Uncle Sam's estimate of the damage caused by each ton of carbon dioxide is fundamentally flawed and "grossly understates" the potential impacts of climate change, according to an analysis released July 12 by a group of economists.
The study found the true cost of those emissions to be far beyond the $21 per ton derived by the federal government.
The figure, commonly known as the "social cost of carbon," is used by federal agencies when weighing the costs and benefits of emissions-cutting regulations, such as air conditioner efficiency standards and greenhouse gas emissions limits for light trucks.
A truer value, according the Economics for Equity and the Environment Network, an umbrella organization of economists who advocate for environmental protection, could be as high as $900 per ton—equivalent to adding $9 to each gallon of gas. Viewed another way, with the U.S. emitting the equivalent of close to 6 billion tons of carbon dioxide annually, the higher figure suggests that avoiding those emissions could save the nation $5.3 trillion annually, one-third of the nation's economic output.*
A second, separate report released July 12 buttressed the argument, finding that the government routinely underestimates the benefits of avoiding climate change when conducting cost-benefit analysis on regulations aimed at reducing greenhouse gas emissions.
This second report, published jointly by the World Resources
Institute, an environmental think tank, and the Environmental Law
Institute, found that government models on climate impacts often
contain "dramatic simplifications and assumptions"—such as when
calculating the social cost of carbon—that underplay the benefits society gains by curbing emissions.
Together, the two reports suggest policy makers are looking at a distorted picture as they assess the economic impacts of climate regulations.
The issue has gained urgency as efforts to create a cap-and-trade system or impose a carbon tax have stalled in Congress and federal rules—via the U.S. Environmental Protection Agency—become the primary vehicle for reducing emissions.
"Based on what we know today, the government's current range of social costs is very likely a serious underestimation of what we think those costs will be," said Kristen Sheeran, executive director of the E3 Network.
"It does not reflect the urgency of the climate crisis," she added. "It could lead to a degree of inaction on climate change that frankly is not supported by either the economics or the science at this point."
A lower social cost of carbon—particularly when combined with an underestimate of the benefits of reducing emissions—makes justifying expensive emissions-cutting regulations much harder, advocates say.
But how to value the cost of climate change has proven to be a contentious issue.
Computer models attempting to assess the economic impacts of climate change are, in many cases, streamlined affairs that can only look at impacts broadly – at a scale of hundreds of miles, instead of, say, at a particular watershed, township, or even state.
Economists at the E3 Network, an umbrella group of about 200 economists, contend many potentially costly impacts are missed: Sweltering inland temperatures are averaged with cooler coastal weather. Or an intense, deadly rainstorm never shows up in a monthly average rainfall tally.
That leads to considerable uncertainty about the severity of the damages. For example, a global model used in part by the federal government to derive the $21-per-ton price finds that a 4.5 degrees Fahrenheit (2.5 degrees Celsius) temperature rise will cost 1.8 percent of the world GDP. But University of California, Berkeley, economist Michael Hanemann, conducting a detailed review of that estimate as it applies just to the United States, found it should be four times as large.