going nowhere but up,” he says.
The EPA’s new increase entails a whole new approach to calculating the value, according to environmental economic think tank, Resources for the Future (RFF). The new EPA cost is similarly aligned with RFF’s previous analysis that the true cost is at least three times the current rate.
The cost is calculated using a discount rate, which compares the dollar value of the damage done in the future, against the dollar value of the same impact today. The higher the discount rate, the lower the social cost of carbon. EPA methodology shifted from 3% to 2% (with additional comparators in their proposal of 1.5% and 2.5%).
Lowering the discount rate is one reason the cost of carbon is higher. EPA also added other considerations into their evaluation, such as weighting socioeconomic scenarios more accurately, that better reflect projections around population, per capita economic growth, and emissions of greenhouse gasses.
The new cost of carbon also includes improved climate projections and damage functions to better reflect the economic and environmental possibilities in these scenarios.
These adjustments have been lauded by several academics and environmental groups who maintained that the current $51 value is far too low. RFF released an extensive blog highlighting improvements to the updated cost.
Senator Tom Carper of Delaware also gave praise for EPA’s momentum on the heightening pricing of greenhouse gasses, stating “This action, paired with the methane emissions reduction program in the Inflation Reduction Act, will make a dramatic cut in our nation’s methane emissions and better position the United States to continue leading the world toward a cleaner, healthier future.”
The optimism for this higher cost comes from the fact that this will set the tone to guide policymakers in how to price everything from consumer products to fuel standards with an eye toward future impact. Raising it could monumentally impact climate efforts and industries alike.
One of its most notable changes, however, is that EPA’s new cost of carbon reflects the worldwide nature of the climate crisis.
The previous methodology under the Trump administration limited the scope to only domestic climate impacts, while this new calculation widens the scope. EPA incorporates climate impacts regardless of where emissions come from or where climate impacts are felt in the world. This is the only calculation of its kind in the US government that adds global impact.
However, one significant point of contention in the new cost of carbon lies in this new global lens.
In the new estimate, lives around the world are weighted differently. In an attempt to understand the loss of lives to climate impacts, the dollar amount attributed to a life in one country is not the same as in another.
For example, one life lost in the US is equal to nine lost in India. The cost of a life in Qatar is higher than in America, and the cost of 118 lives in Burundi. One Australian is equated to four Indonesians, and so on, as per Vox’s math.
Lives from lower-income countries are rated to cost less than lives in richer countries. There are several social and political concerns that experts are raising from this methodology.
A lesser value to the lives most impacted by the climate crisis is inherently a justice issue, critics believe.
“It's inherently inequitable to use this kind of approach," Vaibhav Chaturvedi, fellow at the Council on Energy, Environment and Water in India tells NPR.
Countries that have lower incomes and whose lives are weighted less are most often far more vulnerable to the effects of climate change. Meanwhile, emissions are boundless, and when areas less vulnerable, such as the US, add to greenhouse gasses, it still negatively impacts these same countries who are now further disadvantaged by this cost estimate.
Economist and legal expert Cass Sunstein has even argued that this should be the converse, lives more impacted should be valued higher.
This “Value of a Statistical Life” does not weigh lives within the US any differently based on vulnerability or income.
These values are standardized countrywide, and each country value is calculated based on the cost estimated for an American life.
The justice issues in this approach are a primary cause for concern, but it also leaves opportunities behind to make climate progress that can result in life or death.
If EPA assigned the same value to lives around the world, the social cost of carbon would be nearly double the current proposal, the NPR article adds. This would position the US in a more equitable climate leadership role, (though policymakers likely did not choose this value for fear of it leading to politically unpopular climate abatement methods).
A higher cost of carbon means more emissions are reduced, and if the US alone can meet its net zero emissions goals by 2050, studies predict that would save 7.4 million lives. Arguably, focusing on these lives abroad is a benefit to the US as well.
Emissions saved in one country will impact lives in another. Lives saved in one country will benefit the national and global economy and community.
A higher social cost of carbon could stimulate more renewable energy technology and carbon capture, which the U.S. could then export to the rest of the world, Chaturvedi says.
This practice of understanding the value of human loss for policy decision-making is very difficult. The EPA maintains in its FAQ that it “does not place a dollar value on individual lives.”
In a White House press release, Heather Bousey of the Council on Economic Advisers said the Biden Administration was “ working to ensure that the social cost of greenhouse gases consider climate risk, environmental justice, and intergenerational equity.”
Ultimately, a higher cost of carbon that includes global considerations in any way is a huge step forward, experts say. The higher cost is far more ambitious than the current value, which could bring major climate benefits if formally adopted.
The EPA’s first-of-its-kind official proposal is currently up for public comment. This new social cost of carbon could signal for other influential institutions in climate decision-making to adopt a similar standard and work toward continuing to raise the bar on climate policies.
Future Thought Leaders is a democratic space presenting the thoughts and opinions of rising Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.
Cover photo by Ale Alvarez on Unsplash
Mariel Ferragamo works on energy and climate communications at The Energy for Growth Hub where she is a communications coordinator and podcast producer. She is also passionate about journalism, politics and policy and graduated from Colby College with a B.A. in Environmental Policy.