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Federal Court Blocks Challenge To Social Cost Of Carbon

Aug 17, 2016
Originally published on August 17, 2016 4:46 pm
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The Obama administration has done something seemingly impossible. It's calculated the cost of all the expected effects of carbon emissions - centuries of hurricanes, droughts, mass extinctions - and come up with a number. And as Jacob Goldstein from our Planet Money podcast reports, that number recently wound up in court.

JACOB GOLDSTEIN, BYLINE: Michael Greenstone is one of the people who came up with that number. He's an economist who worked in the Obama White House, and early on, he says, the administration wanted to regulate carbon dioxide emissions to fight climate change. But there was a problem.

MICHAEL GREENSTONE: We didn't have a way to measure the benefits of those regulations.

GOLDSTEIN: Government agencies are supposed to weigh the costs and benefits of new rules. If a new regulation keeps a million tons of carbon out of the atmosphere, how much money is that worth to society? Economists had been giving deep thought to that number for decades. They call it the social cost of carbon.

GREENSTONE: I think the social cost of carbon is the most important number that you've never heard of.

GOLDSTEIN: It's so important, he says, because it captures so much.

GREENSTONE: It captures the changes in mortality rates that are going to happen. It captures the changes in crop yields. It captures the changes in sea level rise and the damages that'll cost and on and on and on.

GOLDSTEIN: Carbon dioxide stays in the atmosphere for a long time, so the social cost of carbon includes those changes not just for this year or next year.

GREENSTONE: You have to trace out what those damages are going to be up to a couple hundred years.

GOLDSTEIN: To get the number right, you have to guess more than just how much warmer the Earth is going to get. You have to guess which cities get flooded and which cities build seawalls. You have to estimate how each degree of temperature change affects rice production in Indonesia and what'll happen to mosquitoes in Africa and how that will affect the spread of malaria. And you have to project all that out for centuries. It just seems impossible.

GREENSTONE: One reaction to the difficulty of the challenge is, hey, let's not try at all. And I find that the incorrect reaction.

GOLDSTEIN: Because, he says, if you don't come up with a number to use, you are effectively setting the social cost of carbon at zero. And Greenstone says that is clearly not the right number.

GREENSTONE: The damages from climate change are going to be larger than zero.

GOLDSTEIN: So Greenstone got together with people from all these government agencies, and they pulled together all these different models that academic economists had developed to estimate the social cost of carbon.

GREENSTONE: We had estimates. Some of them were big. Some of them were small. And we said the right thing to do here is to take the number that's exactly in the middle. And that number proved to be $36 per ton.

GOLDSTEIN: In other words, emitting 1 ton of carbon dioxide will cause $36 in damages to the planet. For context, the typical American's carbon footprint is 1 ton every three weeks or so.

After Greenstone and his colleagues came up with the number, regulating carbon emissions shifted from being some theoretical debate to being math. And the social cost of carbon started showing up in regulations covering all kinds of things.

GREENSTONE: Power plants, automobiles and trucks, refrigerators, microwave ovens, clothes washers, small motors and on and on and on.

GOLDSTEIN: When the Department of Energy used the number to require more efficient commercial refrigerators, a trade group sued to block the new rules. Stephen Yurek heads that group.

STEPHEN YUREK: You have assumptions upon assumptions upon assumptions to look at the environmental impact, and then they come up with a guess of, well, this will be the economic impact. I think they have too much confidence in the number that is based upon so many assumptions.

GOLDSTEIN: But in a decision issued last week, a federal appeals court disagreed. The court found that the government was justified in using that number - the social cost of carbon - in federal regulation. Jacob Goldstein, NPR News. Transcript provided by NPR, Copyright NPR.