Here’s how the costs and benefits work on paper: Suppose the Department of Energy proposes new regulations for air conditioners at an expected cost of $ 40 million, and economists estimated that the regulations would reduce carbon emissions by 1 million tonnes at a rate of 51 tonnes. That would mean around $ 51 million in benefits, $ 11 million more than the cost, implying that it would lead to long-term savings due to its role in preventing costly climate damage in the future. On the other hand, a lower social cost of carbon, such as that put in place during the Trump era, would result in smaller savings, suggesting that the costs of the proposed regulation would outweigh the benefits.
In recent years, it has become clearer that ignorance of climate change will ultimately have much greater economic impacts in the future. Now, for example, scientists can more easily explain the damage to California agriculture caused by a drought or the public health effects of a heat wave in Chicago, Carleton said. This means that environmental economists have learned to better assess how an increase in energy efficiency would reduce this damage and be a clear benefit.
Climate economics research has advanced in other ways since Biden last came to the White House. For this reason, the Biden administration should go beyond Obama-era assessments, said Myles Allen, a climate scientist at the University of Oxford, and consider the full range of possible climate scenarios. These include taking into account the chances of crossing certain environmental tipping points – like the widespread melting of polar ice caps that would cause sea level to rise much faster – and estimating the potential damage that would result.
Allen collaborated with other experts in 2017 on a report by the National Academies of Science, Engineering and Medicine, which Biden’s executive order cites. The report estimated the social cost at $ 42 per tonne of carbon, in line with a gradual increase in the cost. under Obama. Adjusted for inflation, this translates to $ 51 in 2020 dollars – the same value currently embraced by the Biden administration group. But other researchers have come up with higher numbers: Last month, economists Nicholas Stern and Joseph Stiglitz suggested a value of around $ 100 per tonne by 2030; Carleton and a colleague put it at about $ 125 a tonne of carbon in an article published in January; and Frances moore, an environmental economist at the University of California at Davis, estimated it at $ 220 per tonne in the estimate she and a colleague produced in 2015.
There are many reasons for the wide range of estimates. To understand this, researchers use at least three different models, each of them requiring assumptions such as how trends in economic growth respond to climate change, how trends in oil prices change while it is still widely consumed, and the costs of adaptation to climate change, including reconstruction or displacement of populations from fire and flood prone areas. If, for example, economists predict widespread recessions, high climate adaptation costs, and high emissions, they will calculate a high carbon cost.
“You have to track carbon dioxide through the climate system and its effects around the world – what is this climate damage on everyone in all sectors for centuries to come?” Moore said. “It’s fundamentally a very difficult problem.”
Another ongoing debate focuses on how society estimates future costs and benefits, what economists call the discount rate. “In any economic analysis, there are trade-offs between the money you have now, or the damage you feel now, and the damage you might feel later,” said Kevin Rennert, director of the Initiative. social cost of carbon at Resources for the Future. non-partisan, nonprofit research institute in Washington, DC. “And that also goes for climate change.” A lower rate means more valuing the harm done to future generations today, while a higher rate means allowing them to shoulder more of the burden. Most scientists assume a 2-3% discount rate, while the Trump administration’s policies used a rate as high as 7%.
