In the News

Economists and scientists may have seriously underestimated the “social cost” of carbon emissions to future generations, according to a warning in the journal Nature. Social cost is a calculation in U.S. dollars of the future damage that might be done by the emission of one metric ton of carbon dioxide as greenhouse gas levels soar and climates change, sea levels rise and temperature records are broken in future decades. How much would society save if it didn’t emit that ton of carbon dioxide? One recent federal estimate is $37. Such a measure helps civil servants, businessmen and ministers to calculate the impact of steps that might be taken. On the other hand, says Richard Revesz of New York University School of Law and a research team consisting of U.S. and Swedish colleagues, assumptions of cost per ton – and these range from $12 to $64 according to various calculations – are based on models that need to be improved and extended. Our descendants will pay a higher price for greenhouse gas build-up as real costs are updated over time.

As the United States struggles with a high unemployment rate in the wake of the Great Recession, it is worth examining carefully the relationship between jobs and regulation, as well as possible policy responses to it. A recent panel discussion held at the Wharton School at the University of Pennsylvania sought to do just that. The panel, organized around the recent publication of the book “Does Regulation Kill Jobs?,” showed how difficult it is to find any evidence to support claims that regulations systematically kill jobs. Political rhetoric notwithstanding, the book’s introductory chapter states that “the existing empirical research suggests that regulation does relatively little to reduce or increase overall jobs in the United States.” Richard L. Revesz, Lawrence King Professor of Law and Dean Emeritus at New York University Law School, recognized the challenges currently associated with estimating the employment effects of regulation. But he noted that economists and policy analysts have successfully overcome similar methodological challenges in estimating risks and the costs and benefits of regulation more generally. With a concerted effort at additional research and analysis, he argued, agencies could do a better job of developing reliable estimates of job impacts, which would be better than allowing these effects to continue to be exaggerated in political discourse.

Rooftop solar electricity generation may seem like something that everyone can agree on. It helps homeowners save money on their electricity bills. It can help support the rest of the electrical grid during times of high usage or outages. It can help utilities meet their renewable energy mandates. And, if it replaces dirty fossil fuel power, it will reduce harmful air pollution, including carbon pollution that threatens to warm our climate and destroy our planet. However, utilities are concerned that increased development of rooftop solar generation will threaten their ability to maintain vital infrastructure, equitable rates for all ratepayers, and their own financial viability.

Future generations will have to pay more for today’s carbon emissions than what governments across the world currently understand. The climate models used by policymakers around the world to estimate the economic and social costs of CO2 emissions have to be improved according to Thomas Sterner, professor of Environmental Economics at the School of Business, Economics and Law, University of Gothenburg, and six other scientists in the prestigious journal Nature.

The U.S. government makes lots of regulatory decisions that have important implications for the climate. Any benefit-cost analysis of these decisions ought to include their climate impact. If a particular decision will lead to more greenhouse gas emissions — building the Keystone XL pipeline, for example — that figure ought to go on the cost side of the ledger. If the decision will lead to fewer greenhouse gas emissions — such as carbon pollution standards for power plants — that figure adds to the benefits side. Such benefit-cost analyses require a dollar figure for the social cost of carbon pollution. The best we currently have is around $40 for each ton of carbon dioxide emitted, calculated by averaging results from three of the most prominent and well-established climate-economic models. Uncertainties around the $40 value notwithstanding, putting in $0 is not an option. That, sadly, is what some with clear stakes in the outcome are arguing, however weak the ground they stand on. In fact, $40 is very likely on the low end of the true cost of CO2, as a recent commentary in Nature points out.

The country should shift from “command and control” mechanisms like the renewable fuel standard to a cap-and-trade system to reduce greenhouse gas emissions from the transportation sector, New York University’s policy think tank said yesterday. In a report, the Institute for Policy Integrity said that a cap-and-trade system would represent the lowest-possible cost for emissions reductions and guarantee continued reductions. EPA could put such a system in place for the transportation sector without Congress’ help, the NYU analysis found. “EPA must look to new regulatory tools to drive further cuts in transportation emissions,” NYU legal experts Jack Lienke and Jason Schwartz wrote in the analysis.

The seven scientists behind the article, due to be published 10 April, conclude that the reports by the UN climate panel serve an important function in setting the agenda for climate research. Yet the most important role of the Intergovernmental Panel on Climate Change (IPCC) is to inform the global political discussion on how the harm caused by climate change should be handled.

Amid a major lobbying effort in Washington surrounding the social cost of carbon, has the Obama administration been transparent enough with its modeling and final cost determination? How likely is a legal challenge to the administration’s current rule? During today’s OnPoint, Michael Livermore, a professor at the University of Virginia School of Law and a senior adviser at the Institute for Policy Integrity, explains why he believes the administration could be underestimating the social cost of carbon.

Costs of carbon emissions are being underestimated, but current estimates are still valuable for setting mitigation policy, say Richard L. Revesz, Peter H. Howard, Kenneth Arrow, Lawrence H. Goulder, Robert E. Kopp, Michael A. Livermore, Michael Oppenheimer, and Thomas Sterner.

On 31 March, the Intergovernmental Panel on Climate Change released its latest report on the impacts of climate change on humans and ecosystems. These are real risks that need to be accounted for in planning for adaptation and mitigation. Pricing the risks with integrated models of physics and economics lets their costs be compared to those of limiting climate change or investing in greater resilience. Last year, an interagency working group for the U.S. government used three leading economic models to estimate that a tonne of carbon dioxide emitted now will cause future harms worth US$37 in today’s dollars. This ‘social cost of carbon’ represents the money saved from avoided damage, owing to policies that reduce emissions of carbon dioxide.

In an article published in the April 10 issue of Nature journal, Nobel laureate economist Kenneth Arrow and Lawrence Goulder, both of Stanford, along with six other law and economics scholars, said the controversial “social cost of carbon” calculations developed by the federal government are too low, not too high, as conservatives argue.